Daily Utility

Work - that four letter word that causes us to spend 8-5 Monday through Friday away from our loved ones and dealing with people that frustrate us. Hopefully you enjoy your job, but no matter what you do, there are plenty of frustrating days.

While there is a distinct difference between a job and a career, I will just use "job" to mean both for the purposes of this post.

When we start a job, we have a couple of sources of utility in mind 1) disposable income and 2) fulfillment. We recognize the utility from the first factor each time we receive a cash dispersal (aka a pay check). The second factor, fulfillment, is the tricky one because it is really a long-term play. Like any other long-term goal, you need to set shorter-term intermediate goals to celebrate in order to realize some utility and keep your momentum. As such, I think it is extremely important to stop and smell the proverbial roses when you complete something that pushes you to grow, when you accomplish a personal goal, when you get promoted or recognized, etcetera. Those moments when you can recognize utility gains because you feel fulfilled are wonderful things, but sadly they too are somewhat far between.

This means that on a daily basis, you may not receive much utility from your job, so what are you to do? The majority of your day is consumed with work and you can't recognize very much utility, so you need to pay attention to the margins of your day - that time before and after work - for other sources of utility. Assuming you have a job that you find intellectually and/or physically challenging, it is important to get some low hanging fruit (a favorite term for consultants) by figuring out how to make necessary tasks more enjoyable.

Some examples of me finding utility in the margins of my day-
1) Listening to NPR while I shower. I get a great primer on what is going on in the world as well as local weather and traffic every morning when I shower.

2) Watching TV while I iron. Obviously I need to pay attention to what I am doing, but having the TV on (particularly on sports or SportsCenter) allows me to keep up with my favorite teams/players while I get ready for work the next day.

3) Listening to music while I fold laundry. The socks won't pair themselves, but at least I can listen to some music that I like while I take care of this tedious chore.

4) Eating with friends as much as possible. Don't get me wrong, I thoroughly enjoy eating... but there is just something to be said for sharing a meal with a friend. So when possible, I shuffle my schedule to accommodate my friend's schedule so we can have lunch or dinner together. Boost the utility by adding a bottle of wine or a nice Scotch :)

I'd love to hear how you find utility in the margins of your day. Maybe your practices will help others find more utility, so please leave them in the comments.

I'm Back!

As you may have noticed, I have been on hiatus... well, I'm back. New blog posts coming soon!

Keep the change

Keep the change... When people say this, it is usually implied that they are giving you a financial benefit, a tip. So Bank of America's "keep the change" program is just that, a financial benefit... right?

Consumers probably like this program because that is exactly what Bank of America is doing, right? With every single transaction you make, they are putting money into an interest bearing account for you. In case you don't know, let me explain how this works. You make a transaction of $2.05. They charge your account $3 and move the extra $0.95 from your checking (where the money from your debit card transactions is deducted) to your savings (where you earn, on a "regular savings" account, 0.10% interest). Now, for the first three months after you enroll in this program, BoA will match that $0.95 100% (in other words, they put in an additional $0.95 for you). After those first three months, they match at 5% ($0.0475). Okay, so they are putting some of their own money into your account, so this is a great program, right?

Consider this: if you overdraw your account, they hit you with a fee that isn't exactly straightforward, but can range from $10 to $40 it seems.

In that light, let us reappraise the situation. Let us say that you only have $5.99 in your account and you make a transaction for $5.01. They will "help you save" by rounding that transaction up to $6 and transfer $0.99 into your account and they will put in another $0.99 or $0.0495 into your account for you. So that means you just gained, at best, $1.98 in your savings account bearing 0.10% annually... good for you. In doing this, you just overdrafted your account which, unfortunately, means that you just got charged $10 (if I understood their policy correctly). So for the cost of, at most, $0.99, Bank of America is earning $10 -- on this simple transaction where you should have still have $0.89 in your account, you lose $10 and Bank of America, by "helping you save," makes $9.01 or $9.9525 in profit!

The lesson here is that banks make a lot more money off of retail transaction (you and me) through fees than service charges. You should always consider the effects of actions others automatically make on your behalf, especially when the other party stands to benefit from these transactions.

Business Jargon

I know that I have been gone for a while, so to make it up to you all, I am offering a bit of knowledge that may be helpful... an explanation of some business jargon. If there is something specific that you would like a definition of, please leave it as a comment...

P/E (Price to Earnings) Ratio: Essentially this metric says "I am willing to pay $x for every dollar of earnings." (P/E is usually calculated using NEXT year's forecasted earnings unless it is a trailing P/E ratio which uses this/last year's actual earnings)

Strategic Myopia: I love this one... There are really two different meanings here- 1) You are too close to the decision/issue to see the big picture (can't see the forest for the trees) or 2) You are focusing exclusively on the short run

LOMLOT: This is a customer group (and therefore usually used in marketing circles) meaning "Lots of Money, Lots of Time." Products like high end sewing machines or pretty much anything marketed directly to stay at home moms and/or housewives is targeting this group.

Synergy: Another favorite... This is often thrown around by consultants and bosses. It means when multiple factors combine to produce something greater than the sum of the parts. Essentially when 1+1>2.

Call Option: A call option is the right to buy a stock at a predetermined price (often called the "strike price") on a given date (if "European"; if "American," the option can be exercised on or before the maturity date).

Put Option: A put option is the right to sell a stock at a predetermined price (often called the "strike price") on a given date (if "European"; if "American," the option can be exercised on or before the maturity date).

Arbitrage: A situation in which you are guaranteed to make money. This is probably easier defined by example- John wants a book and will pay $10 for it. Sarah finds the book somewhere for $5. Sarah buys the book and sells it to John for $10, thereby making $5. Of course if John knew he could buy it for $5 he would have and Sarah would not have this arbitrage opportunity, so she needs to move quick. Similarly, arbitrage opportunities do not exist for long in the financial world.

Outsourcing: Hiring somebody else to do something.

Off-shoring: Outsourcing to someone in a non-geographically proximate location.

Near-sourcing: Outsourcing to someone in a geographically proximate location.

CFIMITYM: This is a great term from the world of entrepreneurship wherein cash flows are of the utmost importance. It stands for "Cash Flow Is More Important Than Your Mother."

Bubble: A situation in which prices are artificially high (usually due to (over?) speculation).

Market Capitalization: This number simply tells you the number of shares a firm has on the markets multiplied by the firm's current share price. This figure is often used in media to value a firm (such as firm XYM is worth $5B).

Nominal: An amount of money that has not been adjusted for inflation.

Real: An amount of money that has been adjusted for inflation.

More Quotes...

Things have been a little crazy around here lately so I haven't been able to think about my previous posting too much... but I will post about that soon.  Here are a couple more quotes for you plus a bit of commentary:

"The whole problem with the world is that fools and fanatics are always so certain of themselves, but wiser people so full of doubts." -- Bertrand Russell

I think this is a wonderful quote.  I also think it is extremely accurate... Most people that are actually smart are, in my opinion, smart enough to know that doubt doesn't make you any less wise.  By acknowledging that you may be wrong, may be in the minority, may not be able to accomplish your stated objective, or whatever else the doubt is, you are signaling that you have had an idea and instead of blindly pursuing the idea, you have reflected upon it, found it worthy of pursuing, and have the courage to be wrong (etcetera).  I think a lot of people do not do things simply for fear of being wrong, but imagine how the world would be different if people didn't mind being wrong...

"It takes a deep commitment to change and an even deeper commitment to grow." -- Ralph Ellison

Again, spectacularly insightful in my opinion.  I think everyone would acknowledge that change is difficult and it requires a lot of effort and determination.  But change isn't growth.  The most obvious example of this, I think, is education.  Changing from one field of study to another is difficult and requires you to spend time thinking about what you are doing and analyzing the benefits associated with it.  But actually to graduate... now that is growth.  You are saying you have decided upon a field of study, have pursued that field for a number of years, and are actually intelligent regarding this field (to an extent).  Please don't take my example out of context and think that I am saying change is easier than growth because growth requires you to not change... What I am saying is that I think change is easier than growth because it requires you to make an effort to do something differently whereas growth, true growth, requires dedication and stick-to-itiveness to analyze how and the extent to which you are changing.  Any other ideas about this quote??

"All things appear and disappear because of the concurrence of causes and conditions.  Nothing ever exists entirely alone, everything is in relation to everything else." -- Buddha

This reminds me a lot of the post-modern view of the self... It also brings up a good point: without a, how could we know -a?  Of course, this type of logic would only show us the extremes, but I think it is very useful to look at the extremes because they give you a limit to what is possible... a bounded rationality if you will.  Now, of course this quote isn't just talking about a and -a, but it is also asking how could we know a if it wasn't for b?  I think one way to look at this is to consider a bird.  If we look at the bird, we know we are looking at a bird (and if you are an ornithologist, you could probably tell us what the bird is that we are looking at).  That bird is a.  If we look at the rest of the world around the bird, that is b.  With b, we can say not only that there is a bird, but that there is a bird whose feathers are colored so as to allow it to blend in to the brush of the small berry bush growing on the ground behind it and to the left.  I think that it is the way that things relate to one another (people included) that allows us to have a rich picture of whatever it is that we are looking at.  People say that you can tell a lot about a person by looking at his/her friends... same idea to me.  If someone were to try to divine information about me by looking at the way I relate to the world around me, they would know what kind of food I like, what kind of books I like, what I am interested in, what I like to do to relax, etcetera etcetera.  Incidentally, indirect examination of things in this manner can do wonders for understanding the motivation that underlies an animal's behaviors....

Divison of Labor??

I am currently reading a really great paper by Dr. Richard Thaler and Dr. Cade Massey entitled "The Loser's Curse: Overconfidence vs. Market Efficiency in the National Football League Draft."  I am not done with it yet, but it is very insightful so far.  (If you're interested, it can be found on here.) 

Similarly, I have not spent much time thinking about this quote (I will post my own thoughts soon), but I wanted to change things up a bit and ask for your opinion first.  Here is the quote from Dr. (presumably) Gary Becker as noted in an article by Dr. (again, presumably) S. Stewart:

"Division of labor strongly attenuates if not eliminates any effects caused by bounded rationality. ... it doesn't matter if 90 percent of people can't do the complex analysis required to calculate probabilities.  The 10 percent of people who can will end up in the jobs where it's required."

So, a proverbial penny for your thoughts??

The Protestant Work Ethic and Capitalism

Here is an excerpt from a paper I wrote as an undergrad about the consequences of Puritanism in America (please pardon the flat and overall poor writing style):

America is the great capitalist society in history.  According to the highly acclaimed sociologist Max Weber, capitalism is a result of Protestantism in Europe.  With belief in the doctrine of predestination, many believers sought methods that would indicate if they were chosen by God to go to heaven or not.  One method devised by the leaders of the Protestant movement was economic success.  They said that if a good Protestant believer worked hard and was successful, this could be a sign that they were to be brought to heaven.  They effectively turned work and economic prosperity into religious practice and signs from God.  This initial Protestant movement urged frugality.  While economic success may be a sign from God as to one’s status in the afterlife, spending all of these monetary gains on things other than the church was frowned upon.  In fact, in John Winthrop’s A Model of Christian Charity, he quotes Proverbs 3.9 “honor the Lord with thy riches” to say that wealth should be accorded to the church or attained with God’s purpose in mind.  Thus, the initial impetus for capitalism can be traced to the Protestant reformation and their belief in the doctrine of predestination.  Since Puritanism is a branch of Protestantism, the Protestant work ethic, as this has come to be called, was also transplanted from Europe to the New World along with the settlers.  The Puritans sought what they called ‘competency’, the possession of enough property to ensure the family’s economic independence.  While seeking familial economic independence, surpluses were traded and acquired at fair market rates and services were traded.  Thus, it can be claimed that the genesis of American capitalism is the Puritan colonists that settled parts of America over 350 years ago.

Just a little background for you:  The Protestant schism was started by Martin Luther posting his 95 Thesis, essentially 95 talking points about how the Church's then-current practice of selling indulgences (no matter what the Catholic Church's official stance on indulgences is at this point in time, at that point in time, indulgences were essentially pardons for a sin that you bought from the church) was, for lack of a better word, bad.

Anyway, this eventually lead to the establishment of Lutheranism (which is the oldest and, hence, original branch of Protestantism).  Puritanism is another branch of Protestantism (or at least was originally...  Things change you know.)