Only slightly bent

I’ve long had the opinion that the financial markets are far from rational, and that the media, companies & market participants themselves dealing with them as rational – and, worse, rationalizing every strange market movement – is nothing short of insane. I haven’t had much fact-based research to back this opinion up, however, which is why I was interested in reading Justin Fox’s The Myth of the Rational Market: A history of risk, reward, and delusion on Wall Street.

The title tells quite succinctly what the book is about – it chronicles the creation and dismantling of the rational market theory from the very beginning. While reading up on the history of financial theories and how they were created was interesting and certainly useful per se it, to me personally, made for somewhat boring reading for the first 150 pages or so. Despite not exactly being a gripping page-turner, the first half of the book does provide a fascinating quick history of capitalism, the evolving view on profit & risk and, among other things, how the now-ubiquitous “shareholder value” came to mean anything.

One interesting aspect that I hadn’t fully digested earlier was that despite the view otherwise, one cannot really get paid for taking a risk, because risk is a measurable quantity that could be insured against; profit came when you proceed in the face of uncertainty. It may sound like a trivial difference, but the implications run deep.

During the course of reading the book, a few things become abundantly clear and with plenty of evidence to back the claims up. First, the markets are not rational or efficient. While this shouldn’t really come as a shock to anyone, for some reason the vast majority of (surprise!) finance professionals still act as if it is. The problem with utilizing this knowledge? No one person is rational either, so good luck in trying to beat the market. Second, the remarkably – for the lack of a better word – strange world of analysts, with all the expectations to beat the estimates and the resulting whisper estimates, “The Number” etc is revealed. Third, practically no actively investing funds does any better than the market on average – a find which any analyst, who supposedly trust mathematics, should find somewhat disturbing; already back in the 60s:

The scholarly consensus that nobody on Wall Street knew what he was doing began to harden. “Many academics have concluded that the value of investment advice is virtually zero,” Burton Malkiel and a Princeton colleague wrote in 1968.

Probably the most interesting part of the book is the anatomy of several market crashes and how they came to be. What’s most amazing are the rationalizations that some offer to explain the quirks and crashes away in order to keep holding on to the fatally wounded theories; this is from a chapter dealing with the 1987 crash:

“The appropriate response to the October performance of the market is applause“, Gene Fama declared. Fama’s reasoning was that an inefficient market would have been one in which the price decline occurred slowly. The rapid adjustment (a.k.a. crash) was evidence of how quickly the market processed new information. Left unanswered was what exactly that new information was. If your belief in efficient markets was strong enough, you didn’t need to know. The omniscient market had been able to sense something that, even after the fact, individual scholars and investors were unable to pin down.

At the end, some sobering conclusions are drawn. While fixing the market is probably too big a task to accomplish in short order, there is something companies can do, and something society needs to ponder:

It means that managers of a publicly traded company should insulate themselves and their employees from day-to-day or even month-to-month stock price fluctuations.
[..]
The biggest and hardest questions have to do with what sort of role we as a society give financial markets. For the past three decades the answer, backed by the theories of the rational market, has been to give markets an ever larger role – shoving aside other institutions such as governments and corporations. Now, though, we seem to have arrived at a turning point. It’s not just that the rational market theories have fallen apart. Financial markets have fallen apart, too.

All in all a very useful and interesting book that provides a lot of history and background to the nature of the market and how it works. Like I said, I found the first part somewhat boring reading, but overall the book was excellent. I would’ve hoped for some more coverage on the GFC, but then again the GFC as a tool against the rational market theory is a bit like shooting fish in a barrel so that might’ve been too easy.. The Myth of the Rational Market also gives a good background to many familiar names and as such provides much better context for understanding where Greenspan, Samuelson, Summers, Buffett, Minsky, Keynes, et al come from and what they’re all about.

Oh, and did I get the proof I was looking for that markets indeed are not rational? Yes. But, notably, I also learned that they’re not completely insane either and there actually can be some useful information embedded in the market figures.

The Brain Rules by John Medina has long been on my reading list and I finally got around to it. The book is constructed around 12 “brain rules”, each of which covers some aspects of the brain we know for sure. The we know for sure-part is important, because there is no shortage of books that speculate on what the brain does and how it does it, whereas all the “rules” in this book are backed up by numerous scientific studies. Perhaps surprisingly we don’t know much about the brain, but even more surprising is that what we do know is not being taken seriously.

For example, there are many aspects of how the brain works that are in direct conflict with how we try to use it – there is very compelling evidence that if we made the ideal learning or working environment, they would be pretty closely exactly the opposite of how schools and work environments look today. In the name of cost-effectiveness, we are implementing strategies that are directly opposing to proven methods of actually improving learning and working. I find that appalling.

One rule is about attention. The lack of true multitasking capabilities has been recently brought up in other fora like New York Times as well. The simple truth is that the human brain cannot multitask – we are biologically incapable of processing multiple attention-rich inputs simultaneously. We must jump from one task to another and the task-switching takes a remarkably long time. Speaking of the task switching process, Medina explains:

Incredibly, these four steps must occur in sequence every time Eric switches from one task to another. It is time-consuming. And it is sequential. That’s why we can’t multitask. That’s why people find themselves losing track of previous progress and needing to “start over”, perhaps muttering things like “Now where was I?” each time they switch tasks. The best you can say is that people who appear to be good at multitasking actually have good working memories, capable of paying attention to several inputs one at a time. Here’s why this matters: studies show that a person who is interrupted takes 50 percent longer to accomplish a task. Not only that, he or she makes up to 50 percent more errors.

Yet, the modern office is purpose-built to promote interruptions.

The attention-chapter also covers other truths, such as the attention span that we have – including many examples on how to overcome the fact that our attention span comes in 10-minute segments in, say, a presentation.

Other chapters explain, among other things, the importance of physical exercise and sleep, the importance of repetition to recalling and impacts of stress on how the brain works. In the chapter on sleep, we also return to the now-famous study that showed a simple nap can improve the performance of people by 34%. Yet, how many companies encourage or even condone their staff sleeping for half an hour during the day? Not many. Yet, if you sleep for 25 minutes and if it results in even a 25% performance improvement over the rest of the working day, the time “lost” will be more than recovered through improved performance.

And then there are the lessons on learning – and how learning in a unisensory environment is vastly inferior to a multisensory one (thanks to what is called the supra-additive integration – ironically, just reading the book is a unisensory experience so expect to forget a lot about it unless you take notes etc);

The groups in multisensory environments always do better than groups in the unisensory environments. They have more accurate recall. Their recall has better resolution and lasts longer, evident even 20 years later. Problem-solving improves. In one study, the group given multisensory presentations generated more than 50 percent more creative solutions on a problem-solving test than students who saw unisensory presentations. In another study, the improvement was more than 75 percent!
[..]
All explanations about multisensory learning also deal with a counter-intuitive property lurking at its mechanistic core: extra information given at the moment of learning makes learning better. [..] Stated formally: it is the extra cognitive processing of information that helps the learner to integrate the new material with prior information.

The Brain Rules also touches on the topic of reality – in that none of us really perceive reality but the reality we see is just our opinion of it, and that we are all hallucinating all the time; in short, the trust we place on our eyes to serve us a faithful, up-to-the-minute, 100% accurate representation of what’s actually going on is sorely misplaced.

The Brain Rules is certainly an interesting and even fun read. In addition to fascinating explanations on many interesting aspects of the brain, it provides many bits of practical and useful advice how you as an individual can make sure your brain works as well as it can. Like already mentioned, it also highlights major deficiencies in the way things are done in societies today that are just plain wrong in light of science – tackling these issues will take a bit longer than making sure you have enough sleep and exercise, but need to be resolved at some point anyway. The pinnacle of idiocy perpetrated by corporations globally is the destruction of productivity and performance in the name of increasing productivity and performance – and the refusal of school systems to change or even explore new strategies is also nothing short of stupid. Meanwhile, I’m sure you can glean a few interesting and useful bits of information by looking at The Brain Rules and implementing what you can.

The world of high tech is filled with tales of spectacular failure and sheer stupidity; it is some of these tales that In Search of Stupidity – Over 20 years of high-tech marketing disasters (2nd edition) by Merrill (Rick) Chapman chronicles. While hindsight is always 20:20, Chapman argues convincingly that most if not all of the disasters could have been avoided, given just a modicum of common sense and situational awareness at the time. Better decision making might not have been enough to completely turn the fortunes but most of the idiocy could have been avoided. Having said that, In Search of Stupidity makes for very entertaining reading precisely because many companies did act so idiotically.

The book covers a period of some 25 years from 1980s to the middle of the first decade of the 21st century. That means lots of fascinating things made it in but lots were also missed, such as Apple’s new-found success in the mobile business. The title is however somewhat misleading; it’s not just marketing disasters that caused all the disasters – in most cases it took the co-operative idiocy of the entire company to drive them to the ground as successfully as many did. It’s also not just about failed companies, but also a pointed criticism at the many assumptions and beliefs that corporate world still holds dear. At the very beginning the well-known book In Search of Excellence is, once again, convincingly debunked. For those unfamiliar with the book, In Search of Stupidity provides the best summary I have seen so far:

The basic thesis of In Search of Excellence isn’t complex and can be summed up succinctly: Excellent companies create corporate cultures in which success flourishes. (Yes, this is something of a tautology, but it’s a nice one and people always like reading it.) An excellent corporate culture is one that loves customers, loves its employees, loves the company’s products, and loves loving the company. Once enough love is flowing through the corporate veins, a company will organically become excellent and in turn create excellent products and services. This will lead to more customer, employee, product, and corporate love, lifting all concerned to an even greater heights of selling and purchasing ecstasy. The cycle becomes self-sustaining, and a universe of almost sybaritic business success awaits those who master the Zen of Excellence.

If that sounds kooky, that’s because it is. Many companies identified in Search of Excellence were not excellent. Like Lanier. In Search of Stupidity explains what Lanier really was, pointing out that:

In Search of Excellence thought Lanier was really excellent, a company that “lives, sleeps, eats, and breaths customers.” [...] The only problem with all of this was that Lanier wasn’t an excellent company; it was a dead company, a shot-through-the-head dinosaur whose sluggish nervous system hadn’t yet gotten round to telling the rest of its body to lie down and die.

.. and of course explaining why Lanier was dead and how it came to be. Well-known companies are given great coverage in the book; Apple, IBM, Digital Research, Microsoft, Ashton-Tate, Siebel, Intel (remember the bunnies? And the Pentium debacle?), Motorola, Google, Palm, Sun Microsystems, Value America, MicroPro, Novell, Borland, Netscape etc etc. If you’ve been involved in the high-tech industry any amount of time, it’s an excellent trip down the memory lane. And if some of these don’t sound well-known to you, well, maybe you should read the book.

But while dissecting the failures (and a few successes) of various companies in a very insightful, yet funny, way is the core of the book, there are plenty of other lessons to take away from it. Memorable lessons in product positioning, marketing, innovation, branding, handling journalists and PR, and many other facets are offered. Without going into those in any great detail, below are a few of my favorite parts of the book:

On the theories of bubbles – as applicable to the bubbles of today as the tech bubble of 2000:

Many reasons for the dot-com boom have been offered, but all are somewhat unsatisfactory. The most common explanations postulate the following:
[...]
* Wall Street is full of idiots. This theory is both popular and has a lot going for it.
* The people who bought stock from the idiots on Wall Street were also idiots. What?! Are you implying that the American people’s failure to, when confronted with IPOs that reeked of red ink and gobbled on about idiotic schemes to sell 30-pound bags of pet food directly to consumers at a guaranteed loss (Pets.com), not fall laughing hysterically to the floor before kicking these IPO turkeys out the door somehow makes them responsible for their own losses? This sort of speculation isn’t even worth a reply!

On the failure of Value America; this is something Google also recently failed at with the Nexus One:

The company also didn’t understand that when you sell something to a customer, you “own” that customer and all the customer’s associated problems, including the problem of customer dissatisfaction with a purchase.

On how Windows achieved it’s market position and on the difficulty of formulating and executing a “winning” strategy and actually, how corporate success is largely a matter of chance:

But for Windows to achieve its current monopoly position, the following events had to occur:
* Xerox, the original inventor of what we now call the graphic user interface, had to never develop a clue about how to commercialize most of the groundbreaking developments that came out of its PARC labs.
* Digital Research had to blow off IBM when it came calling for an operating system for the original IBM PC.
* IBM, which during the early years of its relationship with Microsoft could have crushed the company like a bug, had to behave as if prefrontally lobotomized from 1985 to 1995 as the gruesome OS/2 saga ground on.
* Apple had to decide to not license the Macintosh operating system, a decision that led to the company from approximately 30 percent market share in the early 1980s to 4 percent market share by 2006.
[...]
Now, how does one fashion a credible strategic plan that assumes your competition will agree to collectively shoot itself in the forebrain while unpredictable market forces break in such a way as to help ensure your eventual success?

The answer is that you can’t.

And as a final quote, several suggestions to the music industry are offered in order to improve their business, like stop suing people. Sensible, yes, but I still like this last recommendation the best

A final suggestion is that decreased drug use by industry executives might lead to clearer thinking.

Now, the book certainly has some shortcomings, but dealing mostly with established, well-known history they are nothing major. Ironically, history in the form of events that took place after the book was written (in the past 4-5 years), has made some comments invalid. For example, Amazon is poked a lot of fun at while the company is quite successful these days. Also, not everyone will like Chapman’s humorous style of writing, but if you were able to stomach the above quotes, you’ll be fine. Finally, the author’s prediction of it taking 6-10 years before e-books begin to disrupt the print business proved, surprisingly in the tech world, to underestimate the pace of development.

All in all however, In Search of Stupidity is a highly entertaining, educating and recommended reading if you work in the high-tech industry. And if you don’t, you might have a good laugh at us – and perhaps lull yourself to a false sense of security that spectacular failures are only limited to the high-tech industry…

On a semi-work-related task, I’ve played around with Google’s Nexus One “superphone” for a while to get a feeling what the Google guys are delivering. As is the tradition with my light-reviews, some positives and negatives I discovered include the following:

The Good

• It’s a well-constructed a good-looking device. Build quality seems to be good and the back cover material is nice “soft” plastic.
• The screen is gorgeous and the home screen UI is nicely customizable with widgets and the cute but gimmicky Live (animated and interactive) wallpapers.
• Google services are, unsurprisingly, very well integrated to the phone experience. Another plus is the existence of Google applications like Google Goggles that are not yet available on other platforms.
• While the Google Market is not exactly up to par with Apple’s App Store in either quality or breadth of content, there are plenty of nice applications available.
• One of the most important built-in “productivity” apps, the calendar, works well. It’s much better than, for example, the iPhone’s.
• Something I wasn’t quite sure of at first was the presence of a trackball below the touch screen; it feels like strange import from Blackberries, where I don’t particularly like it. Now, the trackball isn’t strictly needed for anything really, but it turns out it is useful in some situations for an alternative selection/scrolling device – and it allows for better one-handed usage of the phone than what would otherwise be possible. I still say it’s a bit of an oddball feature, but I’m veering towards it being a neutral or even a good rather than a bad thing.

The Bad

• The scrolling is a jerky all around; in home screen, in the browser, maps, everywhere. Considering the amount of CPU power at its disposal, I found this rather surprising. The iPhone 3GS scrolls much smoother, despite being significantly behind in available processing power.
• The UI is sometimes frustratingly unresponsive. The soft buttons at the bottom of the screen are probably the worst part; they often have to be pressed twice or more or more heavily for the push to register. This is highly annoying and significantly degrades the user experience.
• When the phone is locked, the only way to light up the screen is to press the power button. Pressing the trackball doesn’t do anything.
• While the home screen is customizable, the idle screen unfortunately is not. Nor does it show the next calendar entries.
• The camera, while better than the iPhone’s, is of rather poor quality. It still continues to puzzle me how my 3-year-old N82 can beat most or all of the top-end smartphones in terms of camera performance.. Do people really not use the cameras or why are such crappy cameras deemed good enough?

Overall? Good work from HTC and Google. Solid first entry into the market. On its own it is not a “killer” device, but give Android, Google and HTC a year or two to polish everything – which I hope they’ll do, rather than just pile on features – and we should be looking at some seriously good devices.

After being a 100% Nokia-user for almost 15 years, I bought myself an Apple iPhone 3GS some months back – primarily because the Nokia N97 is weighed down by the legacy of Symbian and the Nokia N900 doesn’t have 3G support at 850MHz, the best 3G network around here. I was initially hesitant on making the switch, but quickly realized I should’ve switched earlier. The iPhone simply offers a good user experience. After some months of usage, here are some observations:

The good

• The browsing experience; it’s simply great.
• UI responsiveness is in a class of its own; scrolling is ultra-smooth throughout (smoother than on many Snapdragon-powered newer phones) and things just feel responsive.
• The touch screen, as far as capacitive touch screens go, is very sensitive, accurate and responsive. Even typing works surprisingly well on the virtual keyboard. The screen resolution is a bit on the low side for a modern high-end smartphone, but is sufficient for most uses.
• The availability of a huge selection of applications and the convenience of the App Store; as I have noted earlier, while the App Store interface is not very good, the existence of a single repository for all apps and simple, quick purchase & installation process makes for a good user experience. And there are some excellent apps – so good that they could play a role in the device selection. I will highlight a few in a later post.
• The seamless switching to WLAN access whenever one is available works very well and makes for a good user experience, especially in locations with “known” access points like at home or at work.

The bad

• The camera. While it takes decent video, the photo-quality and user experience is downright terrible. My three-year old N82 easily trumps the iPhone in photo quality.
• Non-customizable idle screen; I want widgets or at least some level of customization for the idle screen. With the iPhone, all you can change is the background picture. The idle screen doesn’t even have upcoming calendar events for crying out loud.
• Some UI idiosyncrasies and limitations; for example there is no splitting of the SMS conversations; I would like to be able to cut off a conversation and start a new one with the same person instead of having all the messages to one person in a single list that eventually grows too big anyway. And there’s not even a good way of archiving the messages to a “saved” folder or anything.
• No Flash support. It’s sometimes annoying as many websites use Flash, but most of the time it’s not a huge deal – YouTube being supported by its own application helps.
• E-mail interface could be better. It’s good as it is, but has some annoying little things: for example, switching among multiple accounts takes too many clicks and GMail conversations show up as individual e-mails.
• The calendar UI is actually quite bad. Adding an entry is far too complicated and it’s missing a week-view!
• No multitasking. I used to consider this a deal-breaker, but I’ve learned to live with the lack of multitasking quite well. A working notifications infra helps a lot.

All in all – and despite the lengthy negatives list above – I am more than happy with it. The iPhone has certainly increased my time spent using a mobile device – it’s a device that’s a pleasure to use. It most certainly suffers from some deficiencies, as noted above, but the positives outweigh the negatives.

Depending on what Apple comes up with later this year, however, my next phone in 18 months’ time might or might not be an iPhone; I have lately been quite impressed by the newer Android devices like Google’s Nexus One. Give it another year or two to mature and we’ll have an interesting competition on our hands. And the Intel/Nokia MeeGo might end up surprising in a couple of years time as well. But today? The iPhone still wins in the user experience sophistication and simplicity – i.e. the stuff that matters the most to most people.

It’s been a while since I last played with a completely new phone platform, so I was semi-looking forward to getting a Blackberry Bold (9000) as my new work phone. As before, as the device has been reviewed by a zillion other sites already, I’ll focus on providing some personal experiences based on a couple of weeks of usage:

• The feel of the phone is very good; it’s quite heavy, but feels very solid and the build quality is top notch.
• The screen is gorgeous. I really like it. It could use a portrait feature or could generally be longer in the y-dimension, but it’s very nice.
• The browser is, unfortunately, not very good. So I tried the Opera Mini browser, but it turned out that sucked even more. So I’m back to the Blackberry browser which seems to display most mobile-optimized sites decently. The usability is just not very good.
• Strangely, getting email to work was a very painful experience. Not only that, but I think the email experience overall isn’t very good. There are several problems with it:
  * All emails from multiple sources end up going to the same inbox; I can have my GMail mails in their own place, but they also end up showing with my work mail scattered therein. That’s really confusing. Additionally, the GMail client just plain and simple refuses to work.
  * When you delete or move a mail on your mail account, it doesn’t get deleted or moved on the phone. Hence mail just piles up on the phone.
  * When you delete a GMail mail on the phone, it gets deleted (i.e. not archived) on the GMail account; there is no “archive” option
  * There is no “Mark all as read”-option.
• I could get used to a full keyboard on the phone. Once you learn to type on the tiny keys, it’s very convenient. Makes me think the next phone I buy for myself needs to have a keyboard.
• I’m not particularly impressed by the battery life; for some reason I thought Blackberry would be a little bit better in terms of battery life than other smartphones, but no. You need to recharge every day and what’s worse, charging the battery is darn slow.
• The user interface looks pretty enough – though thoroughly unoriginal – on the first level. But click on almost anything and you get a hideous MS DOS-like text-only interface that should really be taken out and shot. Settings etc are far from intuitive or usable and there are too many of them.
• There are several other usability issues also; for example the idle screen shows the number of missed emails and any overdue calendar notices in a small icon on top of the screen. However, one cannot click on these to get to the emails or calendar – instead you have to go through the normal menu structure or deal with the pop-ups.

All in all I suppose it’s a decent phone for business use, but I would certainly not buy one myself.