Warren Buffett on "Negative Feedback" vs. Alanis Morissette on "Irony" vs. George Costanza "on the wagon"

Warren Buffett appears to have done for "negative feedback" what Alanis Morisette did for irony:

The U.S.—and much of the world—became trapped in a vicious negative-feedback cycle. Fear led to business contraction, and that in turn led to even greater fear.

That is a description of a positive-feedback cycle, not a negative-feedback cycle.

Buffett's "slip" is eerily reminiscent of George Costanza's "on the wagon" mind-fake:

Jerry: Yeah. He's been off the wagon for two years.

George: "Off the wagon"?

Jerry: I think it's off the wagon.

George: I think it's "on the wagon".

That was actually Jerry Seinfeld's my "off the wagon" mind-fake.

Bruce Schneier Insights into Security

Bruce Schneier wrote this insighful op-ed piece A fetishistic approach to security is a perverse way to keep us safe inThe Guardian: We spend far more effort defending our countries against specific movie-plot threats, rather than the real, broad threats. In the US during the months after the 9/11 attacks, we feared terrorists with scuba gear, terrorists with crop dusters and terrorists contaminating our milk supply. Both the UK and the US fear terrorists with small bottles of liquid. Our imaginations run wild with vivid specific threats. Before long, we're envisioning an entire movie plot, without Bruce Willis saving the day. And we're scared.....

Nothing I can say will add much to this. Go read the original. It is worth it.

Premium No Name Brands

Try googling "premium no name brand" . The list of websites is small and probably includes this one.

With good analytics such as pattern recognition, near infrared spectrometry, liquid chromatography, bluetooth and other technologies and good supply chain management it should be possible to retailers to guarantee the quality levels associated with top brands without paying brand premiums to the brand owners.

Bottled water is the opposite of this idea.

MUJI. No-Brand Quality Goods. Nature Cannot be Fooled.

This DDI Magazine article says The name MUJI was derived from "Mujirushi Ryohin," which translates as "no-brand quality goods." The retailer has promoted an image of recognizable quality without a brand or designer's name on the products it carries. Rather, the corporate mission insists upon avoiding trends for its products so that they are universally relevant—"depending on simplicity and flexibility"—to fit customers' lifestyles.

That sounds like a great idea as did shopper marketing. As audience measurement becomes grounded in hard measurement and reasonable analysis, brand premiums may disappear. Here is an example of how this might occur with wine.

In the end, nature cannot be fooled.

The difference between predicting the future and fitting a model to past behavior ...

... is that the former is extremely difficult and the latter is almost trivially easy. However some people will be surprised by this Freakonomics post on Jim Collins' "Good To Great" . For those of you who don't remember, Good to Great is based on an analysis of some companies who were once just okay then went to outperforming the market over a long period. It compares these companies to other companies working in the same fields and distills what they did differently to some rules, the Good to Great Principles (more on this below). The Freakonomics blog post looks at the performance of the Good to Great companies:

• ...It looks like Fannie Mae is going to need to be bailed out by the federal government. If you had bought Fannie Mae stock around the time Good to Great was published, you would have lost over 80 percent of your initial investment... Another one of the “good to great” companies is Circuit City. You would have lost your shirt investing in Circuit City as well, which is also down 80 percent or more. Best Buy has cleaned Circuit City’s clock for the last seven or eight years....Nine of the eleven companies remain more or less intact. Of these, Nucor is the only one that has dramatically outperformed the stock market since the book came out. Abbott Labs and Wells Fargo have done okay. Overall, a portfolio of the “good to great” companies looks like it would have underperformed the S&P 500.

How did this happen? Leonard Mlodinow describes how random variation is routinely mistaken for the results of people's decisions in his book "The Drunkard's Walk: How Randomness Rules Our Lives".

Of course the fact that the management techniques recommended in Good to Great are based on faulty analysis doesn't make those techniques any less (or more) effective. However it will be interesting to see the reaction of those people who promoted those management techniques because they raised the stock prices of the Good to Great companies relative to the market. Will those fans now champion doing the opposite of what the book recommends? A quick look at the Good to Great recommendations shows they are not harmful enough to make companies underperform the market as badly as the Good to Great companies have done.

2.1 Chapter 1: Good is the Enemy of Great
2.2 Chapter 2: Level 5 Leadership
2.3 Chapter 3: First Who, Then What
2.4 Chapter 4: Confront the Brutal Facts (Yet Never Lose Faith)
2.5 Chapter 5: The Hedgehog Concept (Simplicity Within the Three Circles)
2.6 Chapter 6: A Culture of Discipline
2.7 Chapter 7: Technology Accelerators
2.8 Chapter 8: The Flywheel and the Doom Loop
2.9 Chapter 9: From Good to Great to Built to Last .

This article gives a plausible explanation of how Good to Great works its magic. Here is an excerpt:

• First of all, the good-to-great principles are true in the same way a horoscope is true. They are fairly generic and thus we all apply them from our own viewpoint to make them true. I believe that some "Good to Great" readers that love the book may be suffering from the Barnum effect. The principles Collins proposes aren't bad ones, but they are ambiguous and open to interpretation, which in effect decreases their usefulness. For instance, Collins says good-to-great companies practice "First Who, Then What," which basically means "hire good people." I'm willing to bet no one read the book and said "Eureka! I've been hiring slimy weasels when I should have been hiring top performers. That is why we aren't a great company."

New Facebook Apps Architecture. New Opportunities to Monetize Social Networking?

Tech Crunch posts on facebook's new three tier app system and developers' need for certainty about the app platform.

I put foward some ideas for facebook apps in this post but I never got around to finishing my "How Long Are You Going to Stay Married" facebook app. This company beat me (and people who could actually carry this out) to it on using images for matching people but maybe there is a way to predict the length of marriage as a function of appearance, or people may want to know how likely their potential partners are to end up in jail .

You may be asking "Why predict what people will need? Why not just let them choose?". The reason is that in some cases it is difficult to do so. To para-phrase the Rolling Stones, You don't always know what you want but sometimes you just might find you can deduce what you need. Wikipedia's list of cognitive biases (and the related cognitive bias) enumerates some of the barriers to us understanding the world around us. The relatively straightforward objective measurements and statistical analyses proposed above and in the previous post can help people overcome these biases. Don't let Dunning Kruger effect stop you from exploring this!

Was Anyone Surprised By This?

This recent Freakonomics post shows that forecasters have a done terrible job at predicting the price of oil.

That should not be surprising.

Why should the price of oil be predictable? It depends on factors that are barely measurable by humans such as future consumer sentiment, future government action, future weather and future geo-politics.

Nicolas Taleb has described this in great detail over the last few years. He calls the mis-application of mathematical models to data which they cannot hope to model the Ludic fallacy .

In some cases people make a jump from analyses of recent history to prediction of the future. Businees books such as Good To Great come to mind.

Ronald Fisher who was good at prediction said this about pundits.

In scientific subjects, the natural remedy for dogmatism has been found in research. By temperament and training, the research worker is the antithesis of the pundit. What he is actively and constantly aware of is his ignorance, not his knowledge; the insufficiency of his concepts, of the terms and phrases in which he tries to excogitate his problems: not their final and exhaustive sufficiency. He is, therefore, usually only a good teacher for the few who wish to use their mind as a workshop, rather than a warehouse.- R.A. Fisher. Eugenics, academic and practical. Eugenics Review, 27, 95-100, 1935.

For those who care, here is an attempt at explaning of oil price trends http://europe.theoildrum.com/node/4007