## Tuesday, July 24, 2012

### "AVERAGE RETURN ON INVESTMENT" IS MISLEADING

If you add the percentage gains and losses over a series of time periods and then average them to get some “average” return on your investment, ROI, it is known that the result can be quite misleading.

Say you make 60% gain (G) on your investment (I) this year and take a 40% loss (L) next year. You might think your average return on the investment was (60%-40%)/2yr=+10%/yr. Unfortunately, it was really a 4% loss, -2% per year, a substantial difference.

Let’s say you have invested \$1000. The first year you gained 60%, making your total \$1600. The next year you lost 40% of the \$1600, making your total \$960. Though your “average” return on investment was (60%-40%)/2=10%, you actually lost money, (\$960-\$1000)=-\$40, a 4% loss, or 2% per year on your original \$1000 investment.

The lesson: you cannot simply average the yearly percentage returns on investment to get a reliable estimate of how well the investment is performing.

*****

A little mathematics shows that it does not matter whether the loss was in the first year or the second. At the end of two years, you have your investment of \$1000 times (one plus the fractional gain, G) times (1 minus the fractional loss, L):

\$1000(1 + G)(1 - L) = \$1000(1.60)(0.60) = \$960.

For those who are curious about the mathematics, the general formula for this two-period case

(1 + G)(1 - L) = (1 + G - L - G*L)

and the product G*L is why the true outcome is different from the naïve average, (G-L)/2. If both periods showed gains, G and G’, then the equation uses +G’ rather than -L, and the correct answer for the characteristic gain per year is again different from the naïve average, (G+G’)/2.

Averaging over more than two periods produces a similar outcome, more difficult to express succinctly, but the message is the same, the naïve averaging of the ROI values incorrectly assesses the return on investment at the end of the period being analyzed.

FOOTNOTE:

The proper calculation of a characteristic or effective yearly return on investment requires determining the ratio of the final value of the account to its initial (investment) value and then finding the internal rate of return r, which when used in the formula (1+r)^n, where n is the number of periods (^ means exponentiation, raising to a power), gives that correct ratio. In our example 0.96=(1+r)^2, which can be solved as r = -0.02, a 2% loss per year.

## Tuesday, July 17, 2012

### EARLY RETIREMENT

Excerpt from Ting and I: A Memoir...
In 2000 I retired, at age 58, much sooner than I would have predicted years before. I had not been in any rush to retire, but conditions changed:

—Tina’s paraplegia due to MS required more care and management.
—Phil was graduating, so we need not stay in Ramsey.
—The company I worked for was being acquired and about to change dramatically.

My career had been successful enough: I did some good research, published some good papers, taught at a university, served as an editor for a technical journal, received a few awards from my primary technical association, culminating with the honor of being named a Fellow of the Institute of Environmental Sciences in 1995. My areas of expertise included air pollution, industrial hygiene, contamination control, aerosol science and technology, mathematical modeling and statistics. None of it seemed as important as my family’s well-being, especially Tina’s well-being.

Moving to Lake Osiris, Walden, NY, would put us near my mother and sister, place us in a scenic location, with lower housing costs, especially property taxes and initial price. It was possible that I would build up a consulting business, which did not materialize, or that I might teach high school physics, chemistry or mathematics, for which positions I had qualified by taking the appropriate tests. Our son Phil discouraged me from that last choice, knowing I would be unhappy with the kids’ lack of discipline. “You’d hate them,” he warned.

Another option was to start looking for a full-time job in my science/engineering profession. It was very unlikely I would find one near Ramsey or near my mother and sister, but somewhere in the U.S. I probably would have. I would make more money than would be coming in during retirement, but that additional money would be taxed at near 50 percent, Federal and state. I found that offensive. I’d rather live less expensively than be a workhorse for those to whom we are “spreading the wealth.”

As a nation, we are creating disincentives for work. My example is just one. Recently, our head nurse had to cut back her hours working for us. The government railroad pension her husband was to get put an upper limit on what she could earn. Going above the limit would result in reductions of the payments to her and to their younger child. I agreed that working for us beyond that limit was illogical, and we would ration her hours carefully. My discussions with another nurse on how many hours she wanted made it clear that one consideration was a program or two of financial assistance that penalized working more than half-time. More talent lost.

Before starting this book, I was enjoying my retirement: managing Tina’s care, reading, walking Brandy, visiting my mother and sister, exercising, running errands, listening to the radio [music and political talk]. Putting myself back to work, as an author, has invigorated me, and these other activities have only lessened slightly.

Not only are we wasting the talents of those we have discouraged from working, they themselves are not living as fully as they might.

### IS YOUR HOME AN ASSET?

Robert Kiyosaki, the financial advisor who wrote the highly influential and successful book Rich Dad, Poor Dad argues that your home is not an asset, though many people think it is. I disagree with him.

Kiyosaki defines an asset as something that contributes to cash flow, rather than soaking up your income. He acknowledges that a property that you own and rent out is an asset. What if the costs exceed the income? It becomes a liability, he says. What if the appreciation in property value offsets the loss? That begins to sound like an asset. An asset is something of value. Thus, a house is an asset, which may or may not appreciate over time and which incurs some carrying costs, such as taxes and repair. Your mortgage is a liability, with your house as the collateral on your loan.

Imagine you have a pound of gold that you store in a safety deposit box, paying a small annual fee for storage, a net cash flow loss. Would it make sense to argue that this is a liability rather than an asset? Of course not, unless the annual costs became prohibitive and unavoidable.

A house you own outright is like that bar of gold, with some substantial carrying costs. Often these costs are roughly proportional to the house value or price, so that owning more house than you need can lead to unnecessary cash flow loss, but if you inherit a very valuable home, do not turn it down because Kiyosaki would tell you your liabilities have increased.

Cash flow is important, but wealth is even more fundamental. Owning gold or a house represents wealth.

Similarly, owning an insurance policy, even one for which the premiums exceed the dividends is owning an asset.

## Monday, July 9, 2012

Published in asiancemagazine.com:

http://www.asiancemagazine.com/2012/06/25/give-birthto-your-book#comment-39561

The publishing industry has undergone radical changes, making it easier than ever for first-time authors to write and publish their books. You may find that becoming an author of your own book gives your reputation and your resume a significant enhancement. If you have your own business, a book you have written can become an impressive business card.

Do not let yourself be stopped by these “obstacles”:

1. You don’t have the time. Make the time: set aside a few hours a week for writing. Watch less news, movies, sports. A page (250 words) per day will give you a decent first draft in under four months.

2. Your grammar and spelling are imperfect. You can get help from an English teacher or from a professional writer, if needed. You should plan on having such a professional proofread (and preferably, edit) your work.

3. It is too expensive. One publisher requires \$500-1000 for setting up the paperback book [\$100 for ebook] and about \$5-10 for each book you want printed. Other publishers and printers have both more and less expensive options.

4. You don’t know how to sell your book. The book usually can be sold through the publisher and through amazon.com and bn.com (Barnes and Noble). It may also be sold as an electronic book (ebook) through similar channels.

5. You need an agent to get published. Not so. A subsidy publisher will rarely reject books.

6. You fear losing your rights to the book. Some publishers will allow you to retain all rights. Make sure yours does.

Write about what you know already. How to… books are of value, as are books that answer other questions, like who, what, when, where, and why. Use the Internet to gather more information. Don’t forget your library.

Set aside a time and place for regular writing efforts. Write freely. Correct later. Ask yourself, “Why should someone care?” and “What is in it for the reader?”

Start with a very simple outline. You will modify it as you go along.

Write whatever you can write at the time you are writing, rather than trying to follow your outline step-by-step from beginning to end.

Specific examples are more interesting than generalities, but examples should make a point. A good pattern is to state your point, then back it up with a few examples or pieces of evidence, then restate your point somewhat differently.

Start with a working title, although you may change it later. Titles that get attention are those that are puzzling, surprising, clever, unusual, or deal with famous persons, places, events, eras. People like to think they are being let in on something hidden, such as The Secret…. Perhaps you can contradict conventional wisdom, as in Why You Should Not Pay Down Your Mortgage or Why Playing Hard-to-Get Often Fails. If you are looking to burnish your business reputation, the book should deal with something business-related, naturally.

Amazon’s Create Space and their Kindle Direct Publishing activity are attractive and attracting many new authors.

As the number of new book titles increases from hundreds of thousands to millions, your chances of making money on the sales of your book become smaller and smaller, but as a vehicle for becoming recognized as somewhat of an expert, writing a book can be a big help. Your book will look good on your resume, on your book shelf, and as a present to yourself, your family, friends, associates, et al.

So…write on!

Douglas Winslow Cooper, Ph.D., freelance writer and retired scientist, published in September 2011 [through Outskirts Press] his own book, Ting and I: A Memoir of Love, Courage, and Devotion. His web site is
http://tingandi.com His email address is douglas@tingandi.com.

## Sunday, July 8, 2012

### HUNTER COLLEGE ELEMENTARY SCHOOL, 1949-54

Excerpt from Ting and I: A Memoir...

I went to Hunter College Elementary School, HCES, admitted on the basis of an IQ test score. Hunter was at 68th Street and Park Avenue, but I lived on 181st Street and Riverside Drive, about five miles away. I made my way there by bus or subway or a combination. I started Hunter at nearly seven years of age, skipped second grade, and progressed apace thereafter.

It was an elite school, with pleasant and interested teachers, generally well-behaved kids and an accelerated curriculum, plus quite a bit of testing to follow the progress of the little “geniuses.” In an early grade I was photographed explaining eclipses, with the picture carried as part of a story about the school in a weekly magazine. With parental help, we staged the musical South Pacific. There I was, third from the left in the sailor chorus.

I fell in love with my elementary school teacher, Miss Audain, who taught my homeroom for three of those years. Edith V. Audain was black, beautiful, smart, kind and my special friend. She seemed to know I came from a rougher environment than most of the other kids. She did not marry me, however, but chose a Mr. Alleyne, much to my disappointment.

Unlike some of the other HCES elite parents, mine (especially my mother) were opposed to discrimination against blacks (“colored people” being the euphemism of the time). Mom wrote a sympathetic fictional story decrying segregation, published in Harlem’s Amsterdam News. My parents shaped my own views of race relations. A neighbor of ours ten years later told my mother, “With your attitude, one day one of your kids will marry a Negro.” Foreshadowing?

I remember several little girls from HCES, but I doubt they remember me. Joan? Abby? Wendy? Majda? Anyone?

Actually, I do have one sweet memory. Judy Copland may have been her name, and she was a couple of years older than I. We both rode the Fifth Avenue Coach Line to and from HCES, though her stop was much closer to school than mine. Her parents once took me along on a family outing to the amusement park at Coney Island—a nice, generous thing to do. I do like the music of Aaron Copland (despite his politics). Maybe they were related.

## Sunday, July 1, 2012

### TRIBUTE TO DOUG COOPER BY PHIL NODHTURFT, JR.

Excerpt from Ting and I: A Memoir...
My best friend, extending all the way back to 1957, Phil Nodhturft, has chosen to pay tribute to me in this book. I am deeply touched:

The year was 1957. I can’t believe that fifty-four years have passed since the time Doug and I first became friends. Some people come into your life and exit almost as quickly as they entered.

Not so with Douglas Winslow Cooper.

We met at Walden High School when my family moved from New York City. Walden is a quiet little village nestled snugly in the heart of Orange County in the Hudson Valley region of New York State, about 70 miles north of New York City.

Doug and I had absolutely nothing in common. He was exceptionally brilliant and I was the average good-looking jock. He enjoyed taking classes like chemistry, physics and calculus. I, on the other hand, relished in meeting girls in Mrs. Gridley’s Home Economics class and looked forward to playing football after a strenuous day of academics.

Doug also played on the football team, and this kid who was a year younger than I intrigued me. As it turned out, we had a lot more in common than not. We both came from large families. Each of our families had five children. Coincidentally, we were the eldest of our siblings and we each had only one sister. We enjoyed many of the same interests, and as we matured, those interests provided many hours of enjoyment, as we sat around the dinner table recounting the good times we shared.

I would have to say that the qualities that endeared Doug to me were his sense of honesty and loyalty. Throughout the years of our friendship I have never once doubted Doug’s motives. Although it might sound like a cliché, “Doug’s word is his bond,” and that, in my judgment, shows the measure of this man.

There was only one small impediment to Doug’s plan. It’s called “in-laws,” or at least “future in-laws.” Tina’s parents would not consider Doug as a worthy marital partner. So, being a dutiful daughter, Tina acquiesced and their relationship faltered for a while: in fact, each married someone else. As fate would have it, their respective marriages were apparently not as blissful as they had hoped, and each of them eventually divorced.

Several years passed before Doug and Tina had the opportunity to rekindle their Cornell relationship. Only this time the parental objections were overcome by the true feelings Doug and Tina shared for each other. Providence has a way of searching out the truth; and in the case of Doug and Tina, the simple truth was that they loved each other very dearly. Doug and Tina were married. Their marital vows, “To have and to hold from this day forward, for better or for worse, for richer, for poorer, in sickness and in health, to love and to cherish; from this day forward until death do us part,” proved to be prophetic.

Throughout their married life, no one could ever doubt their love for each other. To this day I remain in complete awe of my old high school friend. Unfortunately, Tina has developed multiple sclerosis and is totally dependent upon others for her care. Doug’s unwavering love and support for his Tina are demonstrated with every passing day. Many lesser mortals would follow the advice of health care professionals, to put Tina in a nursing home or a hospice, but not my friend Doug. He made a commitment on their wedding day–and that commitment is one Doug intends to keep. His entire life revolves around caring for and watching over his beloved wife, Tina.

My wife, Virginia, and I have often talked about Doug and Tina with each other. We have the utmost respect for Doug and the manner in which he has conducted his life. I feel blessed to be counted as a friend of Douglas Winslow Cooper.

The Lord has made it possible for two loving soul-mates to be united forever in the bonds of holy matrimony. Being the man that he is, Doug will continue to care for his wife, in their home, and on his terms. In the end, our Creator will judge us all. I have no doubt that Doug’s relationship with Tina and the commitment he has demonstrated toward her will provide them both with everlasting peace. Jesus has declared, “In my Father’s house are many mansions: if it were not so, I would have told you. I go to prepare a place for you.”

When their time comes to a close on this earth, they will forever be reunited under the watchful eye of our God. Until then, Doug and Tina’s special relationship will continue to be an inspiration for all who believe in the power of love.