The Amateur Financier

One of the advantages of being a chemist (besides the incredible attractiveness that is associated with guys who study science) is the interesting perspective it provides you on things completely unrelated to science.  I suppose that happens with every profession, of course; whether you are a butcher, a baker, or a candlestick maker, you tend to apply your personal knowledge and experiences to the world around you, including your finances.  What your profession teaches you about the world, you’ll tend to apply to your money as well.

A Chemist, doing Chemist-type things

Which brings us back to the thought at hand: chemistry.  One of the main considerations in chemistry is the concept of limiting reagents. Not to get too deep into the finer points of chemistry, a limiting reagent is the species that reacts which limits how much of the product(s) can be generated.  Determining the limiting reagent enables you to figure out how much of the product(s) that can be made (and when you’re in lab, determining how much of the product(s) you’ve been able to make).

That short little paragraph might not be enough to explain the concept (which is usually the subject of a solid lecture or two in a general chemistry class), so let’s consider a more familiar example: a fire.  To have a fire, you need three things: an ignition source (such as a spark or a match), something combustible to burn (wood, oil, a candle, whatever), and oxygen.  In most situations, the oxygen is effectively unlimited (even a huge fire can’t consume more than a tiny, tiny portion of the oxygen that makes up 24% of the atmosphere) while the combustible material is limited.  The amount of fire you can generate is limited by how much material you have to burn.

The Limiting Reagents When Investing

All of this got me thinking about investing, and what limits the amount of money you can earn throughout your investment career.  It occurred to me that what limits your investment returns varies throughout your lifetime.

• When you are young: Your investment returns are primarily limited by how much money you invest.  The difference between investing $4000 per year and $5000 a year when you have only $10,000 set aside will make a big difference in how much money you’ll have in the future.
• When you are older: As you age, though, the amount of money you invest starts to become less important; the impact on your net worth between investing $4000 and $5000 is much less pronounced when you have a net worth of $500,000.  Instead, the amount of profit you generate is much more dependent on how much of a return your investments generate; the difference between a 8% return ($40,000 on our $500,000 example) and a  6% return ($30,000) can make a big difference in your final net worth.  (Particularly when the miracle of compound interest starts to kick in.

When exactly does the change over occur, from greater dependence on amount of money invested to greater dependence on investment return?  Well, there’s no exact dividing line; as your investments keep growing, the amount your future net worth grows will start to rely more and more on investment returns.  Assuming most of your investments are in stocks and that said stocks return about 10% each year, investment returns will generate more income when your total amount invested is ten times your yearly investment amount.  So, if you’re putting aside $5000 a year, your investment return will exceed that amount when you have $50,000 in your account (or around that amount).

The Lessons to Be Drawn

While thinking about all this, a few lessons occurred to me.  First, when you’re younger, the most important thing to how your net worth grows is how much you invest, not the return you earn.  It’s better to get started with your investment as soon as possible, rather than obsessing about finding just the perfect investment.  When you are starting out, worrying too much about your investment choices will just delay your net worth’s growth.

Next, as you grow older, the importance of a solid returning investment grows and grows.  While it is tempting to hide your money in safe investments and not take on any risk, keeping your money growing requires taking on a certain amount of risk.  Keep a portion of your money in safe investments (to protect yourself from declines in value) but remember that you need to keep growing your money as well.

The last, and most important lesson that I’ve drawn from this line of thinking, is that there are lessons that can be learned about managing your financing all around you.  Applying what you learn throughout your life to your money and personal financial management can yield lots of interesting insights.

What sort of lessons has your job taught you?

Well, I’m certainly glad that I’ve managed to finish my finals with my sanity (and my GPA) more or less intact.  It took quite a bit of effort, but I think I’m in pretty good shape.  Assume my grades turn out as expected, I should have A’s and B’s on my report card.  (And just calling it a ‘report card’ makes me all nostalgic for junior high; good times, good times.)

Now, I realize that the final season is just getting started for some people (my fiancée Sondra has all her finals next week, for example), and I also know that next semester (whether you consider the winter semester as the ‘next semester’ or the spring semester when everything will really pick up) there will inevitably be more finals (and tests of all kinds, really).  So, I thought I would help out my fellow students, take a little break from the personal finance, and give some advice on test taking.

Rule One: Always have plenty of supplies available come test time

I’ll break it down by the amount of time you have until the test begins, but first, some advice on how to study:

Throughout The Semester

-Keep up (or get ahead) on the reading: Chances are, you have a textbook or two associated with most of your classes; for all the talk of a ‘digital classroom’, ink on paper is still a vital part of the educational process.  In addition, your teacher might give out regular hand outs, post notes online, or some combination of the three.  Make sure that you don’t fall behind in this reading, as it will be a vital supplement to what you hear in lecture.  Better yet, do your best to jump ahead of the game and read the material your professor WILL be covering; you’ll have a much better understanding of your professor is discussing.  Speaking of which…

-Attend the lectures (and take notes): I almost feel bad about including this; but, given the number of people who skip lectures, many times on a regular basis, I feel I should.  Not only will attending the lecture give you a better idea what your professor will and won’t cover come test time, but it provides an alternative method of covering the material.  The more times, and the more ways, your brain is exposed to particular ideas, the more the material will sink in.  Plus someone is paying for your education (be it you, your parents, or a student loan company), so you might as well get their money’s worth.

-Seek help if needed: At some point in your educational career, you’ll probably find yourself having trouble understanding something you need to learn.  Luckily, the old academic model of professors lecturing and then leaving you on your own until test time is all but gone; there are plenty of resources available to the modern student to help you learn what you need to know.  From visiting the Learning Center or its equivalent at your school to asking a professor (or one of us helpful grad students), there’s no reason to go through the semester without having a full understanding of the material you need to know.

Alright, that should get you through most of the semester; but when tests or finals are approaching, you need to bump up your studying skills to match the coming challenge.  It helps if you get a good start:

One Week to Go

-Prioritize your goals: Chances are that you’re not taking only one class at a time; you need to know how to keep up on more than one thing at a time.  At finals time (and possibly throughout the semester, depending on how your tests are scheduled), you’re likely to have more than one thing you need to study for at a time.  You’ll need to prioritize your goals, although how you’ll do that is up to you.  I’d suggest focusing on the subjects that have given you the most trouble, but working on the material that you will be tested on first could also work.

-Eliminate distractions: Obviously, you can’t ensure that you will be completely undisturbed the entire time you are trying to study, but trying to take care of things ahead of time will make your study time go much more smoothly.  Of particular note are major projects; there’s a fair chance you have one or more things on your ‘To Do’ list that you’ll need to finish around the same time your tests occur.  If you can finish them quickly (and still do a good job), getting them done will make it much easier to focus on your studies.  (Note, though, that it’s not worth forgoing two days of studying for a 200 point final in order to do a phenomenal job on a 50 point project; be sure to prioritize the most worthwhile tasks.)

Three Days to Go

-Test Yourself: Now is a good time to test yourself to see how well you know the material; you still have plenty of time to brush up on areas where your knowledge is lacking.  There are several ways to test yourself, from using the questions found in most textbooks to getting old tests from your professor or previous students.  You could also work with one or more partners, make up tests for each other, and trade; that way, you’d see how well you know the material, and possibly see a way of asking something that you didn’t before.  In any case, focusing your efforts on areas where you didn’t test well should be your next goal.

-Switch up your routine: By now, if you’ve been studying hard for four days, you’re probably getting a bit atrophied.  It’s a good time to try something different.  If you’ve been studying from the lecture notes, try cracking open the textbook; if you’ve been going over back of the chapter problems in the text, try re-reading your lecture notes.  Anything that will make your studying fresher should be considered.  (It’s also a good time to consider taking a break for a day to let your mind rest, particularly if you have a good grasp on the material, so long as you get back to studying soon.)

One Day To Go

-Test yourself again: By now, you should have an excellent handle on the material; another practice test should be a huge confidence booster that you’ll do well on the final.  If your score still isn’t where you want it to be, though, you’ll need to do some serious studying to get up to par by test time.  (Note: If you’re using the same practice test as before, be sure that you are getting a better score because you know the material better, and not just because you’ve memorized the test.  Remember, you don’t want to just do well on the practice test, you want to be able to translate that into doing well on the real test.)

-Get a good night’s rest: It’s tempting to pull an all-nighter and cram before a test, but you’ll only end up hurting yourself.  Don’t panic; if you’ve been studying well throughout the semester (and over the last week), you should do fine.  (And if you haven’t, I’m sad to say that one night of cramming probably isn’t enough to save you, anyway.)  Getting a good night’s sleep, waking up rested and refreshed, and (assuming time allows) studying more in the morning of the test is a much better plan.

The Day of the Test

On the day of the test itself, there’s not too much more you can do to prepare (at least, assuming you’ve been following this plan and have been studying up to this point).  Hopefully, you’ve managed to pack your brain with so much information that’s it’s near capacity.  A few last minute tips: Eat a good breakfast (and lunch and dinner, depending on when your test is held) before your test, so you aren’t distracted by hunger, but no so close to test time or so large that you’re overstuffed and distracted while taking the test.  Be sure to get to school with time to spare, so you don’t feel rushed or pressed for time.  Do some light reviewing while you wait for test time to approach (don’t try to learn a chapter or two of material at the last minute, but a few warm up problems will help get you thinking about the test material).  Lastly, but most importantly, DON’T PANIC.  If you’re prepared, it should be pretty easy to do well on this test.

Good luck, and here’s hoping all you finals takers will have good news to report to your friends and family come Christmas!

If you’re a regular reader, and frequently follow the links that I provide, you might be aware that I’m a fan of Cracked.com.  Although a comedy site (and a pretty funny one to boot; I’ve laughed out loud to some of their articles on more than one occasion), they also generally have good, sometimes thought provoking articles.  I’ve even been inspired to write some of my articles here based on the articles they offer; my ‘Your Mind and Your Money‘ series was inspired by the Cracked article on ‘6 Logical Fallacies That Cost You Money Every Day‘, for example.

Unfortunately, one of the disadvantages of Crack’s articles is that they are good at pointing out problems, but not so good at coming up with solutions.  This is to be expected, I suppose; pointing out human foolishness is much more fun than coming up with a ten step plan to fix the problem.  For example, they provide a list of 6 Subtle Ways The Media Disguises Bulls*** As Facts, but fail to give the reader thoughts on how readers can protect themselves from said bulls***.  (Although, simply knowing some of the underhanded tactics will hopefully help readers to spot them and resist them.)

Enter the Amateur Financier.  I’m not only going to pass on the ways that the media can bend facts to fit their preconceptions and possible agenda, but provide you ways to defend yourself.  With no more ado, let’s get that Bulls*** Detector fired up:

#6: Weasel Words

What It Is: Weasel words are words used to give the author (or reporter, or speaker) a way to express their opinions without having to take ownership of said opinion.  Attributing opinions to ‘some’ or ‘many people’ or ‘the American public’ allows you to express your opinion (or set up a straw man against whom you can make a noble stand) without having to find a person or group that actually holds that position.

How to Defend Yourself: Whenever you hear or read someone attributing an opinion to a vaguely defined (if at all) group, ask yourself whether they’ve given any proof.  Given the huge number of surveys, polls, and opinion gathers out there, if there is a sizable group that believes the Earth is in the shape of a dodecahedron, for example, there should be some proof to cite to that effect.  If not, feel free to substitute ‘I’ (that is, the author, reporter, or commentator) or ‘the people I oppose’ for any weasel words you encounter.

#5: Implying Without Saying

What It Is: By mentioning two (or more) ideas together in a story, the media can take advantage of the natural human tendency to assume that the two things are linked. Saying ‘Hundreds become wealthy after reading The Amateur Financier’ implies that reading this blog caused the increase in wealth, whereas the truth is that reading the blog probably had a minimal effect on the gain in wealth.  (Not that you should stop reading, of course…)

How to Defend Yourself: The main problem is the same one I’ve discussed before, assuming (falsely) that correlation is the same as causation.  Remind yourself of the difference, and you’ll be less likely to read stories about teenagers going on rampages after playing video games and assume that the video games caused the rampage.  (Or that, say, in reports about politicians doing illegal/immoral activities, that being a politician caused the person to be less ethical.)

#4: Burying Inconvenient Facts

What It Is: Reality doesn’t always go the way we want, but by twisting what we show, we can make it appear differently.  So, I can say ‘Survey Shows The Amateur Financier Most Popular Personal Finance Blog’ without mentioning that the survey is of me, my mother and my fiancee.  If you don’t take the time to read far enough to catch that detail, the headline sounds pretty impressive.

How to Defend Yourself: Reading the entire article to ensure that there aren’t any qualifiers or other modifying statements that contradict the headline (or at least, make it less solid than it initially appeared) is one option, although given the deluge of information facing most of us, it’s not likely to be possible all the time.  A healthy level of skepticism about news in general (and news with provocative headlines in particular) will serve you well, especially when the headline attributes the claims to another source (study, survey, a particular group, etc); that’s another way, similar to our ‘weasel words’, for a journalist or other commentator to express their views without having to claim ownership of the opinion.

#3: Biased Photos

What It Is: They say a picture’s worth a thousand words; too bad so many of them are lies.  By picking and choosing among the available photos (and videos or audio clips) and selectively editing out useful details, a publication can choose to make a particular person look powerful, knowledgeable, and capable, or look foolish and incompetent.

How to Defend Yourself: After the initial burst of disgust, happiness, or patriotism (whatever emotion the media outlet was trying to spark), take a moment to stop and think about why the media chose that particular picture (or other piece of media).  They’re usually trying to support some thesis about the person or events in question, and not every picture represents a public figure’s true personality.  Think about all the pictures of you where you were looking less than your best, and cut public figures a little slack for not always being ready for the cameras.

#2: The Active Voice

What It Is: By selectively using either the active or passive voice in their headlines, the media can choose to blame the actors or give them a free pass.  For example, ‘Police shoot and kill man who was robbing bank’ (the active voice) puts the blame for the man’s death clearly on the police, while ‘Man shot and killed while robbing bank’ (the passive voice) leaves the question of who shot the man open for speculation (the bank guards, his partner, an armed civilian, etc.), implying that being shot and killed was a natural consequence of bank robbing.

How to Defend Yourself: This is another case where reading beyond the headline is your best friend in getting to the truth.  While the actor might be obscured in the attention-grabbing headline, it shouldn’t be long into the article before the actor that caused the results in the headline (in this case, shooting and death) is revealed.  (Although, keep point #4 in mind; the truth might be buried.)

#1: Guessing the Motives Instead of Reporting the Facts

What It Is: Trying to determine the rationale behind someone else’s actions forms quite a lot of modern reporting.  Rather than stating that ‘Obama supports a public health bill’, it becomes ‘Obama wants health bill to further big government agenda’; instead of ‘Republicans state costs as reason for opposition to bill’ it becomes ‘Republicans desperate to defend status quo and their corporate backers’.  In both cases, the latter example speculates on the motives behind the actions, rather than reporting what happened straight as in the former examples.

How to Defend Yourself: Unless there’s been news reports that I’ve missed, there’s currently no mind readers who exist outside of the occasional comic book character.  Thus, the only way to really know what someone is thinking is to have him or her tell you; if they (or their spokespeople, for the rich and powerful) don’t tell you directly, you simply can’t know.  (Even if they do tell you directly, I hope that you maintain enough skepticism to not take them solely at their word; reporters and journalists aren’t the only ones who try to tweak the truth.)  A healthy amount of doubt about the motives ascribed to any particular action, no matter who is doing the ascribing, will serve you well when reading the news.

There you have it, six ways the media can twist reporting to back a particular view point, and some advice on how to avoid falling into that trap.  Now go, go and feel free to expose yourself to some media with your new found knowledge of how it might be manipulating you.  Just don’t read too much at once; over exposure to that stuff isn’t good for you.

Alright, a little background before we get started on this entry.  Because I am in between jobs, and because I’ve been trying to improve my blog, I spend quite a bit of time online at home.  Thanks to my Yakezie membership, I’ve downloaded the Alexa Taskbar, which, among other features, displays some of the most popular trending stories and topics near the top of my web browser.  This arrangement mean that I have the opportunity to see some of the most popular topics of conversation as they develop.

Today, there was an especially unusual topic: Noah’s Ark was found!  At this point, I had to go and check the calendar, to make sure that April Fool’s Day wasn’t moved to the 27th while I was attending a ceramics convention with my fiancee.  (Just in case you were worried: no, it wasn’t.)  No, the truth is possibly even odder: an expedition in Turkey claims to have found the actual remains of Noah’s Ark.

The Arc they found is decidedly less cartoony

If true, the results could be quite profound for history and science. Meteorologists have long maintained that there simply isn’t enough water in the world to flood the entire world up to the top of Mount Ararat, and proof that a boated sailed up to that height would certainly raise some interesting questions.  History would have to be altered to note the new reality of the Arc as truth rather than myth.  The changes would be quite profound.

(That said, I think the impact on religion is less than what some might claim.  The story of Noah’s Ark is part of the Talmud, the Bible, and, if memory serves properly, also mentioned in the Koran; finding the Arc doesn’t ‘prove’ any of these religions correct.  Plus, there are other traditions that maintain a belief that there was a great flood; even proving that there was a Noah who built an Ark, gathered animals, and sailed in it to survive the flood doesn’t preclude other survivors elsewhere.)

The Lessons to Learn

1) Expect the Unexpected: It seems no matter how odd your expectation become, life manages to be even weirder.  Of the many things I may have expected to happen today, finding Noah’s Ark would not have made the list.  I doubt that finding Noah’s Ark would be on the list, well, ever, really.

In the same way, unexpected things happen during our daily lives; being prepared for multiple eventualities is an important part of life.  (See how I tied this back into personal finance?)  It’s impossible to prepare for absolutely everything (like the rediscovery of a five thousand year old boat), but the more prepared you are, the more circumstances you can handle, the better off you will be.

2) Trust, But Verify: A great policy from Ronald Reagan, one that you should especially keep in mind when confronted by things that seem to stretch the bounds of your imagination.  While one can hope that things of such importance are handles truthfully, that’s not always the case.  Even though news of this discovery has only been up for a day, already there are skeptics doubting the Ark.

While you shouldn’t automatically assume that everyone is lying, you need to have healthy skepticism, particularly when discussing issues of this nature, where there is much to be gained from false claims.  There have been plenty of claims involving the discovery of the Ark, dating back to at least the 1930′s.  While it’s quite possible that this time it’s different, we still need to retain our skepticism.

3) People are Basically Good: As with any discovery that threatens to greatly change our perception of reality, the universe, and life itself, there’s quite a bit of disagreement.  As is too often the case with discussions on the internet, foul language is tossed around, intelligence is insulted, and generally, things get very unfriendly, very quickly.

Here’s the truth: the people who believe that this is the true Noah’s Ark are, by and large, good, hard working, and intelligent people, led by faith or their own feelings to their beliefs.  Here’s another truth: the people who doubt that this discovery is Noah’s Ark are also mainly good, hard working, and intelligent people who have good reasons for their doubts.  Neither group is evil or stupid; there’s simply a disagreement on the truth of the matter.

On that note, I suppose I should share my view on this Ark discovery.  I am currently leaning toward skepticism, although I’d be willing to be proven wrong.  (Unless, of course, the discovery and confirmation of the Ark triggers the end of the world; I’m perfectly happy for the world not to end for another half century or so, at least.)  I’m interested to see how this whole thing will play out; it is surprisingly engaging.