Friday, August 27, 2010

Asymetrical Information, Football, and a Rain Shower

Hudson and I arrived home from the Mountain Brook v. Shades Valley high school football game.  We were the only people at the game who were mostly dry.  The rest were soaked by a short rain shower during halftime.  How did we make it safely, and the others did not?  I'll explain it with the financial concepts of "imperfect information" and "asymmetrical information."


The game was turning into a blow out; Mountain Brook has a star receiver (#7) and a pretty good QB.  Shades Valley has a stud running back, but the offensive line couldn't block the eight people the defense rushed each play.  Hudson and I arrived with half the first quarter remaining.

By the time we arrived, the parking lot was full.  There were easily 3500 people in the stadium.  In financial terms, 3500 people were "long" the football game.  Of the people there, I saw one umbrella.  1 of 3500 people hedged the chance of rain.  Everyone else relied on wit and intuition to avert rain.

The Information

Shortly after we arrive, I notice there are no stars or moon in the sky.  The light from the football game bounced off the clouds.  Using my new purchased smart phone, I downloaded "The Weather Channel" application.  Compared to everyone else in the stadium, I held "asymmetrical information."

I had more information than my present environment.  From the information, I determined: it might rain and if it did rain, it would be a small-short rain shower.  Everyone held "imperfect information."  Without knowledge of the larger environment, they only knew it might rain.  Once it began raining, all they knew was "it is raining."  The masses couldn't make a decision to stay or go, run to the car, or find quick shelter.  Even if they made the right choice, it was with incomplete information.

My Decision

When the first rain drop hit my nose, I picked up Hudson and walked out.  I was the first person to walk out the gate.  Drops were falling sparsely.  I looked behind me to see 20 people following.  The other 3478 were betting on a few drops.

When I found the first good shelter, Hudson and I stopped.  It was the guard shack at Mountain Brook High School.  The guard shack would max out at 20 occupants.  As Hudson and I stopped, the rain picked up.  One lady with her son stopped, I told them "It will only be a couple of minutes."

As with markets, when the masses are long the football game and without hedges, there is only so much shelter available.  Had I bet on rain and it not rain, I would have missed the the half time.  My cost would have been the minutes I waited for it to rain.  That was the cost of my hedge.

We waited.

Their Decisions

The 3478 people at the football game did not make decisions until realizing, shortly, they would be uncomfortable.  Rain fell faster; not considered a soaking rain, it was a dowsing rain.  Everyone else knew "it is raining."  Everyone else made decisions based on the uncomfortable rain and the decisions others made.  Shelters were full, under the trees was beginning to soak, and most people were running to their cars.

Everyone was making the best decision with the information he had.

Similarity to 2008

Beginning in 2005, certain people looked outside the bull market, i.e. the football game.  They began making their decision to leave the market.  They figure out how to short the market.  At the football game, these people would have brought umbrellas and sold them during the rain storm.  No one was that prepared.

In late 2007, other individuals began leaving the market.  They had seen the future, and had made a decision based on risk.  That was me.

In September and October 2008, that was the other 3478 people in the stadium.  Shelters were full with the early movers.  These individuals had two options: go to their car (sell and leave) or wait it out (take the pain).

Could I Have Sounded the Horn

Just because I was dry, doesn't mean I will always be dry.  Just because others were wet doesn't mean they will always get wet.  My information could have been incorrect.  Meteorologist (read professionals) see the same information I saw, and get it wrong 50% of the time.  I could have lost the cost of my hedge (i.e. the time to run to the guard shack).

Why didn't I tell everyone it was about to rain?  Correct decisions always look more correct when looking at them from the future.  Wrong decisions look like they could have been averted.

Thursday, August 26, 2010

Few Things are Better Than Running with my Son

For the last 3 weeks, I have made it a point to run more often.  After the 3rd time running the first week, Hudson said "I going."  I pulled out the jogging stroller and we ran.

He asked me questions about smaller objects we would pass in cars without noticing.  In the morning, we talk about the beauty in the sky.  I've taken him to an overlook near our house and looked at the rolling hills.  He points out dogs, leaves, birds, cars, and drains.

This morning, we ran to a local park to have breakfast: apples and yogurt.  He insisted on doing push-ups with me.  I drew an awkward cat; he drew a good looking ant, including dirt.  I played "Firehouse" with him.  We sprayed out fires.  Afterwards, I asked him if we should go look for victims.  He said, "They are at the victim store."   Once we got to the play structure that was "the victim store," he proclaimed "they have so many victims."

He and I have done different events together, and we get in streaks of fun.  Well run for a couple more months until it is too cold to run outside.  Then, we'll find another streak of fun.

Wednesday, August 25, 2010

Ah. . .the Start-up

When people ask what's it like to be at a startup, I give them a metaphore.

At my previous job, I was given a coloring book. It was my responsibility to draw between the lines. Everything between the lines was my responsibility. I could make it however I liked, but I had definite limits.  If I messed up on one page, we had the resources to turn the page.

At the startup, I have a blank canvas.  Should I mess up the canvas, we don't have the resources to purchase another.  But, should we not complete the canvas as to fulfill the market demand, we will be defeated by competition.

This week, John Mauldin wrote "The Importance of Start-ups."  He spoke about the statistics of job creation and innovation.  I am more interested in the "Why."  What are the motivational factors associated with startups?

Human Capital Input

At a corporation, my individual contribution was unseen because I was apart of a whole.  My role within the organization was largely unseen from the whole.  Or, my poor performance could be subsidized by a better employee.  At a corporation of 1000, I am 0.1% of the corporate human capital input.

At a start-up of 8 people I am 12.5% of the corporate human capital input.  Therefore, waste in that 12.5% is seen quickly.  One person failing at a start-up will cause a noticeable failure.


Ever seen Lord of the Rings?  Start-ups are Frodo, corporations are the Eye of Soromon (not in a good v. evil sense, but due to power and resources).  The start-up runs quickly gathering customers without attracting the gaze of the corporation.  However, certain actions a start-up takes runs the risk of attracting the attention of the larger corporation.  This hyper competition felt by start-up causes them to run fast and even at night.

Individual Urgency

Nothing motivates the individual like the statement "If I don't perform, I won't be here next year."  The company may be here, the technology may be here, but I won't.

Hyper Capitalism

A start-up is capitalism at it's core.  A new company must perform all business functions to the level required, no more, no less.  If the company wastes resources, it will be gone.  If the company doesn't attract customers, it's gone.

It is capitalism at it's finest.

Tuesday, August 24, 2010

Learning is Controlled Confusion

As a teacher, I prided myself on teaching the highest level of content. I taught past the last comprehension of a student in my classes. My philosophy on learning is: I learn when I address an idea I've not previously encountered. Therefore, learning begins with confusion. As part of the learning process, a student must learn to be confortable with confusion, and logically progress to a point of knowledge.

When presenting information, I presented it from many angles; however, if a student did not understand, I was "okay" and I moved on with the lesson. On any given day, a student may or may not be prepared to listen and work. I assumed the first students would fall off the lesson at 30% of concept, and the best student would depart at 85% of the content. The majority would understand 65% of the content. I expected my "student understanding level" to be a bell curve.

Just was the students grouped together in the middle of the content, I used the most time on the middle content. I did teach to 100%: the final 10% were high level topics, and the final 5% were key terms. The beginning 15% percent was quick review.

Exposure to higher level information sparks the students mind, and potentially fixes unresolving issues on the lower level information.

I encourage all teachers to teach students to be "okay" with confusion. It is the personal state which causes the most growth. The true power of knowledge is not knowing the answer, but finding the answer.

Monday, August 23, 2010

Why I Love and Miss Teaching

From 2004 to 2006, I taught high school.  The courses I taught were

  • Business Law - Contract, Tort, Criminal, Personal, and Agency Law
  • Interactive Multimedia Design - Image, Video, Audio, Print Editing
  • Business Software - MS Office Suite, Word, Excel, Access, PowerPoint
  • Entrepreneurship - Students won second in state competition
  • Web Design - Everything about web design
What I Loved About Teaching

The first lesson in Business Law I had planned for 3 months: origins of law.  I discussed ethics, morals, religion.  Students looked in awe as I crafted my argument.  It was a magnificent lesson.  At the end of the day, a student said, "You made me think."  When hearing that, my inspiration to achieve soared.

As a teacher I learned my passion: challenge people with what they need to hear.  Paint them a picture of their future, and push them toward it.  Tell them they can achieve it, give them a path, and hold them accountable to that goal.  I continue to employ this skill/passion as often as someone will listen.

What I Loathed About Teaching and/or Non-Essential Tasks

Each dislike I had for the education system derived from one problem: lacking constancy of purpose.  As a teacher, I claimed to be "stamping out ignorance in East-Central Alabama."  Often, I felt I was preparing students to conquer the world.  Occasionally, the thought crept in my mind, "the education system drives our economy by allowing parents to go to work for a full 8 hours per day," which turned me into a $32,000 babysitter.

Schools adopted bloated mission statements stating the duality of purpose.  Optimizing schools as knowledge centers and nurseries results in schools performing neither optimally.

Documentation causes paralises.  The shear act of documentation is a classical management style which does equate to good teaching.  In Sebastian Junger's War, he describes great garrison soliders as poor infantry fighters and great infantry fighters as poor garrison soldiers.  Essentially, you want to fight with a "hell raiser."  Good documenters are poor teachers; good teachers are poor documenters.  Since I considered my job to "provide the most holistic education possible to my students," I often turned in documentation at 11pm on the due date.

Since 1930, the education system has instituted 80 major initiatives (assuming 1 per year), yet has not removed a single one.  Education systems should prioritize their initiatives; then, formally retire items outside the top five.  Teachers receiving tasks, reading mission statements, or policies will find too many tasks to effectively provide.

What I Learned

Teaching young people at school is a unique environment: I was responsible for students who did not necessarily need to be there, or want to be there.  My "carrot" was an environment to grow and learn.  My "stick" was failing.  I believed the average grade was a 75, and students receiving an 'A' were exceptional.  The stick was as a sales commission: directly tied to performance.

Due to my belief in the values of Theory Y management, "the stick" was rarely used.  I learned students wanted to learn.  I learned students wanted attention for performing outstanding work.  I learned students are complicated human beings: the 96% of their time outside my class affects my class.  Positive progress in my class can affect the other 96% of their time.  Students want to feel people are supporting their growth.  Someone is watching and waiting for them to achieve.

As convicted as I am with Theory Y, I learned it is tougher.  Organizational culture drive performance and unspoken rules.  However, once students agree, they support the system for growth.  Students eventually support each other and push growth.

Part of "the stick" was behavior correction.  As young people are apt to do, they wanted to assert their place in my class.  I prided myself on knowing what was "good", "okay," and "wrong" actions.  The "good" I praised, the "okay" I kept a check on, and the wrong I fixed quickly with a sharp rebuke.  I learned to discipline a student whom I genuinely liked.  I eventually considered discipline a core component of helping these young people grow.

Lastly, I learned to love public speaking.  As I stand in front of people I feel the room, watch their responses, and tailor my message.  Given bodily responses, I can determine who is interested, who would like another method of explanation, and who would never accept my message.   I learned to speak with authority, and accept questions on the fly.   Even if every prop I had planned is failing, I learned improv.  One day, electricity was halted; we discussed the philosophy behind our work.

Why I Quit Teaching

In the end, I quit.  I have various excuses, but none satisfy me:

  • My wife wanted to stay at home with the future kids, which she couldn't do on a teacher salary.
  • My next step was to get my MBA.
  • I was burned out on teaching 8 hours per day, and documenting the other 2 hours per day.

My passion for teaching waxed and waned as often as I felt the grass was greener in the business world. Lot's of folks around me seemed to put bugs in my ear about my potential outside the classroom.  In 2004, going the public school teaching route with a degree in Business Management looked like my career had crashed on take-off:

  • My professor/mentor, Dr. Hamilton, looked visually disgusted when thinking of my decision.
  • While I was walking with a student, he said, "Mr. Winslett, I would expect you would be doing something more."
  • My father, assuming I should feel sinful for what he was about to tell me, said, "You know you are being paid with tax money right."
  • Even today, my quick description of the decision to take the teacher job is "They were the first organization to say 'we will pay you to spend your days here.'"

While I was teaching, most everyone was shocked I was teaching: except me.  However, the eventual push of my perceived under-performance was too much: I jumped off a hedge fund to complete my MBA.

Completed Circle

My passions for work are: business, technology, and education.  Now, at GradesFirst, I am realizing each.  For me, business is a team of individuals accomplishing one goal via many motives.  When I see technology, I see good business practices.  Education is the largest of the three: it is where the world changes.  Business is the local team; technology is the method; and education is the output.  We at GradesFirst produce change in people's lives.

Saturday, August 21, 2010

How to "Save" Birmingham, Alabama, Part I

Step 1:  Realize Birmingham doesn't need "saving."

The metropolis area of Birmingham does not need to be saved.  It needs to be celebrated.  Birmingham looks at faults longer and harder than it celebrates successes.  Focusing on faults results in decisions taken to minimize failure instead of maximize return.

When I was a younger whitewater paddler, an older man told me, "When paddling through a rapid, focus your eyes on where you want to go.  Never look at where you don't want to go."

Each action creates a different mindset: paddling by focusing on failure causes you to mitigate risk.  Paddlers will be more likely to abandon the "best" route, and attempt to navigate a poor route.

Paddling by focusing on success causes you to do what it takes to hit the mark.  Instead of abandoning the route, you choose your route more precisely, and work like hell to get there.

Perhaps, the reason Birmingham focuses on failure is: it doesn't know where it wants to go.  When all choices are judged as negative, the decision is always to minimize failure.

`Would you tell me, please, which way I ought to go from here?'
`That depends a good deal on where you want to get to,' said the Cat.
`I don't much care where--' said Alice.
`Then it doesn't matter which way you go,' said the Cat.

`--so long as I get somewhere,' Alice added as an explanation.
`Oh, you're sure to do that,' said the Cat, `if you only walk long enough.'
Alice felt that this could not be denied, so she tried another question. `What sort of people live about here?'
`In that direction,' the Cat said, waving its right paw round, `lives a Hatter: and in that direction,' waving the other paw, `lives a March Hare. Visit either you like: they're both mad.'
`But I don't want to go among mad people,' Alice remarked.

Step 2:  Laugh

Our good friends at View of the City ( handle this.  It's essential we don't take ourselves so seriously.

Step 3:  Failure is Not the End

Unless you make it the end.  Out of failure arises the knowledge that the sun will rise tomorrow.  When paddling, the key purpose is to "not swim;" i.e. come out of your boat.  When learning to paddle, I always paddled better after I swam.  I'd seen failure, and I got back in the boat and tried again.

Friday, August 20, 2010

My Distorted Meaning of Happiness

The following article is based on the following assumptions:
  • Everyone likes to learn, work, and progress
  • Everyone wants a job they feel completes them
  • Everyone is smart enough to examine oneself
A Sad Life

The recession has uncovered flaws with companies and individuals.  Companies with bloated systems, failing markets, and those lacking direction have been wiped out.  Individuals with bloated systems, failing markets, and those lacking direction have been wiped out.

Let me describe the individual with the worst prospects in the current economy, I'll call him "John" and the company "SouthTrust":
  • John graduated college
  • John started working at SouthTrust when he was 22
  • John is now 48
  • John is middle management at SouthTrust
  • John knows middle management
  • John earns $90,000 / year
  • John spends $90,000 / year
  • John hasn't made a key decision for the company in 18 years
  • John hasn't talked to a customer in 18 years
  • John hasn't talked to someone else doing his job in another company for 20 years
This fabled "John" stalled.  There was an illusion of success long ago, but now it's escaped.  John has the same faults as companies currently failing: he's bloated, failing, and lacking direction.

That's the saddest image I could imagine: John blew away his options.

John's Faults

Pop quiz: what enables the greatest happiness?  Options.
Pop quiz: what makes people the happiest? Exercising options which enable someone to learn, work, progress, and explore.

John, whom I described above, has no options.  He can't transfer his skills easily.  He has to keep his current job: his lifestyle depends on it.  He limited his options by stagnating professionally.  He limited his options by structuring his life to require he continue to work.  He limited his options to change.

The Happy Life

The happy life would structure life to maximize options.  


Receiving cash creates options.  Spending cash reduces options.  Creating debt (i.e. using your credit card) reduces your future options more than spending cash.  Creating an expensive lifestyle reduces options.


Learning creates options.  Being a master of a field creates options.  Practicing your knowledge creates options.  Sitting on your ass playing video games reduces options (what. . . really? If you want to know why, look at "Time.")

Knowledge creates more options than does money.  That's why parents are so willing to send children to college.  The $40,000 spent for knowledge is more valuable than the money.  Why do you think colleges raise tuition, yet people continue to attend?


Since time only goes in one direction, each day that passes reduces options.  You have time in your life to do one less thing.  Of all the things you can change, this is the one that should ring your bell.  You can change this: it's called "now."  Do you want to make a change?  Make it now.  Then only good choice is  one that increases your options now.


People connecting with others creates options.  Connections are as valuable as knowledge and time.  Companies pay good money for connections.  Please pay good money for connections.


When making a decisions on your actions, choose the one creating the most options.  Look far enough in the future, and look out for cul-de-sacs in your decision tree.  John, above, reached a cul-de-sac.  His next decision creating the greatest number of options is to go back the way he came.

How is Automobile Traffic Like Financial Markets?

Automobile traffic like financial markets? One concept: arbitrage.

In finance the concept of arbitrage keeps markets fair. Given two farmers' markets in your town with different prices, Pepper Place and Alabama Farmers markets (two real farmers' markets in Birmingham, AL), farmers and buyers will ensure prices are equivalent. Given a perceived similar tomato, it should cost the same at either market. Market participants are smart, and they will create balance. Sellers and buyers at either market will move quickly to the other if they can get a good price.

Market participants participating in arbitrage ensures these markets are balance. Non-farmers could make money by purchasing at one market and selling at another.

In Birmingham, AL, traffic runs south through multiple channels: I-65, US 280, US 31, and AL 52. Given no traffic, everyone traveling to Montevallo, AL (25 miles) would travel I-65 and arrive in 20 minutes (70 MPH). Given stalled traffic on I-65, the next person starting in Birmingham going to Montevallo would travel US 31.

Consider different paths as different markets. Instead of tomatos, the highways sell transportation, and their price is travel time. As with costs for commodity products, people minimize their costs. For the average person with the average knowledge of the market, he cannot travel quicker than average using any of the four methods. For the person with the highest level of knowledge about the different markets, he can expect to travel faster regularly.

Information Reduces Cost

As with financial markets, real time information creates advantages on the road.  Googles realtime traffic information creates advantages for people to take advantage of arbitrage.  Any driver can determine travel time on one route, shorten exposure to that route, and lengthen exposure to another route.

Capital Asset Pricing Model

The Capital Asset Pricing Model is: for more risk, you would receive more reward, or it is a poor decision.  Each level of risk has an optimal reward, anything less than the optimal reward for a level of risk is a poor decision.  In Birmingham, you could go North to get South, but I'd expect the South-bound systems to be dead still.  That would be a scenario of taking extreme risk with an attempt to have a greater reward.  The more logical path is to wait as the South-bound systems to free up.

The System

For the average level of risk, you can't expect to do significantly better or worse than the system.  Within any system, rewards are a function of the system.  In a car, traveling to Montevallo from Birmingham, travel time will never be less 20 minutes.  Any stoppage will always cause exponentially greater travel time from the average.  Therefore, for the average person, choosing a path different than the interstate is useless, and don't expect to get there faster than the internet.

Why Buses are Useless for Mass-Transportation

This begins my thesis: buses are a waste of money for mass-transportation.  I'm not talking about transporting lower economic classes: for that buses have their place, but they still suck.

If everyone rode buses one day, then no cars would be on the road.  Seeing no cars on the road, most people would drive their car the next day.  Eventually, the market for transportation (i.e. the interstate) would balance.  Buses as mass-transportation are useless because they are a function of the same system: the highway system.

Trains are apart from the highway system -- though not without fault.  Given a dual track system, they offer a "benchmark" for interstates.  If a train takes 30 minutes (no matter what) to travel from Birmingham to Montevallo, then the train should make the average travel time on the highway 30 minutes.

Each South-bound travel method, the four highways and one train route, would equalize overall travel market.  However, the one train route would have the greatest affect because it is apart from the other linked systems.