Delicious Bookmarks for September 24th through March 8th

These are my Delicious links for September 24th through March 8th:

Delicious Bookmarks for May 19th through May 23rd

These are my Delicious links for May 19th through May 23rd:

Where’s the Bottom?

Like many investors right now, I’m spending a lot of time trying to figure out whether the stock market has actually hit a stable ‘bottom’ or whether it still has further to fall. My dad and I had a long discussion last night about different methodologies for calculating what  equity prices *should* be based on historical market behavior and the dynamics of the current situation. The two main factors that have driven the slide from the heights of October 2007 (DJIA @ 14,279.96 and S&P 500 @ 1,576.09) are the sudden de-leveraging of the financial markets (i.e. some major investors being forced to liquidate >75% of their positions) and the macroeconomic effects of a recessionary cycle (i.e. higher unemployment, lower consumer spending, deflation).

While theoretically possible, I believe modeling the impact of these two factors is a practical impossibility because they are so intertwined — de-leveraging sparked the recession and the recession is driving further de-leveraging. You could also do a technical analysis where you try to match current market behavior to past patterns and extrapolate what happens next based on what happened before. But that method requires making a bet on which past patterns to match against, i.e. is our current situation more similar to the Great Depression or all the recessions since. And that’s a big bet.

So, I propose a different (and much simpler) approach: assume a realistically sustainable growth rate over a long enough period and figure out where we would be if the market had grown at that pace. I picked 20 years as the period and charted the monthly percent change of the Dow Jones Industrial Average (DJIA) from 2,342.32 at the end of January 1989 to 8,131.33 at Friday’s close. The actual percent change is the blue line, and I plotted 3 other lines against it: 10% annualized growth in green; 6% annualized growth in orange; and 2% annualized growth in red.

Here’s what that period looks like in annual percent change for the DJIA and S&P 500:

And here’s the annualized rate of return for both the S&P 500 and the DJIA since 1989:

Over the course of this 20 year period, there were only 6 years in which the market declined *at all* (one of which, 2005, was basically break-even) and there were 10 years in which the market gained *more than 10%* and in 7 of those it gained *more than 20%*. Even after the tech bubble “burst” taking the market from 11,497.12 at the end of 1999 to 8,341.63 at the end of 2002 (a 27.4% decline in 3 years), the market would still have delivered a *10.1%* annualized rate of return over the prior 12 years. From where we sit today, it’s no wonder the DJIA declined 33.85% in 2008 (taking us to a still very respectable annualized rate of return since 1989 of 7.24%). But that doesn’t answer the question of how much further down it needs to go before we can consider the value of the equity markets stable. 

That’s where the annual growth rate analysis comes in. It is still highly subjective — depending on what one believes to be a representative sample period and sustainable annualized growth over that period. But I like it because it helps me think about the broader market in terms I feel more comfortable making assumptions about, like what do I think is a reasonable rate of value creation for the economy as a whole over a given period. In the case of the 20 years since 1989, do I believe there’s a reason that the equity markets should have averaged ~10% annual growth while our Real GNP achieved only 2.76% annual growth over the same period? No, and obviously neither does the market at this point.

So, what is a reasonable expectation for a bottom? Your guess on the underlying assumptions is as good as mine. But if one believes technical advancements over the last 20 year period enabled us to double efficiency (i.e. extract twice as much profit from the same revenues), then the markets *should* have grown at around twice the rate of Real GNP. In that case, we would be expecting 5.51% annualized growth in the markets since 1989 as of the end of 2008. Starting from 1989 closing prices of 2,753 on the DJIA and 353.4 on the S&P 500, 19 years of organic equity growth pegged at 2x GNP growth should have closed 2008 at 7,634.38 and 979.95, respectively (actuals were 8,766.39 and 903.25).

Update: Dad accurately points out that GNP is a trailing indicator and equity prices are leading indicators. So, this analysis shouldn’t be considered anything other than directional. I find it helpful as one factor in my overall assessment of the current situation, but as Howard reminds us no one really has all the answers.

This final chart shows the actual level of the DJIA (blue) compared to what it would be if it was pegged at 1x GNP Growth (red), 2x GNP Growth (orange), and 3x GNP Growth (green). It is essentially the same as the chart at the top but now instead of arbitrarily picking annual growth rates, we have pegged them as multiples of Real GNP (i.e. ratios of business efficiency). As you can see, for most of the last 20 years the markets were assuming >300% improvements in business efficiency.

All the above charts and underlying analysis can be found in this spreadsheet.

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Delicious Bookmarks for April 10th through April 15th

These are my Delicious links for April 10th through April 15th:

  • 15 Places to Find Great Fonts | Lists | Tutorial Blog – A list of sites where one can find free fonts.
  • The Quiet Coup – The Atlantic(May 2009) – A very interesting in-depth analysis of the rise of the financial oligarchy in the US over the last 20 years and how it has created dynamics similar to those of emerging market economic crises, according to a former chief economist of the IMF. “In a society that celebrates the idea of making money, it was easy to infer that the interests of the financial sector were the same as the interests of the country—and that the winners in the financial sector knew better what was good for America than did the career civil servants in Washington. Faith in free financial markets grew into conventional wisdom—trumpeted on the editorial pages of The Wall Street Journal and on the floor of Congress.”

Delicious Bookmarks for April 5th through April 9th

These are my Delicious links for April 5th through April 9th:

  • Digg support, Brazilian shortener, and all sorts of other awe.sm-ness « feed your blog to twitter – Announcement of the first third-party tool to officially support awe.sm 😀
  • L.A. starts buying up foreclosed homes with federal aid – Los Angeles Times – This is the best use of federal bailout money I've heard yet: the city of Los Angeles is buying up foreclosed residential properties and turning them into low-income housing. This is toxic-asset relief (buying foreclosed properties puts a value on their mortgages) with real equity for the government and a social benefit. I hope more funding goes towards programs like this.
  • The Banker Who Said No – Forbes.com – A fascinating profile of banker D. Andrew Beal, who runs Texas-based Beal Bank. Beal Bank is privately held and approaching $7 billion. But the most interesting part is how they got there: by essentially sitting out the market 2004-2007. Seeing the state of the lending market in 2004, Beal essentially put his bank into hibernation by suspending new loans, hoarding cash, laying off half his workforce, and working half-days. Over the next 3 years, he was mocked by mortgage brokers and scrutinized by regulators for sitting on the sidelines. But his intuition, conviction, and self-restraint have paid off in a big way as he is now using his cash stockpile to acquire assets at pennies on the dollar. IMHO, no publicly traded bank would have been able to pull this off even if they had wanted to.

Delicious Bookmarks for February 19th through February 25th

These are my Delicious links for February 19th through February 25th:

  • HTML URL Encoding Reference – Handy table of the URL encoded values for ASCII characters.
  • A foot and a half: Finally, A Use for Twitter – Greatest Twitter story evar! I actually saw these tweets from @the_real_shaq while this was happening, now we get the backstory from the guys for whom they were intended. I <3 Shaq!
  • The Crisis of Credit Visualized – Astute, approachable, and just plain pretty animated explanation of our current economic situation. Oh, and did I mention INCREDIBLY FRIGHTENING!? Once you realize how simple, and thus fundamental, the underlying problems are, it becomes very difficult to believe in a quick or easy fix. Now, back to stuffing my remaining cash into my mattress…
  • How Freshbooks Built an Army of Passionate Evangelists on Twitter. How are YOU doing so? | Blog of Mr. Tweet – A great story from a company passionate about serving customers and building relationships with them (CRB = customer relationship building) and how they extended the reach of that passion through Twitter. Worth the read.
  • The Missing Google Analytics Manual | FutureNow’s GrokDotCom / Marketing Optimization Blog – A comprehensive collection of the most helpful links and videos to teach you how to get the most out of Google Analytics.
  • Coding Horror: Commandos, Infantry, and Police – Quotation of a legendary analogy from Robert X. Cringely’s “Accidental Empires” published in 1993. Cringely characterizes the successive waves of employees who staff a company through its lifecycle from startup to industry leader to incumbent as commandos, infrantry, and military police, respectively.”The [commandos’] job is to do lots of damage with surprise and teamwork, establishing a beachhead before the enemy is even aware that they exist. Ideally, they do this by building the prototype of a product that is so creative, so exactly correct for its purpose that by its very existence it leads to the destruction of other products. They make creativity a destructive act.”
  • Add Community to your Site with Triggit! – An interesting idea of using Twitter as a platform to create user communities for your site (a la MyBlogLog). The differentiator is supposed to be that the community discussions happen publicly on Twitter, thus driving more traffic to your site.
  • GroupTweet – Cool simple tool to create what are essentially Twitter group mailing lists. You set up a Twitter account for your group, register it with GroupTweet, and then it’s just a bot that RTs any DMs sent to the group account. In order for a group member to be able to post to the whole group, they need to be followed by the group account. And you can control who reads the group messages by protecting the group account’s updates. Simple, elegant, effective.
  • Analytics Talk » Blog Archive » Tracking Sub Domains with Google Analytics – Best article I could find on how to track subdomains properly in Google Analytics. Surprised they don’t do it right out of the box. But, these easy to follow instructions and screenshots will get you sorted quickly.

Delicious Bookmarks for February 3rd through February 9th

These are my links for February 3rd through February 7th:

  • 5 Lessons I Learned After a Year as a Digital Nomad – The best piece of travel advice I've heard in a while: know the difference between traveling and living. If you're going to some place interesting, don't expect to have time to do other stuff like work. You'll just end up choosing between missing out on all the cool things to do where you are (and thus resenting your choice) or feeling guilty about not doing whatever it was you thought you were going to get done.
  • Dan Gilbert asks, Why are we happy? | Video on TED.com – Dan Gilbert, author of Stumbling on Happiness, challenges the idea that we'll be miserable if we don't get what we want. Our "psychological immune system" lets us feel truly happy even when things don't go as planned. This is a really great talk. Well worth the 20min it takes to watch. You will be amazed at the empirical evidence on how bad humans are at predicting our own happiness and how subjective and relative happiness actually is.
  • Kareem Mayan’s Weblog: customer experience, emerging technology, media, and more – A great (old) blog post by Kareem on what makes people truly happy, how bad we are at predicting it, and how so few of us actually pursue it. Kudos to Kareem for taking his own advice and deciding to align his life to best pursue his dreams of traveling around the world (http://howsthewifi.com). The video at the end of this post is a must watch. Unfortunately, the embed is now broken – so, go see it here: http://www.ted.com/index.php/talks/dan_gilbert_asks_why_are_we_happy.html
  • random($foo): Online Tools for A New Small Business – Leonard Lin's list of recommended business tools for startups. Covering accounting, CRM, marketing and development.
  • Why Should I Care What Color the Bikeshed Is? – "The really, really short answer is that you should not. The somewhat longer answer is that just because you are capable of building a bikeshed does not mean you should stop others from building one just because you do not like the color they plan to paint it. This is a metaphor indicating that you need not argue about every little feature just because you know enough to do so. Some people have commented that the amount of noise generated by a change is inversely proportional to the complexity of the change."
  • FT Alphaville » Blog Archive » Happy Boycott CNBC Day! – "The real problem with mullets and Pabst and Toby Keith songs, and with CNBC, is that there are people, large swaths of humanity, in fact, who apparently regard the above unironically."

These are my Delicious links for February 3rd through February 9th:

  • TechStars » Seed capital and mentorship for startups – Documents that TechStars uses as a starting point for seed stage financing for their companies. Aimed to be model documents for an angel or seed financing in the $250k-$2M range. They represent a “light” preferred equity financing and have very simple terms that are generally “balanced” but if anything lean toward the entrepreneurs and represent a great deal of trust in them, which they think is appropriate for angel deals where you are primarily investing in the people at the early stage.
  • 5 Lessons I Learned After a Year as a Digital Nomad – The best piece of travel advice I've heard in a while: know the difference between traveling and living. If you're going to some place interesting, don't expect to have time to do other stuff like work. You'll just end up choosing between missing out on all the cool things to do where you are (and thus resenting your choice) or feeling guilty about not doing whatever it was you thought you were going to get done.
  • Dan Gilbert asks, Why are we happy? | Video on TED.com – Dan Gilbert, author of Stumbling on Happiness, challenges the idea that we'll be miserable if we don't get what we want. Our "psychological immune system" lets us feel truly happy even when things don't go as planned. This is a really great talk. Well worth the 20min it takes to watch. You will be amazed at the empirical evidence on how bad humans are at predicting our own happiness and how subjective and relative happiness actually is.
  • Kareem Mayan’s Weblog: customer experience, emerging technology, media, and more – A great (old) blog post by Kareem on what makes people truly happy, how bad we are at predicting it, and how so few of us actually pursue it. Kudos to Kareem for taking his own advice and deciding to align his life to best pursue his dreams of traveling around the world (http://howsthewifi.com). The video at the end of this post is a must watch. Unfortunately, the embed is now broken – so, go see it here: http://www.ted.com/index.php/talks/dan_gilbert_asks_why_are_we_happy.html
  • random($foo): Online Tools for A New Small Business – Leonard Lin's list of recommended business tools for startups. Covering accounting, CRM, marketing and development.
  • Why Should I Care What Color the Bikeshed Is? – "The really, really short answer is that you should not. The somewhat longer answer is that just because you are capable of building a bikeshed does not mean you should stop others from building one just because you do not like the color they plan to paint it. This is a metaphor indicating that you need not argue about every little feature just because you know enough to do so. Some people have commented that the amount of noise generated by a change is inversely proportional to the complexity of the change."
  • FT Alphaville » Blog Archive » Happy Boycott CNBC Day! – "The real problem with mullets and Pabst and Toby Keith songs, and with CNBC, is that there are people, large swaths of humanity, in fact, who apparently regard the above unironically."

Delicious Bookmarks for January 9th through January 23rd

These are my links for January 9th through January 23rd:

  • Tube Mogul Buys Video Analytics Firm – "TubeMogul currently has over 40,000 users, ranging from networks and studios such as CBS, to web only video producers and bloggers like 'Fred.' Illumenex current clients include Internet TV pioneer Revision3 and comedy site 'eBaum’s World.'”
  • "Don’t forget…" – a set on Flickr – Really cool street art project in Berlin (where else) that is adding Photoshop interface elements to billboards to remind passers-by that these images of beauty are artificially enhanced. (via https://addons.mozilla.org/en-US/firefox/addon/9591)
  • Facebook Developers | Facebook Developers News – Facebook is now allowing custom FBML tags, essentially code libraries produced by 3rd party application developers that can be used by other application developers to add functionality from one app to another. This opens the door to officially sanctioned mash-ups of Facebook apps, which are already mash-ups in themselves. Using the term mash-up in a non-ironic fashion makes me want to punch myself.
  • The Inauguration of President Barack Obama – The Big Picture – Boston.com – A poignant collection of photos of Barack Obama's inauguration and the reactions to it around the world. My favorite is the American soldier in Iraq crying tears of joy (#19). The fact that the routine transfer of power in our country can inspire such powerful reactions around the world is evidence of what a truly global world in which we now we live. And I believe it shows that we as American citizens are making progress towards redeeming ourselves in the eyes of the world, who hold *us* (not just our leaders) accountable for the actions of our nation.
  • Transcript – Barack Obama’s Inaugural Address – Text – NYTimes.com – Text of Obama's inaugural address.
  • Rev. Lowery Inauguration benediction. Transcript. – Lynn Sweet – "Lord, in the memory of all the saints who from their labors rest, and in the joy of a new beginning, we ask you to help us work for that day when black will not be asked to get back, when brown can stick around — (laughter) — when yellow will be mellow — (laughter) — when the red man can get ahead, man — (laughter) — and when white will embrace what is right."
  • Resources Every WordPress Theme Developer Should Know About! | Arbenting – A comprehensive list of resources for WordPress Theme development.
  • YouTube Videos Pull In Real Money – NYTimes.com – Many have long claimed that the only profitable type of online video content was repurposed TV shows/films or other "professionally produced" content. This article give several examples dispelling that myth and showing that the online video audience and business has reached a point where even so-called amateurs can make real money. For example, Michael Buckley is making >$100k/year from his homegrown entertainment news show "What the Buck?" purely through YouTube's partner program.
  • Op-Ed Contributors – The End of the Financial World as We Know It – NYTimes.com – Comprehensive (if not revelatory) overview of some of the primary drivers of the financial bubble and resulting collapse by Michael Lewis and David Einhorn. Puts things like the failures of the ratings agencies and the greed of financial services company shareholders, which have been examined more deeply on their own, into the broader context of our current hindsight.
  • YouTube Is Changing How We Think About Video | Techdirt – "The power of YouTube is that it enables something entirely new and different to emerge and to thrive. In the history of disruptive innovations, merely taking a product from one medium and moving it to another usually doesn't get very far. It's the projects that really embrace the new possibilities that are only possible via that new medium that really make an impact."

These are my Delicious links for January 9th through January 23rd:

  • Tube Mogul Buys Video Analytics Firm – "TubeMogul currently has over 40,000 users, ranging from networks and studios such as CBS, to web only video producers and bloggers like 'Fred.' Illumenex current clients include Internet TV pioneer Revision3 and comedy site 'eBaum’s World.'”
  • "Don’t forget…" – a set on Flickr – Really cool street art project in Berlin (where else) that is adding Photoshop interface elements to billboards to remind passers-by that these images of beauty are artificially enhanced. (via https://addons.mozilla.org/en-US/firefox/addon/9591)
  • Facebook Developers | Facebook Developers News – Facebook is now allowing custom FBML tags, essentially code libraries produced by 3rd party application developers that can be used by other application developers to add functionality from one app to another. This opens the door to officially sanctioned mash-ups of Facebook apps, which are already mash-ups in themselves. Using the term mash-up in a non-ironic fashion makes me want to punch myself.
  • The Inauguration of President Barack Obama – The Big Picture – Boston.com – A poignant collection of photos of Barack Obama's inauguration and the reactions to it around the world. My favorite is the American soldier in Iraq crying tears of joy (#19). The fact that the routine transfer of power in our country can inspire such powerful reactions around the world is evidence of what a truly global world in which we now we live. And I believe it shows that we as American citizens are making progress towards redeeming ourselves in the eyes of the world, who hold *us* (not just our leaders) accountable for the actions of our nation.
  • Transcript – Barack Obama’s Inaugural Address – Text – NYTimes.com – Text of Obama's inaugural address.
  • Rev. Lowery Inauguration benediction. Transcript. – Lynn Sweet – "Lord, in the memory of all the saints who from their labors rest, and in the joy of a new beginning, we ask you to help us work for that day when black will not be asked to get back, when brown can stick around — (laughter) — when yellow will be mellow — (laughter) — when the red man can get ahead, man — (laughter) — and when white will embrace what is right."
  • Resources Every WordPress Theme Developer Should Know About! | Arbenting – A comprehensive list of resources for WordPress Theme development.
  • YouTube Videos Pull In Real Money – NYTimes.com – Many have long claimed that the only profitable type of online video content was repurposed TV shows/films or other "professionally produced" content. This article give several examples dispelling that myth and showing that the online video audience and business has reached a point where even so-called amateurs can make real money. For example, Michael Buckley is making >$100k/year from his homegrown entertainment news show "What the Buck?" purely through YouTube's partner program.
  • Op-Ed Contributors – The End of the Financial World as We Know It – NYTimes.com – Comprehensive (if not revelatory) overview of some of the primary drivers of the financial bubble and resulting collapse by Michael Lewis and David Einhorn. Puts things like the failures of the ratings agencies and the greed of financial services company shareholders, which have been examined more deeply on their own, into the broader context of our current hindsight.
  • YouTube Is Changing How We Think About Video | Techdirt – "The power of YouTube is that it enables something entirely new and different to emerge and to thrive. In the history of disruptive innovations, merely taking a product from one medium and moving it to another usually doesn't get very far. It's the projects that really embrace the new possibilities that are only possible via that new medium that really make an impact."