Blything’s law


There are always more people looking for a job than there are people looking for work.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

Mike Caro’s Law of Loose Wiring


Mike “The Mad Genius” Caro is a professional poker player, theorist, author and casino executive. His “Law of Loose Wiring” serves him well at the table and it is workable for all of us in other places. Its definition is:

“When choices are not closely connected to benefits, people usually behave in unpredictable ways.
When choices are closely connected to benefits, people sometimes behave in unpredictable ways.”

Benefit + Connection + Choice = Behaviour

You can describe the benefits, the choice and the connection. You cannot control the behaviour, but you can influence it by showing valuable benefits strongly connected to the choice or choices.

You will not win every time, but then you don’t need to. There is no such thing as a sure thing only positive probabilities. Seeking perfection is a losing proposition.

Outside the casino, the equation applies to children, employees, business partners, bankers, clients, prospective clients and (dare I say) spouses. Clear choices directly connected to desirable benefits is what you aim for.  When the unexpected outcome happens, and it will,  you need to learn from the transaction. You can reduce the incidence of failure over the long run, by paying attention to what happened. Many of the failings are within your control. There are at least nine possibilities.

  1. You failed to notice that the benefit was unimportant to the other person.
  2. You described the benefit poorly
  3. You did not make the choice clear.
  4. You did not connect the choice to the benefit
  5. The other person doesn’t trust your descriptions
  6. The person lied to you about their resources or interest
  7. You misunderstood what they told you.
  8. It is not urgent enough for them
  9. The other person is insane.

I suppose it is theoretically possible that you are insane, but you likely won’t notice that.

You sell everyday. From getting the children to put their toys away, to getting employees to come to work on time, to getting better service in a restaurant, to getting a better price at the furniture store.

You cannot sell well until you can describe the benefit, the choice required and the connection between the choice and the benefit in terms that the other person can accept.

When the outcome is not what you want, you should check the wiring.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

Dealing With Professionals


The real world changes too fast and it is too complicated to know everything you need to run your business or your financial plan.

You need skilled help.  Accountant, lawyer, banker, investment adviser, and financial planner are the common ones.

The problem is finding the helpers and using them effectively after you find them.

Getting the right one.

Time is money and changing takes a lot of time for the new professional to get up to speed.  That could cost a lot.  You do not want to change unless you must.  A little time up front will save you problems later.

Look for at least the following:

  • Has the skills you need to fulfill the tasks.
  • Operates tactically and in response to your well formed strategy.
  • Has the time available to meet your needs
  • Has back-up staff
  • Good communicator
  • Has a reputation as easy to work with
  • Can and will act as your conscience when you stray from the path
  • Will tell you the truth even when you don’t want to hear it.

Price is an important aspect, but price and cost are not the same thing.  Agree on a method to determine the price but do not go for the fixed price deal.  That seldom works out for either of you.  For lawyers, accountants and the like, hours times a rate plus out of pocket expenses is normal.  Usually the rate is conditioned by the expertise and experience of the provider.  In an accounting firm, tax experts typically charge out higher than auditors.

Do not look for the lowest price.  If the rates are low it is almost a certainty that the capability is too.  Then the cost (price plus other factors) becomes higher.

Do not accept, no matter what the other characteristics may be, someone who expects to make the decisions.  Decisions are yours.  The professional’s task is to provide you with the knowledge you need and the options available.  Nothing more.

Do not deal with anyone who fails to ask what you are trying to achieve.  Strategy is yours alone.  Be sure you have one.  If you don’t, some professionals will make up one for you and then find the perfect tactic to deal with it.  Not a good scene.

Look for independence.  Especially with investment and insurance people.  Be sure they can deal with most of the products available not just the ones offered by one company.

After you have connected, you need to know what the professional expects.

Being a Good Client

Be honest and open in communicating your hopes, fears, expectations and resources.  Professionals are extremely fact based.  If you give them the wrong tools to work with, you will not get what you need.

Ask for advice before you make decisions.  Every professional has had to fix easily avoided problems that clients brought to them after the deal was done.   This is costly, wasteful might be a better word, and harms your relationship.  It is as if you don’t trust them.

Here is an example of a client asking for and getting advice before doing a deal.  It is about a century old, and deals with potential problems under the then-new Sherman anti-trust act.  The professional is famed Philadelphia lawyer, John Grover Johnson.  It goes like this.

Client to Johnson:  “Am negotiating with A to acquire his company.  Is merger possible?”

Johnson to Client, “Merger possible.  Jail certain.”

Be sure that the professional knows that he is required to implement a deal, not necessarily required to perfect it.  Some professionals want to make a 99% deal when a 95% one will do as well for a quarter of the cost.  Be sure to set out the ground rules and be willing to accept risk when the non-perfect deal is chosen.  My experience has been that clients like good enough answers sooner and cheaper as opposed to righter, more expensive and slower.  Be sure you know what risk you are accepting when you choose sooner and cheaper.

Listen to the advice and take it unless you can express to the professional the reason for not doing so.  For example, about 1/3 of all prescribed medication is not purchased.  If you don’t trust the professional, you have the wrong one.

Be sure to have an engagement letter so each knows what to expect.  It might take a while to develop but it is worth it.

Sometimes things change.  As a last resort quit and move on.  The price to move is usually less than the cost to stay on with someone who does not meet your needs and your terms.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.  don.s@protectorsgroup.com

A Well Defined Problem Is Half Solved


Albert Einstein said, “If I were given one hour to save the world, I would spend 59 minutes defining the problem and one minute solving it.”

With few exceptions, we start solving problems before we have rigorously defined them. Sometimes that works but most times not.

The problem solving material you can find is actually solution finding technique. Not the same thing. Solutions are related to action while problem defining is related to what someone acts upon, why do it, with what resource and in what time frame. That is strategic thought as opposed to the tactical thought of the solution.

Colin Powell has stated that the information you need for a solution falls into the range 40% to 70% of all that you could have. Under 40% you are guessing too much, over 70% you are trying to be too perfect. That is a good guideline if you know exactly what the problem is.

When you do not know, and in the beginning no one really does know, you need to think it through. I recently saw this piece and while it is a long one, the process it describes is a good one. It is aimed at business strategic problem solving but with some adaptation it can work for personal finance and even problems like lawn mower replacement.

Are You Solving The Right Problem. Harvard Business Review

The article itself is more than 5,000 words long. The author Dwayne Spradlin is the president and CEO of InnoCentive, an online marketplace that connects organizations with freelance problem solvers in a multitude of fields. Obviously Innocentive will need to be able to describe the problem well or no one can know how to answer.

A quick summary of the method for the ADHD crowd:

The Problem-Definition Process

  • Establish the Need for a Solution
  • What is the basic need?
  • What is the desired outcome?
  • Who stands to benefit and why?

Justify The Need

  • Is the effort aligned with our strategy?
  • What are the desired benefits for the company, and
  • How will we measure them?
  • How will we ensure that a solution is implemented?

Contextualize the problem

  • What approaches have we tried?
  • What have others tried?
  • What are the internal and external constraints on implementing a solution?

Write the problem statement

  • Is the problem actually many problems?
  • What requirements must a solution meet?
  • Which problem solvers should we engage?
  • What information and language should the problem statement include?
  • What do solvers need to submit?
  • What incentives do solvers need?
  • How will solutions be evaluated and success measured?

In my experience, the “Is the problem actually many problems?” question is the one that destroys casual problem solving. It might well be the first thing you want to address.

As you will find in the article, the approach often results in problems being solved by people with skill sets well outside the expected problem area.

The Solar Flare Problem

NASA needed a way to predict solar flares to protect equipment and people. Its model provided a 4 hour lead time and 50% accuracy. They wanted a better model. With a well designed problem, a semiretired radio-frequency engineer living in rural New Hampshire developed a model that provided an eight-hour lead time and 85% accuracy. He was awarded $30,000 for this solution. There are other examples in the article.

What you can expect from using more rigorous problem defining methods:

  • Find important underlying relationships
  • Eliminate extraneous material
  • Find the focal kernel
  • Find a time line

The message for us all. If you define the problem well, the well-defined problem will give you insights into a method of attack and it will do so more efficiently than “adaptive management.” A euphemism for trial and error.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

Hotrods, Lear Jets and Hospitals


What do drag race cars, Lear Jets, and hospitals, have in common?

If you ask drag racers what is the most important thing, they will say, “Go fast in a straight line.” Every other choice for vehicle construction and operation becomes inferior to that. Comfort is not even considered.

Before developing the Lear Jet in the ‘60’s, William Lear observed something interesting. After two hours in the air, passengers most valued “getting there.” So, he built a hotrod executive jet. It was not luxurious, because luxury was merely a convenience. He focused only on the customers’ principal value – getting there sooner. His jet was the fastest and it was the cheapest both to buy and to operate.

Focusing on a single purpose may simplify healthcare issues. Why???

Hospitals have an unaddressed problem. Value decisions get weird when the user of the service (patient) and the people who pay the bill (governments) are disconnected.

Users of the service, who have access to price, are the only ones who can objectively judge value. Everyone else uses a proxy of some kind.

Without the bill and the pain of paying it, patients employ an unpredictable proxy. “Good value” will be present if they get better, staff is friendly and instantly available, or the many (maybe unneeded) expensive tests are done quickly and effortlessly, or there is a comfortable bed in a cheery, quiet room, or the food is acceptable, and visitors are welcomed. Probably some combination of these with unknown, or worse, ever-changing, weighting of the parts.

Administrators use other proxies for value. 1) Not too much complaint from the patients, 2) Achieve budgets, and 3) Hit target wait times.

No one is doing wrong. They are just using different ways to decide how they are doing. Boards usually act in the best interest of the patient, while administrators act to satisfy the bill payer. Nurses, doctors and other staff try to satisfy both – a perpetually failing proposition. All act in good faith and do as well as possible within the parameters of their jobs. They just do not see the same purpose.

When we see that the values used are inconsistent, we know the strategic vision is incomplete or wrong. We need a common focal point.

Just as with hotrods and Lear Jets, the users need to answer a question. “What do you value most?” In a hospital, the likely answer is, “Nothing is better than getting better.”

Hospital administrators would do well to focus on that single important thing and address less attention to resource consuming conveniences that minimize complaints. As an example, it is unacceptable to accept an increase in the number of c-difficile cases that result from budget-balancing reduction of maintenance.

In the end, focusing on the important value makes patients happier and costs less.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

What’s The Greedy Algorithm?


Many people instinctively use a greedy algorithm to solve problems, but they should have no expectation that it will generate optimal or even good results.

Back in the depths of history, I took a course in operations research. Essentially the process of applying mathematical analysis to real world problems. One of the interesting parts was the Greedy Algorithm. It is the process where you choose the most expedient next step without consideration of other possible solutions or even how you got to where you are.

Some (even most) multistage courses of action can thus never be implemented because the correct first step is not as expedient as some other one. This flaw means that the greedy algorithm can perpetuate or even create problems.

For those with short time frames, it’s attractive. “We are going to do this now and we will deal with any problems that arise, if and when they arise.” Bias to action. Sometimes they say it even when the future problem is known and certain to occur.

Micromanaging is an indicator. You can make all the decisions if you only think one step at a time.

The algorithm can sometimes generate the unique, worst-possible, answer. The “traveling salesman” problem, where you are to find the best way to visit a list of customers, is one. Take the closest next seems obvious, but that choice system will always generate the unique worst route.

When the algorithm fails, it is because an early, right-looking step did not lead to a good final solution. Failure compounds because people tend not to go back and restart. Often that choice is unavailable. Lovers of greedy usually attack the newly observed problem in isolation and again use the greedy algorithm to solve it.

Partly solved problems thus become chronic. There are problem types where it works. (matroid, if you care.)

The worst part of this is that using the greedy algorithm denies you the ability to learn. Because the breakdown appears later, sometimes several steps later, you only learn to avoid that step and there may have been nothing wrong with it. Nothing tells you to stop using the failure inducing first step.

A mistake is your friend, but only if you learn something of value from it. In this case, Gordon Gecko was wrong. Greed is not good.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

Strategy But No Tactic


A strategy not implemented remains a dream

Smoking Costs How Much??!


Fundamentally, the world is a fair place.  The more you smoke, the less time you are required to do it.  Maybe a good thing too, because your potential retirement fund will be harmed.

Here’s an example.  Suppose:

  • You are a 30 year old male smoker in otherwise good health.
  • You earn about $75,000 per year and have a family.
  • You have determined that your financial situation would require life insurance of $1,000,000 to resolve if you died.
  • You expect that problem will go away by the time the children are grown.  Call it 20 years.
  • You buy 20 year term life insurance.
  • You think of yourself as a moderate smoker – about 100 cigarettes a week.
  • You invest in a balanced portfolio and expect to earn 2.50% over the inflation rate, and you think inflation will be 3%.
  • You would and could invest in an RRSP if you had extra money.

If you cancel the insurance after 20 years and quit smoking the same day your RRSP will be short $530,552.87 at age 65.

If you did not quit smoking when you cancelled the insurance, it would be short by $747,840.09.

It is truly unpleasant if inflation is 4% instead of 3% – $1,037,790.70 short if you smoke to 65.

The cigarettes are the big piece, but the insurance is not insignificant.  $1,000,000 of 20 year term costs $140.40 per month for a smoker and $74.70 for a non-smoker.

A non-smoker who is 42 would pay $141.30 (same as our 30-year-old smoker) for the same million.  Pay attention, they are trying to tell you something here.

The lost capital because of the insurance price difference, even if you cancel, is about $90,000 in the 3% inflation example.

If you decide to keep the insurance longer than 20 years, at renewal it costs $1,440 per month versus $700 for a non-smoker.  Many people have a fatal heart attack when they see the price of renewal so maybe that is not really an issue.

Everyone’s situation is different, so your mileage may differ.  But the general direction is clear.  To stop smoking is not fun, but it should be considered.

Personally, I liked smoking.  I quit in Scarborough, on Tuesday, June 25, 1985 at 1:55 in the afternoon, not that I’m counting.  I have not had even one cigarette since.  I still miss it a little but not as often.

Sadly I didn’t put the money away.

Maybe you can be both smart enough to stop smoking and smart enough to put the money away too.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.  don.s@protectorsgroup.com

Fuzzy Logic


We don’t always know the thought processes that underlie our intuition. The very real risk is that if those thought processes are limited, so are we.

Our world is non-linear. That does not mean it is curved, that means that the connections are not as they seem. Cause and effect are not tightly connected, outcomes are not proportional to inputs and there is far more to know than we do know.

We are like Spock. We trust logic. But, also like Spock, we trust only a single logic system. Socratic logic. There are others and they may be more appropriate as the real world becomes more complex.

Most of our intuitive thought processes are based on classical ways of thinking. These are “right,” but only within the designed context.

  • Euclidian geometry is quite accurate in small spaces. It is not accurate at all in large ones.
  • Newtonian physics won’t describe atoms or galaxies but it works very well in Omaha.
  • Socratic logic works quite well in simple societies or in computers. It is less perfect in large and differentiated societies.

Today I want to look at how Socratic logic leads us away from the non-linear world.

Socratic logic deals with truth and not-truth. There is no room for variance. A thing is true or it is not true. The law of the excluded middle says it must be one or the other. That limit is not as big a part of other systems. The real world is certainly not like that.

Most Asian societies developed from another logic system. They find and analyze “truth” differently than we do. It is not hard to see why we cannot always communicate effectively. Asian philosophy and logic is more subtle. They can accommodate more depth or maybe it is the continuity in the space between true and not true. There is no excluded middle. Consider this.

A stapler is not a hammer. But it has a certain “hammerness” about it. How many have used one to hang a calendar? A log is not a chair, but around a campfire, it has a certain “chairness.”

These violate the law of the excluded middle, yet we understand hammerness and chairness intuitively. They are outside the Socratic logic box. Unfortunately this type of intuition is not always operational. We tend to revert to contrasts for decisions. Truth and not truth. Included or not included.

We develop the idea of polarity or opposite as ways to describe, simplify and decide. As discussed a few days ago, these extremes become tokens. Part of the essential meaning disappears in the summary. Liberal-Conservative, right-wrong, black-white may be a good way to compare and contrast, but they are not sufficient to think about complicated situations.

It is possible that Asian logic may be more suited to complex societies. For them, the true-false contrast and the excluded middle are strange concepts. An Asian does not see black as the opposite of white. The opposite of white is not-white, thus “It is a black and white decision” has little meaning. For us it seems clear, but the high-contrast presentation forces us to ignore other more subtle choices.

Variations like these can make it hard to communicate with, or even understand, someone who does not share the intuitive background of thinking.

Language structure and vocabulary limits what you can say and it limits how you can think as well. Even art and music are affected. “Asian Picasso” Chinese artist Chang Dai-chien art sold for $506.7 million in 2011.

https://i0.wp.com/www.asianart.org/blog/wp-content/uploads/2012/01/ChangdaiChien-clouded-mountain.jpg

Clouded Mountain By Chang Dai-chien does not look the product of western thought.

Western classical thought processes require a limited world. Fuzzy Logic began with the 1965 proposal of fuzzy set theory by Lotfi A. Zadeh at the University of California, Berkley. It is worth the trouble to introduce yourself to it.

In a non-linear world, you should be very careful before deciding that the two ends of the contrast scale are the only choices. Somewhere in the middle may lie workable fuzzy logic as opposed to classic logic. For many, that is all that creativity is about.

Am I Paranoid Enough?


“The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.” Alexis de Tocqueville

It appears that this discovery has been made. The only question left is “How will the American Republic cease to endure?”

  • Income in total and per capita will fall or rise or stay the same?
  • Accumulated wealth grows or shrinks?
  • Opportunities increase or decrease?

These are the resources for the bribe. If resources fall, or even fail to grow enough, the bribe system will stop and people will be disappointed. Like in Greece. Another version is in our wilderness parks.  “Don’t Feed The Bears”  Once you start, you have a problem. Don’t feed the bears because there is no way to explain to them that you have run out of cookies.

This reasonably leads to questions like

  • Civility increases or declines?
  • Government intrusion in day to day life increases or decreases?
  • High inflation? Maybe hyper-inflation. Printing money works for a while.
  • Confiscation of hard assets like gold, silver and diamonds.
  • Capital controls on removing assets from the country?
  • Nationalization of businesses, banks and other wealthy institutions?
  • Inability to defend borders and allies?

In the end game, what is there?

  • Martial law imposed to control strife?
  • Country fractures into smaller pieces?
  • Rise of “city-states”?
  • Foreign Intrusion?

I suppose there are many more metrics and questions.

I cannot see how this ends well, but then I have a fairly defined viewing point (according to some, a little to the right of Genghis Khan) so I cannot see the good that could arise from the bribes. Feel free to help me.

In my simple mind, it boils down to one observation. If someone gets something for nothing, someone else must get nothing for something. I don’t see the nothing for something crowd putting up with that if it escalates. Certainly not forever. If they do, in the long run they will have nothing too.

I wonder when, and I wonder how, it will affect those of us who live in Canada.

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