Wednesday, December 31, 2008

Stock Market Spreadsheets Navigation Guide

Some people are apparently having trouble navigating the site to find the information they are looking for. This is partly because, for some queries, Google does not rank my posts in the most useful sequence. So, my most relevant post may be the second or even third post returned. This post will help you understand what data is in each spreadsheet, and give you a SAMPLE of the posts that reference that data. A complete list of all stock market posts is included in the Stock Market Subject Index in the sidebar on the left.

Dow Data

Key Data contained:
Yearly closing prices from 1901-2009; Earnings from 1929-2009; Normalized earnings.

Posts that reference this spreadsheet:
100 Years of Stock Market History (log graph)
Stock Market Earnings History and a Worst Case Scenario

Stock Market Analysis Model

Key Data contained:
Yearly closing prices from 1897-2009; Earnings from 1929-2009; Normalized earnings; Normalized price/earnings ratio; Dividends from 1929-2009; Dividend yield; Annual total return; Annual return by major component (earnings, dividends, change in price/earnings ratio).

SAMPLE of posts based upon this spreadsheet:
Analyzing and Understanding 100 Years of Stock Market History
The Extraordinary Impact of Price/Earnings Ratios
Major Bull and Bear Markets Since 1900
Dow Price/Earnings Ratio History Since 1900 - A Summary
Worst-Case Scenarios Based on 100 Years of Dow Price/Earnings History
Dow Price/Earnings Ratio History since 19xx - Yearly Graph
Dow at 25-Year Moving Average
Stock Market Average Annual Return since 19xx
Stock Market Yearly Returns since 1929
The Best & Worst 10 Years in Stock Market History
The Best & Worst Stock Market Returns for 1-10 Years, in Dollars
The Best & Worst 20 Years in Stock Market History
The Best & Worst 5 (and 50) Year Returns in Stock Market History
Range of Stock Market Returns for 1-100 Year Holding Periods
Stock Market Rolling Returns vs. Price to Earnings (P/E) Ratio Graphs
Stock Market Normalized Earnings and Returns
Earnings, Dividends Determine Long-Term Returns
Dow Price/Dividend Ratio & Dividend Yield History Graph

Last update 8/28/2010

Saturday, December 20, 2008

Analyzing & Understanding 100 Years of Stock Market History

Note: Many readers find it useful to read 100 Years of Stock Market History (log graph) for the perspective it provides before reading this post.

Understanding the Stock Market

The attention my 100 Years of Stock Market History post has received has made it clear to me that, because of the current volatility in the stock market, there is great interest in trying to get a broader perspective on the stock market. I think people are trying to understand the stock market (I know I am). To really understand the stock market, just looking at a graph of 100 years of Dow Jones history is not sufficient; we need to analyze it; we need to figure out “what makes the stock market tick.”

The objective of my Stock Market Analysis Model is to gain a better understanding of the performance of the Dow Jones and S&P 500 stock market indexes over time. The presumption is that earnings, dividends, and price/earnings ratios are the primary levers that drive performance. The model allows us to approximate the contribution of each of those components for any given period in the past.

Ten Questions the Stock Market Analysis Model Will Help You Answer

Here are some of the many questions this model can help us answer:
1. What was the DJIA’s (Dow Jones Industrial Average) average return between 1929 and 2002 (or for any other period)?
2. How much do dividends matter?
3. How can I tell if the stock market is undervalued (cheap) or overvalued (expensive)? What is the impact of stock market valuation (e.g., price/earnings ratio)?
4. What was the relative contribution of earnings, dividends and price/earnings ratio increase/decrease to the stock market’s performance between 1994 and 1999 (or for any other period)?
5. What is the long-term average performance (annual return) of the stock market?
6. What is the Dow’s earnings history? What's the average long-term earnings growth rate?
7. What were the best/worst 10 or 20 years in stock market history?
8. What is the cheapest the market has ever been? Where would the Dow be now if it were valued that cheaply?
9. Does it matter when I buy? If so, when is a good time to buy, and when is not so good?
10. After a market peak, what is the longest it has taken to regain that level? (I call these long flat periods “periods of disinterest.”)

Al's Stock Market Analysis Model (click to enlarge)

Model breaks out 1990's bull market returns into earnings, dividends, p/e change
Stock Market Analysis Model

Analyzing the Bull Market From 1994 to 1999

The screenshot above (click to enlarge) shows that

Friday, December 19, 2008

My Favorite Personal Finance Books

Every once in a while someone asks me to recommend some good books on personal finance. Here are some of my favorites.

General Personal Finance Books

These books cover the waterfront: budgeting, insurance, buying a house, investing, retirement planning, wills -- you name it.
Making the Most of your Money Now, by Jane Bryant Quinn.  This book covers everything; that's why it's over 1000 pages.  A great reference, best used to investigate specific topics as they become priorities.
Wealth Odyssey, by Larry Frank. A short (about 100 pages), but effective, overview. A good introduction that's especially good for those with limited financal backgrounds.

Basic Books About Investing

The Four Pillars of Investing: "This down-to-earth book lays out in easy-to-understand prose the four essential topics that every investor must master--the relationship of risk and reward, the history of the market, the psychology of the investor and the market, and the folly of taking financial advice from investment salespeople." Barnes & Noble review. That about says it. A really good

Friday, December 12, 2008

What's a Model?


I recently updated my blog description and the “About This Site” post to include the word “models.” What, you may ask, is a model?

From Dictionary.Com:
a simplified representation of a system or phenomenon, as in the sciences or economics, with any hypotheses required to describe the system or explain the phenomenon, often mathematically.

Got it? For example, I think of physics as a model of certain physical phenomena. Some decades ago, I often described a model as something used instead of something else, which replicates the important aspects of that “something else” for your purposes. Point being, that whether “A” is a good model of “B” depends on your objectives. One of my favorite examples was mannequins. For a tailor, a mannequin is a very good model of a young lady. In some ways, mannequins might even be better than the real thing – they don’t get tired, it doesn't hurt when you stick them with a pin, etc. However, as a thirty-something year old man, I found them a totally inadequate substitute for my purposes.

Often, mathematical models allow you to analyze the behavior of whatever you are modeling in ways that would be impractical in real life. For instance, with the proper model, you could model how a plane would behave in a crash and save yourself the expense of actually crashing planes. Closer to home, a budget is a model of your finances. So, you could examine how buying that Porsche you saw the other day would affect your finances without actually spending the money. Better to find out on paper that buying it is a bad idea than having to learn the hard way.

Models are very useful tools for analysis and planning, two things that I enjoy doing, and building them is an exercise in design (which I enjoy as well). Modeling ties three of my passions together.

Anyway, this is just a heads up that I will be posting models from time to time. For a very simple example, see the stock market spreadsheet referenced in one of my earlier posts.

p.s. For those readers who have been wondering why I haven’t posted in over three weeks, it’s because I’ve been hard at work developing a model that I will be posting soon.

Wednesday, November 19, 2008

Three Scenarios for the Economy (and the Stock Market)

Three Stock market scenarios: Business as Usual, Headwinds, Snowball
Which way are the economy and stock market going to go? Up? -- or down. And, how far? Since the future is unknowable, rather than planning for a single future, strategic planners find it useful to develop multiple scenarios. Typically, one develops 3-5 scenarios covering a wide range of possible futures. In this post, I outline (literally) three scenarios that I think are representative of the range of possible outcomes of the current financial/economic crisis. They range from “Business as Usual,” the best-case scenario, to “Snowball,” the worst-case scenario. The “descriptions” help me to visualize a future environment so that I can conceptualize plans suitable for that scenario.

I apologize for the lack of prose, but the outline form may be clearer. Equally importantly, I don’t have time to make it "flowery." Note that these are preliminary descriptions and I may update them periodically.

Business As Usual Scenario

It’s always helpful to have a “status quo” scenario; this is also my best-case scenario. In essence it says this economic “crisis” will turn out to be

Sunday, November 9, 2008

The Crisis: A Contributing Factor

As a result of the current financial crisis, there is a growing consensus that the government “dropped the ball.” (See, for example, Michael Grynbaum’s article in the October 24 New York Times.) In other words, the government itself is one of the causes of the crisis it is now attempting to resolve. In particular, the accusers argue, the government is at fault because it did not provide adequate oversight of our financial system. Generally overlooked are more subtle contributions to the current economic crisis, and to the associated stock market crash – some government “sponsored”, some not.

What do the following developments of the last half-century or so have in common?
1. Mutual funds
2. Modern portfolio theory and index funds
3. Deregulation of the stock brokerage industry
4. No-load mutual funds
5. Tax sheltered accounts (e.g., IRAs)

Each of the above was hailed, at least to some extent, as giving the general public broader access to the potential riches of the stock market. Largely because of these developments, over the last 50 years the public’s participation in the stock market has increased dramatically. Unfortunately, they have also inadvertently combined to engender some profound, and somewhat disturbing, changes

Sunday, November 2, 2008

VOTE (quickly)

My guess is that urging people to vote in this year’s election is “preaching to the choir” -- so, I won’t bother. Voters have turned out in record numbers across the country to vote early. Yet, there is the possibility that there may still be record numbers remaining to vote on Tuesday.

I believe that diversity is a good thing. Too much agreement often leads to sloppy thinking; disagreement leads to better decisions. Partly to encourage this diversity of thought, my completed ballot is often a hodgepodge of democrats, republicans, and an occasional minor party candidate or two. In the past, this has meant that I have often spent an inordinate amount of time in the voting booth. Recently, my hogging the voting booth has not been a problem since there have always been open booths available for the voters behind me.

However, this year, to do my part in speeding things along, I will be filling out a sample ballot beforehand. I have already spent more than 20 minutes completing my sample ballot. That’s 15 minutes less that I will need to spend in the booth. If you are a “booth hog” like me, as a courtesy to those behind you, I urge you to plan ahead and make your decisions before, not while, you’re in the booth – especially if you’re in line ahead of me.

Wednesday, October 29, 2008

Houston Rockets: Is It Time Yet?

Time to get out of the first round? Yes. Time to win the NBA championship again? Maybe.

I can’t wait for the season to start. Last year “we” won 55 games, about what I expected, and would have gone deeper into the playoffs if not for injuries to Yao, Battier and “Skip” (Rafer Alston). This year, the team could win 55-60 games, and has a legitimate shot at the NBA championship – IF it can avoid injuries.

Why is this year’s team better than last year’s? The short answer:
1. The addition of Ron Artest, Brent Barry, and Joey Dorsey
2. The added experience of 2nd year players Luis Scola, Aaron Brooks and Carl Landry

The impact of these changes is pervasive. How will the team be better? Let me count the ways:
1. A deeper team: Last year, there was a significant drop-off when any starting player was injured. This year’s team is better able to withstand injuries. The Rockets 6th through 10th players may be the best “2nd team” in the league.
2. A more flexible team: Partly because of the above, and partly because of the versatility of the players, coach Adelman has many more options for creating favorable match-ups with opposing teams (and avoiding unfavorable match-ups). Almost every player in the regular rotation can play at least two positions; at least one, Artest, can play three positions.
3. A third option: Often, championship teams, last year’s Celtics for example, have three big-time players. Now the Rockets do too. Last year, the team had great difficulty scoring when Yao and T-Mac were off the floor. I don’t expect that to be the case this year.
4. Even better defense: We’re adding a former defensive player of the year, Artest, to a team that was already among the best defensive teams in the league.
5. Better 3-point shooting: This was a deficiency last year. The addition of Barry and Artest, and the maturation of Brooks and Luther Head should help considerably.
6. A more physical, competitive team: While last year’s team had a lot of talent, some people accused the team of being “soft.” No team with Artest and Dorsey is going to be soft. Similarly, Artest brings a new level of competitiveness, and “attitude.”
7. A better mid-range game: In previous years, opposing teams have been able to cheat off the power forwards and double Yao. If Scola and Landry keep shooting as they have been in pre-season, it will open up the middle more for Yao.
8. More play-off experience: Artest and Barry have both gone to NBA championship games with other teams. This should help as the team moves deeper into the playoffs.

Don’t get me wrong. There are still some issues. One concern is the lack of height inside – aside from Yao. Luckily, the forwards “play bigger” than they are. Still, there are potential problems matching up with forwards such as Kevin Garnett and Tim Duncan.

In addition, there are the “wildcards.” Can this year’s team develop the same “chemistry” that it had last year? Will the team ever master coach Adelman’s offense? The fact that Artest has played for Adelman before should help. Another wildcard is Artest himself. He has a history that some fans find worrisome. Let’s hope it remains just that – history. He’s older, and presumably wiser, now -- and it’s a contract year.

The biggest wildcard of all is injuries. T-Mac, Battier and Aaron Brooks may be weeks away from being full strength – and the season hasn’t even started! There’s a chance T-Mac never completely regains his old form, and Yao has missed significant time each of the last three seasons.

So what’s the bottom line? What’s my prediction? There are some really talented teams out there, starting with the Lakers, Celtics and Hornets. There is no way I can predict an NBA championship. I do have one prediction though – it’s going to be fun!

Sunday, October 26, 2008

Stock Market Earnings Growth History and a Worst Case Scenario

In 100 Years of Stock Market History, I observed that rarely does the stock market, as measured by the DJIA (Dow Jones Industrial Average) or S&P 500, fall significantly below its 25-year moving average, even during bear markets (see graph below). That the October 10 close was in that general area was comforting, suggesting that we might be at, or near, the bottom. On the other hand, the graph makes it clear that we might not be; during the Great Depression following the 1929 stock market crash, the market fell significantly below the moving average. (Note: the graph below is as of October 2008; the graph in the 100 Years post is updated approximately monthly.)

Graph of DJIA (Dow Jones Index) since 1900 with 25-year moving average
Dow 25-Year Moving Average
Since the future is, by definition, unknowable, strategic planners like to develop planning scenarios. Typically, one develops 3-5 scenarios covering a wide range of possible futures. This post begins to develop one such scenario

Tuesday, October 21, 2008

The Presidential Campaign

Our leaders used to be the most respected leaders in the world. Now, our candidates routinely appear on late night TV and make fun of themselves. How is that supposed to convince us that they are the most qualified candidates to hold the highest elective offices in our country? Can you imagine FDR or Eisenhower doing anything analogous in their day?

I’ve watched most of the debates during the presidential campaign, as well as the debates during the republican and democratic primaries. Watching reminds me so much of buying tomatoes. The tomatoes are never anywhere near as good as they look – but I keep hoping, and buying, and being disappointed. Still I manage, somehow, to convince myself that the next one is going to be better.

Now we’re to the point where every major televised campaign event must be followed by analysts that tell us how much of what we have just heard is true. These are candidates for the leaders our country, and, maybe, “the free world” – and we can’t believe what they say?

Am I the only one that thinks this is embarrassing? Just wondering.

Sunday, October 12, 2008

100 Years of Stock Market History (log graph)

In times of turmoil, such as a financial crisis, I look for one of those big charts with an arrow that says, “You are here.” It is in that spirit that I offer the following long-term log graph summarizing over 100 years of DJIA (Dow Jones Industrial Average) performance / history. I will defer most of my analysis until later, and for this post rely mainly on what one of my statistics professors used to call “interocular trauma.”

Dow Jones 100-Year Stock Market History Chart

stock market history chart year-end 2012 (Dow Index closing prices since 1900 log graph)
Dow Index 100-Year History Chart

Stock Market Performance Since 1900 Has Alternated Between Excitement and Disinterest

Above is a graph of stock market (Dow Jones) performance since 1900 (click on image to enlarge it). It shows year-end closing prices through 2012. (See Yearly Returns for a bar chart of the returns each year.) While some describe this history as

Saturday, October 11, 2008

Who Is “Performance Systems International” (and why are they out to get me)?

There is something awry in the blogosphere.

On October 3rd, my blog had a visitor that showed on my traffic monitoring software as being from “Performance Systems International.” The fact that it appeared to be a “bot” of some kind was cause for celebration; maybe Yahoo or MSN had finally seen the light and recognized my existence?? Wrong.

Since that visit a little over a week ago:
1. I have had ONE visitor.
2. Google has stopped crawling my site. Prior to the visit from “PSI”, the site was being crawled every other day.
3. My “Disadvantages of Buying a House” post’s search rank in my benchmark search has gone from 116 to more than 1000. I stopped looking after the first 1000. (My benchmark is just a search that I run every week.) There is a reasonable chance the search rank is now infinite because,
4. The number of pages listed in a Google site search of my site has gone from 28 to 4. A cursory review suggests that all pages without links from other sites disappeared. The “Disadvantages” post is not one of the 4.
5. The page rank of my home page has gone from 4 to 0. The page rank of the “Disadvantages” post has gone from 3 to 0.

Theoretically, this could all have nothing to do with the visit from “PSI”. However, if you Google “Performance Systems International” you will find complaints from others who seem to have had very similar experiences to mine.

The Performance Systems International web site’s “contact us” page begins…
Please Note: We are not an Internet Service Provider (ISP). We are not affiliated with the ISP Cogent Communications, formerly known as "Performance Systems International". If you are trying to track down the usage of an IP Address beginning with "38." (, then you need to contact Cogent Communications. For information on how to report abuse to Cogent Communications, please see or to view their WHOIS entry click here.
Apparently, Performance Systems International has received many complaints, and the problem is not with them at all. Rather, the culprit appears to be someone who uses Cogent Communications as his ISP.

I have complained to Blogger and to Cogent, and have posted comments in several discussion groups. If anyone has any information on how to combat these attacks or how to recover from them, please leave a comment.

(Note: I realize that because of the web abuse it’s optimistic to think that anyone will ever see this post. However, just in case….)

My Summer Vacation

I’ve recently returned from my first vacation in several years – a week in Paris. This trip was a present to my niece, H (not her real name…), as a slightly belated reward for her graduation from med school in May. My first clue that this would not be my typical vacation should have been the difference in our choice of travel books. I chose The Eyewitness Guide to Paris; she chose another well-regarded book, The Riches of Paris, subtitled “a shopping and touring guide.”

I knew that shopping was one of her priorities, and that seemed perfectly reasonable. However, as a single man, apparently I had somehow managed to live my entire life without ever really understanding shopping. My uninformed view of the shopping process was: you need shoes, you go to a shoe store, you buy shoes, you go home. I understand now that is not “shopping.” At last count, we had visited 366,259 stores. I spent more time shopping in one week than I had in the previous 10 years combined.

When we weren’t out shopping for clothes, we were… shopping – for food. You can learn lot about a people by how they shop. Parisians’ love for food is reflected in their seemingly endless array of specialty food stores: boulangeries (bakeries), poissonneries (fish), fromageries (cheese), patisseries (pastry), boucheries (meat), chocolateries, and others whose French names I forget, such as fruit stands. (I know we have many of those as well, but not five of each within a five minute walk.)

My most memorable incident occurred while food shopping. Each morning my niece and I would shop for the morning’s supply of bread, cheese and fruit. We stuck to our favorite breads, but bought two or three new, to us anyway, cheeses each day -- and could have continued to do so for at least another month. The fruit that first caught our attention was figs – partly because there were so many, partly because there were so many varieties, and partly because I don’t remember ever seeing a fig in a store before. We tried a couple of different versions of figs right off the bat; they were nothing special. Another curiosity was a melon of some kind that was nearly as ubiquitous as the figs. On Friday, we decided the time had come to try one. When I asked to buy one (full disclosure: there was some pointing involved) the vendor’s response was “Pour aujourd’hui ou demain?” -- “For today or tomorrow?” ARE YOU KIDDING ME? I can think of nothing that is as representative of the difference between French and American attitudes toward food as that fruit vendor’s simple question.

Thursday, October 9, 2008

Sobering Comment

Today was still another terrible day for the stock market – and especially for General Motors. More than once, I heard a commentator say, “GM is fighting for its life.” That statement was especially poignant for me, and I expect for others of my generation who will never forget the old adage “As GM goes, so goes the nation.”


Wednesday, October 1, 2008

Wall Street Bailout, or Main Street Rescue?

I was surprised Monday to hear that the House of Representatives rejected the “bailout” bill. The 777 point decline in the Dow suggests a few other people were surprised as well. On balance, I was in favor of the bill. How could 228 smart representatives disagree? What were these representatives thinking? As best I can tell, their reasons for voting against the bill fell into two broad categories, philosophical and political.

Philosophical Reasons for Voting Against the “Bailout “

The philosophical arguments against the bill seem to be based loosely on the belief that “bailing out Wall Street” somehow goes against the basic tenets of capitalism. Many people believe strongly that poorly run companies should be allowed to fail. Similarly, the “moral hazard” argument argues that those who have made poor decisions should suffer the consequences of those decisions.

Much of the economic theory that we think of as the “basic tenets” of capitalism is based on the concept of

Sunday, September 21, 2008

Surviving Hurricane Ike: Monday

9 a.m. As of last night, they have restored power to 380,000 customers. Approximately 18% of the 2.1 million customers who lost power have been restored in, let’s say, 32 hours – depending on when they actually started. That still extrapolates out to about a week. However, given the impact of cherry picking, the two week estimate I heard somewhere may be more like it (and even after that you’ll still have the stragglers).
Breakfast was cereal and cantaloupe. The cantaloupe was delicious. Still cool from being in the freezer. I ate the whole thing! Have to remember to add cantaloupes to the hurricane prep shopping list.

10 a.m. Time to venture out. There is nothing that I absolutely have to have, but I would like to top-off some of my supplies. My sense is it is safe to travel, and I’m curious. (Note: The lead picture is the view from my balcony a week after the storm. In preparation for the storm, residents removed items from balconies, and the management boarded up the six large windows in the lower right. Other than that, this was my view immediately after the storm.)

I guess I had a somewhat distorted view of this storm. The “damage” that I have been viewing is not at all representative of the devastation that Ike has produced. My apartment location strategy has apparently worked better than I realized.
(Note: I took the pictures that follow in a neighborhood about two miles from my apartment – again a week after the storm. By then the residents had cleaned up much of the debris and, if you look closely, you will see that they have already cut some of the toppled trees into logs. I would not have been able to take pictures immediately after the storm since many of the streets were impassable. I took pictures of only 2 or 3 streets, but they were typical of the whole neighborhood.)

Noon. OMG, I have ice! After my quick neighborhood tour, I went to Kroger’s to pick up a few things. I don’t really need anything for a few days, but I thought I would feel better if I had ice and a few more batteries. Customers’ priorities have apparently changed. My understanding is that before a storm the biggest sellers in the stores are

Friday, September 19, 2008

Surviving Hurricane Ike: Sunday

1 a.m. I was awakened by a fire alarm in another section of the apartment complex. That’s unnerving when there is no water. Luckily, it was a false alarm. It’s almost too hot to go back to sleep. Why is it 82 degrees in here even though I have the windows open? A quick trip to the thermometer on the balcony provides the answer. Oh. It’s 82 out there too.

9 a.m. Time to toss most of the perishables from the refrigerator. It’s too warm in there. The floor of the freezer has a new color scheme – blue. That’s what happens when frozen blueberries melt. So, it’s time to toss the frozen food also. However, the freezer is still cool enough to serve as my new refrigerator – especially for the cheese. The water supply in the bathrooms seems fine. Maybe I imagined the slow leaks. Potable water supply is even better; at this rate it will last for at least a week. Breakfast is the same as yesterday except that I have a plum instead of orange juice.

10:30 a.m. Scanning radio stations, but can’t seem to get any info on the timeline for power restoration. I’m confident I can stay put for at least two more days with no problem. But, what if the power is out for more than a week? I’m

Thursday, September 18, 2008

The Fed Proposes Insurance for Money Market Funds

This is clearly an historic period in global financial market history. Virtually anyone with a substantial portion of his portfolio in equities has taken a hit. One thing that has allowed me to sleep nights is having gone through a few bear markets before. However, almost no one alive has ever experienced markets like these. Perhaps the most important reason I have been able to sleep nights is that about half my portfolio is not in the stock market. I invest the “safe side” of my portfolio primarily in government bonds, and government insured certificates of deposit – and money market funds. Yesterday, I sold the money market funds.

Under normal circumstances, money market funds are safe. They buy short-term debt instruments, including commercial paper (short-term loans to businesses). In the history of these funds, almost no one has lost money by investing in them. However,

Surviving Hurricane Ike: Saturday

8:00 a.m. I’m awake from my nap. It’s still stormy, but not much worse than a typical Houston storm. My battery powered lantern burned out while I was asleep. Now I wish I had completed my battery usage inventory. Turns out the lantern requires four AA batteries, and I only bought eight. I have to save the other four for the radio. It could be a week before I have power again, so the radio is critical. Luckily, I have another lantern that takes D batteries, so I’m in reasonably good shape – especially since I also have a couple of flashlights.
The radio says the storm may not pass until 4 o’clock this afternoon, but the worst should be over in another two hours or so.

Breakfast. The juice in the refrigerator is cool enough for today, but this will be my last day with juice since it won’t keep until tomorrow. The milk, on the other hand,

Surviving Hurricane Ike: Friday

Note: This series of posts is excerpted from my “old school” blog (think diary, journal) during Hurricane Ike. I wanted to post “real time,” however, for various reasons that didn’t work out….

Friday, 9/12
Here we go again. I guess it’s the price Houstonians pay for the pleasure of all those 90+ degree days in May, June, July, August and September? After spending 15 hours to travel 30 miles during my unsuccessful hurricane Rita evacuation attempt a few years back, I have decided to stay in Houston and ride this one out.

Ike is an incredible storm. Technically, it’s only a category 2 storm. However, it’s only one or two miles an hour below category 3 strength. More importantly, it’s HUGE -- over 300 miles in diameter. Since storms typically travel at around 15-20 mph, give or take, that means those directly in Ike’s path will experience tropical storm force winds or higher for 15 - 20 hours!

For the last two days, I’ve been tweaking my hurricane prep plan and checking my supplies. However,

Friday, September 12, 2008

Saving Money on Energy: An Opportunity??

Many families are looking for opportunities to save money on energy, and at the same time help “save the environment.” Because of the dramatic increase in the price of gasoline, much attention has been focused on reducing transportation costs. However, some people spend more to heat and cool their homes than on gasoline. I spend about 50% more. Therefore, reducing those costs is more important to me. In this regard, I am wondering about two things.

Why Am I Cooling The Whole House?

When I’m awake in the middle of another intolerable Houston summer night and the a/c kicks on, I often ask myself, why am I cooling the whole house? There is nobody in the living room, or dining room, or kitchen, or guest bedroom, or my office, or…. At least I hope not. Why am I keeping those rooms so comfortable? I’m old enough to remember when there was no central heating and air conditioning. You heated, or cooled, only the occupied rooms – if you were lucky. That seems like a much more efficient approach. Or, maybe we could have central air, but with more effective ways to selectively heat or cool individual rooms. (Maybe what I really need is an air-conditioned suit!)

Why Is The Air Intake Near The Floor?

Hot air rises. If the air intake is near the floor, you’re sucking in the coldest air in the house. Is that a good idea in the summer? Would it make sense to have switchable returns? In the summer, they would bring in hot air from close to the ceiling; in the winter, they would bring in colder air from near the floor.


Obviously, we need to continue to pursue renewable sources of energy such as wind and solar. However, it would also be helpful if we could find more ways to be more energy efficient regardless of the source. Since heating and air conditioning energy usage is significant for most families, there is an opportunity there. Does anyone know whether these ideas could be implemented cost-effectively, and, if so, how much money could be saved? Any additional ideas?

Related articles:
The Power of Attentive Spending, Scott Burns

Thursday, September 4, 2008

Houston Texans Expected To Win 8.78 Games In 2008

I’m excited about the 2008 NFL football season, and especially about the prospects for “my” Houston Texans. I expect the Texans to be a significantly better team this season. In fact, I "predict" that they will win 8.78 games.

Why the Texans Will Be Significantly Better

Here are three important reasons why I think the Texans will be better.
  1. Better talent: For the 3rd year in a row it appears the Texans have added at least four quality young players via the draft. Rookies that could make a significant contribution before the season is over include Duane Brown (OT), Steve Slaton (RB), Antwaun Molden (CB), and Frank Okam (DT). In addition, the second and third year players should continue to improve – especially second year starters Amobi Okoye (DT), Fred Bennett (CB) and Zac Diles (LB). Equally importantly, there were no significant losses to free agency, and there is only one starter who you might think is past his prime.
  2. Improved coaching: There were two significant additions to the Texans’ coaching staff this off-season – Ray Rhodes, and Alex Gibbs. Rhodes is a great addition to an already solid DB coaching staff. Gibbs is the “guru” of zone blocking. The foundation of Kubiak’s offense is the running game. However, it has been a major disappointment in each of the last two seasons. Last year the team averaged less than 100 yards/game rushing. The team must improve its running game, and no one has a better track record of doing that than Alex Gibbs. His teams have consistently been among the league leaders in rushing.
  3. Fewer injuries: Last year the Texans were among the league “leaders” in injuries. Key players out for a significant number of games included Ahman Green (started only 5 games), Andre Johnson (9), Dunta Robinson (9), and Matt Shaub (11). In addition, Shaub was unable to finish two of the games he started. These are arguably 4 of the 6 most talented/important players on the team. At the end of the year, the team had at least 18 players on injured reserve. It is unlikely that they will lose as many players, and especially as many KEY players, this season.

Why Their Record Won’t Be

Unfortunately, while I think this year’s edition of the Texans will be significantly better than last year’s, there is a very good chance that their record will not be. There are two major reasons for this:

  1. According to ESPN, last year’s opponents won two games more than they lost during the prior regular season (129-127). This year’s opponents won 24 games more than they lost last year (140-116). Eight of the Texans'16 games are against teams that were in the playoffs last year. That’s a very significant step up in the quality of the opponents. In fact, based solely on prior year records, only four AFC teams, and only five teams in the whole league, have more difficult schedules.
  2. The Texans won’t peak until the second half of the season. That’s partly because I think it is going to take a while before the offense really gets comfortable with, and proficient at, the new zone blocking schemes. It’s also partly because Dunta Robinson, their best DB, won’t be back from injury until the second half. In addition, the first and second year players that have the potential to play key roles will be better later in the season than early on. By the end of the season, I expect the Texans will be a playoff caliber team. However, unless they are a playoff caliber team from day one, they could well be 1-4 after the first 5 games (which include road games against the Steelers, Titans and Jaguars, and a home game against the Colts). To get to 10-6 would require that they go 9-2 the rest of the way – possible, but unlikely.

Why 8.78 Wins??

I think of 8.78 wins more of an expectation than a "prediction." When I calculate expected wins, rather than an all or none approach, I use a probabilistic approach. In the table below, for example, 0.20 means I think there is a 20% chance that the Texans will beat Pittsburgh. This means that if the teams played 10 times, the Texans would win twice. As a result, this counts as 0.20, 2 tenths, of a win in the total of 8.78. Ideally, this probability should be based on each opponent’s prior year record adjusted for free agency gains and losses, draft results, trades, etc. However, I only did a “quick and dirty” analysis of each opponent’s changes from last year. So, while this number is very precise, it’s still very subjective. Even so, I believe this is a more effective way of arriving at a prediction than the all or none approach.

Houston Texans Expected Wins
at Pittsburgh0.20
at Tennessee0.30
at Jacksonville0.40
at Minnesota0.40
at Indianapolis0.20
at Cleveland0.40
at Green Bay0.40
at Oakland0.75
TOTAL 8.78

Keys to the Season

Three keys to the Texans’ season will be whether they can develop a more effective running game, get better at winning the turnover battle (they were among the worst in the league last year), and get the defense off the field on third downs.

Improving the running game may be the most critical. For this offense to reach its potential, it needs to average at least 125 yards/game rushing. Alex Gibbs' history proves that he can get the team to that level. However, for the team to get there, either Ahman Green has to remain healthy, or the Texans have to have big-time seasons from the backups (neither of whom has ever started an NFL game), or the Texans have to add another proven RB. Improving the running game is critical because it will improve the team’s time of possession, open up the play action passes, and make the defense more effective by giving them more rest and better field position.

Getting off the field comes down to improving the run defense, thereby creating more third and long situations, and improving the pass rush and DB play in order to become more successful in those situations. Rookies Frank Okam and Antwuan Molden can help here, but how soon?

For what it’s worth, last year this methodology calculated 7.59 expected wins for the Texans, and therefore predicted 8 wins – which is how the year turned out. This year it predicts 9 wins. I would love that number to be higher, but I cannot justify a higher number given the challenges the team is facing. It looks like the Texans may have to wait one more year before making the playoffs. I sure hope I’m wrong.

Sunday, August 31, 2008

A new blogger's log: Post 3

Week of 8/3
Still trying to figure out how to do tables. I spent hours trying to find hints on how to create tables without having to learn HTML. Finally broke down and decided to learn some HTML. Found a great site that has an on-line tutorial. Learning most of what I needed to know about tables took maybe 30 minutes! You can also try writing HTML code and have it validated there.

Table creation is somewhat laborious, so I started developing some techniques to make the process less labor intensive. Then I found a very useful site that generates the appropriate HTML code automatically. Only problem is there are some additional Blogger-specific table formatting issues. I was able to find some hints on how to deal with those, and all seemed acceptable, though not perfect, when I finalized my post. (However, subsequently I discovered even more formatting issues when the posts are distributed via RSS or e-mail. If I ever get my tables to look the way I want them to, I may do a special post on tables.)

The only remaining problem for the post was including a picture. The mechanics of inserting a picture are trivial in Blogger. The biggest problem was finding a suitable picture without violating someone’s copyright. I found a good source of free pictures at Public Domain Pictures.

Week of 8/10
I’ve started a list of ideas for potential posts. I have about 50 items on the list so far, in various categories. However, every time I start a new post, part way through, I find myself drawn back to housing. So, here I go again with another housing post. I just think there is a lot of misinformation about housing out there. I hope I can help.

Besides working on my next post, I am trying to get a better understanding of searching and search optimization. I haven’t really developed a formal strategy for my blog yet. However, already it is clear that because I don’t want to focus on any one area it will be difficult for me to develop a “following.” Therefore, I’m thinking a larger percentage of my traffic must come from searches than is typical for a blog. One very useful book I have found to help me address this issue is Search Engine Optimization (SEO) for Dummies.

I have some Google alerts searching for posts related to housing. This week, for the first time, one of MY posts came up! In addition, again for the first time, a visitor found the site via a search rather than via a direct link. My final milestone this week was my first visitor from outside North America and Western Europe. This is fun.

Week of 8/17
I have created a spreadsheet to track important SEO-related data such as the number of visitors, and my Google “page rank.” I’ve added the Google toolbar so that I can track page rank (Someday, I hope to actually have one). Another very useful piece of data is the number of inbound links to my site. This I am getting from Yahoo Site Explorer. However, virtually every new data source raises new questions. In the case of Yahoo Site Explorer, I am confused by a number of inbound links from sites that appear to be in the Soviet Union. When I go to these sites to find their link to me, I can’t find the link. What’s up with that?

Somehow, I manage to post “The Disadvantages of Buying a House” despite being distracted by SEO stuff.

Week of 8/24
I have yet to get a visitor via a non-Google search. That’s a problem. Google is, of course, my priority since they account for over 50% of all searches. However, I’m concerned about Yahoo and MSN. When I search for my posts using MSN I find nothing – which explains why I get no visitors from there. And, even though Yahoo Site Explorer seems to know about links to my pages, only one of my posts seems to be indexed. One potential issue is whether I should have included the “www” prefix in my initial URL submission. So, I’m resubmitting to both MSN and Yahoo to make sure they have the URL with and without “www.”

Friday, August 22, 2008

The Risks & Disadvantages of Buying a House

According to, "Nearly 12 percent of all Americans with a mortgage - a record 5.4 million homeowners - were at least one month late or in foreclosure at the end of last year."

According to, "21.8% of all U.S. homes, representing more than 20 million residences, were in a "negative equity" or "underwater" position ... in the year ended March 31 (2009)."

Risks and Disadvantages of Owning a Home

The many advantages to owning a home have been well publicized. However, the above satistics make it clear that owning a home is not without risk. To form a complete picture, you, the prospective buyer, need to consider the potential risks and disadvantages of home ownership as well. Understanding these disadvantages beforehand will give you a better chance of minimizing their impact and avoiding the fate suffered by these homeowners.

Less Flexibility

A mortgage is a long-term legal and financial obligation. More than likely yours will be for 30 years. Suppose two years from now: You have a great job opportunity, but in order to accept it you need to sell your house and move; or, you want to get married, or unmarried, and your new home is no longer appropriate; or, your financial situation has changed (e.g., what if you lose our job?) and you would like to reduce your home-related expenses. Because a mortgage is a long-term obligation, picking up and moving on short notice, for whatever reason, will be significantly more difficult. In fact,

Saturday, August 9, 2008

The Risks & Disadvantages of Low Down Payment Mortgages

Low down payment home mortgages expose buyers to more risk than many realize; high leverage substantially increases the risk of bankruptcy. This post explains leverage, and the impact that leverage has on 3-5% down payment mortgages. As a result, potential homebuyers with limited understanding of home mortgages will be more aware of the risks.

As in an earlier post, we are looking at a homebuyer purchasing a $100,000 home. He purchases the home with a 3% ($3,000) down payment, and takes a $97,000 mortgage. For this post, in order to simplify the analysis, let’s assume that it is an interest-only loan. Please note that we are assuming an interest-only mortgage only to eliminate the impact of the principal payments included in normal monthly mortgage payments. In the real world, an interest-only mortgage would generally not be advisable in this situation.

The Risk of 3% - 5% Down Payment Mortgages Can Be High Even in a Rising Market

A 5% Increase in Home Value
Home ValueBuyer's Equity
In 2 Years$105000$8000
At Closing$100000$3000
Change in $$5000$5000
Change in %5.0%166.7%

First, let’s look again at the impact of

risk in subprime low down payment home mortgages

The current version of this post is The Disadvantage of Low Down Payment Mortgages

Thursday, July 31, 2008

A new blogger's log: Week 2

Sunday, July 27
Just realized that I omitted a major milestone from last week's log -- the receipt of my first comment. While it was rewarding to see my first visitors last week, it was even more rewarding to receive my first comment. Especially since it was a nice one. Another milestone today. I did a Google Blog Search to see if I could find my "subprime" post, and my post was at the top of the list! Pretty cool. (The secret is in picking the right search words/terms.) Blog search will also be useful to check if a topic has already been blogged about before I get too involved.

Monday, July 28
I bought a new book, Blogging for Dummies. Right down my alley. My first impression is that it's a little more advanced than the "Everything" book, and about the level I need at this point.

Began drafting several new posts. Following my friend Tom's advice in his Blogging 101 post, I am trying to make liberal use of links.

The sign-in problem has returned -- but only sporadically. I can work around it by navigating back to the previous screen, so this problem is on the back burner for now.

Tuesday, July 29
Established a Test Platform blog so that I can test without jeopardizing my main blog. I already have some Test Posts that I used, e.g., when experimenting with linking (They're drafts that I never publish). However, in many cases it will be preferable to have a separate blog to test in.

Wednesday, July 30
Wrote new post called "About Me", and then added a text box in the sidebar that links to that post. That gives me more flexibility in the format than is available in the standard "about me" box. Not a perfect solution, but it works.
Also, posted my 2nd real (non-log, non-"about") post.

Thursday, July 31
One of my upcoming posts will require a table. So far, creating a table seems way more complicated than I would have expected. I'll have to do more research.

Friday, August 1
Added an "About This Site" post using same approach as I used for "About Me." I called it a draft as there are still some issues that I need to work through regarding direction. Also, added RSS subscription button to my sidebar.

Saturday, August 2
Initially, I thought the first week was a typical week and that future weeks would be as full of problems and discovery as the first. That's not the case. My assessment now is that I learned a good portion of what I need to know about the blogging process during my first week, and that content issues will play an increasingly larger role from this point forward. Given that, while I will keep logging significant learnings and milestones, this will be my final weekly post of the log. From this point forward, I will make posts to this series on a more flexible, "as needed" schedule.

Wednesday, July 30, 2008

It's a business!

It’s that time of year again. Someday soon, a football player traded or dropped from his team’s roster, will explain -- “It’s a business.” I don’t mean to pick on football players, or even athletes in general. I hear this from people in all walks of life. What strikes me is the hostility, the bitterness that they apparently associate with the word “business.”

Sunday, July 27, 2008

A new blogger's log: Week 1

Sunday, July 20
Bought The Everything Blogging Book. It's pretty basic. However, one advantage is that it is so far from being intimidating that I was encouraged to dive right in. Right away, it was clear that the easiest way to get started was to sign in at Google Blogger. A few minutes later, my template was up and running.

Tuesday, July 22
My first post! However, I'm concerned that the analytical & research oriented posts that I'm likely to focus on will likely take way more time than I bargained for.

Wednesday, July 23
Added a category list and links to my favorite blogs to my sidebar. Blogger help told me all I needed to know.
Submitted my blog/URL to Google, Yahoo and IceRocket.
E-mailed an old friend who is an experienced blogger asking for a few pointers.

Found a great site that has lots of Blogger tips. His input was very helpful in choosing a package to monitor traffic. I chose StatCounter. Unfortunately, the results are pretty discouraging when there is no traffic to count.

Thursday, July 24
My friend overachieved. He has started a series of posts for beginning bloggers on his site. His first post in the series is The Importance of Links. He was nice enough to give me a referral in his post. So, ... now there are actually Stats to be Counted! The reader statistics from StatCounter are impressive. They tell me everything I want to know at this point -- and then some.

Friday, July 25
Soon after installing StatCounter, maybe by coincidence, I started having problems signing in to Blogger. Blogger help suggested deleting cookies and enabling JavaScript. Didn't help. However, going into my Norton Utility software and making Blogger a trusted site seems to have solved the problem.

The only other problem so far is that my "about me" is a jumble and I haven't yet figured out how to format it. Too bad Blogger doesn't handle "about me" the same way it handles posts....

Note: This week's log was written after the fact. Next week I will log daily, but post only at the end of the week. The results should be more useful.

Tuesday, July 22, 2008

Subprime Mess: The Problem With Low Down Payments

For the past year or more, we have experienced nearly unprecedented turmoil in the housing markets. Blame has been assigned to everyone from the buyers to the lenders to Wall Street and beyond. We are now in the process of taking corrective action. New laws and policies are being proposed seemingly every week with the goal of helping to resolve the current situation and avoiding a repeat occurrence. However, I am concerned that not enough attention is being paid to the role that down payments play in this whole process.

In the old days, the standard down payment on a home was 20%. Somewhere along the way this requirement has been reduced, in some cases to 5% or even lower. Granted, the down payment requirements are now on the increase. However, as best I can tell from the FHA web site, one can still get a mortgage with as little as 3% down.

Presumably, the objective of the lower down payment requirement is to facilitate home ownership – especially among those who may not be able to meet conventional loan requirements. But, is 3% down really a good idea for someone

Sunday, June 1, 2008

About Me

Primary technical areas of expertise include:
Systems analysis and design, quantitative analysis, information technology, strategic planning, and project management.

Special areas of interest include:
Finance/investing, sports, music and dance.

BA, Business Administration.

University of Chicago Graduate School of Business.
MBA, Quantitative Analysis and Information Systems.

New York University Graduate School of Engineering:
PhD program (3 years, part-time) Quantitative Analysis.

Professional Experience:
Over 20 years of management experience at Fortune 50 companies, including one of the 30 companies in the Dow Jones Industrial Average (DJIA). Positions included --
Manager, Information Systems for a division, reporting directly to the chief financial officer.
Manager, Financial, Sales and Marketing Systems for the sector/group that generated approximately half of this DJIA company's business.

Contact info:

June, 2012

About This Blog

This site will focus on things about which I am passionate: analysis & design, planning, building models/spreadsheets, financial management, technology, and football. Other passions (music, basketball, dance, ...) may be less evident -- not necessarily because I'm less passionate about them, but because it's less clear what I would ever write about them.

The reality is, almost anything is a potential topic. The unifying element is the strategic-systems-quantitative-modeling approach, not the subject matter itself. I will virtually always try to provide strategic, high-level, long-range perspective. Generally, I will also try to include graphics to illustrate key concepts in an intuitive, non-technical way. Finally, I'll often provide the supporting spreadsheet for readers who would like to explore and understand the concepts in more detail.

I do this:
  • Because it's fun.
  • To further my own understanding.
  • To share my investigations, analysis and insights with others (partly with the hope that it will encourage them to do their own analysis).
  • To help promote better understanding of, and appreciation of, personal finance concepts, strategic planning, quantitative analysis and "the systems approach."
Preparing one of my posts takes a significant amount of research and analysis. As a result, the schedule is unpredictable -- though typically I will post two to four times each month. To automatically get new posts or notification of same, subscribe to one of the feeds or follow me on Twitter (see the sidebar).
Thanks for stopping by.

December, 2012

Dedication: For my "favorite" (and only) niece.
In so many ways, this site is for you. May you someday actually have time to read it -- at least the good parts!