YouTube Censorship

This story is going viral: The three reasons YouTubers keep imploding, from a YouTuber

Allow me to extrapolate on a meme those kids today are using: “Dude, you had one job. And it looked like a really easy one.” Let’s Players, streamers or content creators, whatever you like, get to play video games and make jokes while doing so. It seems like a dream gig, so why even risk these sort of gaffes? Why do people risk their jobs for jokes or mistakes that seem easy to avoid?

As the quote above shows, it’s easy to want to blame the victim, but the problem is that YouTube goes after much smaller publishers as well, quite frequently, often for arbitrary or small reasons, and resolving such content disputes is Kafkaesque, taking weeks, as Davis Aurini himself documents. Often someone (usually a competitor) will flag a video and then YouTube will pull it and suspend the account or put a restriction on the length of videos (often a 15 minute length restriction for flagged accounts), citing ‘copyright infringement’, which is Google’s favorite boilerplate explanation even though nothing was actually infringed upon and no DMCA report was made. Such ‘infringement’ could be trivial as a ringtone or a 10-second clip of some music on a TV in the background, or a midi file from a video game made 25 years ago. My advice: remove all content that has any sort audio or visuals that you personally did not compose, and to take it further, don’t have any sort of music at all. Google/YouTube is out of control.

There’s an apparent double standard, right? Comedians tell AIDS jokes, Holocaust jokes, 9/11 jokes and much more. When a popular YouTuber does it, it’s suddenly being reported by the media (and, cough, other YouTubers). Didn’t George Carlin once say no topic is off limits?

Yeah. But like most comedians, he also spent a lot of his time writing those jokes, refining them, trying them in smaller clubs before his big venues, commiserating with his peers, etc. A “secret” of successful comedians is you don’t just spit out jokes that come to you. You develop bits, callbacks, sets, etc. There are legit reasons that Louis CK, Sarah Silverman, and Jim Jefferies get away with questionable jokes and JohnnySephiroth315 doesn’t.

The left almost never punches left–that’s the correct reason. And failing that, there is an entire unwritten law about which jokes comedians can and cannot tell, depending on race of said comedian. The left say they want an ‘honest, open discussion about race’, provided it goes in the direction they want…how convenient.

Is college a big waste of time and money? It depends

Interesting article: Everything Wrong with College

And that’s how you end up with doctors being forced to endure 14 years of schooling. Hard to open a little family practice and provide cheap care when you’re 160 thousand dollars in debt.

It’s become pretty fashionable these days , both for the ‘left’ and the ‘right’ to bash college. For the ‘left’, college burdens students with too much debt; for the ‘right’, there is too much political indoctrination and brainwashing. Both sides have valid points. My take is: although the higher-ed system is broken, the alternatives often aren’t much better. Due to economic factors, becoming an entrepreneur has never been harder, and a degree, despite the debt and indoctrination, may still be the past path out of poverty.

Doctors get into a lot of debt–but they make a lot of money and have long careers, which makes it worthwhile in the end. Often, the debt can be paid in small installments. The problem is when someone gets into $150k debt to major in liberal arts and instead of making $400k a year, makes only $40k a year. Doctors don’t need to open a private practice; hospitals recruit them .

Even $30k for a college degree may seem like a a lot, but it’s about the same price as a new car, and unlike a car it doesn’t lose half its value after you drive it off the lot, and college grads still have better job prospects than dropouts, yet no one is protesting car ownership. Considering that since 2008, especially, inflation-adjusted wages for non-graduates have stagnated behind graduates, a college degree is also a good hedge against stagnant inflation-adjusted wages. And graduates in STEM (especially computer science, math, physics, and finance) do well. So it’s not all bad.

I think the tuition ‘crisis’ and bubble is exaggerated–the debt is real, but often the figures cited are incorrect (some sources cite $200k/debt per student, when the actual figure is closer to $20-30k). Also, after adjusting for generous scholarships, federal aid, deferments, and other programs, the rate of growth of tuition as measured by the amount actually paid by the student (not the sticker price) is much closer to inflation.

A common argument is that college self-selects for high-IQ, thus people who graduate succeed because they are smart, not because of the degree. This is some truth to this, from Much Needed IQ Realism in the Anti and Pro College Movements:

Being qualified to get into an elite school signifies high-intelligence; such high intelligence carries benefits throughout life regardless if one actually attends the school. Those in the top 1% of IQ, such as Bill Gates, James Altucher and Steve Jobs, for example, have the capacity to excel regardless if they chose to go to college or not. Ultimately, we believe that independent of higher education, IQ is the ultimate determinant of success or failure, especially in the post-2008 economy.

Success may have more to do with IQ than the degree itself, but all else being equal, someone with a degree will be hired over one who doesn’t. For some jobs, human resource departments will automatically filter out resumes that don’t list degrees. A common argument is that skipping college allows one to ‘build experience’ during those four years. But the problem is, even for internships, due to the competitiveness of the labor market, non-grads will still be competing with grads for non-paid positions–yes, that’s how bad things have gotten, and degree holders still have an edge, all else being equal. Even if the job for a degree holder pays poorly, some employment is better than none, and this is factored into the lifetime earnings of grads vs. non-grads. I don’t think the opportunity cost is that high considering the degree only takes 3-4 years to attain and the potential payoff lasts for decades.

But, yes, in an ideal world there would be no need for young people to go thousands of dollars into debt and allot four years of their most productive years for a piece of paper that signals to employers ‘baseline competence’, which is why this blog for years has recommended replacing costly, time-consuming college diplomas with simple IQ-like tests. But a certain political party is opposed to this, citing, as usual, ‘racism’ and ‘discrimination’ because some groups score higher than others on these tests, but I guess the left’s ‘logic’ is that it’s better for everyone to suffer equally with crushing student loan debt than to have to admit reality that not everyone is not equal.

Guided by the ‘correctness’ of our opinions

Scott’s article GUIDED BY THE BEAUTY OF OUR WEAPONS is going viral.

He writes:

Yet I have the opposite impression. Somehow a sharply polarized country went through a historically divisive election with essentially no debate taking place.

As shown below, going as far back as 100 years, with the exception of FDR (everyone was united in support of the war effort) and Reagan (an exceptionally talented and inspiring candidate who beat some exceptionally uninspiring opponents), the electorate has pretty much always been evenly divided, give or take 10%:

Anyone in the 90′s who listened to Rush Limbaugh or Fox News knows that politics was as divided then as it is now. In 1993 it was ‘Hillarycare’; now it’s ‘Trumpcare’. It only seems more divisive now because social media puts a megaphone to everything.

What about debate and facts? There is probably a deeper philosophical implication in his post, but it doesn’t matter. People will believe what they want to believe. Some, probably only the minority, are motivated by facts and logic [1]; most are motivated by emotion, signaling, beliefs (idealism and rationalism) and tribalism. People vote red/blue because that’s what they are accustomed to doing, habituated and instilled by parents and peers. We rationalize why the other side is ‘bad’ and why our side is ‘good’. To quote Scott Adams, we create ‘mental movies’ where we’re the star and the script is a recitation of our preexisting beliefs. Not to sound too holier than thou, that’s fine, if you truly believe your opinion is the ‘correct one’, and preferably if you have some empirical evidence and reason to support it.

But with the exception of the hard sciences, it’s nearly impossible to have a ‘correct’ opinion, or even a ‘correct’ fact. This is especially problematic in the social sciences, such as economics, as well as climate science and measuring the efficacy of gun control laws. For example, I can have an opinion that raising the minimum wage hurts economic growth and raises unemployment, backed by studies, but someone else can counter that my opinion is wrong, citing his own studies, but also that the studies that I cite, which I take for granted as ‘facts’, are wrong due to methodological errors. And this goes back and forth, with each side citing their own facts and countering the other’s, and no one is any closer to understanding or resolution.

Does that mean we give up on opinions? No, because some opinions are truly ‘better’ than others (Newton’s opinion on gravity being a particularly ‘good’ one, backed by a multitude of empirical evidence). But in many instances, there is no resolution and engaging in debate is unproductive, regardless of how ‘correct’ your opinion is or may be (as Newton probably realized when he tried to explain the concept of an ‘inverse square law’ to others). That’s why debating politics is mostly a waste of time: even if your opinion is as ‘correct’ as Newtonian gravity, your opponent is unlikely to yield, and even so, is it worth the effort.

This part also stood out, in which Scott praises the civility and courteousness of Trump supporters who commented on his blog:

This was also the response I got when I tried to make an anti-Trump case on this blog. I don’t think there were any sudden conversions, but here were some of the positive comments I got from Trump supporters:

— “This is a compelling case, but I’m still torn.”

— “This contains the most convincing arguments for a Clinton presidency I have ever seen. But, perhaps also unsurprisingly, while it did manage to shift some of my views, it did not succeed in convincing me to change my bottom line.”

— “This article is perhaps the best argument I have seen yet for Hillary. I found myself nodding along with many of the arguments, after this morning swearing that there was nothing that could make me consider voting for Hillary…the problem in the end was that it wasn’t enough.”

— “The first coherent article I’ve read justifying voting for Clinton. I don’t agree with your analysis of the dollar “value” of a vote, but other than that, something to think about.”

— “Well I don’t like Clinton at all, and I found this essay reasonable enough. The argument from continuity is probably the best one for voting Clinton if you don’t particularly love any of her policies or her as a person. Trump is a wild card, I must admit.”

— As an orthodox Catholic, you would probably classify me as part of your conservative audience…I certainly concur with both the variance arguments and that he’s not conservative by policy, life, or temperament, and I will remain open to hearing what you have to say on the topic through November.

— “I’ve only come around to the ‘hold your nose and vote Trump’ camp the past month or so…I won’t say [you] didn’t make me squirm, but I’m holding fast to my decision.”

and also this part:

Another SSC story. I keep trying to keep “culture war”-style political arguments from overrunning the blog and subreddit, and every time I add restrictions a bunch of people complain that this is the only place they can go for that. Think about this for a second. A heavily polarized country of three hundred million people, split pretty evenly into two sides and obsessed with politics, blessed with the strongest free speech laws in the world, and people are complaining that I can’t change my comment policy because this one small blog is the only place they know where they can debate people from the other side.

The appeal of Slate Star Codex, as I discuss in Intellectual Solvent Part 1, is that it’s an island ‘evolved’ discourse and nuance in a sea of emotive low-information discourse. As the passages above show, the ‘high-IQ right’, although they disagree with Scott on the choice of candidate and policy, find common ground in rejection of low-information discourse (shared narratives). Both the ‘high-IQ left’ and the ‘high-IQ right’ agree that purveyors of ‘low information’ make their respective sides look tribalistic and uninformed. Scott is thinking ‘BLM and SJWs are making Hillary look like a sympathizer of domestic terrorism, radical feminism, and Communism’, and smart Trump supporters are thinking ‘Fox News, Limbaugh, and Ann Coulter are making us look like buffoons’.

If you genuinely believe that facts and logic don’t work on people, you shouldn’t be writing articles with potential solutions. You should be jettisoning everything you believe and entering a state of pure Cartesian doubt, where you try to rederive everything from cogito ergo sum.

This part was confusing. As a side note, cogito ergo sum (I think therefore I am) means that if one can conceive thoughts, they exist, which is related to Cartesian dualism and the mind-body problem of ontology. It’s not really applicable to politics and debate, which is related to epistemology. What Scott is probably referring to is the tendency of some to rationalize certain beliefs as being true, regardless of opposing empirical evidence. For example, someone can insist that Obamacare is a success, and I can show empirical evidence (such as rising premiums and cancellations) that it’s not, but if someone wants to rationalize (in their mind) that Obamacare works, no amount of empirical evidence will matter.

[1] appeals to ‘facts and logic’ are often synonyms for materialism and empiricism, in contrast to idealism and rationalism. Not all materialism is ‘bad’–HBD, for example, is a materialistic concept.

Upward Mobility Linked to Genes

Another nail in the coffin for the blank-slate left: From Is Success in Our Genes?:

When Belsky and colleagues analyzed measures of genetic variation and educational attainment, they found a link: A high polygenic score—an aggregate measure of variation across a person’s genome—predicted not only educational attainment, but other forms of success as well.

Individuals with higher polygenic scores were more likely to leave home for professional opportunities, they had more prestigious jobs, made more money, and were better at managing their finances. Participants’ genetic profile even predicted the level of education and earnings of their spouses. Together, all of these factors show that children with higher polygenic scores tended to become more economically successful—even if they had grown up in families that were relatively poor.

Intelligence was one factor that partially accounted for the relationship between genes and professional attainment, but other characteristics—such as self-control and interpersonal skills—were also important.

Full study Belsky 2016

Leftism, as it pertains to social policy, is predicated on the dubious notion that differences in individual socioeconomic outcomes are attributable to social factors, not biological ones. If upward mobility is determined heavily by genes, it renders the left’s expensive social programs, as well as their ideology of equality, ineffective and wrong.

High-IQ are the wings that lift people out of poverty and mediocrity. Especially during the 50′s and 60′s in large middle-income families in the Midwest, Mid-Atlantic, and Appalachian regions, the smartest children, who tended to be the most ambitious, would leave home at a relativity early age to go to college, sometimes as far away as Massachusetts, California, or New York, to join the ranks of the ‘educated professional class’ to become engineers, lawyers, professors, or journalists, while their less intelligent siblings would get jobs closer to home, often dropping out of high school, taking much longer to move out on their own, and when they moved it was usually not very far.

These smart children, who can be likened to the ‘pioneers’ of the family, grown up and independent, attain a much higher degree of wealth and social status than had they stayed in their original neighborhoods. These ‘pioneers’ start new families, often in the urban areas where they work, and through assortative mating have high-IQ children their own. Fast-forward to the 21st century, a similar trend is observed in foreign countries, especially in China, Australia, and Nigeria, except the smartest are moving to America, and to a lesser extent, Britain. This means a ‘Matthew effect’ kicks in as smarter countries and regions (such as American and Silicon Valley) become progressively smarter, and less intelligent regions become progressively less intelligent due to ‘cognitive flight’.

How To Predict, Part 2: The Downfall of the Popular IPO

Interesting article: The Downfall of the Popular IPO

Guess which two stocks this blog recommended…yup…that’s right…Facebook and Ali Baba. The odds of choosing the best two tech IPO stocks out of all possible unique pairs, by pure chance, are about 1/50, so skill is probably involved. This blog has never recommended the other eight. In fact, it warned against FitBit and GoPro. Also right about Bitcoin. But before I get too carried away, in 2015 and most of 2016, I was wrong about Trump getting the nomination and winning (and so was virtually everyone else).

In 2015, after entering the race, his odds of winning were 1/100 according to the bookies, and anyone who held realized a 100x return. Only two pundits, as far as I know, got that one right: Mike Cernovich and Scott Adams (although I don’t think any of them bet). Even if Trump proves to be a mediocre president, his victory is probably the greatest political underdog success story ever.

You don’t have to be that smart to predict. It’s about filtering out noise and having an understanding of how economics, trends, and finance works, which are skills that can be learned by most reasonably intelligent people.

Lots of people have been saying we’re in a technology bubble for a number of years now. While this IPO performance certainly doesn’t look like a bubble, if there was a bubble, the bursting of it has been outsourced from the private owners of these companies to the public owners.

Yeah, since 2009 or so, we’re seeing a ‘flight to quality’ to the biggest and strongest companies such as Google, Facebook, Uber, Airbnb, and Amazon, unlike the late 90′s when everything was indiscriminately bid higher. This is part of how post-2008 capitalism has gotten much smarter and choosier, a common theme of this blog. Pre-2008 capitalism was ‘dumb’, and there were many recessions and crisis as a result…now money is only chasing the ‘cream of the crop’ (just like how expensive real estate in expensive high-IQ regions keeps getting more expensive); hence, fewer bubbles, no more recessions, and the longest bull market ever (which this blog also predicted)–one that may last for decades to come…Right now there are headlines about topics and themes that were covered in this blog in 2014 or earlier.

Unless you’re skilled at predicting things (as I and a handful of others are), yes, the public tends to lose. But it has gotten worse because companies are going pubic too late whereas decades ago companies went IPO at only $10-$70 million, not $10-$70 billion like we see nowadays, even after adjusting for inflation. If promising tech companies went public much sooner, it would allow skilled retail investors to make higher returns, but those days are gone. The result of all these late IPOs is a much more negative skew of returns, because these companies go pubic at the peaks of their valuations and growth, not closer to the bottom. Yeah, this is a problem and further strengthens the argument for index funds, versus stock picking.

Obviously, this is a tough space to pick the winners and losers. Competition and innovation make it very difficult to know whether or not a company will continue to dominate like Facebook or be a flash in the pan like Groupon or Gopro. History shows that the majority of IPOs end up underperforming the overall markets.

Not really…this blog picks winners all the time. Facebook has 1/6 of the world population plugged in…how can such a company like that ‘fail’. Groupon relied too much on paid advertising for growth, and predictably those users stopped using the service, and the deals were pretty bad too. Facebook had pure organic growth. Fitbit and Gopro are hardware, and thus their business models are easier to replicate and have smaller profit margins; with the exception of Apple, hardware investments tend to be inferior to software (Microsoft, Salesforce) and ad-based companies (such as Facebook and Google).

And Fear No Darkness

This is going viral: And Fear No Darkness

Despite its length, it’s not very convincing. It’s more like a belief than an argument. It’s just the author’s hunch based on some 4th turning ‘theory’ that there is a 50% chance there will be some sort of civilization-ending crisis in the 21st century. Falsifying it is like trying to prove a negative. Such eschatological predictions go back centuries, and despite crisis such has ww1 & 2 and 911, civilization caries on anyway. Marx predicted 150 years ago that capitalism would doom society..still hasn’t happened.

If you think there will be crisis, why not put your money where your mouth is, such as by betting against the stock market and then making the prediction and bet public….if a mere 5% decline in 2008 of GDP growth can cause a 50% decline in the stock market, civilization need not have to collapse very far to realize a substantial profit…easy, huh. (I’m not advocating anyone do this, but opinions and hunches are a dime a dozen; much rarer is someone who puts up skin in the game.)

Now look at the seventy years since 1945, the close of this last crisis. Once again the population has tripled. This time all over the world, pushing up against food, water and political limitations and cracking the facade of the nation-state lines drawn after the Great Wars. The waves of immigration have just begun and already they are breaking down the great peace of the second half of the 20th Century. Just wait until millions of refugees balloon into tens or hundreds of millions displaced by climate change, famine and civil disorder.

Since 2013 or so, immigration is THE issue that separates the ‘mainstream right’ from the ‘dissident right’. Immigration, particularly Islamic immigration in to Europe, is on the minds of millions of people right now…it is the most important issue, and is why Trump won and Brexit happened. I underestimated the importance of this issue until only recently. London Mayor Sadiq Khan is right that ‘terror attacks are part and parcel of living in a great global city,’ only because the leadership is powerless/unwilling to do much about it, so there will be more terrorism. So what does this have to do with collapse? Mass Islamic immigration and terror is symptomatic of the collapse of leadership of France, Ireland, Germany, and Britain, and this may spread to other countries, too. Eventually, leadership collapse may lead lead to economic collapse, or at least a radical change in demographic and the transformation of much of Europe into a quasi-Islamic state. It will probably take the equivalent of another 911–or worse–for the leaders of Europe to get their act together. But in disagreement with the author, this doesn’t mean total civilization collapse. China, Russia, and America will fill the void of a dying/fading Europe. Economically, this is happening already, as China and America continue to pull ahead of the rest of the world.

Trump and Neocons

Libertarian-leaning pundits are complaining about Trump.

Another Four Years Of Pointless War Under The Trump Administration

On Military and Spending, It’s Trump Versus Trump

Trump Is the Enemy of Neocons, But He’s Not Our Friend

Is McCain Hijacking Trump’s Foreign Policy?

Trump ran (or at least was perceived) as being anti-neocon, and his voters saw him as being a repudiation of ‘politics as usual’ and the back-to-back disappointments of Bush and Obama. But dissonance between voter expectations and Trump’s policies may lead to disillusionment.

How different from neocons are Trump and Bannon really. As the articles above suggest, probably not that much. Trump and neocons agree on defense spending, hawkish foreign policy, closeness with financial industry, deregulation, low taxes, and so on. Trump and necons differ to some degree in terms of immigration and protectionism, but time will tell if Trump implements substantive reform–or if this is all just smoke, mirrors, and ‘symbolic gestures’ that get a lot of media attention but don’t move the needle much. Some say Trump is anti-globalist–I would say he’s doing a good job acting or conveying anti-globalist sentiment; doing is harder.

This is the problem with politics: people equate talk with action, and then decades later wonder why nothing has really changed or keeps getting worse. The purpose of politics is to create the illusion of change.

Also, as many already know, Trump appointed several Wall St. guys to his cabinet, and there may be some dissonance in having to reconcile Trump’s anti-establishment public imagine with his pro-establishment cabinet. For example there is former Goldman COO Gary Cohn, who leads Mr Trump’s National Economic Council. And Steven Mnuchin, a hedge fund millionaire. Trump’s choice of cabinet picks may impede the ability to pass sweeping trade reform, assuming Trump really wants that (it’s hard to know what Trump really wants…he seems to be shooting all over the place…going after immigration on one week; Obamacare and wiretapping on another, etc.).

Trump’s rationale is that he chose appointees whom he knew personally, that are competent enough to carry out their designated jobs, and have private sector experience, versus academia.

The media always exaggerates how high the stakes really are. Contrary to the media and pundit narrative of Trump and neocons being locked in some of sort comic-book-like epic battle to the death, neocons are probably blase to Trump trying to restrict immigration…they are happy just to have more defense spending, lower taxes, and a Republican in the Oval Office instead of a Democrat.

Politics is mostly a waste of time…Every few years, it’s another healthcare bill. And if Trump loses in 2020 or 2024, the dems will undo it and try to reinstate their own healthcare again, ad infinitum. The NRx position is that politics is the problem, not the solution. [1] Politics creates problems that leads to even more politics to try to fix the prior problems created by politics. And this is anther reason why democracy is a waste: so much money and time is wasted undoing changes made by the ‘other’ party, instead just ‘formalizing’ everything. The only guarantees are that healthcare costs will rise and a lot of people will be unhappy, regardless of whose plan is implemented.

Same for the news…another waste of time. Every year it’s the same stories, only the names occasionally change. If the people who normally don’t talk about the news are suddenly talking about the news, then the story is probably important; otherwise, it’s just noise. If you surround yourself with ‘news people’, everything will seem important. People who read celebrity gossip may be ignorant, but they aren’t really missing anything either. The auto-pilot, deterministic American economy and society means minimal individual input is necessary.

Neoconservatism and neoliberalism succeed because they are amorphous, adaptable, and can latch onto or hijack any preexisting ideology or movement. Most governments, given enough time, will resemble something similar to neoconservatism or neoliberalism (this is what Fukuyama alluded to in End of History, but I don’t think it has to be liberal democracy–it can also be a right-wing republic, theocracy, technocracy, or oligarchy. Whatever you call it, the mixed-economy system tends to prevail to varying degrees. It’s not ‘The End of History’, but more like ‘The End of Economics’).

By subscribing to wishful thinking, you willingly deprive yourself of understating. If knowledge is power, you become weaker. This is why the ‘fake news’ movement has been so successful and is hurting the left so badly, because after many decades of the public being fooled, the liberal media’s veneer of ‘impartial, objective journalism’ has been peeled off, revealing the media as an apparatus for liberalism (or what some call the ‘deep state’) that it really is. But we also shouldn’t engage in own versions of fake news.

Trump is not too much different from your typical Republican…he doesn’t have special powers that many ascribe to him, to single-handedly undo decades of history and economics. . Its not defeatism to be realistic about what a president can and can’t reasonably do. Time to stop looking for Messiahs and instead start looking to ourselves for the answers. One solution is minimalism and self-sufficiency, which is why personal finance is important.

[1] It’s a source of confusion for some the differences between the alt-right and NRx. NRx is post-politics, which is why NRx blogs typically don’t follow day-to-day political developments such as Trump, instead focusing on ‘deeper’ topics such as economics, theology, and political philosophy. The alt-right actively engages in politics. The alt-right sees politics as a vehicle for change, which is why they follow politics so intently and also why they have more more ‘faith’ in Trump, versus NRx. NRx seeks to remove the underling fabric that is democratic society; alt-right wants a different type of fabric. NRx and the alt-right agree on many issues, but the NRx approach/implementation to attaining such goals is different.

Stocks vs. Real Estate Debate, Part 3 (answering objections)

It’s amazing how much discussion there is about personal finance…a thread about finance on Reddit’s Slate Star Codex thread got over 80 replies.

In parts 1 & 2, I make an argument for owning real estate over stocks. I assume that someone, hypothetically, has a sum of money saved up (such as $40,000) or as a gift or inheritance, and is deciding whether to rent and invest the $40k in stocks–or–put the $40k on a down payment.

Part 1: The Advantages of Real Estate over Stocks

Part 2: Real Estate vs. Stocks, Part 2 (why homes win, and why rent sucks)

I updated Part 2 to include simulations of how, over the long-run, real estate and no stocks is better than a combination of stocks and renting.

Some objections:

1. Costs of maintenance:

This is correlated with the size, initial condition, and age of the home. Small new homes tend to have less maintenance than big old homes. Maintenance costs are more of an issue if you rent the property out instead of using it as a main residence. In my simulations, I assume the property is a main residence.

2. Inflation going up:

In my simulations, I assume a 30-yr fixed-rate mortgage. The fixed rate is a hedge against higher inflation, although 30-year fixed-rate mortgages may not be available in all countries, such as Canada.

3. Property taxes:

Property taxes are offset by mortgage interest deduction, which is an adequate approximation.

Using a property tax calculator, I obtain a yearly cost of around $4,500:

Using the Bankrate mortgage interest deduction calculator, I obtain a yearly savings of around $4500-6000, depending on state tax rates and income tax:

4. Capital gains taxes:

Long-term capital gains for the sale of real estate is 20%. A roth IRA has the advantage of being untaxed.

5. Capital losses:

An objection:

You aren’t risk-adjusting your estimate. What if the city turns into Detroit? What if your home gets hit by an uninsured disaster? What if you get toxic mould in the brickwork and have to replace the walls?

Real-estate might provide better average returns but for most people it’s going to be a huge percentage of their capital. That means there’s a huge downside – they could lose everything if disaster strikes on that one investment. That’s something the stock market protects against. It allows diversification to mitigate those kinds of scenarios.

You are also making a false comparison – you’re comparing the whole property market to the stock market, when you should be comparing average volatility per property. If I own a single house, the volatility on its price is going to be way higher than the general market and there are a lot more lose-everything scenarios.

Real estate has higher risk-adjusted returns than stocks (a higher sharpe ratio):

Stocks also have risks: fraud, bankruptcy, loss of market share, recession, disaster, crisis, etc. Because a home has tangible value, it can’t go to zero, unlike individual stocks. The worst I have seen is a home fall 50%, which was in certain areas in 2008-2011 (but the typical decline was more like 25-30%), but individual stocks fall 50-90% very often, and sometimes never recover. The S&P 500 lost 50% of its value in 2000-2003 and again in 2007-2009. It lost 20% of its value in 2011 and 15% in early 2016, although it quickly recovered in both instances.

But, yes, the leverage of real estate can magnify losses, but being able to pay the mortgage is what matters. Often, many will ‘walk away’ (strategic default) if the home becomes too far underwater, although this will hurt credit score. When stocks go underwater, however, there are far fewer options than when homes go underwater. The use of long-duration mortgages and small down-payments lessens risk, because less initial capital is at risk.

Home insurance is much cheaper than ‘stock insurance’ (put options).

6. Real estate has poor liquidity:

Obviously, it takes longer to sell a home than to sell a stock, but some real estate markets can close pretty quickly. In the Bay Area, for example, there is often a long list of waiting buyers. Sales can be competed in weeks.

7. Lack of diversity:

As shown in #5, although the S&P 500 is diversified it can still sustain large losses during bear markets and recessions. My simulations assume excess wages are invested in the S&P 500, boosting diversity.

Scott Adams is Wrong about Snapchat

My Snapchat Prediction

Snapchat’s Future

Snapchat continues to dive (SNAP)

This premature cerebration of Snapchat’s stock price decline reminds me of 2012 when Facebook stock fell from $38 to as low as $20, and everyone was certain that Facebook was a bubble and doomed, and now it’s at $139.

Bought some Snapchat shares in the low 20′s…target $100 (although I think targets are almost meaningless; expected payouts matter more, as I will describe). Nearly everyone between the ages of 15-30 uses Snapchat, and they aren’t going to defect and stop using the service, as many are predicting. The major categories are ‘boring’ social networking for older people (Facebook), and then for the younger demographic there’s Instagram (owned by Facebook), What’s App (also owned by Facebook) and Snpachat. All categories and demographics are covered just by owning Snapchat and Facebook stock.

Twitter fizzled because its growth stalled and they were unable to sufficiently monetize the users. Twitter has low engagement and too many fake users. Many millennials who used Twitter in 2009-2012 have moved to Instagram and Snapchat and don’t use Twitter as often. I don’t see a similar fate for Snapchat. Of course, I have no way to be certain about this, but the potential payoff is huge should Snapchat become as successful as Facebook. If Snapchat fizzles like Twitter, the stock price will probably settle at $10, a loss of 50% from the present price. But Facebook is already a $400 billion company. If Snapchat becomes just 1/4 as successful as Facebook, Snapchat goes to $100 [1], a gain of 400%. Assuming 50% odds of either, the expected value is $60. This is return on capital of 200%. These are much better payouts than in Las Vegas.

[1] At $20/share, Snapchat is worth $20 billion.

Malcom Gladwell: poster child of mediocrity

Malcom Gladwell interviewed by Tyler Cowen of the Mercatus Center, appropriately titled Malcolm Gladwell Wants to Make the World Safe for Mediocrity

Gladwell says:

So, if your problem is that you’re facing a series of stereotypes about how you are intellectually inferior, how you have a broken culture, how you have . . . I could go on and on and on with all of the stereotypes that exist. Then how does playing brutally violent sports help you? How is an association, almost an overrepresentation in these various kinds of public entertainments advance your cause? I’m for those things when they’re transitional, and I’m against them when they seem like dead ends.

Related response:

Malcolm Gladwell on Race

His point is that while other minorities were over-represented in sports and entertainment for short periods of time, African-Americans have been over-represented for a long time, which is a sign of an inability to penetrate into other fields. This thought had never occurred to me.

That’s because you’d have to be a moron to conceive such a thought, in which case Malcolm Gladwell is overqualified.

It never occurs to him that:

1. Africans Americans in professional sports leagues are only a tiny percentage of the total African American population. Only in Gladwell’s imagination have black athletes become representative of all blacks.

2. Professional sports pay better than most professions, so it’s rational for African Americans who have exceptional athletic talent to pursue sports.

3. If American Americans ‘transition’ out of sports, who will replace them? Why would recruiters and coaches, who are looking for the best talent, as well as paying fans, who expect top ability from players, settle for second-rate athletes when blacks not only want to compete but are better. Trying filling the NBA and NFL with only Hispanics, East Indians, and Chinese and see how far that goes.

4. These stereotypes are reality, backed by decades of data. Blacks score 1/2-1 SD lower on IQ tests (even ‘culture neutral’ ones) than whites, have lower educational attainment, higher rates of poverty, higher rates of social dysfunction, etc. Blacks from wealthy families score as low on the SAT as poor whites. That’s just the reality.

Blacks are over-represented in football and boxing, which can be violent, but blacks also excel at baseball, basketball, and track, which aren’t violent. As some noted, although MMA and professional wresting are violent, the fans and participants aren’t predominately African American. Gladwell, in his usual self, ignores the examples that refute his thesis and expects the readers and audience to nod along.

Here is another example of Gladwell stupidity from the interview, in which he says that Harvard grads should not be able to disclose that they went to Harvard. The obvious question is, if an employer asks a Harvard grad where he went to college, what is the grad supposed to say? The very absence of an answer would imply Harvard. Gladwell is incapable of thinking two steps ahead to see the obvious flaws of his logic. Maybe it’s a joke…because no one can possibly be that stupid.

Malcom Gladwell, as others have noted, is the very poster child of mediocrity, who pretends to be otherwise, and like Obama, his supposed elocution and ‘storytelling’ is a substitute for not having anything insightful, intelligent, or original to say. Even Pinker called him a ‘minor genius’, which is a nice way of saying he is not one at all.