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Strange Things in the Precious Metals
Issue #531, July 17, 2018

Buying Years of Retirement
Issue #530, July 09, 2018

Rent-A-Kid for Retirement
Issue #529, July 02, 2018

The Dark Side of Student Loans
Issue #528, June 25, 2018

The Cost of Out-sourcing Convenience
Issue #527, June 18, 2018

Social Security: 66 or 70?
Issue #526, June 11, 2018

Student Loans: There’s (Unfortunately) a Lot More!
Issue #525, June 04, 2018

Co-signing a Note
Issue #524A, May 31, 2018

The Knight Frank Luxury Index and Collectables
Issue #524, May 28, 2018

The Importance of Diversification: The Myth of Diversification
Issue #523, May 21, 2018

How to Save Thousands on Your Food Bill
Issue #522, May 14, 2018

MoviePass and Other Things
Issue #521A, May 10, 2018

Degree Inflation, Long Training Periods, and “Certification”  Part III
Issue #521, May 07, 2018

Degree Inflation, Long Training Periods, and Certification” Part II of III
Issue #520, April 30, 2018

Follow-up on Several Things
Issue #519A, April 25, 2018

Degree Inflation, Long Training Periods, and “Certification”: Part I of II
Issue #519, April 23, 2018

The Kids Birthday Party Hustle
Issue #518A, April 18, 2018

A Pension Question: Part II of II
Issue #518, April 16, 2018

A Physician is an Executive
Issue #517A, April 11, 2018

A Pension Question: Part I of II
Issue #517, April 09, 2018

Is the Correction Over?
Issue #516A, April 05, 2018

Used Car Dealers, Student Loans, the Chinese, and Uncle George’s Rule
Issue #516, April 02, 2018

Starter Homes
Issue #515, March 26, 2018

Redecorating: Beware!
Issue #514, March 19, 2018

NASDAQ Closes at Record High
Issue #513, March 12, 2018

A 40% Chance
Issue #512, March 05, 2018

Several Things
Issue #511, February 27, 2018

Human Capital, Education and Wealth
Issue #510, February 19, 2018

Another Stock Market Update
Issue #509A, February 18, 2018

Some Thoughts on Savings
Issue #509, February 12, 2018

A Stock Market Upfate
Issue #508S, February 10, 2018

Who Can You Trust? Part II of II
Issue #508, February 05, 2018

The Christmas Decoration Pre-worn Jeans Hustle
Issue #Interim Bulletin #507A, February 03, 2018

2018 Outlook for Financial Markets
Issue #507, January 29, 2018

Who Can You Trust? Part I of II
Issue #506, January 22, 2018

Life Insurance Settlements
Issue #505, January 15, 2018

Commodities and Buying the Breakout
Issue #504, January 08, 2018

Buffett Wins His Bet
Issue #503A, January 04, 2018

Practice Real Estate and Free Agency
Issue #503, January 01, 2018

Outlook for 2018: Part III: Stocks and Bonds
Issue #502, December 25, 2017

My Outlook for 2018: Part Ii: Precious Metals
Issue #501A, December 21, 2017

Outlook for 2018: Hard Assets: Part I of III
Issue #501, December 18, 2017

More Thoughts on Bitcoin
Issue #500A, December 14, 2017

Fees and Good Relations with Bankers
Issue #500, December 11, 2017

Salvator Mundi
Issue #499A, December 07, 2017

Should You Rent or Own a Home?
Issue #499, December 04, 2017

A Gift Subscription
Issue #Interim Bulletin #498A, December 02, 2017

Stocks vs Real Estate: Asset Allocation: Part II of II
Issue #498, November 27, 2017

When Good Enough is Fine
Issue #497A, November 22, 2017

Stocks vs Real Estate: Asset Allocation. Part I of II
Issue #497, November 20, 2017

The Saudi Arrests and the Perils of Foreign Investing
Issue #496, November 13, 2017

Gambling and Las Vegas
Issue #495, November 06, 2017

Some Tips on Auto Insurance
Issue #494, October 31, 2017

Bitcoin and the Digital (Crypto) Currencies
Issue #493, October 23, 2017

The Coming Bear Market: Part II How to Prepare
Issue #492, October 16, 2017

Some Observations on Cemeteries
Issue #Interim Bulletin #491A, October 12, 2017

The Coming Bear Market: Part I: The Myth of Buy and Hold Forever
Issue #491, October 09, 2017

The Market makes New Highs
Issue #490, October 02, 2017

The Importance of a New High
Issue #489, September 25, 2017

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


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. 

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