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Hi, I’m Brad Feld, a managing director at the Foundry Group who lives in Boulder, Colorado. I invest in software and Internet companies around the US, run marathons and read a lot.

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The House Advantage

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As I watch Amy scurry around and put the final touches on our Homer house before we leave to go home to Boulder, I thought I’d stay out of the way and write a quick final book post on The House Advantage.  I read a bunch more books the past two weeks but ran out of gas reviewing them all – see my Shelfari bookshelf if you are interested.  But The House Advantage was worth mentioning.

My friend Niel Robertson – the CEO of Trada (which we are investors in) introduced me to Jeff Ma (the author) and then also sent me a book.  It turns out that I know Jeff and lived next door to his sister when I was at MIT.  You also may know Jeff – he’s the main character in Ben Mezrich’s excellent book Bringing Down the House and the inspiration for he main character in the movie 21. It also turns out that Jeff is an accomplished entrepreneur.  He’s had several successful companies, the most recent being Citizen Sports which Yahoo recently acquired.

The subtitle of The House Advantage is “Playing the Odds to Win Big in Business”.  In it, Jeff takes on a topic that most business people avoid – statistics.  He uses his experience with both the MIT blackjack team, sports statistics, and his friends experiences in these areas to explain very important statistics concepts in very clear and straightforward ways.  He’s a great writer – rather than resulting in a dull book about business stats, it’s a spicy read full of stories of Vegas, sports, high speed car chases, airplanes exploding, terrorist drug lords, extreme dance parties, and … well – ok – Vegas and sports.

As I was reading it, I kept thinking “every CEO I work with and every investor I’ve ever met should read this book.”  After I finished, I thought “every academic researcher who has ever written a paper should read this.” None of the statistics concepts are complex, but they are regularly misused, abused, and confused.  Or ignored.

As a bonus, the book includes the Basic Strategy Chart for Blackjack.  How many business books can claim that?  Seriously, this is an outstanding book – Jeff – well done!

The Bullshit of Government Statistics

Comments (30)

I just got the following breaking news alert from The New York Times.

“U.S. Economy Adds 290,000 Jobs in April; Jobless Rate Rises to 9.9%”

Let’s parse this.  The first clause says “U.S. Economy Adds 290,000 Jobs in April.”  This means to me that a bunch of people found new jobs in April.  A bunch.  Yay!  Good economy.

The second clause says “Jobless Rate Rises to 9.9%.”  This means to me that the number of people in the U.S. that don’t have jobs went up in April.”  A quick search showed that the March “jobless rate” (actually the unemployment rate) was 9.7%.  That’s a big relative jump, especially given that it was 9.7% for the first three months of 2010 according to the Bureau of Labor Statistics Economic News Release titled Employment Situation Summary that came out a few minutes ago.  Boo!  Bad economy.

How could this be?  The simple explanation is mid-way through the WSJ article titled U.S. Added 290,000 Jobs in April which appeared about six minutes after the NYT article:

“The two numbers are calculated by the Bureau of Labor Statistics in different ways. The payroll figure is taken from a survey of employers, while the jobless rate is calculated using a household survey.”

I just read through the BLS report and looked at a few of the tables.  Yes, there’s a ton of data here.  However, it breaks all kinds of rules about how to present data to reach a conclusion.  Our friends at the BLS need to hire Edward Tufte to get some help with their data presentation skills.

There are now two stories based on two completely calculations munged together into one sound bite.  The explanation will likely turn into “more people are looking for jobs now.”  But why is the denominator shifting around?  Weren’t those people already jobless (unemployed), even though they weren’t looking for jobs?  Oh – wait, if we include the people not looking for jobs in the historical unemployment calculation, the unemployment rate goes up, maybe by a lot.  Eek – wouldn’t that be more scary.

It’s a simple game the government is playing with the numbers.  Occasionally I’ll run into a company that does this – usually around revenue vs. gross margin dynamics, or bookings vs. revenue, or GAAP accounting vs. actual cash flows (where what really matters is cash flows.)  Picking the better number vs. dealing with reality is disingenuous at best; presenting them in conflicting ways that obscure the message is bullshit.

Oh – and 20 minutes later the newest NYT Breaking News Alert is now “Four-Month Rise Strengthens U.S. Job Outlook.” 

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