Daniel Goldman

Archives for December 2017

Philosophy of Academics

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Philosophy of Academics included Philosophy of Education, but also questions about the validity of methods of research and scholarly communication. Questions include, but are not limited to is the separation between “fields of study” in academia reasonable or arbitrary?, is there a more reasonable way to measure academic achievement beyond degree level?, and can people still be world class scholars in more than one field?. If I were to categorize these questions, I think they would fit reasonably well into a category that I would call “philosophy of academics.”

This article will be updated over time, as I build a list of questions and concerns that reasonably fit into Philosophy of Academics (PoA) and as I consider further argument for the validity and utility of the topic.

Questions & Problems

The following is an incomplete list of questions and problems within the topic of PoA.

Single Topic

All of the questions are questions about academia specifically because of how academia is reasonably defined. Specifically, Academia is “the environment or community concerned with the pursuit of research, education, and scholarship (Oxford).”

Why is it Philosophy?

It is value theory: these questions ask what value there is in the current practices of academia and whether there are better ones. It is epistemology: it is asking about whether or not there are even boundaries, that can be identified, a priori, between academic fields. What is Philosophy) Finally, it asks “what is possible within academia?”

Not Just Philosophy of Education/Science

Because academia is the environment or community concerned with education, PoA includes philosophy of education. But it is much more than just philosophy of education. Philosophy of education includes many of the questions asked above, especially when it comes to specific division of ideas as they are taught, but not in terms of actual differences between the domains of knowledge. PoA also would include other questions, such as those related to research methods and availability. Whether or not peer review is most reasonable way for researchers to communicate, how much bias, and what kind of bias exists in research funding and publishing all would fall under PoA.

Because science is a method of doing research, Philosophy of Academics is also intimately connected to Philosophy of Science, although the questions are going to be a bit different. PoA would focus more heavily on institutional issues, over the core nature of scientific investigation.

Some of these questions fall into philosophy of science, some into philosophy of education, some into social epistemology, and so on, but they all fall into philosophy of academia, because academia is the “environment or community concerned with the pursuit of research, education, and scholarship.”

Utility

While philosophy can exist for philosophy’s sake alone, it can also provide insight into problems and can help to offer solutions. Philosophy of academics can not only help us understand academia, but also help improve it, including through improvement of education specifically, the relationship between research, education, and scholarship, and as a tool to help produce better quality data, and more open research.

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Those Who Claim Religion is a Delusion are Delusional

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Prominent individuals in psychology have stated or implied that religion is a delusion. These people are often delusional themselves. I have explained why religion is not a delusion or mental illness in “The Pervasive Nature of Religiophobia” and “Religion is an Illness and Evolution is Wrong (Not).“

In these articles, I have explained that a delusion requires a perception of reality which is contrary to the cultural understanding of the perceiver. Those who believe that “god is talking to them” or has left a sign believe this because their cultural upbringing has taught them to interpret sensory information in that way. But people like Richard Dawkins have a different cultural understanding of the world. Their understanding is one based purely in mathematics and science. If the current scientific body of evidence points in a specific direction, that is what is interpreted as being “true” and if current theory and evidence contradicts a position, that position is interpreted as being false.

So what is happening with Dawkins and others like him call religion a delusion or mental illness? In order to make this claim, their perception of reality must be different from the current body of scientific theory and evidence on the topics of mental health and the anthropology and psychology of religion. Their perception contradicts the cultural understanding of reality. By the definition of delusion then, Dawkins et al. are the delusional ones.

So while “religion is a delusion” is wrong, or at least inconsistent with current scientific understanding, that thought process is delusional itself. It is ironic, but it is not surprising. In some ways, these people, who are clearly Religious Rejectionists, have two very different domains of thought: their mundane thought processes, which center around science, and their religious thought, which is centered around the belief that there are no gods, afterlives, etc. It is the latter domain which other religions contradict and therefore result in the conflict which drives them to make the claims that they do.

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Bitcoin: A Major Asset Bubble

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A bubble is “when the prices of securities or other assets rise so sharply and at such a sustained rate that they exceed valuations justified by fundamentals, making a sudden collapse likely…” This commentary is going to be expanded as time goes on. But I wanted to quickly put something out into the world to explain my concerns with bitcoin and other high risk asset classes.

First, when I say that a sudden collapse is likely, it does not mean that one is imminent. It means that there is a high probability of it occurring. There are ways in which a bubble can end, besides in a crash. Speculation can die down slowly and allow the price to level off or drop slowly. Or the reasonable valuation of the asset can rise due to changes in supply and demand. Either of these situations would cause the bubble to end without a crash.

Bitcoin

It is argued that $BTC is not in a bubble. One argument used is that people have been claiming that it has been a bubble for a long time, and yet even new adopters have been profiting substantially. But as I said in the very beginning, a bubble just implies a high probability of crashing. A bubble can last for a very long time before it does, if it ever does at all. Many argue that the $USD is in a bubble, by the same people who profess that bitcoin is going to continue to grow and grow and grow. I agree that the dollar is a bubble. It has yet to crash, but that does not mean that it is not a bubble. The stock market has been argued to be in a bubble. Again, I agree. Months ago I wrote an article about how stocks were overvalued. Since then, stocks have continued to climb higher, but this climb has just resulted in greater risk.

What makes $BTC a bubble? Aside from the rapid spike in price, the high volatility associated with rampant speculation are to blame. Much of the exchange volume is due to speculation, and very little is due to use. This result has been caused by the inherent deflationary nature of the cryotoasset.

Stocks

One reason why I think $BTC and other cryptoassets are growing in price so much is because people who would normally be shorting the market are instead putting their money into $BTC et al. Because of the “BTFD” mentality, shorting stocks right now isn’t getting anyone anywhere, but most traders do not want to just leave their money on the sidelines. Because of the cryptoasset bubble, even though there is a lot of risk, the reward seems much better than stocks, and so money is flowing into the cryptoasset market. However, that also means that once things start to go south with the stock market, money very well may flow out of bitcoin and others and into short positions in stocks. Now, some of the long positions may transition to bitcoin or another cryptoasset, which may buffer the price, but it is hard to tell. What I do expect is a waterfall effect for the S&P 500 and other indices.

Conclusion

People can certainly profit during a bubble. A bubble may never really burst. However, the risk is great, and that point should be made clear. Also, the way in which the cryptoasset markets, precious metals markets, and stock markets are interacting, make the risk for stocks even greater.

Further Reading

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The Human Gut Microbiome

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Introduction

Over the last couple of decades, we have learned a lot about the human gut microbiome. Rather than simply being a collection of commensal organisms, the gut microbiome (GMB) is now thought to be involved in a number of important metabolic roles, including nutrient extraction, immunity, and possibly even the regulation of sleep and mood. The degree with which negative health outcomes have been associated with a dysbiosis, or the dysfunctional GMB, and the degree with which different organ systems interact with the GMB, suggest that we should consider it to be as important as an organ, if not actually an organ itself. Dysbiosis is therefore not a minor inconvenience that may cause discomfort, but a syndrome or disease that must be treated to maintain proper health. Further research on gut microbiome dysbiosis should be undertaken, including research into new diagnostic tools. The first half of the paper will summarize part of the discoveries made in the field of research on the GMB. The second half of the paper will use those findings to suggest further research.

Overview of the Field

The human GMB is fairly diverse. On average, the human gut contains well over 1,000 species-level phylotypes (Lozupone et. al. 2012). But that is only on the individual level. According to Jandhyala et al. (2015), those species are from a pool of over 35,000 total species level phylotypes that have been identified as being found in human guts. But even with that diversity, there seems to be two main phyla present: Bacteroidetes and Firmicutes. Bacteroidetes are gram negative while Firmicutes are gram positive. Overall, these microbes are not just commensal but are responsible for a number of metabolic functions within the gut. Bacteroides, a genus in the phyla Bacteroidetes, “are the predominant organisms that participate in carbohydrate metabolism (Jandhyala et al. 2015).” A key species in this genus is B. thetaiotaomicron. These organisms process carbohydrates “by expressing enzymes such as glycosyl transferases, glycoside hydrolases and polysaccharide lyases (Ibid.).”

There are a number of useful byproducts generated by these industrious workers. “Fermentation of the carbohydrates that escaped proximal digestion and indigestible oligosaccharides by colonic organisms such as Bacteroides, Roseburia, Bifidobacterium, Faecalibacterium, and Enterobacteria result in the synthesis of short chain fatty acids (SCFA) such as butyrate, propionate and acetate, which are rich sources of energy for the host[35,36].” (Ibid) Additionally, vitamin K along with precursors to vitamin B are produced within the gut (Ibid). Furthermore, as indicated in Mahony et al. (2014), the GMB is associated with mood and sleep, through the gut-brain axis. This connection seems to be due, at least in part, to the production of serotonin from tryptophan in the gut (Mahony et al. 2014). However, as addressed in Carabotti et al. (2015), the interaction is not mono-directional. The brain influences numerous gut functions, including “motility, secretion of acid, bicarbonates and mucus, intestinal fluid handling and mucosal immune response” (Carabotti et al. 2015). Many of the bacteria in our gut also have receptors for neurotransmitters, such as GABA (Ibid.).

The importance of the many apparent functions of the GMB are consistent with the much narrower range found in functional diversity, as opposed to phylogenetic diversity, within the gut: “despite having highly divergent gut microbiota compositions, functional gene profiles are quite similar in different individuals” (Lozupone et al. 2012). The specific roles of our  microbiota may also explain another interesting result. While Bacteroidetes and Firmicutes are the most common phyla of microbes present, the ratio of these organisms varies considerably depending on a number of factors, including diet. Looking at healthy individuals, Firmicutes were the most dominant phyla in vegetarians, while in non-vegetarians, Bacteroidetes were the most common phyla (Bamola et al. 2017). This variation is reasonable since different foods would require different microbes to process them.

So diet influences the human gut microbiome. But that microbiome needs to be established in the first place. Some of our GMB is colonized very early in our lives. Roughly 25% of infant gut bacteria come from breastmilk and microbes found on the breast of the mother (Pannaraj et al. 2017). Microbial composition then varies considerably for the first few years, increasing in overall diversity until the ecosystem finally stabilizes (Lozupone et al. 2012).

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Investing: Human Capital

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One of the most important aspects of investing is improving your own “human capital” through education. The more you know, the better off you are.

Your knowledge, skills, and work ethic, and social network all help determine how successful you will be over the course of your life. Of course, luck is always involved, but as Branch Rickey said “luck is the residue of design.” Setting yourself up to be able to take advantage of opportunities, and noticing those opportunities when they arise, is really important.

Economics

Economics is essentially the study of “choice.” Having a solid understanding of economics comes in handy. Microeconomics addresses concepts like opportunity cost, utility, etc and helps us make personal decisions, while macroeconomics addresses GDP, monetary theory, etc, and helps us understand the decisions that governments make. Coursera offers courses in both microeconomics and macroeconomics.

Just a warning with these two courses. Both show a clear bias towards Keynesian economics, although the proctor does a fairly decent job at explaining multiple competing theories, and it is not too off putting.

Corporate Finance & Markets

Now, if beyond investing in yourself, you decide to invest in someone else’s business, either through a startup or through publicly traded companies, you’ll probably want to have a solid grasp of the basics of corporate finance, as well as the nature of the global capital markets. Understanding the difference between book value and market value, knowing basic ratios which help identify how profitable a company is, etc will help you select specific companies. And knowing how equity markets, debt markets, etc all interact with one another, and how companies use these different markets will further help you understand the ups and downs of your investments.

Again, Coursera has some useful courses on these topics. In this case, they’re part of a five course specialization.

Learning Probability Theory

I added this one because of a conversation with an author on Seeking Alpha. Fear and Greed Trader argued that the “naysayers” have been wrong. It is true that we have been calling for a correction or collapse of the markets. However, at least when I address such matters, I am addressing probabilities.

One might argue that since a major correction has not happened in a long time, it will not be likely to happen. Or someone might argue that if a correction has not happened in a long time, it is long overdue and must happen soon. However, in many ways, when a correction happens is largely independent of what has happened in the past. We can only look at the conditions of the markets now. The same is true in the opposite direction. It similar to arguing with someone who has had a winning steak while playing slots. They may argue that since they’ve had a winning steak, they are likely to keep winning. But if you understand probability theory, then you know that this is not the case.

Skills

There’s nothing wrong with simply investing in stocks. However, maybe you don’t want to just profit off of someone else’s work and imagination. Maybe you want to profit off of your own. In that case, you’ll want to gain a marketable skill, or set of skills. Programming is a big one these days, and if the project is small enough, you can even handle the entire thing yourself. If not, a skilled programmer should at least be able to produce a proof of concept, which can then be used to convince investors to get involved.

Two skill sets which should be strengthened, regardless of profession are writing and interpersonal skills. If you’re looking for investors, you’ll want to be able to write up a proper business plan in order to pitch the idea. And similarly, you’ll want to be able to draw people in and convince them of the profitability of your idea. And the idea of interpersonal skills leads us to the next investment.

Networking

It’s difficult to be successful on your own. Spending time building your network is often key to being successful. Now, you might think that you can just rely on your friends when you need something, but that’s not true. Think about it. Suppose you’re looking for a new idea to invest in. Asking your friends probably won’t help that much. If they knew someone with a novel idea, you probably would know that person already too. Or let’s say you’re looking for an open position for a job. Again, if your friends know about the option position, odds are you would too.

That’s why acquaintances, or what’s known as “weak ties” in social network theory are often at least as valuable, if not more valuable, than strong ties like friends and families, even though friends and family are going to be more likely to take on risk for you. So it’s always a good idea to get out there, meet people, and keep track of contacts. Keep a solid contact list, which includes not only how to contact the person, but some basic information so you remember who they are.

Disclaimer: I am not a professional investment adviser. I offer no warranty on this information. Any risk taken is your own.

Further Reading

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Investing 101

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I find it interesting how foreign things like stocks and investing are to so many people. So I decided to write Investing 101 as a primer for anyone interested in learning a bit more. I will add more to this primer over time, as readers ask specific questions that they want answered.

Investing

There are a few things that we need to get out of the way, before we can go onto specifics about investing. First, investing is not about getting rich quick. Investing is about putting money into an asset, and allowing it to grow over time. Removing any money from a portfolio after less than three years is not really investing. Second, even a properly maintained portfolio goes up and down in value during certain periods of time. The higher the desired growth rate, the more volatile the portfolio is going to need to be.

Profit

I have a rule for both investing and trading. Essentially it is “do not count your chickens before they are hatched.” More specifically, do not consider any growth in portfolio value profit, until you have used that profit. I am not suggesting that you should go out and spend all your profits right away, but rather that you can never really say how much you have made.

You can only say how much you have spent. I could have an account that goes up by $1,000,000 over the course of a few years. But that portfolio could end up crashing. I could buy the next big thing (like bitcoin), but hold it too long and end up sitting on something worthless. Sure, there are assets that have a longer track record, and diversification helps to reduce the risk of loss, but it is the use that you have been able to derive from something that determines what it was worth.

Margin

I’m going to address the concept of a margin account before getting into anything else, because understanding margin accounts will be useful in later discussions. A margin account is essentially a line of credit that a broker provides. The credit is secured by your positions. Usually the margin account is roughly 2:1. If you purchase $1,000 worth of stock, you’ll only have to pay $500. The other $500 will be on margin. Of course, you will be charged interest for this loan.

More importantly, while a margin account can double your profits, it also doubles your risk. Suppose a stock that you purchased goes up by 5%. Now, you only paid $500 for that stock, but you have $1,000 worth of it. So after the 5% increase, you’ll have $1050 and you’ll have made a profit of $50. But that’s a 10% profit on the $500 you actually paid. But if that stock drops by 5% and you now only have $950, your loss is 10%! So you have to be careful when using margin. The real power of margin is that it helps protect you from the T+3 rule, which I’ll get to in a bit.

Stocks

Stocks are instruments which carry ownership in a company. When you purchase 100 shares of stock in say IBM, you are becoming a part owner of IBM. This gives you rights to the profits and equity in the company. In general, being an owner also gives you the rights to vote on certain matters, such as selecting members of the board of directors, mergers, etc. That isn’t always the case however. Some corporations have multiple classes of stock.

Most people buy and sell common stock. Some companies however also provide “preferred stock.” This class of stock usually gives the investors first dibs on profits, and on recovering losses in the case of a business failure. In general, preferred stock offers a fixed dividend rate, which can be substantially higher than the dividend rate of common stock. In fact, common stock might not offer any dividends in some cases. But in return, preferred stock usually doesn’t convey voting rights. So there’s a trade off. You can get a higher rate of return, but you have no say in what the company does.

ETFs and Mutual Funds

An ETF or “exchange traded fund” is purchased and sold on an exchange in the exact same way as a stock. However, unlike a stock, you are not purchasing equity in any company.

There are options to automatically get a high degree of diversification. You can purchase an ETF (exchange traded fund) or mutual fund, which track key indexes like the S&P 500. That’s not a bad idea. However, it gives you no experience on picking and choosing stocks!

T+3 and Freeriding

Margin isn’t actually the only loan that your broker can or does give you. Stock transactions take three days to clear. Therefore, buying and selling the same stock repeatedly, within a three day period, means that you’re selling a stock that actually isn’t yours yet, with money that isn’t yours yet. That’s called “freeriding.” If you accidentally violate these rules, you’ll end up being locked out of using any uncleared funds to purchase new stock.

But you can get around the freeriding problem by opening a margin account. Since the margin account is a true line of credit that you’re receiving from the broker, you don’t have to worry about whether or not funds have cleared or not.

Investing vs Trading

As I mentioned earlier, investing is not trading. Investing in stocks and trading stocks are two very different methods of generating income. Investing in stocks is relatively easy, requires very little money to start, and carries relatively low risk. Trading is difficult, requires a lot of money to start, and carries a very high risk. If you are buying stock and are holding onto it for the long run, hoping for it to grow, you are investing. If you are buying and selling stock, based on how you think the stock’s price is going to trend in the near future, you are trading, not investing. For a beginner with little money, I suggest sticking to investing.

Day Trading

Day trading is a special form of trading, and it requires a fairly large amount of money to start. It also carries more risk than pretty much any other stock transaction. A day trade is defined in terms of a round trip. A day trade occurs when you buy and sell the same stock in a single day. If you perform more than 4 of these trades in a five business day period, you will be classified as a pattern day trader. But you cannot actively be a pattern day trader unless you have at least $25,000 in a margin account.

Now, while day trading is incredibly high risk, I’m going to tell you something that you probably won’t hear from most professional investors, traders, or advisers. Day trading is not a zero sum game. The usual claim is that day trading requires someone to lose in order for someone else to win. If one person is making money, someone else is losing it. The problem is, this reasoning happens to rely on a flawed assumption: day traders are buying and selling from each other. But current research suggests that this isn’t the case. You can read more on the source of income for day traders, here.

Risk and Diversification

Diversification helps reduce the amount of risk you take on when investing. However, not all risk can be diversified away. There are two main types of risk: systemic risk and unsystemic risk. Systemic risk is the risk due to fluctuations in the market and economic system as a whole. See Market Cycles Definition | Investopedia. Unsystemic risk is risk due to individual businesses. For instance, Chipotle stock has been hard hit because of a recent E. coli outbreak. That can be diversified away.

But it takes about 20 stocks, properly diversified, to eliminate unsystemic risk: risk not due to overall fluctuations in the market. That means, with a normal broker, like TDAmeritrade, you’re spending $9.95 x 20 or $199, just to purchase the stocks. Now, if you’re investing more than $10,000 at a time, that’s 2%, which isn’t great, but can be managed. And if you are investing more than $10,000, it might be better to go with a company like TDAmeritrade or Interactive Brokers, as they have a lot more options. Especially since you don’t need more than 20 stocks to properly diversify and any more than that and you risk over-diversification (The Dangers Of Over-Diversifying Your Portfolio).

One way to diversify a portfolio is through the permanent portfolio method. This method uses 25% cash, 25% gold, 25% long term bonds, and 25% diversified stocks.

Brokers

Robinhood

Robinhood is a relatively new platform for investing. Its services are limited, and it can only be accessed through the Robinhood App, but there are no fees for basic transactions. This is helpful for those who are only purchasing a small amount of stock at a time.

Motif Investing

If you want a little more control and a slightly better selection, you can use Motif. With Motif Investing you can purchase a collection of 30 stocks, called a motif, for a single fee of $9.95. You can also sell or restructure that same Motif for the same price. That’s really quite useful. It means you can pick and choose a fair number of stocks, properly diversify, and not have to take a huge hit. In fact, it even reduces the problem of over-diversification, which is primarily that it costs more to handle 30 stocks, usually, than 20. It doesn’t however eliminate the added complexity of researching an addition stocks however.

TDAmeritrade

TDAmeritrade is useful for investors with more experience and more money. While they are much more expensive than either Robinhood or Motif, they offer greater choice and tools. Not only can you buy and sell stocks and mutual funds, but you can also purchase bonds, futures, options, and trade on the foreign exchange market. They also have great research tools and tools for day traders.

Interactive Brokers

IB is probably my favourite broker for larger accounts. While a person needs to put a minimum of $10,000 into the account to start, IB has access to pretty much everything that TDAmeritrade has and more. They have access to stocks, bonds, forex, options, and so on, and allow you to trade in multiple currencies and on multiple exchanges in a number of different countries. If you are looking to diversify into foreign assets, IB is probably the way to go. Additionally, IB has some nice features like a secured credit card which can directly utilize your margin. This feature of course puts your assets at some risk, so it should be used carefully, but it also provides a very low interest rate because any debt you accrue is secured by your assets.

Education

Improving your own “human capital” will aid you greatly in any endeavor, including investing in various markets. Some people disagree, but I think a solid background on finance and economics is very useful when investing. As such, I would suggest a basic finance course, which would allow you to understand a corporation’s balance sheet and profit and loss statement, along with a macroeconomics course, which will give you an idea of how to analyze information coming out about economic policy and conditions.

Coursera’s “The Language and Tools of Financial Analysis” course is a fairly decent option for learning about corporate finance and their “Principles of Macroeconomics” course provides a good introduction to that topic.

Practice

There are a number of companies which offer practice accounts. Papermoney, through TDAmeritrade’s thinkorswim is one of them. Using these practice accounts, you can play around with a virtual account, using real time market data. You can practice investing, or even day trading, without having to worry about losing any money.

Disclaimer: I am not a professional investment adviser. I offer no warranty on this information. Any risk taken is your own.

Further Reading

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