Did Plato predict our fate?

The excessive freedoms granted to the citizens of a democracy ultimately leads to a tyranny, the furthest regressed type of government. These freedoms divide the people into three socioeconomic classes: the dominating class, the capitalists and the commoners. Tensions between the dominating class and the capitalists causes the commoners to seek out protection of their democratic liberties. They invest all their power in their democratic demagogue, who, in turn, becomes corrupted by the power and becomes a tyrant with a small entourage of his supporters for protection and absolute control of his people.

The answer is?

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Calculating the Rent Ratio

 Ilyce Glink | 

Calculating the Rent Ratio

The rent ratio is calculated by taking the purchase price of a home and dividing it by the annual rent of a home of similar size, shape and amenities, and located in the same neighborhood.
“In a market where a 3-bedroom home costs $500,000 to buy but $24,000 per year to rent, rent ratio is 21,” she explains.
“Experts vary in opinion where the tipping point is, but most agree its around 15. If the rent ratio is 15 or below, it makes more sense to buy a home rather than rent from a purely financial perspective,” she said. “The higher the ratio, the higher a housing price spike is needed in future years to justify the purchase price.”

The answer is . . .

The human mind cannot grasp the causes of phenomena in the aggregate. But the need to find these causes is inherent in man’s soul. And the human intellect, without investigating the multiplicity and complexity of the conditions of phenomena, any one of which taken separately may seem to be the cause, snatches at the first, the most intelligible approximation to a cause, and says: “This is the cause!”

-Leo Tolstoy

How to find red flags for possible fraud in plain sight

In order to find fraud, you have to spot "patterns of inconsistencies" in a company's public disclosures found in SEC filings, earnings conference calls, media interviews, trade journals, and other forums. In an interview with Fortune Magazine published on December 17, 2007, I listed the following rules:

INVESTOR BEWARE
Sam E.'s five rules for spotting potential fraud in public companies.

1. Study SEC filings yourself.
External auditors, audit committees, and Wall Street analysts cannot protect you from most fraud. Analysts often do not ask the important questions and are too quick to accept management's representations.

2. Read the footnotes first.
Tiny things can be huge. In the Crazy Eddie fraud, the change of a single word (from "purchase discounts and trade allowances are recognized when received" to "recognized when earned") allowed Sam E. to inflate the company's earnings in fiscal year 1987 by about $20 million.

3. Watch for inconsistencies.
If the CEO tells the press, "We are profitable," make sure the figures in the 10-Q back up the statement.

4. Always crosscheck disclosures.

5. Compare Management Discussion & Analysis in the current report with MD&A sections in past 10-Qs. Look for any changes in disclosure language.

Sound like too much work?

If you don't have the time or expertise to do the above, don't buy individual stocks. Stick with index funds.

Three questions

In his essay You and Your Research, Richard Hamming suggests that you ask yourself three questions:

1. What are the most important problems in your field?
2. Are you working on one of them?
3. Why not?

The question is

"When I use a word," Humpty Dumpty said in rather a scornful tone, "it means just what I choose it to mean -- neither more nor less."
"The question is," said Alice, "whether you can make words mean so many different things."
"The question is," said Humpty Dumpty, "which is to be master - - that's all."

Sony shutting down Japanese floppy disk sales

Sony shutting down Japanese floppy disk sales

By Vladislav Savov 

Believe it or not, Sony managed to shift 12 million 3.5-inch floppy disks in Japan last year -- presumably to die-hard old schoolers. Alas, time waits for no one, and the venerable data transporter that started its life way back in 1981 is going to all but cease production by March of next year. ........... Ah well, the diskette goes the way of the cassette, guess that was predictable.