Friday, December 29, 2006

How much do Christmas lights cost to run?

January 2007 - When asked, my wife refers to me as an “interesting” person as apposed to odd, nerdy or weird. And so when presented with an idea that gives most people a loss of words or a feeling of social unrest (e.g. my three year light bulb experiment in the garage which I share with all house visitors), she usually shakes it off as just part of my “interesting” character. That has recently came to an end though, as on the morning of December 2nd I informed her we’re conducting a month long study on how much our Christmas lights cost to operate.

Every fall I drag myself out to the garage and spend a good portion of the morning and afternoon untangling a series of Christmas lights that have mysteriously found themselves in a rat’s nest. It’s simply amazing how Christmas lights can spend all year tangling themselves without me even knowing. After a bit of emotional counseling and a frank discussion with my inner self, I spread them out and dangle them haphazardly from my shingles using duck tape.

My light collection is made up of thirty to forty feet of “icicle” lights consisting of around 1330 bulbs. As a side note, these lights are the ones where if one simple bulb burns out, the rest of the string finds itself in the dark. Ironically, these are the ones I always end of hanging on the tall dangerous part of the roof. We then have 120 smaller lights that are used to string around a bush or two. In all, we have around 1450 candescent light bulbs hanging from various spots.

The study was conducted as so. On select nights when the temperature was going to be consistent for two consecutive nights, I shut my Christmas lights off early and took a meter reading at 10PM and 7AM the following morning (night one). The following night I did the exact same thing with the exception of leaving my Christmas lights on all night (night two). Assuming all other variables are consistent (e.g. furnace fan run rate or the number of times my wife turns on the light for a bathroom run), the difference between night one and night two should give us the amount of kilowatt hours it takes to run our Christmas lights. This figure divided by the number of hours (i.e. 9 hours) gives us the kilowatt hours needed to run these crafty little buggers per hour.

And so the results are in. Night one consistently shows we use three kilowatt hours of electricity to run the house. This is primarily due to our furnace fan, the running fan in the bedroom (i.e. the noise maker), and my wife’s annoying alarm clock, which by the way goes off every nine minutes between 6 and 7AM. Night two consistently shows we use seven kilowatt hours (the arithmetic mean is actually 7.33) to run the house with the Christmas lights flaring all night. For those of you who are math deficient (like me), the difference is four kilowatt hours. Meaning it takes four kilowatt hours of electricity to run our 1450 Christmas light bulbs for nine hours or close to .444 kilowatt hours per hour. Looking at my last electric bill we pay $.0725 per kilowatt hour meaning our total cost for an hour of Christmas lights is a little over three cents.

So what does this mean? Honestly it really means nothing other than if you hang Christmas lights and leave them on four hours every day in December, you can expect to pay three to four dollars extra on your electric bill. Even a fiscal conservative like me can handle the expense for a little seasonal excitement in the neighborhood. Happy holidays!

Thursday, November 30, 2006

How can I apply my new MBA skills?

December 2006 - Regular readers of my column (which by the looks of it are few and far between) may notice that I’m currently getting a masters degree in business administration from a fairly respected local university. Recently I just finished up with one of the tougher courses called “Data and Statistical Analysis for Managers.” As a side note, one would think “for Managers” in the title would make the class a bit less intensive and compared to a PHD class it might be. That being said, for the average student, which is a group I include myself in, the class is pretty challenging so beware.

While I faired alright on the homework and exams, the true question in my mind is how can I apply these new concepts to my job? This question only makes sense as my employer paid the outrageous price of tuition. Now I’m not proud of it nor tell even my dearest friends, but I’m pretty close to an expert on the format of a seven step hypothesis test. How in the world does this help me as a software engineer though? Let me try to explain how we’ve taken a simple concept from my statistics course work and tried to apply it to work.

I’m leading up a project for migrating our source code repository from a fragile, debilitating, and antiquated system to a new (hopefully robust) tool set. One of the outcomes of this effort is the migration of years of change history that is a critical part of source control management. While the migration tool we’re using is “suppose” to flag us with migration errors, there always is a chance where we could run into a migration error which never got caught (if you’re wondering, I’m a skeptic of most things). Here is a question that I often hear upper management asking us worker bees before pushing a button that could potentially bring the company and all it’s stakeholders to our knees, which this migration could easily do. “How confident are you everything is correct?” Never being an overconfident engineer, I’ve always said “we’re as confident as we can be with the information at hand.” As one can guess this never goes over very well as from what they tell me, it’s not quantifiable. The follow-up questions are always based around confidence numbers (e.g. 90% or 99.99% confident) of which I have no clue how to talk my way out of.

As luck would have it, in my difficult “for Managers” statistics class, levels of significance and confidence intervals were discussed on week four. After scouring my notes, we’re thinking we can use some of the techniques learned to “quantify” how confident we are (or are not) to impress upper management. How though you might ask? While we’ve not started the migration yet, after a “successful” migration we plan on taking a random sampling of source files in the new system and comparing the history with the original source file history in the old system. The result will give us a proportion of the file history that was fully migrated verses the total number of files in the sample. Based on the arbitrary assumption that 95% of all the history is migrated (we simply picked 95% as we’re comfortable losing 5% of history during the migration), we can in return run a proportion z-test using a specified value of alpha (i.e. .05) and figure out the probability of migrating 95% of all our history. The specified value of alpha will give us our level of confidence.

Now I have no grand elusions of impressing upper management with our results. If anything, I’m sure the question will come up as why we spent so much time on this migration and totally forget the fact that we did the migration, saved close to 95% of the history dating back from the early stone ages, and quantified our confidence. Putting upper management aside, the true outcome is that we’ve taken a very important (and difficult I might add) concept from our learning (which upper management paid for) and used it to quantify our confidence level. When upper management then asks, how confident are we that the new system will work and contains all the history we’ve created for the past 10,000 years, we can simply say “at the .05 level of significance (alpha is .05) we’re confident (or not confident) we’ve migrated 95% the history to the new system.” In addition to comforting upper management, this experiment will actually comfort us as well and since we’re ultimately responsible this is probably a good idea. So we’ll see how it turns out.

And the interesting thing is after we’re done with this experiment I’ll be on to my next class (business ethics) learning some new exciting things to annoy upper management with! Shouldn’t they be so lucky to pay me for this!

Saturday, November 04, 2006

Do stock prices matter?

November 2006 - I make no secrets about my love for the morning business section in the local fish wrap (i.e. newspaper) or my unsuccessful run at stock price speculation. My stock picking is so bad of late my colleagues and friends have found investing against me to be quite profitable. This all being said, the curious mind does know one thing for sure; no mater what the list price is, stock prices do not matter. Let me explain.

A few years back while waiting in line for an overpriced latte, I overhead a young man brag to a half listening acquaintance that a stock (of which I’ve never heard of) just split and he was taking his wife out for dinner to celebrate. Being anti-cerebral at the time, I cordially congratulated the gentlemen under my breath and wished to someday be as lucky as he apparently just was.

Five or so years after this experience, I was fortunate to struggle through my first financial accounting course and during an especially arduous homework assignment found that a stock split has no, let me repeat no, economic affect on the stock. Every company issuing stock has a market value, which is simply the total number of issued shares of stock multiplied by the price of the stock. For example, at the time of this writing Google (GOOG) has a market cap of around $143 billion and is trading at $471 a share. This means Google has roughly a little over 300,000 outstanding shares.

A student loan ridden, large mortgage owner, future family man like me has little expendable cash lying around, but if I did I could probably afford ten shares of Google. Let’s say after breaking open my piggy bank and purchasing ten shares of Google, Google decides to split its stock two for one (i.e. two shares for every one share). The result is 600,000 outstanding shares trading at $235.50 and instead of only having ten shares, this curious mind has twenty! Hurray, right?

Now I grew up directly across the street from a corn field in the middle of the upper Midwest and have never once been praised for abnormal intellect. But, I was taught (in the first grade I believe) that ten multiplied by $471 is $4,710 and oddly enough equal to twenty multiplied by $235.50. Consequently, while I may feel wealthy having doubled my stock holdings in Google, in reality I’ve gained absolutely nothing in economic terms.

Of course if you don’t take my word for it, just ask Mr. Warren Buffet whose company “Berkshire Hathaway” was trading (at the time of this writing) for around $105,000 a share. Warren (as I like to call him in person conversing over a Coke) has never split his company’s stock. While I don’t know the exact reasons why, I’m pretty sure he sees a split as needless as I and avoids dealing with superfluous details as such.

In conclusion, do stock prices matter? No, market capitalization matters and your percentage ownership of it. Stock prices are simply arbitrary numbers which can be manipulated to any value wanted.

Monday, October 02, 2006

Who should get an MBA?

October 2006 – Should you get a MBA is a question that I often hear debated within my group of young professional friends. My answer to this question can be broken down into two types of people, those who want to climb the proverbial corporate ladder and those that simply want to learn more about business.

Some folks, would like to continue their career progression by moving from individual contributor, to lead, to manager, to director, to senior director, to vice president, to senior vice president, to executive vice president, to senior executive vice president, to president, to chief officer, etcetera. Alright enough, you get my point. This is all fine and dandy and if one has these aspirations, you should quickly sign up for the biggest named business program within reason and get the sheep skin. With all those steps you need to differentiate yourself more than a sharp suite and years-and-years of brown nosing offer. As long as you get a grade that secures the tuition reimbursement, don’t be overly concerned with your studies. That’s not to say sleep through class, but fully understanding random variable probability won’t make or break your career path. In other words, slide through school with as little exertion and purpose needed.

Some other people simply would like to learn more about business and apply the MBA concepts learned to their current job, hobbies, and home finances. These people are getting the degree for a slightly different reason as they don’t care about corporate advancement but simply care about learning something new that could help them and their employer. If corporate advancement is presented and the opportunity fits the person’s goals, then so be it. If not, no big deal. These people have more of an interest in the subject mater, as climbing some ladder offers little incentive. The motivation is learning something new and trying to apply the new found knowledge to situations they’re in. For example, when studding statistics the second type of person might take the new found standard deviation calculation and try to apply it to defect data and show wheter the application is under statistical control. This is in comparison to the first person, who’s only exposure to implementing a business school concept is negotiating a promotion.

In conclusion, the curious mind recommends that if you’re interested in getting an MBA, make sure your motivation is modeled after the second person and not the first. An education’s primary purpose is to educate, not hand out paper used to get your next promotion.

Sunday, September 10, 2006

Should I franchise?

September 2006 - I often spend time debating subjects around starting my own business and in doing so bombard by lovely wife and gracious family members with a myriad of ideas and topics of discussion. During our conversations the computer software business always floats around the top of the idea pool because of its strong market and high potential for good margins. Look at how successful Microsoft and Apple are. Additional banters study and discuss the aging demographics. Why not some sort of high technology product that solves all sorts of age related health problems with a simple electronic gadget you swallow after morning bran flakes? Local medical companies like Medtronic, St. Jude, and Boston Scientific seem to be doing quit well. And on and on the rhetoric goes. Ah the sleepless nights such entrepreneurial aspirations have caused me.

Everything seems so simple, but here is the one problem I run into. Money! Sure there are the made for movie stories about the young professional from MIT who started a high tech software company living on nothing but Mountain Due, Doritos, and Dungeon and Dragons. They go on to great fame, wealth, and retirement at age 30. Here’s the deal though, those stories are so few and far between we’re only blessed to hear about them every so often. So what’s a married, suburban living, 30-year-old soon to be MBA graduate do if they want to start a business yet keep a marriage in tack and pay the cable bill on time? My thoughts are to open a franchise.

Now I’d surmise the ardent entrepreneurial is laughing and ready to poke fun at the franchise idea. Candidly the idea of a franchise is not romantic to me either. “Welcome to McDonald’s may I take your order?” or singing the Coldstone chant do not have savvy rings to them. But here’s the deal; a family man of my nature, who enjoys the pleasantries of our home, can’t afford to take a “swing for the fence” risk right away. In other words I’d be willing to forfeit my beat up old car during bankruptcy proceedings, but certainly not our home or my golf clubs. Consequently, aspiring entrepreneurs in my situation need to take calculated risks which I’m hoping a franchise provides.

I’m not sure of the success rate of franchises, but I don’t see many Subways going out of business in my neighborhood. That being said the local Quiznos just recently had its third grand opening and the corner Burger King’s boarded up windows are an eye-sore. While I have no evidence to prove my hypothesis, I’m willing the bet the failure of these entities was more management than business model. And it’s the management where I see well educated, humble, and hard working entrepreneurs succeeding. In conclusion; if you’re a married, suburban living, family man like this curious mind is, then carefully choosing and running a good franchise is a great opportunity to practice the entrepreneurial spirit you so longingly lay awake and dream about.

Friday, August 04, 2006

Is investing in ethanol a good idea?

August 2006 - Ethanol is a subject of interest for me lately. As an amateur environmentalist, callow investor, and day time engineer, implementing a renewable energy source like ethanol is quit intriguing. Being the skeptic I often am though, I’m wondering whether ethanol is a good investment. Now by saying “investment” I actually mean two things, namely financial and environmental. Let me try to explain.

Looking at the financial aspects of ethanol, one could argue the optimism is flourishing. Big hitter Bill Gates supposedly bought a large piece of Pacific Ethanol Inc. If so, with the stock being up around 80% since January things are looking fairly positive out West. Even Archer Daniels Midland Company from Illinois is doing quit fine with their ethanol efforts. In addition, while visiting my home town “Hayward Kafe” which is smack dab in the middle of the Midwest, I’ve noticed a few more farmers purchasing high priced cafĂ© lattes. This leads me to believe even the stoic conservative Norwegian community is excited about the possibilities of Ethanol.

All in all I would have to agree with the optimism ethanol gives our pocket books. Vinod Khosla states in his Google Tech Talk “Biofuels: Think Outside the Barrel” that it only costs car companies an extra $30 to make a car flex-fuel. Watching the myriad truck commercials filling up petroleum hogs with corn stocks leads me to believe car companies are on board. While filling a 17 miles-per-gallon gas guzzler on a recent trip to South Dakota, I noticed numerous E85 filling stations. With the delivery infrastructure in place, car companies on board, and the number of ethanol plants popping up all over, I recommend investing in ethanol. And if you don’t like investing in ethanol, I’d recommend looking into corn commodities. As a capitalist I like the competition presented when corn grown to produce ethanol competes with corn grown to increase the average American’s waist line!

From an environmental point of view, I also like what ethanol offers. In MIT’s August 2006 “Technology Review” Jamie Shreeve states in his “Redesigning Life to Make Ethanol” that burning ethanol adds little carbon dioxide back into the atmosphere due to the fact that any carbon dioxide given off is consumed by the plants growing to produce the next drop of ethanol. Ah what a wonder nature is! It cleans itself like a cat! Of course this is in contrast to fossil fuels, which most likely contribute to those annoying toxic air warnings our local bureaucrats warn us about on beautiful sunny days.

Lastly, if you think I’m totally crazy about liking ethanol from both a financial and environmental point of view then let me try this. Even if ethanol is not the silver bullet for renewable energy, at least it’s starting debate and stirring emotion. As one of my trusted acquaintance eloquently stated, ethanol is a gateway source to alternative thinking. It’s starting more dinner discussion about bio-diesel, wind power, and hybrid cars. If the only thing that ever comes of ethanol is pontification and heated debate about renewable energy sources, I’ll consider ethanol a success and worthy of the investment.

Monday, July 10, 2006

Should I pay off my debt?

July 2006 - The curious mind (i.e. me) likes to engage in a myriad of good conversations and one of our favorite subjects is economics. Often when discussing economics the curious mind debates whether personal debt is good or bad. Today’s discussion regards risk and leverage in simple terms.

Let’s start the debate with a simple example. Say we buy a house for $250,000 and get a 30 year fixed interest rate of 6%. The monthly payment is around $1,500 a month of which a surprisingly large amount is used for interest during the first ten to fifteen years of the loan. Over the life of the loan we pay almost $290,000 in just interest, which gives us indigestion just thinking about such a nightmare.

All the interest is causing loss of sleep so instead of paying $1,500 a month, why not pay $2,000 a month and pay off the loan early? Just think of it, pay off the loan in say 15-17 years instead of 30 and save thousands of dollars (close to half) in interest! But does paying off the loan make sound economic sense? As with most things, it depends.

Financial pundits have a concept called financial leverage, which terms the simple idea that borrowing money at a low interest (e.g. 6%) rate and investing it in something returning a higher interest rate (e.g. 10%) is advantageous. The borrower in this example is rewarded or punished in regards to the difference (i.e. risk) between the rates. Let’s apply this little concept called leverage to our agonizing $250,000 home loan with a 6% interest rate.

The lender is borrowing you $250,000 at 6%. Over the course of time history shows the S&P 500 stock market index returns close to 10%. Remember that $500 extra you were going to pay on your mortgage? Instead of doing so, some would argue to take on additional “risk” and “leverage” yourself by investing it in another investment (e.g. stock/bond markets, rental units, or those old baseball cards in your basement). If the return you receive on your investment is over 6%, even though you’d pay more in interest (possibly double), oddly enough you will come out ahead in economic terms. On the contrary, if the return received falls below 6%, your leverage works against you and punishes your pocket book for the risk.

So when asking “Should I pay off my debt?” first compare the borrowing rate verses the expected return rate. Secondly ask how much leverage and risk your stomach can handle. If you’re willing to leverage yourself, stretch that 6% mortgage as long as you can. If you don’t like risk, pay off that debt as soon as you can and enjoy the lack of debt payments.