Critique the analysis, not the person: professional behavior

[lamoneyguy]

sdrebear,
I disagree. Expectations and risk are completely different terms, especially when applied to economic/financial analysis.

If you have an investment with a 75% chance of yielding a 10% return, and a 25% chance of yielding a -10% return, your expected return is 5%. You are at risk of losing 10%.

In your street light example, you are at risk of being stopped at 10 lights. Your only expect to get stopped at 3 of them.

From Dictionary.com:

risk  /rɪsk/
–noun
1. exposure to the chance of injury or loss; a hazard or dangerous chance: It’s not worth the risk.

You are exposed to 10 lights, not 3.

~lamoneyguy

[sdcellar]

sdrebear

Actually, you expect to be stopped at three traffic lights. You are at risk of being stopped at all ten. Think about it next time your running late and the lights don’t go your way.

awww…. Somebody posted the same thing. Oh well…

[lamoneyguy]

You said that all soldiers are at risk, but we do not “expect” them all to die. But some will. It would be accurate to say that that percentage (some) is truly “at risk” of dying. That is an “expectation”, but certainly not an absolute (either direction, more/less).
-sdrebear

Not all soldiers are in combat situations. Any of them could perish to highly unforseen fire/accident, but the ones that would accurately be described at “at risk” are the ones in combat situations. Then, some amount of loss among those in combat are “expected” to be lost.

Likewise, not all mortgage holders are “at risk” due to ARM resets, etc. Among those that are “at risk” due to ARM resets, etc. some percentage would be “expected” to default.

[powayseller]

If the loans won’t default, then there won’t be foreclosures leading to recession, making the entire paragraph nonsense.

Furthermore, if you study the lack of underwriting guidelines out there today, you would wonder why Cagan didn’t say, “About half of those people are going to default”.

[PerryChase]

I love languages so I enjoyed reading this post. I agree with sdrebear; “expect” does not mean with certainty.

Both their parents have doctorate degrees. I expect John and Jane to receive a great education then go on to successful careers. There’s no certainty of that happening.

[powayseller]

woodrow, you have lost credibility in my eyes as well, because you prefer insults over debates. I respect people who contribute to a dialogue by starting their own threads or using logic to make a case. Telling someone you are apologizing because they are hypersensitive is passive agressive. No thanks to your apology. But please, start your own thread. I would love to read your opinions and commentaries!

[lamoneyguy]

Both their parents have doctorate degrees. I expect John and Jane to receive a great education then go on to successful careers. There’s no certainty of that happening.

“Expect” does not mean with certainty, rather more like, “in all liklihood,” or “probable.”

Despite both their parents having doctorate degrees, there remains the risk that either John or Jane may fall into the wrong crowd and not attend college. However, I would not expect that to occur.

[sdrebear]

lamoneyguy,

I’m not sure that in one post you can say that I’m at risk for hitting all 10 lights (meaning that there is risk in some degree for every potential outcome) and then in another post say that not all mortgage loans are “at risk”.

That’s a bit of a contradiction. Yes, there is some risk (however small) that any, or every loan in this country could default. Just as there is risk that I could hit every light. I may have failed to qualify the 30% with “reasonable risk”, or “high risk”.

Again, I just don’t like that the analysis said 19% of loans are “at risk”. Truthfully, all of the loans are at risk to some degree. Using the term “risk” is a slick way for an analysis to get his opinion and “prediction” out while being able to avoid putting down a hard number that could come back to bite him later. You see, by saying “risk”, he has a nice fat range of zero to 19% (even if he was slightly over 19%, I’m sure nobody would crucify him). If he said “expects”, he’d be held to a hard number of 19%. More than likely, that was his true meaning.

In the end, it is all semantics (as I believe you said in the other thread). We have a very rich language and we all use (or, should use) context to understand the writer’s message. I saw something much milder in PS’s title than some and caught the inference she was making. Other’s may not have. I can see the point being made by others (yes, it’s a stretch to directly link “risk” and “expect”), but I think way too much is being made of the “intent” of the writer (PS). I feel that she “read” Cagan’s meaning pretty well. The more you read analysis, you’ll see that they rarely speak in absolutes.

[sdcellar]

Well, in the latest topic it’s become “WILL”, so what do you think of the interpretation now?

[powayseller]

Yes, he said “1 million loans will default” back in March.

[lamoneyguy]

I’m not sure that in one post you can say that I’m at risk for hitting all 10 lights (meaning that there is risk in some degree for every potential outcome) and then in another post say that not all mortgage loans are “at risk”.

sdrebear, touche. That does appear to be contradictory. I would agree with you if the liklihood of all of the outstanding mortgages had an equal liklihood of defaulting. I have no way of distinguishing between one street light over another. Thus they are all “at risk.” The difference is randomness. Street lights are random, liklihood of mortgage defaults are not.

The problem is that the original author did not define “at risk.” If he had said that an at risk mortgage is over a certain LTV or is scheduled to adjust to a payment that is above a certain percentage of gross household income, then it would be more clear. Out of the total set of outstanding mortgages, any of them can default, but we know that a certain subset defined by parameters such as I named are at higher risk for default.

I agree about the slippery language analysts use to qualify everything they say. I think he could have been more clear by defining “at risk” as I mentioned, and by explaining that a certain percentage of those “at risk” mortgages are expected to default.

An “at risk” high school student may be defined as one who is failing a certain number of classes, has over X number of tardys and absences, and has had disciplinary issues. Some of these kids will not succeed. They will drop out and perhaps get into legal trouble. I certainly do not expect all of them to. Likewise, a student who gets good grades and has not had any problems CAN drop out and get in trouble with the law, but we would not have described this child as “at risk” before that time.

[carlislematthew]

My work mentors taught me never to attack a person, but to debate the idea.

Proposal: Stop telling people they’re “delusional” or “liars” or implying that they are evil owner/realtors if they disagree with you, and I’ll stop saying you’re extreme…

It’s hypocritcal of you to ask that people don’t call you names, or assign labels to you, when you do the exact same thing. Yes, I just said you were hypocritical, and yes I know I just judged you.

On the other hand, I will agree with others that you bring good information to the forum. You obviously spend a lot of time scouring the web for information and many on this forum, including myself, are very thankful for that. But in the move from presenting the data to adding your commentary (the analysis stage) you cannot help but let your personal bias get in the way. If you looked inside yourself (figuratively speaking) and understood your own bias, then I believe you’d make a better analyst. Instead of just searching for articles/information that PROVE your theories, look for articles that DISPROVE. Do both!

Look for faults in data that you support, as hard as you look for faults in data you don’t support. I remember one post (I’m not interested in searching for it) where someone presented a graph that supported the idea of increasing home prices (or something similar). You immediately, and correctly, jumped in it for not looking far enough back in time. A little while later you yourself presented some data to support your forecasts that didn’t go far back enough in time. In fact, it went back less than the data you *didn’t* like. So, with the forecast you didn’t agree with, you looked VERY hard for faults, cracks, problems. With the forecast you agreed with, you didn’t do the same. I believe it’s called confirmation bias, selective thinking, or some other term.

[sdrebear]

Dang it!! Add me to the Tract vs Track thread.

I kept saying "analysis", when I meant to write "analyst". Sorry for anyone who found that hard to read due to my error.

P.S. All good points lamoneyguy.

<walking off in shame> Man, I knew that was wrong…

[powayseller]

Good points, carlisle…

[lamoneyguy]

[walking off in shame] Man, I knew that was wrong…

Haha, not in shame, and probably not wrong. As we said earlier, this is all about semantics. The beauty of the English language is that there are multiple valid definitions for these words.

I just love to debate my point. 🙂

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