# cbloom rants

## 12/18/2008

### 12-18-08 - Christmas

It dumped snow last night; it's very pretty. Everyone is staying home and playing in the snow.

We're flying to see Alissa's parents tonight. Hopefully the snow doesn't screw up the airports. I'll have no computer. We can't get a cab because of the weather so I guess I'm going to have to try to drive in this. We're definitely going to die on the way.

Bleck I want to just make snowmen and throw snowballs! God I hate Christmas travel.

In calendar year 2008 my portfolio has done about -50%. That sounds bad, but it's actually worse than that. To get back its value it needs to go +100%. The loss amount looks smaller because it's measured relative to the larger initial value, not the small ending value. In fact, the percents are a bad way to show finance changes. A better way is the log (base two) of the multiplier (and then x100 to make it look nice).

So 0% = 1.0 multipier, log2( 1.0 ) = 0 ; no change

-50% = 0.5 multiplier , log2( 0.5 )*100 = -100

+100% = 2.0 multiplier , log2( 2.0 )*100 = +100

Under this counting, if you have a -100 year then a +100 year you're back where you started, which is more intuitive. (obviously, appreciation amounts combine by multiplication, so taking the log changes it to addition).

Addendum : in case you weren't sold on the log scale, it also gives you the easy intuitive way to do compounding (obviously). Say you have something that makes 10% one year. What does it do over two years? Well, even though we know it's wrong, our brain intuitively jumps to "20%". The real answer is of course 1.10*1.10 = 1.21 = 21%. In log scale 1.1 = 100*l2(1.10) = +13.75. What does it do over two years? 2*13.75 = 27.5

That may not seem like a help, but it's more significant if you look at monthly compounding or something. Say you have something that does 10% annually, what's the monthly compound? It's 1.10^(1/12) ; in log scale it's just 13.75/12. The daily compound is just 13.75/365. Nice. The problem is that getting between log scale and normal scale is annoying and non-intuitive, so as long as most reporting is in normal scale, log scale is hard to use.

BTW also one of the things finance people do which messes everyone up is they don't usually report inflation-adjusted numbers. Inflation adjusting over time is annoying in normal percents, but of course in log scale you just do -5 (3.5% inflation is about a 5 in log-scale).

So the boiler room in our apartment is usually locked, but the landlord (being the irresponsible screwup that he is) accidentally left it unlocked a few days ago. Alissa discovered it and checked out the settings on the boiler. It's programmable and all that where it comes on with different time schedules. It was set to 63 degrees.

#### 1 comment:

blackpawn said...

whoa cool, yeah the log multiplier way is rad, i've never seen that before. is there a reason it's not reported that way?