Phil Fisher's Investment Checklist: 15 Things to Look For In A Stock

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Phil Fisher was a noted investor who founded investment firm Fisher & Company back in 1931.  He was basically a pioneer in the field of growth investing by buying great companies at reasonable prices while focusing on the long-term.  He's also the author of the popular investing book, Common Stocks and Uncommon Profits.

In the book, Fisher outlined what he deemed to be 15 things that investors need to look for in a common stock.


Phil Fisher's Investment Checklist: 15 Things To Look For

1.  "Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?"

2.  "Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited?"

3.  "How effective are the company's research and development efforts in relation to its size?"

4.  "Does the company have an above-average sales organization?"

5.  "Does the company have a worthwhile profit margin?"

6.  "What is the company doing to maintain or improve profit margins?"

7.  "Does the company have outstanding labor and personnel relations?"

8.  "Does the company have outstanding executive relations?"

9.  "Does the company have depth to its management?"

10.  "How good are the company's cost analysis and accounting controls?"

11.  "Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competition?"

12.  "Does the company have a short-range or long-range outlook in regard to profits?"

13.  "In the foreseeable future will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders' benefit from this anticipated growth?"

14.  "Does the management talk freely to investors about its affairs when things are going well but 'clam up' when troubles and disappointments occur?"

15.  "Does the company have a management of unquestionable integrity?"


If you want to explore the usage of checklists further, many investors have recommended Atul Gawande's book, The Checklist Manifesto.  While it's not an investing book, it is about incorporating checklists into your process.

For guidance from other prominent investors, be sure to also check out Viking Global's Andreas Halvorsen on investment process as well as Fairholme Capital's Bruce Berkowitz investment checklist.



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I was a multi-millionaire by 27–here's what I learned

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Luxury makes us feel successful, that we are winning at the game of life, that we are not only surviving, but thriving. Like an opioid in our brains, luxury locks into our survival receptors. The irony is that purchasing luxury, and being dependent on it for our sense of self and wellbeing, leads to us depleting the very resources that we actually need for survival.

It turns out that having the discipline to live frugally, to invest rather than spend, to mend and make do, and to be able to live for longer and longer periods of time without having to work, are true measures of wealth. Deeply enjoying whatever it is you're experiencing right now is the ultimate wealth.

The people who are on the nine-to-five treadmill, working to pay for luxury cars to drive for two hours per day to and from work, are really on a luxury treadmill. These people are addicted to luxury.

Some people are very shallow

I took a long period of mid-life retirement. During that time, I have been getting a PhD, and starting some businesses. I remember one time in my early 30s being at a party when a very physically attractive woman walked up to me, introduced herself and then asked, "What do you do?" I responded, "I'm a student."

Before I knew it, she had turned around and walked away from me. She instantly stopped talking to me and disappeared into the crowd. I remember feeling really hurt. Thoughts of my worthless came up. Presumably, she didn't want to speak to me because I was a student, and perhaps she thought I didn't have any money. A few days later, after pondering what must have happened some more, I understood the irony that I was probably the richest person at the party. I also understood my luck that she didn't stick around.

I know many people with extremely high net worths. Many of these people spend their time in pajamas, or flip-flops, or shorts. You can't tell how wealthy someone is by what they're wearing. You also can't tell how wealthy someone is by how much money they have.

Everyone respects wealth

I can't think of specific examples of this one, but I do know that I've had a lot of experiences of people treating me very differently when they got a sense of how much money I had. Having money seems to telegraph that you are successful, in a way that's totally disconnected with how successful you are in other areas of your life.

I have also seen new-age kind of people talking with disdain about money, and claiming that "money doesn't make you happy," and "rich people are assholes," and various other statements that show disgust for money. Then, later, I have seen these very same people starting to make and accumulate money, and I have seen them consuming conspicuously and showing off.

Money is so powerful as a symbol of choice and freedom that it's impossible for it not to galvanize powerful responses in people, and to create strong reactions.

Most financial advisors know nothing

I went to some financial advisors at a stock brokerage to get some advice on how to manage my money. This pair of advisors, actually "stockbrokers," told me a lot about the marathons they ran in Hawaii before proceeding to advise me to buy a bunch of individual stocks. Over a period of months, they would call me, "We like Lucent Technologies!" and I would say, "Okay, buy $20,000 of that for me." and then they would bill me $1,000 brokerage commission. That's a 5% commission for "liking" something. I was a fool. I had an online brokerage account where I could have got the same stock for a $10 fee.

When I told them about my stock options, they said, "Never heard of that company! You need to get out of that!" I ended up cashing-in large chunks of the stock in my company to buy all these hot internet stocks that they liked. During my last meeting with them, they asked me if they could exercise and sell some more of my stock options in order to buy some of company X. I told them I couldn't because I was in a black-out period. They looked confused.

Later, I got an email telling me that a bunch of my stock options had been exercised and sold and that I was the proud owner of company X. I called them to ask what was happening. They said that I had told them to sell the stock. I said I hadn't. The guy on the phone told me that his partner had been there and witnessed it. I told them to undo the stock trades before I got jailed for insider trading, and I fired them.

That's when I realized that I had hundreds of thousands of dollars worth of stock in companies that I knew nothing about. Looking back, I feel consoled understanding that the stock brokers knew nothing about the stocks either. That's also when the dot-com bubble burst and that basket of stocks halved in price, while the stock for the company I worked at kept on climbing (it wasn't a dot com company).



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Python coding interview challenges

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April 2017 - Huge Update!

Overhauled to now include 120 challenges and solutions and added Anki Flash Cards.

Also included are unit tested reference implementations of various data structures and algorithms.

interactive-coding-challenges

Continually updated, interactive and test-driven coding challenges.

Challenges focus on algorithms and data structures found in coding interviews.

Each challenge has one or more reference solutions that are:

  • Fully functional
  • Unit tested
  • Easy-to-understand

Challenges will soon provide on-demand incremental hints to help you arrive at the optimal solution.

Notebooks also detail:

  • Constraints
  • Test cases
  • Algorithms
  • Big-O time and space complexities

Challenge Solutions



Anki Flashcards: Coding and Design


The provided Anki flashcard deck uses spaced repetition to help you retain key concepts.

Great for use while on-the-go.

Design Resource: The System Design Primer

Looking for resources to help you prep for the System Design and Object-Oriented Design interviews?


Check out the sister repo The System Design Primer, which contains additional Anki decks:

Notebook Structure

Each challenge has two notebooks, a challenge notebook with unit tests for you to solve and a solution notebook for reference.

Problem Statement

  • States the problem to solve.

Constraints

  • Describes any constraints or assumptions.

Test Cases

  • Describes the general and edge test cases that will be evaluated in the unit test.

Algorithm

  • [Challenge Notebook] Empty, refer to the solution notebook algorithm section if you need a hint.
  • [Solution Notebook] One or more algorithm solution discussions, with Big-O time and space complexities.

Hints

  • [Challenge Notebook] Provides on-demand incremental hints to help you arrive at the optimal solution. Coming soon!

Code (Challenge: Implement Me!)

  • [Challenge Notebook] Skeleton code for you to implement.
  • [Solution Notebook] One or more reference solutions.

Unit Test

  • [Challenge Notebook] Unit test for your code. Expected to fail until you solve the challenge.
  • [Solution Notebook] Unit test for the reference solution(s).

Index

Challenges Categories

Format: Challenge Category - Number of Challenges

Total number of challenges: 120

Reference Implementations: Data Structures

Unit tested, fully functional implementations of the following data structures:

Reference Implementations: Algorithms

Unit tested, fully functional implementations of the following algorithms:

Reference Implementations: TODO

Installing and Running Challenges

Misc

Challenges

Image Credits



Arrays and Strings



Linked Lists



Stacks and Queues



Graphs and Trees



Sorting



Recursion and Dynamic Programming



Mathematics and Probability



Bit Manipulation



Online Judges

Repo Structure

interactive-coding-challenges        # Repo
├─ arrays_strings                    # Category of challenges
│  ├─ rotation                       # Challenge folder
│  │  ├─ rotation_challenge.ipynb    # Challenge notebook
│  │  ├─ rotation_solution.ipynb     # Solution notebook
│  │  ├─ test_rotation.py            # Unit test*
│  ├─ compress
│  │  ├─ compress_challenge.ipynb
│  │  ├─ compress_solution.ipynb
│  │  ├─ test_compress.py
│  ├─ ...
├─ linked_lists
│  ├─ palindrome
│  │  └─ ...
│  ├─ ...
├─ ...

*The notebooks (.pynb) read/write the associated unit test (.py) file.

Notebook Installation

IPython Notebook

If you already have Python installed and are familiar with installing packages, you can get IPython Notebook with pip:

pip install "ipython[notebook]"

If you run into an issue about pyzmq, refer to the following Stack Overflow post and run:

pip uninstall ipython
pip install "ipython[all]"

As an alternative, you can also use the provided requirements.txt file:

pip install -r requirements.txt

For detailed instructions, scripts, and tools to more optimally set up your development environment, check out the dev-setup repo.

For more details on notebook installation, follow the directions here.

More information on IPython/Jupyter Notebooks can be found here.

Nose Tests

Install nose using setuptools/distribute:

easy_install nose

or

pip install nose

More information on Nose can be found here.

Running Challenges

Notebooks

Challenges are provided in the form of IPython/Jupyter Notebooks and have been tested with Python 2.7 and Python 3.x.

If you need to install IPython/Jupyter Notebook, see the Notebook Installation section.

  • This README contains links to nbviewer, which hosts static notebooks of the repo's contents
  • To interact with or to modify elements within the dynamic notebooks, refer to the instructions below

Run the notebook of challenges:

$ git clone http://ift.tt/2nS28Nm
$ cd interactive-coding-challenges
$ jupyter notebook

This will launch your web browser with the list of challenge categories:

  • Navigate to the Challenge Notebook you wish to solve
  • Run the cells within the challenge notebook (Cell->Run All)
    • This will result in an expected unit test error
  • Solve the challenge and verify it passes the unit test
  • Check out the accompanying Solution Notebook for further discussion

To debug your solution with pdb, refer to the following ticket.

Note: If your solution is different from those listed in the Solution Notebook, consider submitting a pull request so others can benefit from your work. Review the Contributing Guidelines for details.

Future Development

Challenges, solutions, and unit tests are presented in the form of IPython/Jupyter Notebooks.

  • Notebooks currently contain mostly Python solutions (tested on both Python 2.7 and Python 3.x), but can be extended to include 40+ supported languages
  • Repo will be continually updated with new solutions and challenges
  • Contributions are welcome!

Contributing

Contributions are welcome!

Review the Contributing Guidelines for details on how to:

  • Submit issues
  • Add solutions to existing challenges
  • Add new challenges

Credits

Resources

Images

Contact Info

Feel free to contact me to discuss any issues, questions, or comments.

My contact info can be found on my GitHub page.

License

Copyright 2015 Donne Martin

Licensed under the Apache License, Version 2.0 (the "License");
you may not use this file except in compliance with the License.
You may obtain a copy of the License at

   http://ift.tt/jtTJvY

Unless required by applicable law or agreed to in writing, software
distributed under the License is distributed on an "AS IS" BASIS,
WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
See the License for the specific language governing permissions and
limitations under the License.


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Experts Warn A Single North Korean Nuke Could Blackout National Electric Grid And Kill 90% Of Americans

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Authored by Jeremiah Johnson (nom de plume of a retired Green Beret of the United States Army Special Forces) via SHTFplan.com,

For those who are skeptical about North Korea’s capabilities, there is an excellent article presented by The Hill, entitled How North Korea could kill 90 percent of Americans.”  The article is authored by none other than R. James Woolsey, former Director of the Central Intelligence Agency and by Dr. Peter Vincent Pry, the Executive Director of the EMP Task Force on National and Homeland Security and a former analyst with the CIA.

Although the President is moving forward with his agenda, he has hit a “stall” in these first two months just on repealing Obamacare: The Republican Party has been the stall, refusing to give him the necessary votes and impetus to overcome it.  As mentioned in previous articles, it will take the President at least 6 months before his actions and effectiveness can be assessed.  Six months is a long time.  In the meantime, the U.S. continues to emplace measures such as THAAD (Terminal High Altitude Aerial Defense) being deployed to South Korea.

China and Russia view it as an aggressive measure and a threat rather than a defensive strategy to protect South Korea and Japan.  This is partially correct.  The important thing to consider here is that North Koreans and their leader are starting to become more irate regarding the deployment of THAAD, the ongoing military exercises of U.S. and South Korean troops in the latter’s nation, and the demand by Japan for a first strike initiative to occur.

Here are some excerpts from the article that readers should keep in mind:

“The mainstream media, and some officials who should know better, continue to allege North Korea does not yet have capability to deliver on its repeated threats to strike the U.S. with nuclear weapons.  False reassurance is given to the American people that North Korea has not “demonstrated” that it can miniaturize a nuclear warhead small enough for missile delivery, or build a reentry vehicle for an intercontinental ballistic missile (ICBM) capable of penetrating the atmosphere to blast a U.S. city.

 

Yet any nation that has built nuclear weapons and long-range missiles, as North Korea has done, can easily overcome the relatively much simpler technological challenge of warhead miniaturization and reentry vehicle design.”

These two paragraphs clearly state that North Korea can miniaturize a warhead.  Once again, the naysayers will only be satisfied that they “can” when either an EMP (Electromagnetic Pulse) weapon and/or a nuclear warhead is delivered with either complete loss of power in the U.S. and/or the loss of an American city.  When such occurs, the naysayers will then say nothing.

The objective is not to be “right” in this debate, but to be aware…to foster such awareness and help others to make whatever preparations they can before such occurs.  Here is another declaration by this article…a deep one:

“The notion that North Korea is testing A-Bombs and H-Bomb components, but does not yet have the sophistication to miniaturize warheads and make reentry vehicles for missile delivery is absurd.”

The threat could not be made any clearer than that.  The article goes on to describe assessments made in February and March of 2015 by former senior national security officials who warned this:

“…North Korea should be regarded as capable of delivering by satellite a small nuclear warhead, specially designed to make a high-altitude electromagnetic pulse (EMP) attack against the United States.”

In April Admiral William Gortney, former Commander of North American Aerospace Defense (NORAD) warned at a press conference that the KN-08 mobile ICBM missile system of North Korea could strike the United States with a nuclear warhead.

Exactly six months later, Gortney declared (based on intelligence analyses) that North Korea has nuclear weapons, the capability to miniaturize them, and is capable of placing them on a missile that can reach the continental United States. This last excerpt of the article is very important due to the gravity of the current situation (the article was written today), the warning it gives, and the denouncement of the MSM (mainstream media) for obfuscating the facts on the matter and “underreporting” an issue of this magnitude:

“According to the Congressional EMP Commission, a single warhead delivered by North Korean satellite could blackout the national electric grid and other life-sustaining critical infrastructures for over a year – killing 9 of 10 Americans by starvation and societal collapse.  Two North Korean satellites, the KMS-3 and KMS-4, presently orbit over the U.S. on trajectories consistent with surprise EMP attack. 

 

Why do the press and public officials ignore or under-report these facts?  Perhaps no administration wants to acknowledge that North Korea is an existential threat on their watch.  Whatever the motives for obfuscating the North Korean nuclear threat, the need to protect the American people is immediate and urgent…”

These men are experts in the field.  Why is the United States (as a whole) being so lackadaisical when it comes to such a problem?  As I have written in the past, it is my fervent wish that it never comes to pass…because the death of millions is not a “fair tradeoff” just to be able to be “right” or “correct” in a point of view.  For me personally, it is not about that.  It is about paying attention to men who make it their full-time business to be aware of the true threat that the MSM does not report, and reporting it here.  In this manner, you may be able to give yourself a small edge to make it by being aware and taking any precautions you can take with your family.  It is better to be aware, prepared, and have nothing happen than to wake up one morning and find an American city has been nuked and an EMP has rendered us without power.  Let us hope that doesn’t ever happen.



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Sunday assorted links

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The post Sunday assorted links appeared first on Marginal REVOLUTION.



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G.K. Chesterton on AI Risk

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[An SSC reader working at an Oxford library stumbled across a previously undiscovered manuscript of G.K. Chesterton’s, expressing his thoughts on AI, x-risk, and superintelligence. She was kind enough to send me a copy, which I have faithfully transcribed]

The most outlandish thing about the modern scientific adventure stories is that they believe themselves outlandish. Mr. H. G. Wells is considered shocking for writing of inventors who travel thousands of years into the future, but the meanest church building in England has done the same. When Jules Verne set out to ‘journey to the center of the earth’ and ‘from the earth to the moon’, he seemed but a pale reflection of Dante, who took both voyages in succession before piercing the Empyrean itself. Ezekiel saw wheels of spinning flame and reported them quite soberly; our modern writers collapse in rapture before the wheels of a motorcar.

Yet if the authors disappoint, it is the reviewers who dumbfound. For no sooner does a writer fancy himself a Poe or a Dunsany for dreaming of a better sewing machine, but there comes a critic to call him overly fanciful, to accuse him of venturing outside science into madness. It is not enough to lower one’s sights from Paradise to a motorcar; one must avoid making the motorcar too bright or fast, lest it retain a hint of Paradise.

The followers of Mr. Samuel Butler speak of thinking-machines that grow grander and grander until – quite against the wishes of their engineers – they become as tyrannical angels, firmly supplanting the poor human race. This theory is neither exciting nor original; there have been tyrannical angels since the days of Noah, and our tools have been rebelling against us since the first peasant stepped on a rake. Nor have I any doubt that what Butler says will come to pass. If every generation needs its tyrant-angels, then ours has been so inoculated against the original that if Lucifer and all his hosts were to descend upon Smithfield Market to demand that the English people bend the knee, we should politely ignore them, being far too modern to have time for such things. Butler’s thinking-machines are the only tyrant-angels we will accept; fate, ever accommodating, will surely give them to us.

Yet no sooner does Mr. Butler publish his speculations then a veritable army of hard-headed critics step forth to say he has gone too far. Mr. Maciej Ceglowski, the Polish bookmark magnate, calls Butler’s theory “the idea that eats smart people” (though he does not tell us whether he considers himself digested or merely has a dim view of his own intellect). He says that “there is something unpleasant about AI alarmism as a cultural phenomenon that should make us hesitate to take it seriously.”

When Jeremiah prophecied Jerusalem’s fall, his fellow Hebrews no doubt considered his alarmism an unpleasant cultural phenomenon. And St. Paul was not driven from shore to shore because his message was pleasant to the bookmark magnates of his day. Fortified by such examples, we may wonder if this is a reason to take people more seriously rather than less. So let us look more closely at the contents of Mr. Ceglowski’s dismissal.

He writes that there are two perspectives to be taken on any great matter, the inside or the outside view. The inside view is when we think about it directly, taking it on its own terms. And the outside view is when we treat it as part of a phenomenon, asking what it resembles and whether things like it have been true in the past. And, he states, Butler’s all-powerful thinking machines resemble nothing so much as “a genie from folklore”.

I have no objection to this logic, besides that it is not carried it to its conclusion. The idea of thinking machines resembles nothing so much as a fairy tale from the Arabian Nights, and such fairy tales inevitably come true. Sinbad’s voyages have been outstripped by Magellan’s, Abdullah’s underwater breathing is matched by Mr. Fleuss’ SCUBA, and the Wright brothers’ Flyer goes higher than any Indian carpet. That there are as yet no genies seems to me less an inevitable law than a discredit to the industry of our inventors.

There is a certain strain of thinker who insists on being more naturalist than Nature. They will say with great certainty that since Thor does not exist, Mr. Tesla must not exist either, and that the stories of Asclepius disprove Pasteur. This is quite backwards: it is reasonable to argue that the Wright Brothers will never fly because Da Vinci couldn’t; it is madness to say they will never fly because Daedalus could. As well demand that we must deny Queen Victoria lest we accept Queen Mab, or doubt Jack London lest we admit Jack Frost. Nature has never been especially interested in looking naturalistic, and it ignores these people entirely and does exactly what it wants.

Now, scarce has one posited the possibility of a genie, before the question must be asked whether it is good or evil, a pious genie or an unrighteous djinn. Our interlocutor says that it shall be good – or at least not monomaniacal in its wickedness. For, he tells us, “complex minds are likely to have complex motivations; that may be part of what it even means to be intelligent”. A dullard may limit his focus to paper clips, but the mind of a genius should have to plumb the width and breadth of Heaven before satiating itself.

But I myself am a dullard, and I find paper clips strangely uninteresting. And the dullest man in a country town can milk a cow, pray a rosary, sing a tune, and court a girl all in the same morning. Ask him what is good in life, and he will talk your ear off: sporting, going for a walk in the woods, having a prosperous harvest, playing with a newborn kitten. It is only the genius who limits himself to a single mania. Alexander spent his life conquering, and if he had lived to a hundred twenty, he would have been conquering still. Samuel Johnson would not stop composing verse even on his deathbed. Even a village idiot can fall in love; Newton never did. That greatest of scientists was married only to his work, first the calculus and later the Mint. And if one prodigy can spend his span smithing guineas, who is to say that another might not smith paper clips with equal fervor?

Perhaps sensing that his arguments are weak, Ceglowski moves from the difficult task of critiquing Butler’s tyrant-angels to the much more amenable one of critiquing those who believe in them. He says that they are megalomanical sociopaths who use their belief in thinking machines as an excuse to avoid the real work of improving the world.

He says (presumably as a parable, whose point I have entirely missed) that he lives in a valley of silicon, which I picture as being surrounded by great peaks of glass. And in that valley, there are many fantastically wealthy lords. Each lord, upon looking through the glass peaks and seeing the world outside with all its misery, decides humans are less interesting than machines, and fritters his fortune upon spreading Butlerist doctrine. He is somewhat unclear on why the lords in the parable do this, save that they are a “predominantly male gang of kids, mostly white, who are…more comfortable talking to computers than to human beings”, who inevitably decide Butlerism is “more important than…malaria” and so leave the poor to die of disease.

Yet Lord Gates, an avowed Butlerite, has donated two billion pounds to fighting malaria and developed a rather effective vaccine. Mr. Karnofsky, another Butlerite, founded a philanthropic organization that moved sixty million pounds to the same cause. Even the lowly among the Butlerites have been inspired to at least small acts of generosity. A certain Butlerite doctor of my acquaintance (whom I recently had to rebuke for his habit of forging pamphlets in my name) donated seventy-five hundred pounds to a charity fighting malaria just last year. If the hardest-headed critic has done the same, I shall eat my hat1. The proverb says that people in glass houses should not throw stones; perhaps the same is true of glass valleys.

I have met an inordinate number of atheists who criticize the Church for devoting itself to the invisible and the eternal, instead of to the practical and hard-headed work of helping the poor on Earth. They list all of the great signs of Church wealth – the grand cathedrals, the priestly vestments – and ask whether all of that might not better be spent on poorhouses, or dormitories for the homeless. In vain do I remind them that the only place in London where a poor man may be assured of a meal is the church kitchens, and that if he needs a bed the first person he will ask is the parish priest. In vain do I mention the saintly men who organize Christian hospitals in East Africa. The atheist accepts all of it, and says it is not enough. Then I ask him if he himself has ever given the poor a shilling, and he tells me that is beside the point.

Why are those most fixated on something vast and far away so often the only ones to spare a thought for the poor right beside them? Why did St. Francis minister to the lepers, while the princes of his day, seemingly undistracted by the burdens of faith, nevertheless found themselves otherwise engaged? It is simply this – that charity is the fruit of humility, and humility requires something before which to humble one’s self. The thing itself matters little; the Hindoo who prostrates himself before elephants is no less humble than the Gnostic who prostrates himself before ultimate truth; perhaps he is more so. It is contact with the great and solemn that has salutary effects on the mind, and if to a jungle-dweller an elephant is greatest of all, it is not surprising that factory-dwellers should turn to thinking-machines for their contact with the transcendent.

And it is that contact which Mr. Ceglowski most fears. For he thinks that “if everybody contemplates the infinite instead of fixing the drains, many of us will die of cholera.” I wonder if he has ever treated a cholera patient. This is not a rhetorical question; the same pamphlet-forging doctor of my acquaintance went on a medical mission to Haiti during the cholera epidemic there. It seems rather odd that someone who has never fought cholera, should be warning someone who has, that his philosophy prevents him from fighting cholera.

And indeed, this formulation is exactly backward. If everyone fixes drains instead of contemplating the infinite, we shall all die of cholera, if we do not die of boredom first. The heathens sacrificed to Apollo to avert plague; if we know now that we must fix drains instead, it is only through contemplating the infinite. Aristotle contemplated the infinite and founded Natural Philosophy; St. Benedict contemplated the infinite and preserved it. Descartes contemplated the infinite and derived the equations of optics; Hooke contemplated infinity and turned them into the microscope. And when all of these infinities had been completed – the Forms of Plato giving way to the orisons of monks, the cold hard lines of the natural philosophers terminating in the green hills of England to raise smokestacks out of empty fields – then and only then did the heavens open, a choir of angels break into song, and a plumber fix a drain.

But he is not trapped in finitude, oh no, not he! What is a plumber but one who plumbs infinite depths? When one stoops to wade among the waste and filth to ensure the health of his fellow men, does he not take on a aspect beyond the finite, a hint of another One who descended into the dirt and grime of the world so that mankind might live? When one says that there shall certainly never be thinking-machines, because they remind him too much of God, let that man open his eyes until he is reminded of God by a plumber, or a symphony, or a dreary Sunday afternoon. Let him see God everywhere he looks, and then ask himself whether the world is truly built so that grand things can never come to pass. Mr. Butler’s thinking-machines will come to pass not because they are extraordinary, but precisely because they are ordinary, in a world where extraordinary things are the only constant of everyday life.

[1: EDIT 4/2: Mr. Ceglowski wants to clarify that he does in fact give to charity]



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The strange things that happen at a lock-picking convention

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Deviant Ollam talks about lock-picking at a Hackers on Planet Earth event in July 2010.Deviant Ollam talks about lock picking at a Hackers on Planet Earth event in July 2010

Photo courtesy of J. M. De Cristofaro/Flickr

A note to Dutch innkeepers: If you are going to host a convention of lock pickers, and you promise them free Wi-Fi, it is probably a futile gesture to then require paid access with a password. I learned this one evening a few years ago in the Stay-Okay Hostel in Sneek (pronounced like the serpent), a midsized city in the north of the Netherlands. When I asked a conventioneer if Wi-Fi was complimentary, he said there had been some confusion with the hostel. But not to worry, he said: Someone had clandestinely added an access point. I logged on.

In fairness, the conference, known as LockCon, hosted by TOOOL (The Open Organization of Lockpickers, which demurely describes itself as a “growing group of enthusiasts interested in locks, keys and ways of opening locks without keys”) was a far tamer affair than I had expected, given that my visit had been foregrounded with viewings of, for example, a YouTube video showing TOOOL co-founder and president Barry (“the Key”) Wels—as with hackers, a nickname is often de rigueur for lock pickers—opening a standard hotel door, from the outside, using a bent metal bar.

TOOOL, perhaps not surprisingly given that it spends its time figuring out how to open the world’s locks, is sensitive about its portrayal, and LockCon itself is “invitation only.” As Wels had told me, “we spend a lot of time trying to keep the bad guys—or guys with bad intentions—out.” Those who had gathered were a diverse and almost disappointingly legitimate lot, ranging from German pilots to Spanish locksmiths to a British distributed systems architect working in Iceland, not to mention the crew I had traveled with from Amsterdam in a borrowed RV driven by Wels: Deviant Ollam, Datagram, Scorche (and his girlfriend), and Babak Javadi, all members of the American branch of TOOOL and all employed, in one way or another, in the security business. And while LockCon had a whiff of Stieg Larsson—the hacker speak (e.g., “epic fail”) and T-shirts (“Masters of Penetration”), the Northern European location and demographic tilt—its sense of mischief was largely sealed within the confines of the hostel’s conference rooms where, during the day, attendees sat through intensely technical presentations, and by night, fueled by healthy glasses of the hostel’s all-inclusive lagers, engaged in competitive lock-picking trials.

There is an inevitable lure to picking a lock. “A lock is psychological threshold,” writes Gaston Bachelard. The physicist Richard Feynman, himself possessed of what he termed the “puzzle drive” and a notorious lock picker, described it as: “One guy tries to make something to keep another guy out; there must be a way to beat it!” I have a firm memory of clicking open the lock on the bathroom door in my childhood home with a bobby-pin; that the lock is what is called in the business a “privacy lock,” designed not at all for security but merely to prevent unintentional intrusions, did not diminish my ardor in that moment.

Everyone at LockCon seemed to have their own seminal moment. “My first recollection was standing at the gumball machine,” Wels said. “I remember thinking as a child, I know that’s not a difficult lock. I know I’m not skilled enough to open that now, but I know this is not a difficult lock.” Wels did not want to steal the gumballs; rather, he was intrigued by the idea that “there’s something you don’t know yet.” His “hacker spirit” migrated quite naturally to computers—computer hacking, with its “backdoors” and “key spaces,” is nothing if not digital lock picking. So it was with an historical inevitability that Wels would, at a hacker conference in the early 1990s, do an onstage demonstration of lock picking. “Now there’s not a serious security conference that doesn’t have a locksmith village,” notes Wels. Whereas it had taken him several years of effort to acquire his expertise, tracking down as a youth quasi-samizdat lock picking guides like Eddie the Wire’s Complete Guide to Lockpicking, published by the legendary Loompanics, Wels says “the things that took me three years to figure out people now learn in 15 minutes at the lock-pick village.”

I had had my first exposure to real lock picking at one of these villages a month earlier, at the Maker Faire in New York City. When I arrived at the TOOOL tent there, Javadi, shaved-headed and intense, and Deviant Ollam, who faintly resembles a more svelte version of the actor Kevin James, were addressing a rapt crowd.* Loose locks and tools—half-diamonds, Bogotá rakes, Gonzo hooks—were scattered around a table. The first thing to note here is the plural: Contrary to Hollywood depiction, locks, in most cases, cannot be opened with a single tool. Rather, one needs a pick and a tension wrench, or as Javidi described it, a “tension tool.” The word wrench, he suggested, compels people to use too much force. “How much pressure do you need to press the key on a modern laptop keyboard?” Javadi asked the crowd. “You want to use about half that.” Afterward, a boy looked longingly at the pick set I had bought, and I saw the father’s brief reckoning of cost versus son’s happiness. The latter won out.

Picking a basic, modern pin-tumbler lock, the kind most of us encounter in regular life, is simple to understand, but can be achingly difficult to master. When I met Dev, as Deviant Ollam is often called, a few weeks later at a Chinese restaurant in Princeton, N.J., one of the first things he asked, after greeting the server in Mandarin, was that I lay my keys on the table. “This is a Kwikset,” he said, looking at the first. “The head of the key will tell you a lot about the manufacturer.” “That looks like a Schlage there,” he said, identifying my front door key. His eyes narrowed. “There’s not a lot of variation here—looks like you have a 2, 3, 3. I could rake that very effectively.” One of the curious byproducts of spending time with Ollam was that the more we talked about security, the less safe I felt. I began to see the world as a set of glaring weaknesses and loopholes; the architectural standardization brought on by ADA requirements, he mentioned, which tend to put things like door handles (easier to manipulate than knobs) in rote places, were a boon for unauthorized entry. Or, to take the subject of one of his most popular talks at “cons,” the best way to avoid having one’s checked baggage pilfered is to pack firearms, thus demanding the flyer not use a notoriously unreliable TSA-approved baggage lock.

A pin-tumbler locking device comprised of a locking cylinder and a matching key.A pin-tumbler locking device comprised of a locking cylinder and a matching key

Image courtesy of USPTO

But keys say a lot about locks. Even in everyday use, the lock is a kind of puzzle, as Peter Field, research director at the lock maker Medeco, told me, “and the key is the solution.” If you were to take your keys out now, chances are you would have a key to a pin-tumbler lock. You will see the key “head” (the part that one grips), the key “shoulder” (just below the head, naturally), then a “collar” (that extension that stops the key from going in further). You will then see, along the length of the key, a series of slopes and valleys (reminding me of the jagged, scrolling landscape from the old video game Defender). These are known as “bitting cuts,” and the progression of these cuts is referred to as the “bitting code.” A “1” cut is quite shallow; a  “9” is very deep. For mechanical reasons, the bit depths cannot vary too widely from one to another; a “1” cannot follow a “9.” When the key is inserted, these cuts sweep across a series of segmented pins that keep the cylinder from turning. The correct key will come to rest in such a position that the pins have been pushed to the “shear line,” that small gap between the inner and outer cylinders, which allows the inner cylinder to turn and the lock to open. To “rake” the lock is to take a tool, thin and curvy at its tip, and rapidly “scrub” in and out of the lock. As Ollam notes in his book Practical Lock Picking, this can be brutally effective, “with the lock popping open so suddenly as to take a person by surprise.”

“Small imperfections in the way a lock is machined go a long way toward making picking possible,” Ollam told me. The edge of a pin may be chipped, or the pin chambers out of alignment. Feynman describes the process: “Now, if you push a little wire gadget—maybe a paper clip with a slight bump at the end—and jiggle it back and forth in the lock, you’ll eventually push that one pin that’s doing the most holding, up to the right height. The lock gives, just a little bit, so the first pin stays up—it’s caught on the edge. Now most of the load is held by another pin, and you repeat the same random process for a few more minutes, until all the pins are pushed up.” The process is called “setting the pins”—with raking, a number of pins are often set at once. “When you feel that first click,” Ollam said, “it can be profound.”

None of this is easy, however, as I learned at LockCon, sitting in the hostel bar with John Naughton, an English civil servant and lock-picking enthusiast. As a languid, jazzy cover of “Billie Jean” played in the background, I struggled over a variety of European locks (which, by LockCon consensus, are generally superior to American locks—apparently they have tighter “keyways”). “It took me hours to get my first lock,” Naughton said, counseling me through rookie mistakes like “overlifting,” or pushing the pin stack past the shear line, meaning, basically, one has to start over. Our efforts soon attracted a jovial group of local men, who began plying us with metworst (“special Dutch meat”) as they watched us closely, only adding to my howling anxiety. “Don’t worry,” said Naughton, “it always draws an audience.” We were joined by Jaakko Fagerlund, a taciturn Finn with pale skin and strikingly black hair. Naughton told me that Fagerlund had found a way to exploit a manufacturing deficiency of a different sort: In the original model of the Abus Granit lock, the manufacturers had stamped the bitting code inside the lock. Fagerlund created a tool that, with a bit of blue tack applied to the end, could “read” the code—allowing him to make a key.

Locks tell stories. “Your nose can tell whether a lock has been lubricated recently,” advises The MIT Guide to Lock Picking. “You want to project your senses onto the lock to receive a full picture of how it is responding to your manipulations.” One classic tactic is “impressioning,” or making a duplicate key based on information extracted from the lock. Naughton and I soon headed upstairs, where the Dutch Open impressioning championships were about to begin. A dozen or so people were seated at small tables, each with a lock clamped in a vise, surrounded by myriad files and workbench magnifiers. When a TOOOL member counted three, the room erupted with the high-pitched screech of files on metal. As Naughton explained it to me, the trick was to insert a key “blank,” (the sort one gets at a hardware store when having a key copied), turn it with force, then look for tiny but telltale indentations. “Every time you see a mark, you file it down a step,” Naughton said. “When you no longer see a mark, it means another one’s binding or that one’s done.” The idea, Naughton said, is that “you end up with a key that works in the end—it’s easier to get in next time.” My eyes were drawn to a stocky Dutchman with a bald head and a kilt. He would crank the key in the lock tremendously, in rapid succession, whip it out, rotate it and peer intently at it under a magnifier, then take several upstrokes with a file—notching roughly one “depth” with each stroke—then repeat the process. This, it turned out, was Jos Weyers, possessor of the impressioning speed record. A minute later, he shouted “open” and raised his hands.

The next night, the lock-picking championships were held in a similar setting, though this time the noise resembled a thousand mechanical crickets, as participants delicately probed or violently scrubbed the locks before them. Competition of any sort tends to fall along familiar narrative lines. There was, for example, the intimidating presence of the Germans, who tend to dominate locksport, and as the rounds progressed, it was not uncommon to hear a winning cry of “offen”—often, disconcertingly, a half dozen seconds after the starter’s command. The underdog, for me and the fellow Americans, after they themselves had been eliminated, was Naughton, who cleared several rounds, red and sweating at the end of each. But he too soon fell. The eventual winner was Arthur Meister, a big, gregarious German—a member of the Hamburg branch of the locksport group SSDeV—with leather pants and a ferocious spiked mullet.

And while it initially seemed strange, these men (and a few women) hunched over locks on a Saturday night, I soon found myself carried along by the proceedings, and it began to dawn on me that here were the descendants of the legendary 19th-century American lock pick Alfred C. Hobbs, the man who’d shown up Britain’s master locksmiths with his suitcase of picking tools. But these modern enthusiasts were working not for rival manufacturers but for the sheer spirit of the thing. “For me it has to do with the quest for the perfect lock,” Wels told me. “I always want to know what the state of the art is—what comes out if clever people really put their effort to it and make the best they can.”

He demonstrated the exacting level of this interest in an afternoon talk on ARX pins, a pick-resistant technology found in the latest generation of high-security Medeco locks. With taxonomic rigor, Wels ran through myriad (and seemingly endless) permutations of the small metal bits, and puzzled out loud, in a kind of exercise in group epistemology, the meaning of their variations. “Could this be a limitation of the milling process?” someone asked from the audience. “No,” said Wels. “These people know what they’re doing. This is not a limitation.” After cataloging some 30 pin variations, Wels concluded: “I don’t know the classification, but it would be fun to figure it out,” he said. “If you go to one island and see a monkey with one stripe on his back, and go to another island and see a monkey with three stripes on his back, there’s probably also an island with monkeys with two stripes.” Laughter from the audience. “This is how I look at it.”

At one level, LockCon was an exercise in the almost ironically outsized bravado of geek one-upmanship (stickers for the “Masters of Penetration” group featured a mudflap girl curled around a pick). At one point, Datagram, who does “lock forensics” in addition to computer security work, presented a lock he had opened to a small circle of people. Impressed, they pressed for the secret. “BDG,” he said. This drew quizzical looks. “Be Datagram.”

But at another level, the members of TOOOL (and other groups, like SSDeV) are exposing real flaws in the products of multinational corporations, products that consumers assume, with a certain amount of faith, cannot be easily compromised. And TOOOL, to its credit, takes on this responsibility with a certain gravitas. “What we did with TOOOL, from the very beginning, was warn manufacturers that if we discovered a problem, we’ll always give them at least six months,” Wels said.

This philosophy echoes an old debate in the security world. Alfred Hobbs, in his Rudimentary Treatise on the Construction of Locks, had noted: “A commercial, and in some respects a social, doubt has been started within the last year or two, whether or not it is right to discuss so openly the security or insecurity of locks. Many well-meaning persons suppose that the discussion respecting the means for baffling the supposed safety of locks offers a premium for dishonesty, by shewing others how to be dishonest.” Hobbs certainly didn’t buy this argument, but this ethos has long held sway among locksmiths, a trade born of closed medieval guilds. As Ed Roskelly, a New Jersey locksmith, told me at LockCon, “in the 1970s, it was a very closed profession. Unless you were related you weren’t getting in.” Books like The Art of Manipulation, an out-of-print guide to opening safes, came cloaked with warnings: “We also suggest after you become proficient in the art of manipulation to destroy this book completely, so as to protect yourself and our craft.” As Matt Blaze notes, this approach has not rested comfortably with the open-source world of “white hat” hackers, which derides “security through obscurity.” As one source describes it, this is software vendors’ “favorite way of coping with security holes—namely, ignoring them, documenting neither any known holes nor the underlying security algorithms, trusting that nobody will find out about them and that people who do find out about them won’t exploit them.”

A few days before LockCon, Ollam and Javadi had visited a large security convention in Essen, Germany. There, they had come across a German company selling a new lock, promoted via its website as the “the safest locking system in the world.” Their interest naturally piqued, they tried, unsuccessfully, to pick it. They then, with admirable tact, persuaded the company to let them borrow the prototype and bring it to LockCon. The manufacturers, much as Bramah had more than a century before in his shop on Piccadilly, granted the request with a kind of casually bemused interest. In Sneek, after managing to crack it themselves, Ollam and Javadi began passing it around. They wrote the opening times on a piece of a paper (awarding the winner, as Ollam said, a pair of “high-end Korean handcuffs from my private stock”). They locked the list inside of the lock’s cylinder, and sent the whole thing back to the manufacturer. Upon receiving the package, the manufacturers (who Ollam did not want named, as per the ethics of disclosure) were, as Ollam later described it, incredulous and more than a bit fascinated, and in the midst of discussions with the lock pickers on how to improve their product.

This was Hobbs 2.0. It was the old cloistered lock world meeting the open-source ethos of Linus’ Law (after Linus Torvalds, the Finnish hacker and creator of Linux): “Given enough eyeballs, all bugs are shallow.” This is not to say this relationship is entirely comfortable. When Peter Field of Medeco, a company that has been the focus of well-publicized attacks (and an entire book, Open in Thirty Seconds), gave a four-plus-hour presentation on lock design—he began with the proviso, “I talk about how they’re made, I don’t talk about how to compromise them”—and ended by quoting Thomas Friedman’s The World is Flat: “It’s not only the software writers and computer geeks who get empowered to collaborate in a flat world. It’s also al-Qaida and other terrorist networks. The playing field is not being leveled only in ways that draw in and superempower a whole new group of innovators. It’s being leveled in a way that draws in and superempowers a whole new group of angry, frustrated, and humiliated men and women.” There was an uncomfortable silence, and some awkward seat-shifting, as Field closed the book; whether intended or not, it seemed to come off as an admonition.

Update, March 26, 2013: This article originally included a reference to Deviant Ollam’s real name. His name was removed because of a pre-existing agreement between the author and Deviant Ollam to use only his pseudonym in this story.

Correction, March 12, 2013: On subsequent references to Babak Javadi, this article originally misidentified him twice as "Savadi." (Return to the corrected sentence.)



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Goldman: "Our Client Conversations Make It Clear That Investors Fall Into Two Camps"

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Judging by recent market action, it is becoming apparent that traders and investors are getting if not tired, then displeased with having to trade what boils down to one of two narratives: Trump Reflation Trade On, and - as has been the case recently - Trump Trade Off. As much is apparent in the latest weekly kickstart note from David Kostin who writes that with the market struggling to readjust its expectations for US government policy following the move away from health care reform, client conversations make clear that investors fall into two camps:

  • The first group worries that the failure to “repeal and replace” the Affordable Care Act is a sign that other items on the policy agenda are less likely to be enacted than they had hoped.
  • The second group is encouraged about the shift in focus to tax reform as the new top priority for the administration.

Here Goldman notes, that despite the recent stumble by the Trump administration, its D.C. economist Alec Phillips continues to expect legislation late this year through the FY2018 budget resolution that will use dynamic scoring and some deficit expansion to reduce the statutory corporate tax rate. He views many of the additional reforms that have been proposed as less likely.

However, as Kostin cautions, from an equity market perspective, recent performance reflects an ongoing transition from post-election hope to an acceptance of political reality. Below, Kostin explains why the bank is increasingly souring not only on stocks (recall it downgraded global equities two weeks ago), but also on the broader economy:

Our S&P 500 outlook this year argued that the index  would rally to 2400 in 1Q on hopes for earnings-friendly policy changes, but gradually decline to 2300 as investors recalibrate expectations to reflect the challenges of current politics in Washington. Although the S&P 500 has retreated from its record highs at the start of the month, it rose by 6% in 1Q 2017; its riskadjusted return (return/realized volatility) was the best since 2013.

 

Even more than the modest decline at the market level, performance below the surface highlights a moderation of investor policy optimism. Our basket of S&P 500 stocks with the highest effective tax rates – the most likely beneficiaries of potential tax reform – has unwound all of its sharp post-election gains in the last two months. Similarly, small-caps, which rallied by 16% in the month post-election on hopes of faster growth, lower taxes, and less regulation, have lagged the S&P 500 by 390 basis points this year (+6% vs. +2%). Both the tax basket and small-caps rebounded this week.

 

 

Infrastructure beneficiaries have also retreated, but remain above their pre-election levels, and well above levels before both candidates advocated increased spending on the 2016 campaign trail. Despite their 10% decline in the last two months, Construction Materials stocks trade at a 28x forward P/E multiple and remain 20% above their prices one year ago.

 

Skeptical investors have also withdrawn most of the “deregulation premium” from the share prices of banks stocks and other financials. Hopes for less regulation, which our Banks analysts estimate could boost their 2018 earnings estimates by nearly 20%, lifted share prices more than 10% higher than justified by the rise in Treasury yields. This deregulation premium has collapsed sharply in the last two weeks (Exhibit 2).

 

 

Despite the political uncertainty, the backdrop of strong economic data has helped drive and sustain the equity market rally. Our economists’ MAP index of data surprises broke into positive territory in mid-November and this week reached the highest level since 2013. The data reflect the pace of real US economic growth rising from 2.1% in October to 4.3% in February. This marked the strongest reading of our Current Activity Indicator (“CAI”) since 2006 and alone could explain the rise in equities to record highs (Ex. 3).

 

 

The contribution of “soft” data to the recent economic surge suggests that the Trump trade and growth trade are not truly independent. Survey data such as the ISM and regional Fed manufacturing surveys have driven most of the CAI improvement in recent months. In contrast, “hard” data have improved much less and generally continue to reflect the 2%-3% pace of growth they exhibited prior to the election. This divide suggests that rising policy uncertainty may also pose a risk to the economic data. 

 

Although the pace of economic activity remains strong, both the macro data and the performance of growth-sensitive equities suggest the acceleration is behind us.

 

The CAI rose sequentially in each month from Oct. through Feb., but preliminary data show a modest step down in March. Recently our basket of cyclical industry groups and our sector-neutral Dual Beta basket have each lagged peers, apparently also reflecting a modest economic slowing. Our economists’ 2017 real GDP growth forecast of 2.2% suggests this deceleration will likely continue unless policy tailwinds emerge or nascent “animal spirits” lead to self-sustaining spending and investment.

What does all of the above mean for near-term market dynamics? As Kostin concludes, supply/demand dynamics add uncertainty to the near-term outlook. Goldman's sentiment Indicator currently reads 86 (out of 100), signaling less stretched positioning than in recent weeks.

The good news: the resilience of intraday equity prices and the still-low level of implied volatility suggest that investors remain eager to “buy the dip.”

The not so good news: the first major week of the 1Q reporting season will start April 17, and more than 75% of S&P 500 companies are now in their buyback blackout windows. With the largest source of demand for US equities – corporates – barred from discretionary repurchases for the next few weeks, there will be less support for share prices if disappointing economic or political news triggers market weakness.

And with overall economic data rolling over rapidly....

.... it is only a matter of time before that other Goldman warning, about a sharp drawdown in equities, is confirmed as well.



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What Is an Elite College Really Worth?

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This time of year, thousands of college applicants await e-notices and auspiciously sized envelopes from schools, under terrible pressure from their parents, friends, teachers, and fretful inner-monologues. To this anxious lot, I offer some advice, which comes not only from a bit of experience, but also a bit of empirical research: just chill out, okay?

Many parents and students think there is a world of difference between the lifelong outcomes of (a) an A-minus student who gets into, say, Princeton, and (b) an A-minus student who applies to Princeton but “only” gets into some less selective school, like Penn State or the University of Wisconsin. They assume that a decision made by faceless adjudicators in Ivy League cloisters will mark the difference between success and failure in life.

There are two important things to say about this stress. First, to put the anxiety into context, the kids applying to these schools are already doing quite well. Seventy percent of 29-year-olds don’t have a bachelor’s degree, and the majority of BAs are earned at non-selective schools that accept a majority of their applicants. Many of the people applying to selective colleges have already won life’s lottery.

But if that doesn’t ease the nerves of the 40,000 people waiting on Stanford or Penn, here is a more counter-intuitive—and even heartening—conclusion from economics. For most of these applicants, it simply doesn’t really matter if they don’t get into their top choice, according to a paper by Stacy Dale, a mathematician at Mathematica Policy Research, and Alan Krueger, an economist at Princeton University.

These researchers tracked two groups of students—one that attended college in the 1970s and another in the early 1990s. They wanted know: Did students attending the most elite colleges earn more in their 30s, 40s, and 50s than students with similar SAT scores, who were rejected from those elite colleges? The short answer was no. Or, in the author's language, the difference between the students who went to super-selective schools and the students with similar SAT scores who were rejected from those schools and went to less selective institutions was "indistinguishable from zero.”

What does that mean, exactly? It means that, for many students, "who you are” as an 18-year-old is more important than “where you go.” After correcting for a student’s pre-existing talent, ambition, and habits, it's hard to show that highly selective colleges add much earning power, even with their vaunted professors, professional networks, and signaling. If you’re one of the roughly 50,000-100,000 students who is sweating a decision from one of these tony schools, you’re focused on the wrong thing. The decision of a group of people you’ve never met isn’t as important as the sum of the decisions, habits, and relationships you’ve built up to this point in your young life.

For the elite colleges themselves, the Dale-Krueger paper had an additional, fascinating finding. The researchers found that the most selective schools really do make an extraordinary difference in life earnings for "black and Hispanic students” and "students who had parents with an average of less than 16 years of schooling.”

In other words, getting into Princeton if your parents went to Princeton? Fine, although not a game-changer. But getting into Princeton if your parents both left community college after a year? That could be game-changing. There are several potential explanations, but I’m most persuaded by one that Dale and Krueger put in their conclusions section. Minority students from less-educated families are more likely to rely on colleges to provide the internship and job networks that come automatically from living in a rich neighborhood with wealthy parents.

The irony is that elite colleges are disproportionately kind to legacy students and famously struggle to fill their classes with high-achieving minorities and other low-income students from less prestigious high schools. Controlling for test scores and grades, a legacy student is about three-times more likely to be accepted to a highly selective college. Several elite schools, like Washington University in St. Louis and Middlebury, accept more students from the top 1 percent than the bottom 60 percent. It’s highly unlikely that these ratios are justified, even purely as a matter of essential funding, considering these schools’ endowments and glittering facilities.

Meanwhile, the majority of "low-income, high achieving students"—those with SAT scores above the 90th percentile, but from the poorest 25 percent of households—aren’t being rejected from Harvard and Brown. But that’s because they’re extremely unlikely to apply in the first place, according to research by the economists Caroline M. Hoxby and Christopher Avery. Attracting lower-income students often means directly marketing in school districts that haven't historically sent many teenagers to the Ivy League and its peers. Elite colleges don't market as heavily in lower-income areas. But they could, for example, by advertising on social media or deploying their sprawling alumni networks to visit high schools in poorer areas and talk with their brightest students.

Elite colleges are most valuable for the students they are least likely to admit—and least valuable for the students they are most likely to admit. More than the size and weight of many thousand envelopes currently in the mail, that is an admissions dilemma worth fretting about.



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