The Fall of Washington Mutual

Washington Mutual is perhaps one of biggest banks to collapse in American history. In 2008, after 119 years of operation, the bank was brought to its knees after the Recession hit.

What caused the banking giant to fall? It was a combination of things. First, Washington Mutual gave insanely generous loans to corner the market on middle-class consumers. It wanted to be the “Wal-Mart of Finance.” Sadly, this sent the bank to its ultimate doom when the 2008 Crash rolled in and consumers started defaulting on their loans.

Trying to control the panic among depositors and investors, Washington Mutual began reorganizing its Home-Loan Division, laying off more than 22% of its staff. That’s when things went from bad to worse.

Investors, seeing the banking giant losing its grip, decided to bail ship. Suddenly, there was a massive run on Washington Mutual as many depositors withdrew their funds from their accounts and investors tried to get rid of their stock.

It was a race to the bottom and Washington Mutual was losing big. The management tried to negotiate talks with other big banks seeking financial help and a possible buyout. They got nowhere. They received only one offer from J.P. Morgan Chase and it was for $4 a share. They rejected that offer.

By now, things were hopeless. The company tried to prevent further backslide by stopping wholesale money lending and it even tried to replace its CEO. Nothing worked.

It was finally apparent that nothing would save the banking giant, and the Federal Deposit Insurance Corporation (FDIC) seized the bank and brought its horrible year to a close. Depositors were given their money back. Investors got nothing.

This is why you can never assume that a bank is a stable investment. Because anything is possible in the world of finance.

Consumer Cyclicals Vs. Consumer Staples

There are two kinds of goods in the market that every investor needs to know about: consumer cyclicals and consumer staples.

Consumer cyclicals include things like electronics, movie tickets, and other somewhat unnecessary items. Consumer cyclicals are items that are bought specifically for enjoyment, and they often fare worst in bad economic times. Because when money is tight, nobody wants to spend their money on those things.

Then there are consumer staples. Consumer staples are goods that are essentially necessities — like milk, eggs, oil, and paper. These kinds of things are not wants, they are needs. This makes them more valuable in tough economic times.

Consumer cyclicals are goods for people who want it. Consumer staples are for people who require it.

How You Can Conquer Your Vices According to Seneca

Each person has a problem with bad behavior in some form or another — that’s a fact. Everyone, regardless of intelligence, income, or nationality is prone to do or think things that are unequivocally wrong. Of course, because the struggle is so common, everyone likes to pretend that these vices we struggle with are just a sad fact of life. We like to think that just because everyone wrestles with them, that they are somehow undefeatable. However, nothing could be farther from the truth. Our vices can be beaten.  Using the steps outlined by a philosopher more than two thousand years ago, you can conquer bad behavior outright.

In a book originally entitled, De Brevitate Vitæ (On the Meaningness of Life), the great Stoic philosopher Seneca tried to explain his framework for living meaningfully. It was in his book that he wrote the following:

“We must attack the passions by brute force and not by logic; that the enemy’s line must be turned by a strong attack and not by pinpricks; for vices have to be crushed rather than picked at.”

If you want to stop doing bad things, thinking bad thoughts, or having bad attitudes,  the best way is to stop all of it at once.  Everything. Cold turkey. You have to watch everything you do as if you were on a diet, being aware of even the smallest things and putting an end to the things you know you shouldn’t do.

The problem is that most people never do this – they mistakenly believe that it just takes small steps to finally get on the road to purity. But small steps require discipline, and people who struggle with their vices aren’t disciplined enough to take small steps. If they were disciplined, they wouldn’t be struggling with bad behavior in the first place!

Want to be a better person? Start being one. Do what Seneca said: Go strong.

Basic Statistics: Classical Measurement Theory

What is classical measurement theory? It’s a fancy way of saying, “How badly did we screw up our data?” Something a lot of statisticians find themselves saying daily (I’m just guessing. After all, I’m not a statistician myself).

No collected data is without errors. You might even say, “To err is data.” But just because it’s not perfect does not mean that it’s not useful – at least, if the errors are correctly identified. That’s what classical measurement theory helps with: identifying the errors.

Understand everything so far?

Let’s keep going.

Here’s the formula:

X = T + E

Here’s what you need to know: It requires three parts, observed measurementtrue score, and error. X represents the observed measurement, which is the sum of T (true score) and E (the error).

Let’s create an example. Let’s say you measure a cup of water. The measurement shows that the cup contains 8 ounces of water. However, you know that the true measure of water is 2 ounces less. You would then plug those numbers into the formula like so,

8 = 6 + 2

See? It’s simple. Unfortunately, both T and E are hypothetical, since in the real world you would never know the truth value of measurements, and can only make estimates about whether the data is correct or not.

Congratulations, you just took a baby step to be a master of statistics. Give yourself a pat on the back. You deserve it.

Basic Statistics: Discrete Data Vs. Continuous Data

You might say that discrete data isn’t very extraverted. It likes to sit by itself, isolated from the overly-complicated. Discrete data is a minimalist, and infinity is the enemy. Basically, anything that has a reasonably limited number of options is discrete.

The of sides on a dice? That’s discrete data. Available space on my flash drive? Discrete. Why? Because there’s only a certain number of available numbers that would work as a solution (e.g. there’s only 64 or less megabytes of storage on a 64 megabyte flash-drive).

Discrete data is the complete opposite of continuous data. Whereas discrete data is defined as something of reasonably limited possibilities, continuous data isn’t limited in possibility. Unlike discrete data, continuous data loves large amounts of possibilities and complicated muck (why do I seem so biased against continuous data? What has it ever done to me?). Either way, the differences are good to know.

Discrete Data: Reasonably limited in possibility.

Continuous data: Data that can take any value.


Basic Statistics: Nominal Data

What on earth is nominal data? The term itself is intimidating, yet its meaning is astonishingly simple.

Ever notice how sometimes we use words to describe things that don’t really mean anything by themselves? For instance, we use words like man and woman to describe different sexes (although that might change soon). But do the titles actually mean anything on their own? What if they were switched around? If we called men, women and women, men, would there be any real difference? Probably not. The words themselves are arbitrary titles we chose to classify different kinds of people. That’s nominal data.

To put it briefly, nominal data is data where subjects are merely allocated to distinct categories for the specific use of classification.

Product Repackaging, Companies, and Snuggies.

Successful companies aren’t necessarily about creating new products. They’re mostly about finding creative ways to repackage old ones.

When we think of a successful company, we automatically think of a massive company that disrupts entire industries with groundbreaking new products or services, like robots, artificial intelligence, etc. We have a tendency of thinking that successful companies create revolutionary new products just like Apple, Amazon, and Google did. However, nothing could be farther from the truth.

Big companies with revolutionary new products are rare. That’s because it’s much harder to “reinvent the wheel” than it is to simply create something that already exists. Most companies tend to “repackage” old products by selling them in a way no one ever thought of before.

Take the Snuggie for instance. Don’t lie, you’ve seen a Snuggie before. It’s fun. It’s fluffy. It’s comfy. But it’s by no means “new”.

Before its popularity as a product exploded in mid 2008, many other companies had tried and failed to launch similar products. Sleeved blankets had been around for many years before the Snuggie, but nobody wanted to buy them.

Then Snuggie started branding the product as a new “cultural phenomenon”. Suddenly everybody wanted one, and now they’re for sale almost everywhere. I’m wearing one now.

No, successful companies don’t have to offer new kinds of products or services. They just have to sell old products in brand new way.

An Old Man, Death, and Your Character

There are a lot of things in life that you can’t control no matter how hard you try. When it comes to things like weather, politics, crime, or sometimes even your own destiny, you might be completely powerless. But there is one thing that you will always be able to control, and it’s the most important: whether or not you’re a virtuous man.

A few years ago, I remember hearing a story about an old man who lived in a small Mexican village. At first glance, he would’ve probably seemed uninteresting. He wasn’t married, owned no property, had no education during his lifetime – but he didn’t let those things prevent him from doing what he knew in his heart was right.

The old man always wanted to be on the side of the angels. He would never let anything slide… ever. If he felt he had taken advantage of someone else, he would apologize and set things straight immediately even if it was inconvenient for him. A neighbor finally asked him why he always went out of his way to deal with trifles. The old man’s response was clear and powerful: “My word and my character are all that I have, and I’ll be damned if I lose control of ’em before I die.”

It’s easy to feel powerless in this big world. It’s even easier to just give up. But no matter what happens, your character is something only you control. Even if the other parts of your life suck, whether you go to your grave a virtuous man or not depends entirely on you.

The Key to Writing

“The art of writing is the art of discovering what you believe.” – Gustave Flaubert

Nothing gives me more satisfaction than being able to organize my thoughts well enough to put them down in words. I find that trying to explain ideas helps me get a better understanding of how much I really know.

If you find it difficult to write about what you believe, it’s not your writing skills that are at fault – but your lack of beliefs. That’s because writing itself is easy. But having something worth writing about? That’s the tricky part.

End Those Bad Habits

The reason bad habits seem so harmless is because they usually are. Most of the time they can be easily fixed. If they aren’t fixed, that’s when you should really start to worry.

Bad habits exist only if you let them. If you purposely choose to ignore them, it’s your own fault and reveals a lot about your character.

Buddha once wrote, “He who does not rouse himself when it is time to rise… never finds the way to knowledge.”

It all essentially boils down to this: People too lazy to fix their flaws are people too lazy to succeed.