8 Fascinating Reads

Happy Friday! There are more good news articles on the Web every week than anyone could read in a month. Here are eight fascinating pieces I read this week.

Good luck
Nobel prize-winning psychologist Daniel Kahneman talks about luck in an interview with the Evening Standard:

One of the most amusing episodes in the book comes when Kahneman visits a Wall Street investment firm. After analysing their reports, he calculated that the traders, who were highly prized for their ability to "read" the markets, performed no better than they would have done if they made their decisions at random. The bonuses that they received were, therefore, rewards for luck, even though they found ways of interpreting it as skill. "They were really quite angry when I told them that," he laughs. "But the evidence is unequivocal -- there is a great deal more luck than skill involved in the achievements of people getting very rich."

Some states are trying to make community college tuition-free: 

"I think everybody agrees that with a high school education by itself, there is no path to the middle class," said State Sen. Mark Hass, who is leading the no-tuition effort in Oregon. "There is only one path, and it leads to poverty. And poverty is very expensive."

Hass said free community college and increasing the number of students who earn college credit while in high school are keys to addressing a "crisis" in education debt. Taxpayers will ultimately benefit, he said, because it's cheaper to send someone to community college than to have him or her in the social safety net.

Fortune shares some amazing stats about professional investors:

An in-depth statistical analysis from the University of Chicago in 2010 found that few managers have enough skill to simply cover their costs. A 2009 study from several professors including Scott Stewart of Boston University found that institutional investors lost some $170 billion for clients between 1984 and 2007 because of bad decisions. "Much like individual investors, who seem to switch mutual funds at the wrong time, institutional investors do not appear to create value from their investment decisions," the study said.

Close call
Former Treasury secretary Hank Paulson says Russia tried teaming up with China in 2008 to make our financial crisis worse than it was: 

"Here I'm not going to name the senior person, but I was meeting with someone... This person told me that the Chinese had received a message from the Russians which was, 'Hey let's join together and sell Fannie and Freddie securities on the market.' The Chinese weren't going to do that but again, it just, it just drove home to me how vulnerable I felt until we had put Fannie and Freddie into conservatorship [the rescue plan for them, that was eventually put in place]."

A straight line to disappointment 
Two finance professors cast doubt on technical analysis:

We find that individual investors who use technical analysis and trade options frequently make poor portfolio decisions, resulting in dramatically lower returns than other investors. The data on which this claim is based consists of transaction records and matched survey responses of a sample of Dutch discount brokerage clients for the period 2000-2006. Overall, our results indicate that individual investors who report using technical analysis are disproportionately prone to have speculation on short-term stock market developments as their primary investment objective, hold more concentrated portfolios which they turn over at a higher rate, are less inclined to bet on reversals, choose risk exposures featuring a higher ratio of nonsystematic risk to total risk, engage in more options trading, and earn lower returns.

James Surowiecki writes about Harvard historian Walter Friedman's analysis of historical economic forecasters:

The first person to really meet that demand, Friedman argues, was Roger Babson, who began putting out regular forecasts about the U.S. economy after 1907. Babson was the most obvious huckster of Friedman's subjects. He was given to faddish beliefs. He was a serial entrepreneur who came up with a host of odd inventions, and he was peculiarly obsessed with Isaac Newton. And his view of the business cycle, which he saw as oscillating regularly between boom and bust, was both simplistic and informed by a highly moralistic notion of excess and punishment. But Babson did two important things, Friedman argues. First, he solidified the notion that there was something called the "U.S. economy" whose different parts were connected to one another in systematic ways. And he popularized the idea that economies were subject to business cycles, about which coherent prognostications could be made. These seem, today, like obvious insights. But at the time, Friedman argues, they were quite new. As he writes, "The economic booms and busts of the previous century were typically ascribed not to any sort of regular business cycle but to fate, the weather, political schemes, divine Providence, or unexpected shocks like new tariffs or earthquakes."

Real returns
Derek Thompson puts Amazon's (NASDAQ: AMZN  ) Prime rate hike into context:

Last week, that's precisely what Amazon did, announcing a $20 price hike that will bring the annual cost of Prime to $99. Is that a garish raise? On the one hand, it's a 25 percent hike. On the other hand, $99 is just $5 more than the inflation-adjusted price of Amazon Prime when it debuted for $79 in 2005. For regular Amazon shoppers, buying Amazon Prime is still obviously worth it.

Great wealth
Bill Gates talks about how society should view super-wealthy people:

Enjoy your weekend. 

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Read/Post Comments (7) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 22, 2014, at 10:57 AM, Mathman6577 wrote:

    Bill Gates needs to stop talking about how to tax other people. What will happen is that the government will institute a consumption tax in addition to an income tax. If he wants to pay more taxes I say let him. He can pay mine too.

  • Report this Comment On March 22, 2014, at 1:21 PM, mrevspara1 wrote:

    In my opinion Bill Gates has no standing to talk about how anyone should be taxed. Under just about any plan I can think of he can pay the tax without feeling the effects in the slightest. Let's see what a consumption tax would do to (or for) someone with a $50,000 annual income trying to support a family of four.

  • Report this Comment On March 22, 2014, at 1:33 PM, TMFHousel wrote:

    My favorite type of libertarianism is the one where everyone should be 100% free, except the people libertarians disagree with, who shouldn't be allowed to talk.

  • Report this Comment On March 22, 2014, at 5:07 PM, xetn wrote:

    "Some states are trying to make community college


    Another effort to socialize education; extending it form the first 12 grades to the next level. There is no such thing as free where scarcity exists. There will always be a cost and in the above example it will be through more, higher taxes.

  • Report this Comment On March 22, 2014, at 11:54 PM, colleran wrote:

    What if it all comes down to luck? The rich are lucky, the poor are not. I am coming to that conclusion more and more.

  • Report this Comment On March 23, 2014, at 10:46 AM, Mathman6577 wrote:

    I don't think it is only libertarians who are trying to stifle the free speech of those who disagree with them.

    The left-wing has been trying to do this. For example, political cronies of the administration want to muzzle the Tea Party and other groups by harassing them using the IRS. Senate Majority Leader Harry Reid is now targeting the Koch Brothers.

  • Report this Comment On March 24, 2014, at 1:44 PM, ynotc wrote:

    If Bill Gates wasn't one of the richest people in the world would anyone care what he has to say about anything?

    Commentary by most rich people is like the coronation of royalty it has very little to do with their knowledge or validity of what they say and a lot to luck, birth or their ability to muscle a competitor out of the position.

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