One Philosophy on Philanthropy: Kiva, ROI, and solving the knowledge problem
For some time I have been struggling to come up with a personal philosophy toward donations and philanthropy. Growing up, I always felt some sense of social obligation to be donating to the guy on the corner, the Red Cross, poverty in developing countries, or one of a million things. But how does one choose?
Until recently, I have resisted giving more than a couple dollars here and there. I’ve always felt a bit stingy about it but my end goal isn’t to not be blindly charitable at any cost, it is to give to causes that I understand in a way that supports values that I believe in.
I also resisted because I felt, as a kid, my job was to become educated and be able to get a good job to support myself and my family. Being able to donate a couple dollars in college is fine but I hope that it doesn’t compare to what I am able to give throughout my adult life.
Much like an investment philosophy, I want the highest return on my donation and think it is appropriate to ask: Why should I spend one dollar on aid today if I can invest it and have the ability to give several times that amount to similar problems in the future?
Furthermore, the government gives tax breaks to certain types of philanthropy so I need to ask myself what distortions this causes and how to approach them. Do tax-incentivized methods of giving offer the best return on philanthropy or are there other methods which do better?
This is largely a personal question. Each of us will value the problems we see in the world differently, so the answer I have come to shouldn’t be viewed as an absolute answer, but what best fits this description based on my values, my understanding of how the world works, and my current circumstances in life.
So what works best for me?
The best way that I have found to give is to enable creative individuals in low-income countries by giving entrepreneurs micro-loans in areas where governments tend to distort incentives and leave these people at a disadvantage.
While I don’t wish to over specify, I also try to make several of my loans to entrepreneurs in the agricultural industry. These entrepreneurs frequently have the comparative advantage in economic terms but face both local and international political challenges as developed countries use protectionist measures to subsidize international competitors and local governments use agriculture boards and a hodgepodge of other regulations to transfer wealth from the agricultural export industry.
ROI as a Micro-lender
Let’s say you donate $25, 4 times a year to the guy hanging outside Whole Foods. Very nice of you, but unlikely your money goes much farther than that. It will likely be consumed by that individual and return little more than that. In 10 years time, you will have donated a total of $1000.
Year 01: 4*25 = 100
Year 02: 4*25 = 100
Year 03: 4*25 = 100
Year 04: 4*25 = 100
Year 05: 4*25 = 100
Year 06: 4*25 = 100
Year 07: 4*25 = 100
Year 08: 4*25 = 100
Year 09: 4*25 = 100
Year 10: 4*25 = 100
—————————-
Total = $1000
But, if you donate $25, 4 times a year through the Kiva loan system, not only are you enabling a motivated individual who is pursuing an idea to create value in society (that will give back at a local level in their community) but you slowly get your money back and can re-invest it in other entrepreneurs. In 10 years, being generous with the same amount of money, (my rough and slightly improper math suggests) you will have donated (invested?) around $5500:
Year 01: 4*25 = 100
Year 02: 4*25 = 100 + 100 = 200
Year 03: 4*25 = 100 + 200 = 300
Year 04: 4*25 = 100 + 300 = 400
Year 05: 4*25 = 100 + 400 = 500
Year 06: 4*25 = 100 + 500 = 600
Year 07: 4*25 = 100 + 600 = 700
Year 08: 4*25 = 100 + 700 = 800
Year 09: 4*25 = 100 + 800 = 900
Year 10: 4*25 = 100 + 900 = 1000
—————————————-
Total = ~$5500
Awesome? I think so.
In celebration of an elegant solution to the knowledge problem: Join the Kiva Team Information is Beautiful.
Lessons from Buffett: Investing
Buffett’s actions draw a strong distinction between a speculator and an investor ? the former trying to cash in on short-term fluctuations and emotional movements of stock price, the latter interested in the underlying quality and long-term prospects of a company. These observations are drawn from the book Buffett, by Roger Lowenstein.
Stick to what you know
Buffett stuck to industries he knew well. When the investment environment presented him with new challenges he didn’t understand, he got out until he felt comfortable again.
“Diversification had become an article of faith; fund managers were commonly stuffing their portfolios with hundreds of different stocks. Paraphrasing Billy Rose, Buffett doubted that they could intelligently select so many securities any more than a sheik could get to ‘know’ a harem of one hundred girls.”
However, Buffett’s objections are largely targeted at professional investors. Lowenstein doesn’t go into detail, but if your specialization is outside of investing, diversification may be a decent strategy.
Counter-trending
Even with his great success, Buffett was always cautious and didn’t presume he had better information than others. Perhaps he only excelled at using that information more wisely.
Buffett said: “I have never met a man who could forecast the market,” and “Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.”
But his secrets were simple: “You try to be greedy when others are fearful and you try to be very fearful when others are greedy.”
Operating in this counter-cyclical manner allowed Buffet to get solid assets while they were cheap and, most likely, unload less impressive assets while other investors were willing to pay more for them.
This principle extends to borrowing. “If you wait until you need a loan, it is likely to be when others are also borrowing, when?per force?rates will be higher.”
Focus on Long-term Value
Lowenstein explains this concept as Buffett did to the manager at Berkshire when he purchased it as a textile firm.
“He didn’t particularly care how much yarn Chace produced, or even how much he sold. Nor was Buffett interested in the total profit as an isolated number. What counted was the profit as a percentage of the capital invested.”
“He told Chace not to bother with quarterly projections and other time-wasters. He merely wanted Chace to send him a monthly financial report and to warn him of any unpleasant surprises.”
“Buffett did not think of Berkshire necessarily as a textile company, but as a corporation whose capital ought to be deployed in the greenest possible pastures.”
Buffett developed many of his investing principles from Graham and Dodd who argued, “The market… was not a ‘weighing machine’ that determined value precisely. Rather, it was a ‘voting machine,’ in which countless people registered choices that were the product partly of reason and partly of emotion.”
He was also influenced by Charlie Munger and Philip Fisher, “each of whom stressed good, well-managed companies as distinct from statistically cheap ones.”
“...one’s house is not quoted day-by-day, and most people do not lose sleep over it’s value.”
Don’t let emotions drive your tax decisions
“Ultimately… there were only three ways to avoid a tax: 1) to give the asset away, 2) to lose back the gain, and 3) to die with the asset…” Buffet believes “...people’s emotional distaste for paying taxes blind[s] them to acting rationally…”
He also comments on how the disconnect between political preferences and those of the taxpayers may be similar to the disconnect between a corporate manager and that of their shareholders: “Many corporate managers deplore governmental allocation of the taxpayer’s dollar but embrace enthusiastically their own allocation of the shareholder’s dollar.”
Lessons from Buffett: Running a Business
Buffett, the well-written biography of Warren Buffett by Roger Lowenstein, offers an interesting biographical sketch with several insights into principled business and investing. In this first reflection I am going to compare Warren Buffett’s management philosophy with that of Charles Koch’s.
While their businesses face a host of different incentives — Berkshire Hathaway a publicly owned company and Koch Industries privately held — their principled approach to business echoes many similarities.
Value Creation
Both Buffett and Koch approach business with an openness to change and with a focus on creating value, wherever they can find it.
“Buffett did not think of Berkshire necessarily as a textile company, but as a corporation whose capital ought to be deployed in the greenest possible pastures.” As Berkshire’s textile business struggled, Buffett began directing it’s profits into new sectors and opportunities.
Similarly, Koch, initially in the oil refining business, diversified his re-investments in the company into other more value-rich propositions — from commodities trading to fiber. Koch Industries’ vision does not focus on a particular industry, but on value creation:
“Apply Market-Based Management to identify and capture those opportunities for which our capabilities will create the greatest value and develop and implement strategies that will maximize this value long-term.”
Measure Meaningful Things
To reach these lofty goals both Koch and Buffett rigorously look to align the incentives of their companies and employees with creating value for shareholders and society.
“I believe in establishing yardsticks prior to the act; retrospectively, almost anything can be made to look good in relation to something or other.” Buffett’s basic theory of return on investment is to focus on “the return on equity capital — that is, the percentage profit on each dollar invested.” He strongly emphasized not wasting time on quarterly projections and other time-wasters.
Koch also frowns on needless paperwork and aims to measure profitability whenever it is practical, placing emphasis on value created by the economics means rather than by the political means.
Compliance
After a series of government investigations and media attacks in the 1980s 1990s, Koch restructured his company and added an entire division to focus on the public sector and compliance. This fueled a new stage of growth.
Buffett also sees the value in operating within the legal environment. While he does his best to invest in companies with high standards and good management, from time to time he finds himself holding a bad apple. When unordinary situations have arisen, such as they did with the fraud at Salomon Brothers, Buffett felt it his duty as a long-term investor to help restore the company’s long-term position as a financial leader.
As Lowenstein frames it: by the end of the ordeal, Buffett had been so compliant that if the regulators had punished him too severely, they would be encouraging less cooperation in the future from other corporations under similar investigations.
Focus on Good People and Long-term Relationships
Though perhaps the value that trumps all else is one of character. “[M]ost people, regardless of what they say, are looking for appreciation as much as they are for money,” writes Lowenstein.
Buffett and Koch both seem to understand this and act accordingly as they search for new investment opportunities and new personnel. Their investment decisions focus on long-term value.
Koch avoids operating as a public company as he believes their quarterly requirements to be adverse short-term incentives. Buffett refuses to offer dividends or divide his stock in order to attract long-term investors. Koch upholds a rigorous hiring process and would place a higher value on someone with good character and adequate skills over someone with adequate character and high skills. Buffett chooses to invest in companies whose management he trusts and believes will be running their company for a long time.
Food for Ninjas Competitive Cooking Blog
Food is meant to be shared and, relentlessly, it is compared. What started out as a shared Google Doc between some friends and family has now become a competitive cooking blog worth flippin’ out about. Epicurious George reporting from Food for Ninjas.
Improving the Design of Tax Forms: Identifying the Problem
If information design has a golden challenge, it is to redesign the U.S. tax forms. These behemoths ooze the opportunity for improvement. Not only do they clothe a complex tax in a dismal plaid, but every year they encourage thousands of diligent, hardworking citizens (unable to understand their own tax returns) to tempt hordes of labor away from other value-creating activities.
The 1040 (and its offspring the 1040A, 1040EZ) are not the only culprits, but they will be my inspiration today. Is there a good reason these forms are confusing? Yes. Several. However, the challenge of the information designer is not to overhaul the tax system, it is to take the problem at hand, and make it beautiful (at least from the user-experience perspective). Let’s walk through four common elements of good design and see if we can identify why the average taxpayer is so confused.
If you’d like to follow along: our challenge awaits here.
Proximity
Good design groups related items together. It’s how our brain works. If you see a man and a women walking together, gazing into each others eyes, you might assume they’re married. The same principle is true for items on a form. Though our culprit, the 1040, just may be leading us on…
At first glance, the 1040 appears to have been grouped into sections of similar data: Label, Filing Status, Exemptions, Adjusted Gross Income, Tax and Credits. Though as we begin to look into the detail of these sections a number of unexplainable relationships emerge from the design. How are Other Taxes different from Tax and Credits? Why do some deductions fall under Adjusted Gross Income and others fall under Tax and Credits? Do you want $3 to go to the Presidential Election Campaign? Wait a second, what is this doing in the Label section (and where are the check boxes for us to allocate the rest of our money to projects we support)?
Alignment
Elements that line up with one another help create a visual order. The alignment of letters along their baselines and blocks of text (to the left, right, or center) help organize the elements on the page for the viewer. Alignment is most easily applied to shapes with nice, straight edges. It’s a bit more challenging to work with text, but quite possible to succeed.
The 1040 does pretty well aligning elements in some respects. The rectangular spaces available to fill in our personal information, income , and other data line up for the most part. The rows are indented where a subtotal needs to be calculated. The line numbers and the start of each line also do just fine. But when we look to the right side of the text at the other end of each line (on the page and in the left margin), the text on the page becomes quite jarring. Hardly any of the lines match up, and when viewed as a whole, the text on the page looks extremely jagged, frequently disrupting the flow of the viewer?s eye.
On top of this, nearly each line refers to a complimentary schedule, form, or page to help you calculate it. This information is not differentiated in any way, it just blends in with the madness. For example, to determine a health savings account deduction, you are to fill out form 8889. For farm income and losses, you need to attach Schedule F. Each form is hidden at the end of its respective line, wherever that may be. Some relationships, like with Standard and Itemized Deductions, are even more confusing. Itemized Deductions refer you to Schedule A in the line, and then give a set of instructions in the left margin regarding the standard deduction. Without the help of alignment, or some other element of design such as contrast, there is no easy way to scan the 1040 in search of this information. It could be anywhere.
Repetition
Repeated elements (such as graphics, fonts, and size) help make a design consistent. See inconsistencies in all other sections.
Contrast
Contrast draws a viewer in and creates visual hierarchy. The point of highest contrast attracts the eye’s attention.
So where is your eye drawn to on the 1040? Probably the header or the arrows instructing that you must enter your social security numbers and Sign here. Just about everything else blurs together into a gray fog. There are a good number of words (and other elements) in bold, but if your eye even happens to focus in on them, they generally come off as a combination of erratic highlighting and incoherent fragments of sentences. This is not helped by the text being an abundant, dense block of sans-serif type at a small font size. The only thing they could have done to make it less readable would be to make it all CAPS. Perhaps we can expect this next year.
Tools for Web Development
Just a few tools I’ve found quite useful in my (mac-based) workflow:
XHTML
TextMate: A true productivity enhancer. Costs a few bucks but worth every penny. Be sure to familiarize yourself with all the shortcuts and available bundles as well as the trick for how to edit remote files.
CSS
CSS Edit: Another beautiful program. X-ray view allows you to really dig into your CSS and is very handy for troubleshooting.
Blueprint CSS: Well grounded CSS framework for straightforward, quick development.
Content Management
Expression Engine: This CMS is wonderful. Simple to use, well documented, and great pricing. It has allowed me to focus on designing websites with XHTML and CSS, while simplifying the tools to create dynamic websites. Also, has a pretty user-friendly admin side. The forums are quite useful for any problems that arise.
FTP Client
Transmit: I searched long and far for an FTP program that has the same column view as Mac’s Finder and Transmit is it. Great program all around.
Plugins
Web Developer Toolbar: While there are prettier browsers out there to surf the web, if you develop websites Firefox is really the way to go. This extension adds a host of tools to your arsenal.
Firebug: This one adds more.
YSlow: And this one even more!
Gorehorn, the Adventure Pony
If you’re looking for an activity to soften a long drive, I recommend an extravagant Mix CD Challenge! Our trip was from Arlington, Virginia to Durham, North Carolina. The challenge was simple: invent two album names and assign them to other people on the trip. Each person takes the album names they are given, contemplates for a while, stirs up a vision, and creates the perfect mix for such an album name. The results can be stunning and add a whole new dimension to the music you once thought you knew. While I can’t share our concoctions so easily, the album names should reflect how we made four hours speed by in a flash:
- Euclid’s Last Stand
- Genghis Kahn and the Band Wagon
- Goodnight Spoon
- Gorehorn, the Adventure Pony
- How To Dismantle a ‘71 Ford Pinto’
- Jeanne Kirkpatrick Overdrive
- Kind of Periwinkle
- The Longings of Seedless Watermelons
