Department of Numbers

Wednesday February 29, 2012

Historically, low volatility stocks have not only reduced risk, they've also produced market beating returns.

If we look at all stocks available in the market and sort these on the basis of their historical volatility levels, lower-volatility stocks have generated higher returns than higher-volatility stocks. If we sort using beta, (a standard proxy for risk) rather than volatility, the low-beta stocks have historically generated substantially higher returns than their high-beta counterparts. The outperformance provided by selectively building a portfolio out of low-beta/low-volatility stocks is on the order of 2.0% per year, as compared to buying a portfolio in a market-cap weighted index such as the S&P 500 Index.

Sunday February 26, 2012

Bell labs, responsible for so much we now take for granted, used an innovation model far less common today.

But what should our pursuit of innovation actually accomplish? By one definition, innovation is an important new product or process, deployed on a large scale and having a significant impact on society and the economy, that can do a job (as Mr. Kelly once put it) "better, or cheaper, or both." Regrettably, we now use the term to describe almost anything. It can describe a smartphone app or a social media tool; or it can describe the transistor or the blueprint for a cellphone system. The differences are immense. One type of innovation creates a handful of jobs and modest revenues; another, the type Mr. Kelly and his colleagues at Bell Labs repeatedly sought, creates millions of jobs and a long-lasting platform for society's wealth and well-being.

Adam Davidson on the lottery economy.

Increasing portions of the US economy appear to resemble the Hollywood winner takes all reward model. How do you manage a career with fewer safe bets employment-wise?

It's not clear what today's eager 23-year-old will do in 5 or 10 years when she decides that acting (or that accounting partnership) isn't going to work out after all. The best advice may be to accept that economic success in America will come as much from the labor lottery as from hard work and tenacity. The Oscars make clear that there is only so much room at the top. In a lottery-based economy, you need some luck, too; now, perhaps, more than ever. People should be prepared to enter a few different lotteries, because the new Plan B is just going to be another long shot in a different field.

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Friday February 10, 2012

Francis Fukuyama interviews Peter Thiel.

I think the advanced economies of the world fundamentally grow through technological progress, and as their rate of progress slows, they will have less growth. This creates incredible pressures on our political systems. I think the political system at its core works when it crafts compromises in which most people benefit most of the time. When there's no growth, politics becomes a zero-sum game in which there's a loser for every winner. Most of the losers will come to suspect that the winners are involved in some kind of racket. So I think there's a close link between technological deceleration and increasing cynicism and pessimism about politics and economics.

I'm not always a fan of Thiel's arguments, but there are a lot of insightful comments in this interview.

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Monday February 6, 2012

Calculated Risk is calling the bottom for housing. The evidence (including declining inventory and increasing home asking prices) supports his conclusions.

Friday February 3, 2012

The CES jobs figure of 243K jobs added last month was great, but the CPS jobs number (an alternative jobs measure by household survey) was up 847K 631K in January!

Update: As CR notes, this large one month delta is in part due to population estimate adjustments made annually. With the population adjustment applied to the CPS employment numbers, the more accurate 1 month delta is 631K. Funny that the BLS doesn't revise prior numbers as they do with other series.