Thursday, 22 November 2007

Student Working Holiday Visas and the WWB in Canada and the UK

"A fine idea until the governments got involved" might be a good way to summarize how this looks at first contact. The working holiday programme is a series of agreements amongst a number of countries, including Canada, the UK, the USA, New Zealand and others to encourage short-term and temporary visits by students and young people from 18 to about 30 with the permission to work while travelling.

The exercise of finding the information for a family member has unfortunately revealed the usual confusing and frustrating way that governments operate, despite all the ballyhoo in recent years about seamless, joined up government. Here are the ins and outs as I have discovered them.

Working in the UK
The non-government UK Student Life website has useful general information and points to the official UK government Border and Immigration Agency page on Working in the UK which states that an applicant should use form VAF1 (actually it is written as VAFI). Oops, Wrong! After considerable poking around, scratching my head and following other links I eventually found the truth as revealed in Working Holidays INF15 on the official UK Visas website that it is Employment Form VAF2 one must use. Want to know how much the visa costs? Too bad the FAQ includes everything except this obvious important fact. Oh, and don't bother phoning the general enquiries telephone number listed on this page - you will get a recorded message that live answering has been suspended due to lack of funds till January. No kidding, the government has no staff to answer questions by the public. More searching .... Does the UK Visas list of fees for the various types of visas page include the Working Holiday Visa? You guessed it, nope! I eventually found the British High Commission in Canada page of fees as converted to Canadian dollars showing a price of $420 for the Working Holiday Visa. First, why are they using an exchange rate of $2.10 when it is now around $2.03 and was as low as $1.90 within the last month. Second, isn't this a large amount, a punitive rate for students when the part-time restaurant and retail jobs they are likely to find only pay minimum wage rates of maybe £7/hr. The visa thus costs about two weeks worth of gross wages. Talk about an incentive to visit and work. It's probably more an incentive to come as a non-visa visitor and work illegally.

The Canadian Federation of Students has sponsored an organization called SWAP to arrange working holiday trips by Canadians students abroad, as well as foreigners to Canada.

Working in Canada
The Canadian government's Citizenship and Immigration website page on Working Holidays has general information on the program, as well as a link to the UK program within it. The UK program has four options, the operations for two of which have been outsourced to BUNAC (British Universities North America Club). Does the Citizenship website FAQ or the Fees link say what the visa fee is for the Working Holiday visa? You guessed it - no.

On to BUNAC. BUNAC requires students to sign up for a bundled service which includes the visa application process. I phoned BUNAC and reached a human being very quickly, who told me that up to now there has been no fee charged by the Canadian government for the visa, a fact not stated on the above government website. The BUNAC person also told me the Canadian government has advised them that there would be a visa fee in 2008 but they had not yet been told and would only learn it in early December. That's rather interesting since the processing time for applications is said to be approximately 4-6 weeks. I decided to phone the High Commission of Canada in London visa service to see if I could get the information. The telephone number at first seemed to want to lead me only to recorded messages and not have any options for speaking to a real person but luckily, (or unluckily, given what I was told by the real person), when I dialed 0 a live lady answered. She professed to know nothing about the working visa cost, referring me to BUNAC. When pressed about the fact that the visa and its cost is after all, a Canadian government decision exclusively, she seemed peeved that I should even expect to obtain this information from the High Commission and refused to provide me with any other Canadian government contacts who might elucidate the matter. So much for help from the Canadian government about its own requirements. The cost of the 2008 visa thus remains a mystery. I've sent an email to the Canadian Hogh Commission to try finding out and will post any results.

... Later in the day ... I phoned the official Citizenship and Immigration Call Centre and spoke to an agent who: a) denied that a visa is required at all to enter Canada on a Working Holiday basis; b) that only a work permit, costing $150, is required, just like any other worker; c) the website is NOT an official government of Canada website because it does not use the domain name, despite all the links to official websites, seemingly official-looking downloadable forms, use of both the Citizenship and Immigration logo and the Government of Canada word with the flag logo, a statement that the website is that of the Immigration Section of the Canadian High Commission London, a whole raft of carefully prepared, grammatical, organized, fully-translated into French information and, most of all a direct link from the official Foreign Affairs Canada Canadian High Commission London website Yet there seems to be no link to this website from the Citizenship and Immigration's Do a search on working holiday on this latter website and there are zero hits. Sigh!

All this trouble on one simple question, the cost of the visa in each country. Never mind all the rigmarole and documentation required (I love the UK form which requires you to fess up if you are a war criminal or a terrorist). Welcome to the WWB (World Wide Bureaucracy), students. You are better off using one of the student placement services to keep your sanity in my humble view.

Monday, 19 November 2007

Book Review: Against the Gods (The Remarkable Story of Risk) by Peter Bernstein

This book is a popularized introduction to the long history of the development of the theory of risk. It is a welcome and useful entryway into a vast subject as Bernstein has taken care to provide footnotes and a substantial 12 page bibliography of original material. Bernstein manages quite a feat in effectively summarizing in plain language the findings and theories of so many highly mathematical and subtle ideas.

The author's attempt to make the book more entertaining is fairly successful. The meandering descriptions of the personal foibles of the men (why not even one woman among them?) who have advanced the theory of risk along with various anecdotes and trivia (e.g. the English national debt began on Dec.15, 1693) provides amusing distraction but the cutesy chapter titles (e.g. "The Man Who Counted Everything Except Calories") are an annoying artifact of our times.

The book is replete with bold sentences that make wonderful quotes (see below). I found many to be very thought-provoking.

  • At the extremes, the market is more likely to destroy fortunes than to create them. (p.150)
  • It is perilous in the extreme to assume that prosperity is just around the corner simply because it has always been just around the corner. (p.172)
  • We are in the business of managing and engineering financial investment risk. (quote of Charles Tschampion, manager of GM's pension fund; p.247); interesting because engineering only applies when the inputs and assumptions are accurate and as Bernstein states often, we cannot necessarily assume that the future will be like the past and all the assumptions are based on data about the past.
  • The capital markets are not accommodating machines that crank out wealth for everyone on demand. (p.251)
  • Investors diversify their investments because diversification is their best weapon against variance of return. (p.252)
  • Well-informed investors diversify because they do not believe that investing is a form of entertainment. (p.275)
  • It is hard to over-estimate the importance of house price trends for consumer psyches and behavior. ... Consumers view their home equity as a cushion or security blanket against the possibility of future hard times. (quote of former US Federal Reserve Chairman Alan Greenspan, p.290); given the current slide of house prices in the US, one has to wonder what the repercussions will be on consumer spending and economic activity.
  • ... investors had met the enemy and it was them(selves) ... (p.303)
  • ... if all savers and their financial intermediaries invested only in risk-free assets, the potential for business growth would never be realized. (quote of former US Federal Reserve Chairman Alan Greenspan, p.328)
  • ... in spite of all of our efforts, human beings do not enjoy complete knowledge of the laws that define the order of the objectively existing world. (p.330)
  • Uncertainty is a consequence of the irrationalities ... in human nature, ... (p.331)
  • Wars, depressions, stock market booms and crashes, and ethnic massacres come and go, but they always seem to arrive as surprises. (p.334)
  • ... diversification is not a guarantee against loss, only against losing everything at once. (p.336)

I wish Bernstein would more explicitly address the difference between the research or theory that is prescriptive or normative, i.e. which says what people should do, from that which is descriptive, i.e. what people actually do. There is a danger, manifested today in investing as rote acceptance of structuring a portfolio based on a person's "risk preference", to magically transform irrational, illogical behaviour into acceptable practise. Bernstein's example (p.105) of the varying degrees of fear displayed by passengers going through turbulence in an airplane illustrates the point. Why does he describe the varying reactions with "And that's a good thing"? The risk and the consequences to the passengers are the same and presumably none actually want to die so should the reaction not be the same for all despite the observed variety of emotional reactions, however understandable that reaction might be. In a later chapter describing other research on irrational behaviour (p. 273), Bernstein writes: "This behaviour, although understandable, is inconsistent with the assumptions of rational behaviour. The answer to a question should be the same regardless of the setting in which it is posed."

There are some fascinating statements which I wish had received more treatment - perhaps in another book? One statement is that the perceptions and behaviour of investors are shaped by their own times and experience (p. 54 and 301), especially nasty painful ones, like the Great Depression of the 1930s. So, how would Bernstein characterize today's generation? Another is the surprising result that despite all the irrationalities displayed by people/investors the market for all practical purposes - the phrase he uses, borrowed from John Maynard Keynes, is "when it really counts" - operates as though rationality prevailed. In investment terms it means that it is very difficult to exploit mis-pricing, over- and under-valuation in any systematic, profitable way. A third such statement is that the advances in risk management techniques have encouraged greater risk taking. Everyday life, including especially investment management that is dominated by the professionals who supposedly practise risk management in the most extensive and sophisticated way, fall down in the most spectacular fashion. Witness the unfolding sub-prime mortgage lending credit crash and the world's biggest banks who are getting hammered, with the economic debris already starting to fall upon the heads of ordinary people.

The book is somewhat schizophrenic in that it presents the thesis of mastery and a confident answer on the one hand, but on the other hand it asks a key question to which no answer is given: "But to what degree should we rely on the patterns of the past to tell us what the future will be like?" Suppose there is no mean to revert to in the stock market, or suppose the mean has or will shift? In that case, investing theory is a house built on sand.

For the practical-minded individual investor, a quote (p.49) by 18th century gambler and mathematician Girolamo Cardano in the book gives a neat summary of the book's value: "... these facts contribute a great deal to understanding but hardly anything to practical play."

PS a small note to Mr. Bernstein, please find synonyms for the word remarkable; it is a tad over-used in this book.

Overall, a thought-provoking read, succeeds in the story-telling but leaves one confused about how to tell quantifiable risk from unknowable uncertainty and in doubt that such a goal is even achievable. Useful to individual investors to heighten their sense of the need for caution. 4 out of 5 stars.

Thursday, 15 November 2007

Job Loss Survey, Emergency Fund and Bounce Book

Thanks to all who ticked a response to my latest mini survey about how many times you have been laid off during your working career. Though the survey is unscientific and comprises a very small sample, the fact that about half of you have been laid off at least once confirms to me that planning and for and making provision for a job loss is important for most people, as I had concluded in my previous post on Emergency Funds: Job Loss.

In a few weeks, I'll be reviewing the newly published book Learn to Bounce, which is about the experiences of a whole raft of people caught in the technology meltdown of 2000, how they turned a negative into a positive in their life. Written by Lee Wallace and friend and former colleague Anita Caputo, the very concept of the book - to show with real examples that a job loss disaster is not necessarily the end of the road - appeals to my philosophy: never give up and never be a victim.

Tuesday, 13 November 2007

ETFs, Fundamental Indexing and Oysters

Fellow blogger Preet Banerjee over at WhereDoesAllMyMoneyGo was kind enough to send me a link showing an impressive-looking long-term out-performance graph of the RAFI Canadian Index over the S&P TSX 60 Index. The return is about 3.1% higher in the back-testing period of 1987-2006 with a lower volatility, as measured by standard deviation. Very impressive! Is it time to dump XIU (the iShares S&P TSX60 tracker ETF) and move over to one of (there appear to be a number of choices for the investor on these mutual funds - deferred sales charge, front-end, no-load) the ProFTSE RAFI Canadian Index Funds?

A bit of googling turned up a brief but instructive analysis titled Fundamental Indexing and the Three Factor Model by noted financial author William Bernstein (of Four Pillars fame). The article deals with the US but the principles remain the same for Canada and would for anywhere else. In it he finds that the approach of the RAFI index can be mostly accounted for by the value-equity tilt and, to a lesser extent, by the size tilt that fundamental indexing imparts and about one-third due to its own unique characteristics. And furthermore about the unique third, Bernstein concludes: "Unfortunately, this latter effect is not statistically significant, raising the issue of data mining. ... Differences in the expenses, fees, and transactional costs incurred in the design and execution of real-world portfolios can easily overwhelm the relatively small marginal benefits of any one value-oriented approach."

When one looks at the annual expense ratio of the Canadian Pro Index Funds at 1.85%, that latter warning becomes especially relevant considering that XIU's expense ratio is only 0.17%. So, if one takes the 3% out-performance of the RAFI index, which is not the fund and is before expenses, subtracts 2/3 for the value tilt, (which can be obtained with by buying the relatively new XCV iShares Canadian Value Index ETF, with the admittedly higher MER of 0.50%), one is left with only 1% out-performance, a gain that is completely lost with the higher expense ratio.

Fundamental indexing, as opposed to market capitalization weighted indexing, is an intriguing idea and has stirred a lot of debate since Rob Arnott launched the concept upon the financial world a few years ago.

But, for now I will follow the lead of the old wise oyster in Lewis Carroll's poem the Walrus and the Carpenter in Alice in Wonderland. The walrus and the carpenter invite the oysters for a pleasant walk along the beach, and this is the dubious oyster's reply:
"The eldest Oyster looked at him,
But never a word he said:
The eldest Oyster winked his eye,
And shook his heavy head--
Meaning to say he did not choose
To leave the oyster-bed."

If you don't know already, you can find out here what terrible fate awaited the oysters who succumbed to the ruse.

Friday, 9 November 2007

Off Topic: Glasgow Wins 2014 Commonwealth Games - Brilliant!

Today's announcement that Glasgow will host the 2014 Commonwealth Games from July 23rd to August 3rd is great news for the city, for Scotland and, I dare say, for sports fans. Since coming to Scotland just over a year ago, I have been very impressed by the friendliness and general competence and efficiency of the people (and hopefully will therefore not be bad news for taxpayers). Glasgow is a city on the rise with a good atmosphere, a feeling of safety and the Scots do know how to party .... warning to Canadians, don't try to outdrink the Scots!

The Games website has lots of information and the Candidate City Summary document indicates that prices are reasonable - the most expensive is £175 for best seats at the opening or closing ceremonies. For individual sports, best seats are a max of £40 or £25 in most cases. With the Canadian dollar appreciating almost daily against the GB£, now at $1.96 per £, it is beginning to get less costly for Canadians.

Scotland has long been a tourist mecca and all those other attractions can add to the pleasure of the games, like visits to single malt distilleries, castles, museums, hill walking and golf courses for those of my tastes. The only funny thing visitors might find is the language - Scots will understand your english with no difficulty at all (too much american tv I think) but depending how careful they are in speaking, you may not understand them because of accent, phrases and words (e.g. cannae = cannot, to blether is to chat, or "tell her I'm asking for her" means "say hello to her for me")

Wednesday, 7 November 2007

An Intriguing Free Book to Download plus a UK Mortgage Primer

Check out the Mortgages Exposed web page for access to a free download of the book In My Opinion by Michael Kelly, a successful retired entrepreneur. I've just skimmed through a few pages so don't have a firm opinion of it, but first impression is good: it looks quite readable and hey, it's free and it's the complete 110 page tome, not just excerpts. The style looks breezy and light-hearted, advice on what the grandfather has learned and wants to pass on to his grandchildren. The topics he covers includes some financial and budgeting advice, along with relationship advice (from a guy, no less!), education, children, running a business, being an entrepreneur, gambling and even death.

Here's a sample quote I can relate to: "You need not give self-created wealth away. Spend it first. But if you must give it away, do it when you are still alive and can directly observe and enjoy the happiness it might hopefully bring."

Another part of the website has an excellent series on mortgages as done in the UK, actually another short book that can be downloaded with working spreadsheets. The explanation starts from scratch, assuming little or no investment knowledge, and works through the various types of mortgages and related topics - fixed rate, variable rate, interest only, lifetime/revers/shared appreciation, buy-to-let, gearing, buy or rent - in short all the common situations with tips and tools for comparing and deciding between alternatives. There are a series of downloadable spreadsheets to work your own calculations, perfect for DIY types. There is a little bit of theory and lots of practical guidance. The perspective of someone who spent 30 years in the business shows through, who made his money, retired and is now giving back his knowledge to anyone who wants it. Overall, a gem of a resource.

Tuesday, 6 November 2007

Patientline UK: a Company as Sick as Its Customers

How is it that a company with a virtual monopoly on a convenient telephone and TV service for patients in UK hospitals can degrade financially to a state of life-support while antagonising the public with high and confusing charges and while attracting the ire of the telecoms regulator? Patientline UK is the company soon to provoke a crisis at the National Health Service when its seemingly inevitable slide into insolvency results in its demise.

Patientline has installed 75,000 bedside terminals (pictured on this post) throughout hospitals of the NHS all around the UK. The custom all-in-one terminal provides inbound and outbound telephone service, TV (with a fair range of channels), radio, Internet access (browsing and email) and games in some hospitals. On first impression and limited use so far, the unit appears to be very good from an ergonomic and functional point of view - the wall-mounted swivel arm can put the screen in any position and angle over the bed, the buttons are big and well-spaced, the right-hand handset has a full, albeit tiny, flip-open qwerty keyboard, the headphones (for TV/radio) keep noise levels down, the screen is bright, clear and plenty big enough for close range viewing/reading, the terminal is encased in such a way that it can be wiped and disinfected and the services are accessed through a 4-digit pin code that can be used anywhere in a particular hospital, very convenient for patients moving from ward to ward. Beyond this good stuff, it's all bad for Patientline.

On the surface, the problem is the charges, for TV and especially, for phoning. The BBC article from April 4, 2007, titled Hospital Phone Charges up 160%, describes the proposed phone rate increase, and the vociferous objections that aroused, from 10p per minute to 26p for outgoing calls at any time of day from the patient/hospital to UK landlines. Note my specifying ''outgoing'', ''UK'' and ''landlines'' because rates for incoming calls, to or from mobile phones, non-UK places, on/off-peak hours all are different, and higher. Complexity and confusion is part of the problem for the customer, particularly when everyone's primary concern is for the health of the patient. The various rates are not posted in the hospital that I have been visiting. Finding out later that things cost a lot more than they thought/guessed/feel-is-fair makes people much more annoyed because they feel exploited - ergo the harsher backlash - read reactions here at the Register and here as well, here at SayNoto0870. (Consider in contrast that people happily pay £1.50 per minute to call those adult chat lines.) Probably as a result of the press criticism, the phone rate increase has been rescinded - we are paying 10p now.

However, the TV rate decrease has gone through - it's now £2.90 per day instead of £3.50. So the company has done a good thing, but shot itself in the foot financially.

The charges for incoming calls, which are billed to the external caller, are the other source of phone-related ire. They are 49p per minute during peak 6am to 6pm hours Monday to Friday and 39p at other times. However, the last part of the rate story is untold - the fact that outbound calls to mobiles are 80p per minute during the peak and 40p off-peak. I don't know exactly how the revenue is split between Patientline and the mobile operators but I'm sure the latter are getting a healthy share. On the inbound side, I checked Orange and they charge 55p per minute for calls to Patientline according to a general tariff for calling 070 numbers. Thus, Orange treats hospitals no better than anyone else. Shouldn't the mobile operators be getting some of the criticism here?

What would be an acceptable price for phone calls? Perhaps in the order of 25p per minute, which is the Orange tariff for Pay-As-You-Go? I doubt few would expect rates to be as low as 3p per minute typical of mobile plans.

Closely connected to the cost as an irritant is the fact that most hospitals still ban the use of mobiles within the premises. Formerly this was justified by concerns about interference with sensitive medical equipment. However, this is now officially not a problem since mobiles are no longer believed to interfere with medical equipment (the Health Minister said so! though the studies continue to create doubt as reported at the Register). The remaining hospital ban on mobiles makes people believe that it is only a ploy to protect Patientline's monopoly. Whether the company has successfully brought pressure to bear on the NHS or on individual hospitals is for the walls of backrooms to know but the company certainly blames part of its woes on the loosening of the ban in this Sept.27 announcement.

The last element that acts as an irritant is the fact the NHS seems to consider bedside telephones as a luxury, part of an entertainment unit. Reading the flaming comments and knowing my own situation, being able to talk to family and friends is extremely important for the patient and others. It is more or less an essential part of the getting better process. TV is less essential in my view but this modern day ''opiate of the masses'' can play a big part in relieving the boredom of being in hospital for those awake enough to notice. It's dehumanizing enough to be poked, scanned, jabbed, stripped, drugged, cut open etc. that a little bit of normal outside life can be a big morale booster. The action of the NHS in allowing the service to be introduced, designed and priced as it has displays poor judgment and planning. Blogger Simon Howard struck the nail on the head way back in 2005 when he defended the position of Patientline and knocked the NHS.

seems to have off-loaded responsibility with a poor concept. Though outsourcing to private companies can be an extremely effective mechanism for reducing costs and improving effectiveness of service delivery, it won't work if the concept is wrong. Patientline obviously had (still has?) a vision for a complete patient interaction system at the bedside with the ability to order meals, view patient records, conduct satisfaction surveys and provide related health information. None of this seems to have come to pass. Instead the NHS/Patientline is delivering entertainment at entertainment prices but the customer/patient wants treatment support at NHS-level prices.

The question of the service concept affects the system design and the size and sophistication of the service put in place. If Patientline had the wrong over-blown idea about the future uses or applications, it is quite possible that the £160 million the company is now trying to recoup, is much more than it would have spent for a simple phone and TV system delivery system. Over 75,000 bedsides, that's £2133 each, quite pricey for a phone and a TV on a dangling arm, I would think (OK, there's Internet too but it comes free for TV users ... now why would Patientline go to the extra cost of a computer monitor just to offer it free??). Blogger Wayne Morgan posted this critique of the technology adopted by Patientline, saying it could have been much much cheaper to use IP telephony instead of what he describes as the ''classic digitally switched way''.

One thing for sure is that the company Patientline is not profiting from the high prices. It is a public company whose only business line is the hospital service so nothing is mixed up with it to conceal the truth. The financial reports are posted on the company website under the Investors tab. Losses have been considerable and constant. The BBC report cited above quotes a company representative as saying last April that the company only had sufficient funds to last another 12 months. Nothing seems to have improved since then and the September 28th Trading Update has an ominous warning: ''If the current revenue trends continue then the liquidity position of the Company will become increasingly tight towards the end of this calendar year.''

  • Patientline UK will go bust, provoking a crisis in hospitals
  • NHS will respond by allowing mobiles to be used in most areas of hospitals
  • Another company will take over the Patientline infrastructure for a pittance, thereby attaining a low fixed cost structure; the new company will eliminate phone service avoiding the controversy and concentrate on TV, which is cheaper and easier to manage and bill, and which constitutes 70% of the actual usage of the terminals by patients (ah yes, the sweet spot!); the new company will be a highly profitable cash cow
  • Hospital staff and patients will have to cope with lost/missing mobiles, a lot more ringing phones, battery chargers, some extra calls through staff for those few who do not have mobiles
  • Mobile operators will continue to make their healthy margins in the immediate future
  • In the long term, the adoption of VoIP by hospitals for internal use, such as has just been done by the Birmingham trust, will enable and entice (i.e. get money from) the NHS/hospitals to use this standard infrastructure, to solicit competitive service offerings from multiple providers for phone, TV, radio, Internet, anything digital, as well as medical and hospital admin functions through the bedside device (note the irony of the Patientline terminal image above, obtained from their own website, which shows a menu choice, a service that is not offered through Patientline).

The story could probably serve as a business school and public administration case study on how not to do things.

Update May 26, 2008 - The Interim management statement of February 15th shows that revenues had dropped another 25% in 2008 vs 2007 and includes these words: "Shareholders should note that it is unlikely that any value will be attributable to ordinary shares following any restructuring of the Company's debt." The company is now owned by debt-holders. With annual statements due in June, will the long, slow fall be interrupted by a conversion of all the debt into equity? That would still not make it a viable business however.

Sunday, 4 November 2007

Comparison Shopping on Computers: Canada vs USA vs UK

There has been a lot of complaining lately on the slow downward movement of prices in Canada compared to the USA. Since I probably will soon be in the market for a new computer and I have the luxury of buying it in the UK or in Canada as I travel back and forth between the two countries a lot, I decided to do a simple comparison. Computers have the convenient property of being pretty well standardized worldwide so it is easy to make apples to apples comparisons, especially when there are are worldwide vendors like Dell Computer, whose online ordering and configuration website make it possible to build the identical machine for different countries. Purchasing power parity would lead us to believe that identical items in different countries should have the same price after currency conversion.

Below are the results of my little experiment on the delivered price, including taxes and shipping, for a Dell Inspiron 530s. The only substantial difference is that the Canadian version has Windows Vista Home Premium while the US and UK versions have XP Professional. There might be a price difference on that account but since Dell offers some systems with a choice of Vista or XP at the same price, surely there cannot be a big difference in the total cost of the system.

The currency conversion rates are those on Yahoo as of today UK£ = 1.9528 C$ and USS$ = 0.9344 C$.

Total Delivered Price
  • UK £597 = C$1165
  • USA $1158 = C$1082
  • Canada $1435, or 23% more than the UK and 33% more than the USA!!
Looks like I will be buying my next computer in the UK, not Canada. I used to think that the UK's cost of living was shockingly high compared to Canada's but the substantial rise of the Canadian dollar against the pound sterling is changing that situation. My cost of living (in C$ terms) here has declined by about 10% in the last year as a result (which is a great consolation, since my portfolio investment losses in the Vanguard Europe ETF (VGK) have thereby been offset to a large degree).

A final insult is that only Dell Canada does not offer any systems with Ubuntu Linux, an operating system I have been happily using on a 2000 vintage Dell laptop. In fact, the only reason I will replace the laptop is an intermittent and growing hardware malfunction (my cursor seems to wander uncontrollably around the screen at times). Linux will enable me to use the hardware till it breaks, as opposed to having it become obsolete in half the time due to software bloat in the Microsoft environment.

Dell Computer in particular has no excuse for the above pricing differences since it doesn't manufacture any systems in Canada and since it manufactures PCs as and when they are ordered and so has no inventory pipeline with embedded costs to cycle through that might somewhat justify a delay in adjusting prices downward.

Friday, 2 November 2007

More Lessons from Who Wants To Be a Millionaire

As host of the UK version Chris Tarrant would say, ''this is serious business''. A previous post of mine made a light-hearted comparison of the show to investing. Ha-ha, the joke is on me. I've just discovered a heavy duty study on the subject. Do you like equations with lots of Greek letters, then download Who Really Wants To Be a Millionaire: Estimates of Risk Aversion from Game Show Data, a paper published in 2005 by Roger Hartley, Gauthier Lanot and Ian Walker of Warwick University? Attached is a sample ... just don't ask me to explain.

The paper includes some fascinating trivia based on a complete inventory of the first 11 series of UK shows up to June 2003 (the authors had the cooperation of the show sponsors):
  • 3 out of 515 contestants won the £1 million top prize (using my higher math skills, that works out to 0.6% not the 1-2% I from my first source), which is the same number who went away with nothing
  • the mean of winnings was much higher at £54k than the £16k I'd guessed, though the standard deviation was a whopping £106k (i.e. those infrequent big prizes distort the stat)
  • 2/3 of people voluntarily stopped by deciding not to answer versus the 1/3 who had to stop by getting a question wrong
  • the quitters left with an average of £72k while the wrong guessers ended up with an average £17k (and this latter figure includes the £1 million winners who the authors decided had not quit voluntarily!); unfortunately the authors don't comment on this difference and I wish they had ... maybe it's called knowing when to quit while you're ahead?
  • the probability that a phone-a-friend will know the answer is only about 40%
  • the ask-the-audience lifeline is as valuable as both the phone-a-friend and the 50-50 put together; is this a manifestation of the wisdom of crowds / markets?
  • 3/4 of the contestants were men, who the authors say are less risk averse than women
  • the early round questions are more weighted with pop culture and sport
  • the show's production team sorts the possible questions into 15 bins one for each of the questions levels, using their judgment and experience to make them progressively more difficult
  • being more educated doesn't help much
Now I don't know if the authors truly would conclude this because it isn't said so in words (maybe the results of one of the equations says as much?), but a fascinating media report in the New Scientist magazine, titled Too Scared To Be a Millionaire?, says: ''The economists’ analysis, based around a mathematical model, suggest that more people would have won a million – and the contestants have taken home more overall – if they were less risk averse and willing to gamble.'' People are risk averse, and the authors find that again in regards to WWTBAM. I really wonder whether people are unjustifiably risk averse in general and with respect to investing as well. In other words, do people stick too much of their investments/savings into safe but low yield things like bank accounts and GICs? Isn't it curious for example that in the richest country on earth, the United States, people are at the upper end of the ladder in holding equities, as I noted in yesterday's post?

Thursday, 1 November 2007

Wealth Trivia - Where do You and We Stand?

Came across this interesting post titled Wealth of Nations on the Enough Wealth blog. Want to know where you personally stand on the wealth ladder, or Canada or the UK or the USA? Check out
the original paper "The World Distribution of Household Wealth" by J. Davies, S. Sandstrom, A. Shorrocks, and E. Wolff''. It has lots more fascinating trivia. The data is from the year 2000 in US$ so one would need to add for inflation (16-20%?) to bring absolute numbers up to date.

EnoughWealth does a little calculation to figure out that the USA isn't the richest country per head, it's Japan. Canada is 7th while the UK is 3rd.

Other goodies from the paper:
  • Canadians are much less adventurous than people in the USA when it comes to holding stocks and equities - 32% vs 51% of total financial assets (the other choice is liquid assets) are held in stocks and equities; the UK is even further behind at only 25% (cf Table 3) but the Italians are the champions at 55%
  • there are about 13,568,229 millionaires in the world, 451,809 people with ten million, 15,010 with a hundred million and only 499 with a billion - each higher step has only 3.3% of the number in the group below
  • Canada has its wealth spread more evenly than both the USA and the UK - the wealthiest 10% held only 53% of the total in Canada vs 70% and 56% respectively
  • the highest net worth per capita was in the USA at about $144,000 - where do you or your family stand? (I think the reason that Enough Wealth's table differs and puts Japan ahead of the USA is that he draws his data from a table in the original report which is per adult not per capita); Canada's net worth per capita was only $89,000 (or $72,000 according to another method the authors used to estimate the figure) and the UK was $129,000; interestingly, Greenland is at $138,000

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