Newsletter Archive
Issues older than 90 days

Available Issues

A Little Insurance: Wealth, War and Wisdom
Issue #488, September 18, 2017

Some Observations
Issue #487, September 11, 2017

How to be Successful in Your Career
Issue #486A, September 07, 2017

How NOT to Buy a Home
Issue #486, September 04, 2017

This Week in the Market
Issue #485, August 28, 2017

Is the “Trump Bump” Running Out of Gas?
Issue #484, August 21, 2017

Gold is on the Move
Issue #483, August 14, 2017

The Importance of Estimation
Issue #482, August 07, 2017

Buying Art and Collecting: Part II of II
Issue #481, July 31, 2017

Buying Art and Collecting in General, Part I of II
Issue #480, July 24, 2017

Physicians need to be More Forceful: Follow-up
Issue #479, July 17, 2017

Physicians need to be More Forceful
Issue #478, July 10, 2017

Your First “Real” Investment
Issue #477, July 03, 2017

Leasing a Watch: Don’t
Issue #476, June 26, 2017

The Importance of Your Children having a Job
Issue #475, June 16, 2017

The Problem with Medical Student Debt is—the Med Schools
Issue #474, June 12, 2017

Critters and Varmints in your Home and Yard
Issue #473A, June 07, 2017

Leveraged ETFs
Issue #472, May 29, 2017

Leasing a Vehicle: Don’t!
Issue #471, May 22, 2017

Issue #470, May 15, 2017

More on Buying Jewelry
Issue #469, May 08, 2017

Buying Jewelry: Gold, Diamonds and Pearls
Issue #468, April 30, 2017

Thomas Sowell: Part III of III
Issue #467, April 24, 2017

Thomas Sowell: Pat II of III
Issue #466, April 17, 2017

Live Close to Where You Work
Issue #465, April 10, 2017

Medtronic in Hospital Management
Issue #Interim Bulletin #464A, April 07, 2017

Thomas Sowell: Part I of II
Issue #464, April 03, 2017

A Political Contribution a an Investment: Part II of II
Issue #463, March 27, 2017

A Political Contribution as an Investment: Part I of II
Issue #462, March 20, 2017

Buffett Selling Vacation Home
Issue #461, March 13, 2017

Advanced Placement (AP) ourses
Issue #460, March 06, 2017

The Importance of a Credit History
Issue #459A, March 02, 2017

A Credit Card Scam
Issue #459, February 27, 2017

The Electronic Health Reord
Issue #458, February 20, 2017

Issue #457, February 13, 2017

Platinum and Palladium
Issue #456, February 06, 2017

Economic Outlook for 2017: Part II of II
Issue #455A, February 02, 2017

Economic Outlook for 2017: Part I of II
Issue #455, January 30, 2017

A Story From Vegas
Issue #454A, January 25, 2017

Land Donation Deals and the IRS
Issue #454, January 23, 2017

The Theory of Gambler’s Ruin
Issue #453, January 16, 2017

Student Loans: But Wait, There’s More!
Issue #452, January 13, 2017

A Second Home
Issue #Interim Bulletin #451A, January 04, 2017

The Consumer Confidence Index
Issue #451, January 02, 2017

Social Security
Issue #450, December 26, 2016

My Outlook for 2017: Part II of II
Issue #449, December 19, 2016

My Outlook for 2017: The Market
Issue #448, December 12, 2016

Medicine in 20 Years
Issue #447, December 05, 2016

Higher Interest Rates
Issue #446, November 28, 2016

Trump and the Markets: The Bad and Ugly
Issue #445A, November 23, 2016

Trump and the Markets: The Good
Issue #445, November 21, 2016

Negative Trends: The Suits aren’t Makin’ Steel
Issue #444, November 16, 2016

The New DOJ Fiduciary Rule
Issue #443, November 07, 2016

Barron’s Conference, Part IV of IV
Issue #442, October 31, 2016

Barron’s Conference, Part III of IV
Issue #Interim Bulletin #441A, October 26, 2016

Barron’s Conference, Part II of IV
Issue #441, October 24, 2016

Barron’s Conference, Part I of IV
Issue #440, October 20, 2016

This Newsletter
Issue #439A, October 12, 2016

Memoirs of US Grant: Vol II
Issue #439, October 10, 2016

More Points on Collecting, Investing and the Economy
Issue #Interim Bulletin #438A, October 05, 2016

Personal Memoirs of US Grant
Issue #438, October 03, 2016

Ideas for a High School Part-Time Job
Issue #Interim Bulletin #437A, September 29, 2016

Collecting, Investing, and the Economy
Issue #437, September 26, 2016

Free College
Issue #436A, September 22, 2016

A Military Commitment to Pay for Med School
Issue #436, September 19, 2016

When a CD isn’t a CD
Issue #435, September 12, 2016

I Made a Mistake
Issue #Interim Bulletin #434A, September 07, 2016

What is Your Spare Time Worth?
Issue #434, September 05, 2016

Credit Cards and Bonus/Loyalty Points
Issue #433, August 29, 2016

The Write-off of Student Loans
Issue #Interim Bulletin #432A, August 25, 2016

412 Retirement Plans
Issue #432, August 22, 2016

Join the Club
Issue #Interim Bulletin #431A, August 18, 2016

The Case for Precious Metals and Hard Assets
Issue #431, August 15, 2016

When the US went off the Silver Standard
Issue #430, August 08, 2016

Why NOT to Open a Restaurant
Issue #429, August 01, 2016

Some Tips on Life Insurance
Issue #428, July 25, 2016

More Observations on Negative Interest Rates
Issue #427, July 18, 2016

Issue #426, July 11, 2016

Is a PhD Worth It? Part II of II
Issue #425, July 04, 2016

Is a PhD Worth It? Part I of II
Issue #424, June 27, 2016

Avoid Part-time real Estate Agents
Issue #423, June 20, 2016

Issue #422, June 13, 2016

The Problem with Auction Reserves
Issue #421, June 06, 2016

Make Full Use of Your Capital Investments
Issue #420, May 30, 2016

The Fed’s Announcement
Issue #419, May 23, 2016

Quit While You’re Ahead: A True Story
Issue #418, May 16, 2016

The Precious Metals
Issue #417, May 09, 2016

Negative Secular Trends: Part Ii of II
Issue #416, May 02, 2016

Negative Secular Trends: Part I of II
Issue #415, April 25, 2016

Not Winning is not the same as not Losing
Issue #414, April 19, 2016

Behavioral Economics: Part II: Weaknesses
Issue #413, April 11, 2016

Behavioral Economics: Part I: Valid Points
Issue #412, April 04, 2016

The Most Important Books I’ve Read
Issue #411, March 28, 2016

Secret to Success: Take Risks and do Things Differently
Issue #410, March 21, 2016

The Over-Priced Food Presentation Hustle
Issue #409, March 14, 2016

The War on Cash
Issue #408, March 07, 2016

Precious Metals: Don’t Jump in Yet
Issue #407, February 29, 2016

The Bear is Growling
Issue #406, February 22, 2016

The Importance of Showing Respect
Issue #405, February 15, 2016

The 80-20 Rule of Thumb Pareto Principle
Issue #404, February 08, 2016


By Robert M. Doroghazi, M.D., F.A.C.C.

The Importance of Estimation

Issue #482, August 07, 2017

    I’ve always been good at coming up with a quick, reasonable estimate, and even thought about writing a newsletter on the subject earlier this year, but didn’t quite know how to present it, so I let it go.
    I just finished Superforecasting: The Art and Science of Prediction (Tetlock, Gardner, Crown Publishers). I found the book kind of a slog, but it does give a discussion on estimating, which provides an intellectual basis for me to discuss the subject.
    The physicist Enrico Fermi taught at the U. of Chicago (see more below). To teach people how to become good at estimating, he would ask his students the brain teaser “How many piano tuners are there in Chicago?”
    Where do you start? Fermi taught that the way to answer such a question is to break it down into more questions, such as “What information would allow me to answer the question?” Fermi understood that by asking more questions, you could more easily separate the knowable from the unknowable.
    The authors go through the exercise by starting with “how much piano tuning work is there, and how much work does it take to employ one piano tuner”? They use the discussion developed by psychologist Daniel Levitin, who thought he could come up with a reasonable estimate by answering 4 questions.
    1) How many pianos are there in Chicago?
    Break this down into more questions. Start with how many people are in Chicago? Levitin knew Chicago was the 3rd largest city in the US, with Los Angeles #2 at about 4M. To narrow this down, Fermi recommended a confidence interval—a range that you are 90% certain is correct. Levitin figured Chicago had between 1.5 and 3.5M people (I’m not sure when he did this), so took the mid-point and guessed 2.5M.
    How many people own a piano? They are expensive, so he guessed 1 in 100.
    Many schools have pianos, and music schools will have many. He guessed this would double the ratio to 2 pianos per 100 people. Thus he estimated there were about 50,000 pianos in Chicago.
    2) How often are pianos tuned?
    He guessed about once per year.
    3) How long does it takes to tune a piano?
    He guessed about 2 hrs.
    4) How many hours per year does a piano tuner work?
    The average American works 2,000 hours per year. But a piano tuner has to travel between jobs, so Levitin subtracted 20% and concluded that the average piano tuner works 1,600 per year.
    After doing the math, Levitin estimated there were 63 piano tuners in the Chicago area. He found 83 listings for piano tuners in the Chicago Yellow Pages, and considering that some were the same tuner listed under multiple phone numbers, the estimate of 63 was surprisingly close.
    When the authors made this presentation to those who participated in their studies and whose record made them “superforecasters”, many noted this was a part of their natural way of thinking.
    How does this apply to your investments? How many of the next-generation iPhones will Apple (AAPL) sell? How many people will be new buyers? How many people will upgrade? Will the phone be affordable to those in 3rd world countries? What is the profit margin? Will AAPL have to spend more in ads to sell the phones? How much do important apps cost?
    There were several other points in the book worthy of note.
    1) The best forecasters make nuanced predictions: they realize no one can be 100% certain of anything. A good example is Nobel winner Prof. Robert Shiller of Yale. He says this is likely to happen, or probabilities suggest. The authors use Larry Kudlow of CNBC as the other end of the spectrum: he bangs the table for his point of view, there are no other possibilities. The authors further note that the nuanced predictions, although more often correct, don’t garner the headlines, whereas the boisterous, in-your-face predictions—like Dow 36,000—catch all the attention, yet are often wrong.
    RMD comment: that is probably the most important point of this newsletter.
    2) The further in the future, the less accurate the prediction: anything beyond about 1 year is just a guess. This seems obvious, but people can be easily fooled.
    RMD comment: as I have often noted, people say “if present trends continue”. Think about it: if present trends continue, they will go to infinity. The trick is knowing when present trends will change.
    3) To become a better forecaster, you need feedback, the quicker the better. You play a hand of cards: you get feedback very quickly if your bluff works or doesn’t work. This compares to 5 years for waiting for the results of a study.     
    Enrico Fermi supervised the construction of the first self-sustaining nuclear reaction, which took place on December 2, 1942 under the west stands of Stagg Field on the campus of the U. of Chicago. It was the start of the nuclear age and lead directly to the development of the atomic bomb.
    Fermi’s wife, Laura Capon, was Jewish. In 1938, Fascist Italy passed the Italian Racial Laws. Later in the year, at age 37, Fermi received the Nobel Prize in Physics. He took his family to the awards ceremony in Stockholm, but didn’t return to Italy, proceeding on to NYC.
    The US Dollar popped last week, and gold weakened. Since the Dollar Index is weighted 57% to the Euro, we’ll watch the Euro.
    Sorry this newsletter is a little late. I was traveling. 

Site by Delta Systems powered by ExpressionEngine