A good book to put engineering in perspective is To Engineer is Human: The Role of Failure in Successful Design and others by Petroski.

John Lamberg writes: 

I have read some of Petroski's works, with To Engineer is Human my favorite (should be required reading for all undergrad engineering students that intend to be design engineers as well as anyone assigned to an engineering Failure Analysis Team), with Success through Failure: The Paradox of Design a not too distant second. I'll withhold comment on his March 2012 release, To Forgive Design: Understanding Failure, until I read it.

Along the theme of engineering failures, Fenyman's account of his role on the NASA Challenger disaster commission is a solid gold classic. Here's a brief clip.



 Certain (unmentionable) positions in my portfolio are starting to act like a runaway freight train. It therefore seems an opportune moment to consult my copy of The Worst Case Scenario for the correct methodology for "how to jump off a runaway train." (One notes the instructions do not mention the purchase of puts and put spreads.)

1. Move to the end of the last car.
2. If you have time, wait for the train to slow as it rounds a bend in the tracks.
3. Stuff blankets, clothing or seat cusions underneath your clothes.
4. Pick your landing spot before you jump. Avoid trees, bushes and of course rocks.
5. Get as low to the floor as possible, bending the knees, so you can leap away from the train.
6. Jump perpendicular, leaping as far away as you can.
7. Cover and protect your head with your hands and arms, and roll like a log when you land. Don't try to land on your feet, or you'll likely break your ankles and legs. Do NOT roll head over heels.

Vince Fulco jokes:

Come on Rocky. The ice floating in the punch bowl has just settled after getting a "perceived" refill which may, just may, overflow the bowl. This is when the Bernanke dance party really starts to pick up with the fast music. Earning ZIRP and saving is for the wallflowers. 

Scott Brooks comments:  

Rocky's mention of some stocks acting like a runaway train makes me think that it's time to review my very simple fool proof methodology for stock investing.

Take two pieces of paper, one green one red.

On the green sheet, put all stocks that are going to go up. On the red list put all the stocks that are going to go down.

Then, go long all the stocks on the green list, and short all the stocks on the red list.

Sell any green list stocks once they go on the red list and cover your red list shorts once any stock goes onto the green list.

Repeat this process early and often.

Enjoy your profits!

John Lamberg writes:

And I thought the secret to the stock market was to buy low and sell high. Similarly, in the casino the secret is to bet big when you are going to win. Unfortunately, I seem to buy high and sell low, and every time I bet big it seems the dealer gets blackjack, although occasionally I get blackjack too, but being a fool I take even money when that happens. 



Shake up:

1. To upset by or as if by a physical jolt or shock
2. To subject to a drastic rearrangement or reorganization



 Scientists reported on Wednesday that bubbles do not just disappear when they pop, but actually deflate in a rapid cascade of bubbles.

The physics behind this bursting effect seems to hold true whether the liquid is as thin as water or as thick as heavy oil, suggesting a universal theory of how bubbles behave when they break.

…He said in order to minimize surface area, a bubble forms an almost perfect hemisphere when it is in contact with a solid or liquid surface. When it pops, it creates a ring of smaller bubbles.



The fool tarot cardWhat are the many types of people who disseminate their views about the market?

There's the tout, the man who has a position and wants you to get into it so that it will move in his favor. There's the sponsor, the man who advertises or sponsors a program who is always treated well by that program. There's the would be manager, the personage without funds who wishes to impress you with his knowledge and ideas so that you will put money up with him. There's the old lion, the man who no longer is virile and is fighting back any young men who might take his place in the world of power or romance. There's the curmudgeon, the old man who hates everything modern, doesn't own a CD or computer and sees no reason for it, and wants to bring everyone back to the old days without technology. There's the spankist, the woman who's beautiful and always looks like she is so aggrieved with the pubic or her guest that she would have to give him a good spanking unless he puts his things in order. There's the iconoclast, the person who's always contrary and never reads the papers or travels to New York, and always feels the market is wrong.

There's the man with a hole in his shoes who's so down home that he only drinks coke and eats hamburgers and never pays a fee more than 10% of the going rate to the brokers. There's the sanctimonious, the one who pretends to be the most honest person in the world– who won't under any conditions tolerate a blemish in the reputation of his firm even if it costs him a good stake. He's the one who never hears or is briefed about the dishonesty in his troops and finds that any allegations of misdoing in his firm that are brought to his attention never pointed directly in writing to the crime. There's the academic, the man looking for a consultancy who can manipulate numbers especially retrospective files that are very suggestive of alluring profits that a wealthy investor might wish to participate in with him. There's the mystic, the person who looks at the stars and the bent keys. There's the old timer, the person that looks at the iron castings reports and freight car loadings and newsprint figures for guidance as to where the economy is going. There is the fund manager, the man who will always be quoted on a given stock that he owns which he feels is a good buy still but which he sold the bulk of his holdings of in the quarter before the recall.

There's the jack of all trades, the personage who will explain the market going up as due to a good economic report or falling interest rates or who will explain the decline as due to uncertainty about earnings or fears of interest rate rises. There's the chronic bear, the person who never since 1966 has written a column that did not find the weight of evidence highly bearish with signs of excess in many quarters and regrettably some signs of optimism still persisting. There's the humanitarian, the person who believes that the world is very selfish and that the solution is to force everyone into doing good by redistribution or service. This personage also believes that the only good people are the poor and that the purpose of life is to make sure that any pockets of poor are stamped out regardless of how it's taken or from whom. Of course, many of these personages fall into more than one of these categories and they are mobile as their age and wealth changes. What are the major categories that I am missing or what is a better way to classify and make this useful?

John Lamberg comments:

And the mark, who in a hushed tone, glazed eyes, and a glance around the room as if someone was eavesdropping, reveals the privileged information that will make him a rich man. And the friend who, seeing the tells, suggests to deaf ears to exit before his pocket book is emptied… 

Ken Drees writes:

Permabull type–always likes the market anywhere, anytime. Wears high fashion suits, well coiffed–male or female. Strong BUY! spouse/lover/significant other–why didn't you buy that, hun? Why won't you get back into this one, dear. I read about that in the paper–are we in that? Foreign fund guy–always likes an exotic market somewhere over there in that far off place. Always a better value there. Always more room for catch-up to other valuations. 

Nick White writes:

With precious few exceptions, doubtless one can point to many of the most eminent bank of Sweden prize laureates…they most often get trotted out as permission to allow others to do the thinking. 

Kim Zussman adds:

Don't forget the Walter Mittyist.

Market hobbyist with secret hopes to surprise to the upside. Knows a little about a lot, but nothing in depth. He dangerously equipped with the same software and data filtered hourly by everyone in the 100 million Mitty-march.

Known to recognize causal patterns everywhere, convinced they are invisible to others. A market philanderer, he migrates wounded from one instrument to the next, and from one seductive strategy to another. Momentum - reversion - correlation - divergence.

Mitty envies his brother, Admitty, who worked for the city and retired at 50 with 90% pay.



Unemployment Map of U.S-2007 TO 2010

Scary and Real!

Please review this Unemployment map of the United States. This is hard to believe, but TRUE! I had to review this map a couple of times to grasp the enormity of it. Watch the map automatically update from 2007 to 2010… WOW!

Nigel Davies comments:

The scary part may be the symbolic use of colors. Having black (death, nothingness, annihilation) for anything from 10-100% seems almost deliberately misleading and the map looks like a rotting piece of meat. There's probably a similar effect in chess, with players playing White often tending towards optimism whilst Black positions can have a look of doom about them. And you can deliberately magnify the effect by playing cramped looking defenses and even placing the pieces slightly towards the back of the squares. BTW, you get a similar psychological effect with candlesticks, the mind being subtly influenced to see down days (black candles) as being doom-laden whilst white ones appear to offer hope. A good practice may be to use green for down and a neutral gray for up, and maybe do something similar with one's Bollinger bands (black as the upper band, pink or something for the lower one). 

John Lamberg writes:

Many years ago, a wise professor taught me the visual power of choice of scale when preparing a X versus Y graph. 



The Blind Side

The Blind Side is one of those movies that makes life worth living forever. What other such movies, plays, music, literature would you put in that category?

Vince Fulco replies:


The Road to Perdition– everyone who participated in it was at the top of their game from writers, actors (primary & secondary), producer, director, cinematographer, musical director. It made for a polished period piece with tons of emotionally charged moments and an unexpected ending.

Boondock Saints– obscure, independent type movie; very novel story telling seen both by the vantage point of the perpetrators (Irish Mob in South Boston) as well as the talented detective trying to unravel a recent flair-up in gang on gang activities (Willem Dafoe). A great example of the grey areas in life; i.e. if you are using extreme violence against a rival gang to protect one's innocent neighborhood residents, are you a saint or sinner?

Gandhi– A masterpiece in so many ways, no more needs to be said.

Laurence of Arabia– ditto.

I am a sucker for underdog movies where the lead character rises from his own self involvement and selfishness to sacrifice everything for the greater good. Not 'Laurence'–obviously his striving for personal greatness led to its own extraordinary achievements but as I get older, the accomplishment of creating these complex, grand movie projects is inspiring in its own right.


 Shogun by James Clavell

Anna Karenina

Two monumental undertakings by the authors which fully develop their characters and keep the reader engrossed from cover to cover. As for the latter, although it has been years, as I recall, the ability to interweave multiple complete stories and have them entertaining and believable was sheer genius.


Anything by Yo-Yo Ma and separately Tan Dun.

Nick White responds:

 Martha Argerich's rendition of the first movement of Rachmaninov's 3rd Piano Concerto with the Radio Symphonie Orchester Berlin and Riccardo Chailly conducting.

Her magisterial expression of the full range of human emotion in this performance is, in my opinion, unparalleled in any other work.

Thomas Miller adds:

Miracle on 34th Street and It's a Wonderful Life. Both made shortly after end of WWll. Still immensely popular 60 + years later.

Jeff Watson writes:

"Surfing for Life", is one of those special movies that makes one want to live forever. That's the movie that deals with all the old people who still surf well into their 80's.

James Lackey writes:

Cinderella Man (2005) …. Crowe as Jim Braddock is a good one. Invincible 2006 Wahlberg plays Based on the story of Vince Papale, a 30-year-old bartender from South Philadelphia who overcame long odds to play for the NFL's Philadelphia Eagles in 1976..

Ironic, I watched It's A Wonderful Life with my kids last night. What cracked me up is my quest to please my wife.I  remember 10 years ago when my boy was 4, I said "you're a bad boy" she said No no no what he did was bad, he is not bad. Ever since I have been working on my syntax to get the exact same point across with out damaging my own kids for life. ha.

Yet in It's A wonderful life the mom calls her sons idiots. It cracked me up as she was kidding sit down and eat you two idiots. The druggist smacked little George Baily around for being lazy. Baily tells the biggest backer and connected man in the county off countless times..turns down a 10x salary increase because he knew it wasn't best to sell his beliefs for money, but all the while hating his town his nickel and dime business where he cant profit much by helping others. He complained all along..which was hilarious "trapped"

Man on Porch: Why don't you kiss her instead of talking her to death? George Bailey: You want me to kiss her, huh? Man on Porch: Ah, youth is wasted on the wrong people.

George Bailey: Merry Christmas, Mr. Potter! Mr. Potter: And Happy New Year, In Jail! They're At Your House Right Now!

George Bailey: [yelling at Uncle Billy] Where's that money, you silly stupid old fool? Where's that money? Do you realize what this means? It means bankruptcy and scandal and prison. That's what it means. One of us is going to jail - well, it's not gonna be me.

Mary: I feel like a bootlegger's wife!

Stefan Jovanovich writes:

 It's A Wonderful Life is certainly popular now, but it was a bust at the box office when it was released in 1946. Its flop effectively ended Capra's career. The actors - Jimmy Stewart, Donna Read - went on to further success; but the plot reminded people of the bank runs of the pre-War era (hardly a happy memory) and they stayed away in droves. The Best Years of Our Lives was the hit that year; it was (among other things) about a banker who returned to work from the war and decided to lend a farmer money, not about depositors clamoring for their money back from an over-extended S&L.

Nick Procyk adds:

I would second Cinderella Man and Invincible.

March of the Penguins is a true-life movie about a group of emperor penguins that survive the harsh polar winter, breed, search for food — all captured in amazing photography.

Eight Below is another heartwarming movie based on a true story about a guide and his eight sled dogs. The guide is driven to reunite with his canine friends after they were stranded in Antartica during the brutal winter. It's a wonderful story about friendship, courage, and faith.

Riz Din writes:

 The Rocky films, all of 'em. I guess they just caught me at the right time. The first is the best, and Balboa doesn't even win the final bout. His victory is of another sort. The rest of the series works on several levels. You have both the quality of the Rocky films and Stallone's actual career ebbing and flowing with the ups and downs of Rocky's character. The score is everyone's 'go to' music when they want to get pumped up and motivated, the dialogue is wonderful, the characters memorable, and there are many lessons that can be drawn from the storyline, both good and bad.

From the first film:

Rocky: I been comin' here for six years, and for six years ya been stickin' it to me, an' I wanna know how come!
Mickey: Ya don't wanna know!
Rocky: I wanna know how come!
Mickey: Ya wanna know?
Mickey: OK, I'm gonna tell ya! You had the talent to become a good
fighter, but instead of that, you become a legbreaker to some cheap, second rate loanshark!
Rocky: It's a living.

John Lamberg writes:

Life worth living forever? Well, none of the following make that cut, but my favorites are:

Hans Christian Andersen's works. (The Little Match Girl is perhaps the saddest story I ever read, and it stuck with me since childhood. We'll see if Gregory Maguire's "Matchless", a re-imagination of the story compares.)

Holst, The Planets

Bodysnatchers (original)

Forbidden Planet (not for the acting or script, but for Dr. Morbius' secret)

Vincent Andres adds:

The Last Kings of Thule - Jean Malaurie, about ordinary heroes

Many of Giono's books, eg Regain - J. Giono (in french onl)

Many of Pierre Magnan books 

Dava Sobel's Longitude

Order Out of Chaos by I. Prigogine

L'imprévu by I. Ekeland (in french only)

Des rythmes au chaos by P. Bergé, Y. Pomeau, M. Dubois-Gance, 1994.

For pointing an interesting trail, Deep Simplicity: Bringing Order to Chaos and Complexity by John Gribbin.

The Foundations of Ethology by K. Lorenz 

Studies in Animal and Human Behavior  by- K. Lorenz

The First Three Minutes: A Modern View Of The Origin Of The Universe by Steven Weinberg 

Mon oncle d'Amérique by A. Resnais (in French only)



…According to Onuchic, bacteria usually do not cheat their friends and inform them by sending chemical messages about their true intensions. "We have developed for the first time a system level model of a large gene network to decipher the underlying principles of the bacteria game theory and how an internal network of genes and proteins is used to calculate risks in this complicated situation," he said.

… "Another interesting fact is that the same cells in the same environment, in this case, bacteria in the colony, can actually in a statistical matter choose two different outcomes: sporulation or competence. This leads us to speculate whether similar ideas can be extrapolated to explain the decisions of cells to develop cancer: Can a similar cell in a tissue make the decision to duplicate normally or to modify into a cancer cell? How does this stochastic process affect life, biology, evolution and disease is an interesting challenge that will be at the center of questions answered at the interface of the physical and life sciences."




EnvelopeTwo Australian physicists claim to have made progress on the Two Envelope Paradox, according to an article on PhysOrg.Com.  In reading the article I came across… turning  losing games into winning games… brownian ratchets… volatility pumping…  winning an exponentially increasing amount of money.  It all sounds too good to be true.

Alex Castaldo replies:

The problem with volatility pumping is that in the real world the gains would usually be wiped out by the transactions costs of constantly selling the more expensive and buying the cheaper of the two stocks. As long as the two stocks keep switching places you would make an infinite amount of money … for your broker.

Thomas M. Cover is a highly respected name in Information Theory , but I must say when I read his Finance papers/books I find them a bit strange, either because I don't understand them or because they seem unrealistic. But we have other contributors here who are more familiar with his work.

As for Parrondo's Paradox it is another strange model of a situation that as far as I know never occurs in Finance, where sometimes in order to be more successful you need less capital; so you need to invest badly at times in order to do very well at other times. No practical use that I can see.  I am pretty sure that in the real world you need to invest well at all times and that playing to purposely lose is never optimal.



RingI was hoping some one here may be able to help me out. After four years of dating my girlfriend, I have finally decided to ask her to marry me. I am in the early stages of looking for a ring and am obviously wanting to get her the best ring I can. Unfortunately what she deserves and what I can afford are two different things. Therefore my hope is that someone on this list knows someone that would be able to get me some type of deal on an engagement ring. I'm not looking for a hand out by any means, I just want the best value for my money. I'm also looking to get it pretty soon as I believe both of us would like to get married before I leave for Afghanistan next year.  Thank you in advance to anyone who is able to help me out!

Dylan Distasio replies:

Good luck with the proposal! Unfortunately I don't know someone who can give you a deal on a ring. However, I would highly recommend checking out Blue Nile. They have beautiful diamonds at all price levels, quality levels, cuts, etc. at very low prices compared to retail. I am incredibly happy with them from personal experience. I was able to get a very high quality diamond for an engagement ring that my wife is now wearing. They also offer settings if you want to one stop shop. They ship quickly, and the diamond appraised at approximately 50% higher than what I paid. Most importantly though, it is a beautiful stone. My co-worker also had great luck with them. I'm not a Blue Nile shill, just a satisfied customer.

Charles Pennington weighs in:

T BoxBorsheim's is pretty good. With them I don't think you have to worry you're getting ripped off. You can call them on the phone and just talk with them about how much you're thinking about spending, and they'll provide a host of options for you. If you want, they'll even ship one or two out to you so that you can have a look. If they do rip you off, you can go complain to Warren Buffett at the next Berkshire Hathaway shareholders' meeting!

Caution: She may want a ring from Tiffany, even though you both know the extra money is just for the blue box.

Dan Humbert takes an unconventional view:

Don't waste your money on something so ridiculously overpriced as a diamond (especially since you indicate you are short on funds and are off to Afghanistan, meaning you'll have a lot more important things for you and your fiance to spend your limited funds on). If you and your fiance want an engagement ring, cubic zirconiums are nearly as good, and I understand there are now even better man-made diamonds that a jeweler cannot distinguish from natural diamonds — it takes an expert with sophisticated equipment. Exact types and prices are well-covered in the recent book Spent by Geoffrey Miller. No one else will be able to tell, and you and your fiance have no obligation to confess that you were not so wasteful as to buy in to De Beers's monopoly and ridiculous advertising that you should spend 25% (or whatever obscene portion of your year's salary) on the diamond.

Taking it a step further — this being a libertarian-oriented site, why get married at all? You and your love should set the terms of your own wonderful relationship rather than letting the government, courts and lawyers dictate the terms. It's a lot more romantic to voluntarily win each other's love each day, than to be obligated by the government to stay together unless and until expensive and debilitating proceedings involving lawyers and judges allow you to change the terms.

The dissenting view gets support from Kevin Humbert:

Dan offers excellent diamond advice. After losing a number of "real" diamonds to both women and thieves, I decided to look into synthetic diamonds as an alternative some time ago. At the risk of sounding cynical you don't blow through as many ring-requiring ceremonies & occasions as I have without incurring significant financial loss… and that's before the rings are even factored into the equation. Man made diamonds vary wildly in price & quality. Even so, the discount to comparable high quality diamonds is high enough to make something man made a no-brainer for me. As for whether anyone notices if it is real or not, I can't recall having met anyone outside of the jewelry industry who is impressed with a diamond wedding ring one way or the other, either real or synthetic.

But Laurel Kenner interjects:

Gentlemen! A fake gem sends the wrong message. And relationships without marriage usually turn out to be fakes, too. Just ask a wife whether her marriage is real or not.

An anecdote from Chris Cooper:

I once had an employee who had already made a lot of money from stock options owned by her husband and herself as executives at a big tech company. When they got married he told her she could have a one-carat ring now, or for every year she waited he would increase the size by an additional carat. After several years she caved in, and could be seen flaunting a 5-carat flawless solitaire in important business meetings. A stone of that size does tend to attract the eye.

Legacy Daily sends a specific suggestion:

Congratulations! Engagement and marriage are indeed very special life events. I have jewelers in the family who would be happy to help. I just called them to let them know that they might hear from you. Feel free to contact Artinian Jewelry.

John Lamberg looks back:

A word of advice: When your wife to be picks out a wedding ring, no matter what price, run, do not walk, to the counter and purchase it. Do not repeat the mistake I made many years ago and say, “let’s think about it…”. Some mistakes are never forgotten.

Victor Niederhoffer also reminisces:

I bought mine for 25 cents at Woolworth on 86th and Third Avenue. And as the poker player said after he took his real diamond from her the day of the wedding to throw into pot, "she's still wearing it."



 When I was a kid, adults used to bore me to tears with their tedious diatribes about how hard things were. When they were growing up; what with walking 25 miles to school every morning. Uphill… Barefoot… both ways

Yadda, yadda, yadda

And I remember promising myself that when I grew up, there was no way in hell I was going to lay a bunch of garbage like that on kids about how hard I had it and how easy they've got it!

But now that I'm over the ripe old age of 40, I can't help but look around and notice the youth of today.

You've got it so easy! I mean, compared to my childhood, you live in a damn Utopia!

And I hate to say it but you kids today you don't know how good you've got it!

I mean, when I was a kid we didn't have the Internet. If we wanted to know something, We had to go to the damn library and look it up ourselves, in the card catalog!

There was no email! We had to actually write somebody a letter, with a pen! Then you had to walk all the way across the street and put it in the mailbox and it would take like a week to get there! Stamps were 10 cents!

Child Protective Services didn't care if our parents beat us. As a matter of fact, the parents of all my friends also had permission to kick our ass! Nowhere was safe!

There were no MP3s or Napsters! You wanted to steal music, you had to hitchhike to the damn record store and shoplift it yourself! Or you had to wait around all day to tape it off the radio and the DJ'd usually talk over the beginning and messed it all up!

There were no CD players! We had tape decks in our car. We'd play our favorite tape and eject it when finished and the tape would come undone, cause that's how we rolled, dig?

We didn't have fancy garbage like Call Waiting! If you were on the phone and somebody else called they got a busy signal, that's it!

And we didn't have fancy Caller ID either! When the phone rang, you had no idea who it was! It could be your school, your mom, your boss, your Bookie, your drug dealer, a collections agent, you just didn't know! You had to pick it up and take your chances, Mister!

We didn't have any fancy Sony Playstation video games with high-resolution 3D graphics! We had the Atari 2600, with games like Space Invaders and Asteroids. Your guy was a little square! You actually had to use your imagination!! And there were no multiple levels or screens, it was just one screen forever!

And you could never win. The game just kept getting harder and harder and faster and faster until you died! Just like life!

You had to use a little book called a TV Guide to find out what was on! You were screwed when it came to channel surfing! You had to get off your butt and walk over to the TV to change the channel! There was no Cartoon Network either! You could only get cartoons on Saturday Morning. Do you hear what I'm saying!?! We had to wait ALL WEEK for cartoons, you spoiled little rats!

And we didn't have microwaves, if we wanted to heat something up we had to use the stove… Imagine that!

That's exactly what I'm talking about! You kids today have got it too easy.

You're spoiled. You guys wouldn't have lasted five minutes back in 1980 or before!


The Over 40 Crowd

John Lamberg writes:

At least you had an Atari. When I was a kid, all I had to play with were model rockets (and I could go to the hobby store and buy Jetx fuse, not that silly battery powered electronic igniter), chemistry set, erector set, slot cars, CB radio, build your own shortwave radio from Heathkit, and I actually had to ride my bike to go fishing… Hey, that sounds like more fun than an Atari.



 I read that Burpee purchased Heronswood Nursery from Dan Hinkley, a world-class plant hunter, and his partner, Robert Jones, with a promise to keep things as they were. But things change and Burpee closed/moved Heronswood.

The George Ball piece, entitled "The Fortuneteller's Garden"

This piece was written by George Ball, president of W. Atlee Burpee & Co. I'm passing it along as it speaks of the present, past, and future in an interesting manner.



 "…The lies most likely to be successful must not only be believable, they must also take advantage of the prejudices, weaknesses, and fears of those lied to. Any lie custom-tailored to psychological makeup and biases, any lie that feeds vanity, jealousy, fear of rejection, or any of the ten thousand other goblins making merry in the twisted hallways of our brains, will be compelling in a way in which few other are…"

The Concise Book of Lying, Evelin Sullivan.



 The fixing scandal involving NBA referee Tim Donaghy raises many questions for markets. Who would have known that one of the key insights that he gave other gamblers was information on who was going to ref the game, which affected the outcomes of games because of how they were going to call offensive and defensive fouls?

Also, he was able to ply his trade without any of his fellow refs or even the players knowing he had an ax to grind. Particularly creative in this regard was his adding an extra 1.2 seconds on the clock following a missed Portland shot in the Dec 1, 2006, Orlando-Portland game, won by Orlando 91 to 89, with Orlando favored by 4 points. The game would have gone into overtime without it. It appears Donaghy also used technical fouls and mismatched fouls.

In racket sports, I always could tell when a player was fixing the game. Often my own partner in handball was fixing the game against me and I had to kick him off the court if I couldn't beat him up. In tennis you can always tell if the other side is trying to lose by their muscle moves and gait, and apparently a sister game was once found out this way.

If basketball games can be fixed this way, how much easier is it to disguise stock market fixes?

Vance Humbert replies:

A couple of examples I view as fixing the game-

1) In the hedge fund world, there are many managers labeled "talented" and "consistent performer" by external analysts, but who are in fact blessed with a few Street relationships that provide most of the generated alpha. I think back to certain convertible arb funds in the early 2000s with stellar returns which were a function of taking every new deal that came down the pipe as a matter of facilitating the issuance process. It was common knowledge that, within a matter of hours to days, they could flip the bad deals back to the underwriter for a .20-.50% loss but the good deals they would hold for 1-3% gain. Where is the portfolio management skill when you have to take every deal?

2) Referring back to perceived stellar high frequency managers, how about the one who takes down a bunch of stock and then strongly suggests the sell-side analyst change his rating for the better? Of course, this is all in the name of improving fundamentals. But it doesn't hurt that the fund does a lot of transaction volume with the firm. Once the rating change is announced, the hedge fund's minions make sure to call all the other research desks on the Street to ensure they are aware of a "good call" by another house. While the stock ramps, they unload their inventory.

Steve Ellison comments:

 One evening last summer while playing blackjack, I began to suspect the dealer was cheating. Four times, the dealer's face-up card was a five. The best playing strategy in this case is generally to stand on any hand of twelve or more. In no circumstance should the player risk busting because the dealer is at high risk of busting.

In all four cases on this evening, the dealer managed to draw a third card with a value less than ten that brought the dealer's total to 20 or 21. Of course, it could have occurred by chance, but Edward Thorp documented in Beat the Dealer various sleights of hand dealers can use to view cards still in the shoe and deal the second card rather than the top card.

Andrea Ravano adds:

The first and most important principle here is of human nature. What is it that motivates Americans, Chinese, Italians and everyone else? Greed, passion, hatred? There are many desires that make up the complexities of human nature, but the afore mentioned are among the strongest in determining our actions.

Thus, corruption in all its parts, belongs to our nature regardless of our culture. Weak people will always seek a short cut to obtain what has been built by endeavoring , trying, suffering and sweating. Racists will tell you that a certain culture, brings about corruption and weak thoughts, as if a political system or a social group could stand up and offer the perfect model for us to admire.

Einstein said "it is easier to break the atom than prejudice" and the same goes for the markets. Prejudice is your worst enemy. The lack of clarity when analyzing data, or your inability to understand the nature of the ever changing cycles, will lead you directly on to the wrong side of the trade.

My grandfather considered the stock exchange a place for depravates who didn't want to work and sweat, and he taught his children to keep investing their assets in "real" economy. His ideas were largely influenced by the fact that one of his brothers (out of a family of fourteen brothers and sisters!) had lost a considerable amount of his fortune in the 1929 Stock market crash. Thus he taught his children to stay away from the corruption of the faster moving parts of the financial world and to keep investing their money in a sound way.

When the time came, after his death, to sell assets and increase financial holdings, none of his sons thought of doing so as the great early 80's bear market in shipping wreaked havoc among ship owners (which they were) and brought to its final conclusion the danger of believing in an idea without testing it: prejudice had taken its toll. 

Steve Leslie extends:

Poker is a game that lends itself quite nicely to fixing because there can be up to 10 people at a table during the course of a game, and the players are constantly touching the cards. Poker can be manipulated in a variety of ways.

The obvious ways to cheat in poker:

1. Mark cards

2. Manipulate the deal

3. Bring extra cards in and out of a deck such as the occasional ace to fill out a hand

4. Post incorrect bets

5. Pull back a bet when it is obvious that you are beat

6. Deal from the bottom of the deck and "deal seconds"

7. Conspire with the dealer to steal an occasional pot

Less obvious ways to cheat include:

1. Play teams at the table, splitting the winnings with an accomplice

2. When handing out chips or changing out a player, giving an incorrect amount

3. In tournament play, having an accomplice dump his stack to you by going all-in with a vastly inferior hand in heads-up play

4. Having an accomplice consistently raise the pot while you hold the best hand, drawing attention away from you

5. "String betting"

More subtle ways include:

1. Having the more experienced players go after or attack the weak and unprepared "fishes" or "pigeons" at the table

2. Having the large stacks go after the small stacks

3. Having dealers rake more money than they should

As they always say, if after 20 minutes you can't figure out who the pigeon is at the table, it's you. Always ask yourself why you were invited to the game in the first place.

John Lamberg replies: 

Casinos do not have to cheat to be profitable. The only time I suspected a blackjack dealer of cheating was at a small casino where the dealer, who was hand-dealing, correctly announced the next two cards by suit — an ominous warning to run to the exit.

While basic strategy does call to stand on 12 or more against an up five, hitting a 12 against a five would be an appropriate play if the count supported it. In a situation where the dealer repeatedly makes a hand on a "weak five or six" (or repeatedly beats my hand by one), my strategy is to find another table or sit the rest of the shoe and evaluate the next one. Red flags, whistles, and bells now sound when a player announces in frustration or anger that the cards can't be that bad and have to turn soon.

On occasion, I will watch a player fight the cards and wait until he either blows out or gives up in frustration, take his spot, and enjoy the blackjack he just missed. Nice parlor trick when it works, but certainly nothing to bet the farm on.

Sam Marx comments: 

I think the term "fixing the game" as applied to the market should be made more clear. What is included in "fixing the game"? For example, I believe you would include "trading on inside information." 



 "The temperature curve through the Greenland inland ice sheet shows 26 dramatic and abrupt climate shifts during the last ice age that lasted more than 100.000 years. This curve shows the climate shifts during 40,000 years. The climate shifts appear to be periodic, but mathematical computer simulations shows that they are probably chaotic and random."

Read the entire article



1. A book recommendation from John Lamberg: Five Hundred and Seven Mechanical Movements by Henry T. Brown

2. Bruno Ombreux recommends the academic paper Dangers of Data-Driven Inference, “a good paper touching on a subject oft mentioned by the Chairman”


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