Ghosts of bullets dodged

I have never owned Steinhoff shares. I was surprised then, when going through some old blog uploads (dealing with a separate copyright issue that I may touch on in another post) to find this share price graph of Steinhoff from 2007

Steinhoff Share Price Peformance 2007

I don’t remember looking at this, but the blog entry was actually about insider trading and the information content of directors’ dealings. Here is a quote showing some wisdom and a near miss:

Am I going to invest in Steinhoff? Well, no, not yet, not until I have actually done some proper research into the fundamentals of the company. And also not until I have understood the reasons for the decline in price over the last year properly. If the market thinks they are worth less, I had better know why the market thinks so before I disagree too strongly.

Having said that, I pay careful attention to knowledgeable insiders when they put their money where there collective mouths are and vote with their personal wealth and risk appetites that a company is a good bet.

I never sufficiently understood the fundamentals of the business and how it related to their accounts and valuation. Score one for then not investing.

However, I was also saying that I saw value in following directors’ dealing and possible positives from directors investing in their own stock. In the case of Steinhoff, it’s hard to separate out:

  • true belief in their business;
  • attempts to demonstrate confidence in the shares (whether or not the confidence was actually held); from
  • artificial attempts to prop up the share price

I have less time for fundamental analysis these days so low cost trackers is more my flavour. Given my mixed success in the past, perhaps that’s just as well.

Teaching critical thinking

I walk my daughter to school many mornings. On the way up the hill, we play a game. I tell three stories and she has to tell me which is untrue.

So far it’s clearly been too easy as she gets them every time. That’s okay, I still plan to beat her at Carcassonne someday. It turns out it’s quite a fun way to tell her slightly unbelievable stories about my life as well as teaching her to think about whether what she’s told is true or not.

I hope the telling of untrue stories doesn’t make any of them stick in her mind.

We’ll see how long it is before she only ‘believes’ in the easter bunny in order to get the chocolate eggy loot.

The future is not as old as we thought

Expectations of future UK life expectancy have declined for several years now. This is not to say that current life expectancy has decreased, but rather than estimates of future mortality improvements are being lowered, pushing down future estimated life expectancy.

One report indicates this change may roll back a year of expected mortality improvements. So perhaps those optimistic stories about “the first person to live to 200 1,000 has already been born” will fade for a while.

The thing is, it’s no utterly crazy to think about extreme life extension for currently living people. We don’t need to solve ageing in the next 40 years for a 40-year-old to live to 200 or 1,000. In the next 40 years, we need to extend life by enough time to allow the research for the next 40-year extension and so on.

I’m feeling a little old myself with a milestone birthday coming up in a couple of days. For now, 50 years still feels like a long time, although Asimov’s The Foundation series and the Long Now crowd would likely shame me into thinking I am a super myopic actuary.

Not this old outcry again

Life expectancy is one of those funny measures with a cavernous gap between those who think they understand it and those who do.

The latest controversy arose a few days ago a year ago (this post has been in draft for a long time…) because Russia is planning to increase the normal retirement age from 60 to 65 for men by 2028 and 55 to 63 for women by 2034.

Russia propose raising retirement age above life expectancy

WHO puts life expectancy at birth at 66 for men and 77 for women. (as at 2016). Now you may already have noticed a terminology difference here.:

  • “Life expectancy at birth” is a well defined term estimate the mean age at death of someone just born.
  • “Life expectancy” without a modifier generally implies this as well, but can be misunderstood
  • “Life expectancy given survival to age x” or “life expectancy by age x” is how long one is expected to live, given your current age x.

Problematically, terms to differentiate “remaining life expectancy” (the number of years remaining) and “total life expectancy” or “expected lifetime” (the total number of years expected to live including those already survived) are not used consistently.

Every day that you dodge death, your total life expectancy goes up.  An 18 year old, with newly conferred adult status, will have a total life expectancy somewhere between 0 and 18 years higher than their life expectancy at birth, depending on how dangerous childhood was expected to have been in the calculation of the original life expectancy (at birth) calculation.

Progression of Life Expectancy at birth for almost all countries remains on an upwards trajectory

The World Bank has a useful interactive tool for plotting useful figures. Here is the progression of life expectancy at birth for a subset of countries.

Life Expectancy at birth over time by select country

There have been gains even in recent years (opposed to over hundreds of years, where the massive gains are widely accepted).  The gains are not without interruption.

  • South Africa, in particular, was hit by HIV/AIDS for many years. HIV/AIDS affects the mortality of babies and young children through mother to child transmission. This has a particularly potent impact on life expectancy at birth.
  • Mortality improvements in the UK have slowed down dramatically in the last few years.
  • Life expectancy in the US has actually gone backwards in recent years, partly linked to opioid abuse and suicide.

So what?

One of the reasons this blog post took ages to come out is after a bit of rambling I wasn’t sure what the conclusion is.  This would need to be a much longer post to really cover any amount of the detail. However, perhaps this provide a tiny taste of the complexities involved with the terminology (ab)use and the actual numbers and drivers.

Illusory truth

I’ve been using to fact check dubious stories since before fake news was a term. I still recommend it to everyone.

I also teach elements of critical thinking in some of the actuarial normative skills workshops I run. By the time students get to me there, they are often already pessimistic and cynical when it comes to core areas of work (to be clear, this is a criticism of the profession, with a silver lining of critical thinking). However, there are plenty of other areas where their minds still seem susceptible to fake news.

This re-energised my interest in this area. I’ll blog on this topic more in future. One area I discovered in my research is the Illusory Truth Effective.

The Illusory Truth Effect is a really disappointing insight into how poorly our brains do at identifying truth. At its core, it says that when subjects are exposed to facts multiple times, even if the facts are highlighted as being false, still increases the probability that those subjects will view the facts as true. So whether it is on a Sunday morning surrounded by friends and family, or on the couch on your own infinitely browsing social media, what you see and hear and read becomes true in some proportion of minds.

It also applies to election campaigns and political rhetoric.

I’m going to test this with my actuarial students next chance I get.

Just what are ancillary own funds?

Reading the Financial Soundness Standards for Insurers (FSIs) is an exercise that can only end in madness. I’m sufficiently familiar with them now that I mostly refer back to them for particularly tricky or thorny issues. Without fail, the words fail to clearly communicate exactly what was intended.

Take ancillary capital as an example. To my mind, the basic principle is clear. I’ve validated this principle in discussions with Capital Requirements Task Group members, SAM Pillar 1 Subcommittee members, multiple actuaries familiar with the Solvency II principles and delegated acts on which we have based on South African rules. Here is the practical definition of “Ancillary Own Funds”

Ancillary own funds are sources of capital that are not on the balance sheet, but could become Basic Own Funds in certain circumstances. As such, they can still sometimes be used to demonstrate solvency.

Basic Own Funds then are on balance sheet items that contribute capital. These are the excess of assets of total liabilities, with very specific types of subordinated liabilities “added back” because they can absorb losses and meet other criteria. There are a few specific rules about other regulatory deductions form Own Funds, but generally, that is it.

(As an aside, the tiering of capital has almost nothing to do with how your assets are invested, and almost everything to do with the sources of capital. This is another recurring puzzle I find myself explaining a couple of times a month for some reason.)

Here’s one odd thing. Since the Solvency Capital Requirement (SCR) is determined as the change in Basic Own Funds in various adverse scenarios, the possible change in creditworthiness or even outright default of a provider of a letter of credit or guarantee or undrawn loan facility has no impact on the SCR. This is part of the reason the use of Ancillary Own Funds requires explicit approval from the Prudential Authority.

If I were to change the formula, I would add change in Ancillary Own Funds to the SCR. I have yet to see a compelling reason to exclude it.

A private exhumation

Is this blog dead? No, but you could be forgiven for thinking so. I will be posting a little more frequently than over the last year. That isn’t a high bar.

Given the long silence, there are quite a few topics I’ve been thinking about and discussing with friends and colleagues. You’ll have to check in from time to time to see those discussions translate to a blog.

On the death of blogs and privacy

Blogs have changed since 2006 when this blog started. I don’t know when “peak blog” was, but it seems to be in the past. The audience monopolisers of facebook, twitter, LinkedIn, youtube, Instagram and more have, by turns, elevated and expanded voices, then monetised, controlled and manipulated those same audiences. In some, often ultimate tragic, scenarios, audiences are pushed to extreme views as an inevitable result of revenue-maximising, attention monopolising algorithms.

Brexit and Trump are the two big stories about the role of social media and revenue-maximising, attention-sink algorithms. There are countless more. I found this sobering TED talk about the disconnect between reality and perceptions. The talk uses a small Welsh village as a powerful example to demonstrate the impact of social media and at the same time the lack of transparency that makes these claims difficult to provide and all the more terrifying.

My journey away from the brink

In the last few months I’ve been on a security and privacy journey. Ironically, I harbour suspicions that this journey itself may be the result of the same pressure to extremes that youtube in particular is famed for. But each time as I try to opt out of webs of tracking and analytics cookies and code I am reminded how much tracking and identification is going on in the background and how defenceless almost all internet users are.

Sheepishly, I realise my prior habits of eagerly providing all my contact details and information to google, facebook and LinkedIn for vague, unspecified reasons makes me some of the most naïve out there.  Facebook has been dead to me for several years. Since then, the base of research highlighting facebook’s adverse role in mental health, time-wasting, election meddling and terrorism makes that decision look even better than it feels.

Some unsoliciated privacy advice

If for some reason you are still on facebook, download your data (including contacts and birthdays if that is important) and delete your profile. Then avoid the nagging siren songs for a couple of weeks from facebook to try to entice you back onto the rocks. Your life will be better.

For now, I think I will continue to use Twitter and LinkedIn to post new blogs to reach a greater audience where users have become so used to those being the only places to monitor for anything.

I still watch clips on youtube, but I do so without logging in and with tracker blocking extensions loaded up in full force. I am aggressively migrating away from Gmail (about 90% complete) and now only check Gmail via an email client that doesn’t require me to log in to google. It’s easier than you might think. I hope you too will ditch Gmail, so that my emails to you aren’t also put into the machine for their monetary purposes.

I’ve ditched Chrome and am fortunate to have an iPhone and, generally, Apple seems less utterly compromised on this front.

Whatsapp remains a problem. Facebook owns WhatsApp and collects tonnes of metadata. Download signal and use that and help me slowly wrench the network benefits away from them.

Born again without google trackers

So that’s all background to this technical update on this blog, which is actually the primary purpose of this post. Almost since inception, I have used google analytics to track users and interest on my blog. It’s useful to understand which posts are most useful and interesting. However, I feel I owe you at least as much privacy protection as I’m trying to give myself. As of a couple of days ago, I have removed google analytics from this site and am using a self-hosted tool which keeps your data out of evil hands.

You are very welcome to block this tracker too.

Future blog topics?

I will explore thoughts on privacy (and longevity, and AI and risk and capital and hyper-selection and fairness and more as usual) in coming blogs.

Possibly helpful resources on privacy

Here are some of the resources I’ve discovered and have influenced my thinking and the tools I’m using as widely as possible.