Christmas Shopping

Today I had the unfortunate experience of going Christmas shopping. I procrastinate and do my shopping close to the 25th, a fact I usually blame on school becoming hectic right about the time my family is passing around their lists. Thus I must wait until school goes to recess for the semester to actually commence shopping. This being said, Christmas shopping is like my own personal circle of the Inferno, where I am continually punished by demonic store employees referring me to opposite ends of the store to find the elusive widget I seek.

As I seem to do in all walks of my life, I even began to sort the Christmas shoppers in to various groups (mathspeak: equivalence relations). I began to see various types of shoppers such as the Warrior, the Dawdler, the Hesitant, the Impatient, and the Epic. Gracious readers, please take advantage of your ability to comment anonymously and add to this list as you see fit.

The Warrior
The Warrior is perhaps the easiest of all Christmas shoppers to identify. As the name suggests, this shopper is on a quest, and every opposition to their aim is a battle to them. Neither snow, nor rain, nor normal flow of traffic shall impede their search for the polka-dot sweater their Great Aunt Brenda requested. These are the shoppers that make their way through the crowds with all the grace of a rhinoceros, but with much more noise. They will use their carts as weapons, bruising your shins and banging your elbows. Warriors are best left alone, as battles with them usually result in raised tempers, perhaps a shout or two, and a much less enjoyable shopping experience afterwards.

The Dawdler
The Dawdler has already completed 99% of their Christmas shopping. The one and only gift they have left to get, therefore, causes them such little stress that they feel free to take their sweet time moving about the aisles of the store. If you have ever had the misfortune of getting behind a Dawdler in one of those increasingly narrow store aisles that makes passing impossible, then you, too, have felt the frustration of going slower than a drunken slug. Ironically, I seem to see more Dawdlers as it draws closer to Christmas, and thus those more like me, who procrastinate, find their slow, relaxed pace of life enraging.

Another interesting facet of the Dawdler is that they are normally found in pairs. These two friends find nothing wrong with plodding along in a slow manner in order to enjoy their companion's conversation. Should you ever be stuck behind two Dawdlers, resist the temptation to become a Warrior and be glad that you're moving at all, because you could be dealing with...

The Hesitant
The Hesitant cannot make up their mind. In spite of the fact that they have already picked up the same candle and the one next to it 47 times, they still are unable to choose between the cream candle that smells like strawberries and the strawberry candle that smells like cream. Somehow, by some act of Satan, the Hesitant always manages to wind up directly in front of the item you need (and have already chosen to buy). There you are, hunched over your cart in an attempt to use everything you know about body language, languishing, because within 5 feet is the perfect gift for your mom, but yet it is still blocked by this dolt of a shopper who needs to start researching Christmas gifts in March in order to pick them out in a timely manner.

The Hesitant can take many forms, I must say. I think I have even been the Hesitant at times. The Hesitant may be a grandparent confused by the newest video game systems, or perhaps a parent trying to pick out the right CD for their teenager, or maybe a boy unaccustomed to an X-chromosome-only area, such as Hallmark, searching for some gift for a girlfriend (that would be when I'm the Hesitant). The Hesitant usually means well, but nevertheless clogs aisles in ways that the Dawdler could only fantasize about.

Also, should you ever have the fortune to see it, a Warrior encountering a Hesitant is a comical affair. Given an very effective Hesitant with a large shopping cart, the Warrior may do a small dance around the Hesitant, resembling a bee dancing to indicate the position of the nearest flowers. Yet, the Warrior is helpless against the brick wall of indecision that the Hesitant builds, and is forced, like the rest of us, to wait their choice.

The Impatient
"I can't believe we have to wait 10 minutes in line on the 23rd of December. Why don't they have more registers open? Doesn't anybody work here?" Ever heard those words, or something like them? Yup, you guessed it, that's the Impatient.

The Impatient gets easily frustrated when something is out of order. They feel that open complaints will magically bring more employees to the registers or out on the floor to help them find the perfect gift. When the Impatient finally does corner an employee, if anything goes wrong they make sure to voice their displeasure with body and voice, rolling their eyes and raising their arms because the Office Max store had run out of the super-sale keyboard they had advertised since last Tuesday.

These people get to me sometimes, I have to admit. It's Christmas season. You have to understand that things are going to be slow, or at least slower than in July when you Impatients last ventured into the mall. Complaining about your circumstances will not bring help to you, and more likely, it will probably drive help away because employees are frustrated at dealing with Impatients and Warriors all day long.

The Epic
The Epic is the Christmas shopper most like me. The Epic is determined to do as much shopping in one shot as possible. In my case, it's all of it. It doesn't matter if it's going to take three hours or ten hours, the shopping must be completed! Unlike the Impatient and the Warrior, the Epic understands that the going will be slow and steady, and so it is more of a survival test than a battle for the Epic. The Epic carefully plots the most efficient route, keeping in mind possible detours, alternate stores, and places of nourishment. Yes, armed with a list, a cell phone, and a full tank of gas, the Epic sets out and shall not return until the task is completed! Other Christmas shoppers may annoy the Epic, but never to the point of losing sight of the goal. And the goal will be reached, no matter what the cost. The Ring must be de---I mean the presents must be purchased!

So there you have it: my renditions of the Christmas shoppers. Please feel free to add whatever comments you wish to contribute to this discussion. Thanks for reading!

The Dividend Growth Model

First, scroll down and read the previous post.

OK, now that we're all on the same page here, I'd like to write a few things about a stock pricing model known as the Dividend Growth Model, or DGM.

Since I know that non Math-Finance-Economics people read this, I'll take this slowly. What is a stock pricing model? Well, stock pricing models attempt to take financial data about a company and come up with a fair value for their stock price. The DGM basically says the following: "The value of a share of stock XYZ is equal to the present value of its future dividends."

Present value (PV) is money adjusted for interest and inflation. For example, if interest rates are 10%, $110 one year from now is worth only $100 today. This is because you could put $100 in a 10% account today and get $110 in one year. Cute, huh?

I think that the DGM is a bunch of bunk. Why? OK, let's look at the reasons here.

The model says that the value is equal to the PV of all future dividends. That means to infinity. How many of you actually buy anything with the idea that it's going to last to infinity? That isn't realistic in the slightest. Most investors are buying for a shorter horizon than that. Realisitically, you're probably buying stocks for retirement, which should happen in less than 50 years, unless I have much younger readers than I thought I would.

A defender of the DGM would probably explain the model like this: Let's say you buy a share of stock and hold it for one year, during which time you recieve 4 quarterly dividends. Even though you sell it at the end of a year, the price you would get for the stock when you sold it would still be equal to the PV of all future dividends.

Again, I claim that is bunk. It's circular logic. You have to assume that the model works in order for the model to work. Otherwise, the price at the end of the year (or time n for that matter) could be a function of interest rates, consumer confidence, Survivor ratings, womens' skirt lengths in Milan, and a bunch of other factors. Iff (if and only if) you assume that the price at time n exactly equals the PV of all future dividends does the DGM work.

What really frustrates me is that this model is frequently used. Although convenient and easy to calculate (the formula boils down to D1/(k-g), where D1 is the dividend at time 1, k is the required rate of return, and g is the growth rate of dividends), the assumptions of the model are flawed to me, and so I can't really justify its use.

So why is it used? It sounds plausable. I mean it might make sense to think that the value of a stock is worth all its future dividends. It also tends to spit out semi-correct answers (aka prices close to the market price) if you guess around with k and g. In fact, there are reams of literature about how to determine k and g such that they come close to the market price. Most work pretty well, actually, if you use them. Still, I can't really justify the assumptions of the model, and so it seems like a stab in the dark as to whether or not it is correct or not. If you stab enough times in enough dark places, you'll eventually hit something (let's hope not someone).

There are other models which appear to have more solid foundations, so don't worry about the stock market crashing when I hit the publish button to my lower left.

I think that the DGM can be fixed, but I am unsure of how to do that. This may turn into a thesis topic for me, since I had to work with this model extensively this semester. So for all of you out there who I told that my thesis idea was too technical to explain, you now see why. Imagine how much you'd now hate me if I had spent an entire dinner explaining this to you, rather than letting you read it at your leisure. You're welcome.

Overall, the DGM is a flawed model in my eyes and I can't really see why it is used. Maybe I just need to spend a little more time in professors' offices arguing this with them and then I'll understand. Until then, I'm just an insolent multi-disciplinary student who pokes holes in age-old models and doesn't take assumptions lightly.

I'm Back

Woo, it's been a long time since I've written. Wow. I've added a Google AdSense banner to the top of the page. Since I am a fan of all things Google, I've been waiting to try out AdSense for awhile, but never figured that I could try it out on a Blogger site, since Blogger is owned by Google. However, the opportunity has come, and I'll let you all know how it works.

I also have yet to figure out why my little profile sidebar has mysteriously dropped to the bottom right of the page. Weird.

This has been a crazy semester, but hopefully I'll have more frequent updates now that it's almost over. Keep on reading.

Eminent Domain

News Story on the Ruling

The Supreme Court is on crack. That is the only explanation I have for what they have just ruled. If you're too lazy to read the article, allow me to summarize. Eminent domain is the constitutional right of the government to seize your property for public works. They have always had this right, so that if Farmer Bob doesn't feel like moving so that the new hospital can be built, he can be paid off and evicted legally. Although a bit unsettling, this little legal ability is really quite necessary to maintain government order, and I've never really had a problem with it. However, now the Supreme Court has ruled that economic development projects fall under this public use category of eminent domain.

In case you missed it in the article, local governments have this power. Now I don't know how it works in your county, but in my county the local government shows some signs of being less than honest. I can see Wal-Mart having a large influence over the commissioners' decision to let them build that new Supercenter on Farmer Bob's land, even though he doesn't want to sell.

There have been some repercussions to this decision already. This developer is trying to use the new ruling to seize Justice Souter's land , and states are fighting back as well.

This decision is a strong blow against private property in the United States. Speaking in financial terms, the risk of owning property, especially on what would otherwise be prime retail development land, has increased greatly. Corporations which are able to sway the opinions of local government officials could have nearly free reign on where to build, regardless of who owns the land.

One interesting outcome of this ruling would be if a corporation tried to seize another corporation's land. Imagine this scenario: Think of a the poorer side of a city, where an aging Wal-mart shopping center is filled with vacancies, but Wal-mart sees no reason to get rid of this shopping center because its mortgage is paid off and the rent is still somewhat profitable. Now imagine Target takes a look at that shopping center and manages to convince the local city council that they would make a better tenant (economically for the city) than Wal-mart has. Boom! Target seizes Wal-mart's land under the new eminent domain ruling! We could have a whole rush of firms competing for others' lands! That would be mildly amusing.

Still, the entire concept of a private business (or a public one) being able to take away someone's private land is disturbing. If that doesn't unsettle you a little, please comment and explain to me why, exactly. Until then, I'll be trying to convince a private LAN Gaming corporation to take over my neighbor's land.

Daylight Savings? What's my interest rate?

So the Indiana Legislature has voted to pass Daylight Savings Time into law. After years of holding out, Indiana will join the other 48 states in changing their clocks twice a year.

First off, let me explain how I understand DST works, and if I'm mistaken, someone please comment and correct me. Note that these calculations assume that Indiana joins Eastern time (like Michigan above us). I will need two variables, let's call them RT (real time - aka unadjusted for DST aka the time that makes sense to Indianans) and DST. In the Spring, we add one hour to RT to get DST (RT + 1 = DST), and DST is the time displayed. This means that when the clock says 8:00PM, it is really 8:00PM - 1 = 7:00PM. Therefore, the sun is still up later. Also, in the morning, when the clock reads 6:00AM, the real time is 6:00AM - 1 = 5:00AM, and so the sun is a 5AM sun, not a 6AM sun. The bottom line is that during the Summer, the sun will rise and set one hour later than RT.

I have heard DST proponents claim that DST results in more daylight. I will now mathematically disprove this claim. First, let us take a typical day where the time of sunlight is a constant C. The way we compute C is to subtract sunset from sunrise. Algebraically, C = Sunset - Sunrise. Now we can display sunset and sunrise in either RT or DST. I'll do both cases.

Case 1: RT
C = RT(sunset) - RT(sunrise)

Case 2: DST
C = DST(sunset) - DST(sunrise)
C = (RT + 1)(sunset) - (RT+ 1)(sunrise)
C = RT(sunset) + 1 - RT(sunrise) - 1
C = RT(sunset) - RT(sunrise) + 1 - 1
C = RT(sunset) - RT(sunrise)

Notes: Please excuse my lack of ability to appropriately write subscripts. Treat (sunset) and (sunrise) as subscripts, please. Also, in case 2, the 1s do not have subscripts because one hour at sunrise is assumed to be the same as one hour at sunset.

Behold, the cases yield the same amount of daylight. Therefore it is mathematically impossible that DST gives you more sunlight.

But I can hear the DSTers saying now "But you have more time in the evening with sunlight." Very well, I agree to that. I have already said that the sun rises and sets one hour later. But now I have a question for the DSTers - if more sun in the evening was the goal, then why stop at just one hour? Wouldn't it make more sense to set sunrise at RT noon so that by the time most people were getting off work, it would hit the 11:00AM (RT) sun? That would provide a lot of sun in the evening, much more so than just one little hour.

I've also heard that DST is results in an economic benefit. This I cannot understand. Perhaps there is some small psychological correlation between consumption and sunlight, but it has yet to be included in any of the macroeconomic models that I have studied. Even if there was a correlation, I would say it is due to confounding factors (like maybe that more people sleep at night so there's less consumption then). I've also heard that DST saves energy. This cannot be the case because any energy you would save from air conditioning (in the morning) or lighting (in the evening) would be offset by opposite air conditioning/lighting in the evening/morning (respectively). I also have yet to see proof of either increased consumption or energy savings in any statistical format. Surely there are similar enough towns between Indiana and Ohio, two states very geographically close, that a statistical analysis of energy use and consumption could be formed for testing of these claims. The lack of proof concerns me.

Then there is the argument that Indiana's oddball time zone takes away from business here. I cannot see the point in that either. Time zone changes are not hard to adjust to - some industries do it all the time. Businesses in tropical nations do not observe DST (for scientific reasons, it is of no benefit for them to do so) yet they do not claim a lack of business because US companies change their local time once or twice a year. How much business is lost on the single frustration of "I don't know what time it is in Indiana?" Better yet, why would Indiana companies want to do business with a firm that is either too lazy or ignorant to use Google for 10 seconds to find out what time it is in Indiana? This I do not understand. If you do, please explain it to me.

In short, I fail to see what daylight is saved with DST. And where is this missing (because savings delays consumption) daylight stored? What interest rate am I getting on my sunlight? Can I redeem it during my retirement years for an extra-early game of golf or shuffleboard some day? I feel that time is one of those elements which is not supposed to be changed, but rather should progress in a straightforward, consistent manner in order to facilitate daily life. But then again, I am just a silly Indiana boy.

Hello World

Welcome friends. You are here because you're curious, nosy, compusively check profiles on various places, or all of the above. This is my blog and I'm going to give this a whirl. No promises on how often the updates will come, but if I have loyal fans, I promise they will in fact come.

This will probably be more of a soapbox than a diary, so don't look for my social life here. Sorry, but you'll actually have to talk with me to get that out of me.

Let's set some ground rules here:

1) I've turned comments on so that anyone can say something (I think...this whole thing is still a bit new to me). If you leave a comment, you must leave your name (or some other way that I know who you are). I'm brave enough to put my thoughts and feelings out here, and I won't have much patience for commenters who will not return the favor.

2) This is my blog. I say what I want. If you don't like it, please comment in a constructive manner. Feel free to engage in mildly spirited intellectual discussions over my thoughts and ideas.

3) I reserve the right to delete comments and/or posts whenever I see fit.

So as my first order of business, I would like everyone who reads this to post a comment of some sort, letting me know who you are, what you think, and if you'll keep reading.