Kurt Dupuis:
Welcome to The Whole Truth, where two wholesalers help financial professionals build great practices and thrive in a rapidly changing industry. We'll bring you the stories and voices from those on the front lines of this change, and we'll have some fun along the way.
Steve Seid:
This is more than a podcast. We're building a community of financial professionals who are growing, forward-thinking and want to get better. Thanks for listening and contributing to the discussion.
Disclosure:
The views expressed herein, are those of the participants and not those of Touchdown Investments.
Steve Seid:
And welcome everybody to The Whole Truth from the Bay Area, California, I am Steve Seid.
Kurt Dupuis:
And from Atlanta, Georgia, I am Kurt Dupuis. This was an intimidating interview.
Steve Seid:
It was fun.
Kurt Dupuis:
For me, not for you. He's your guy, but the fact that we interviewed a professional math and statistician dude, I completely nailed a statistics joke and he laughed.
Steve Seid:
You got him.
Kurt Dupuis:
I count it as a win.
Steve Seid:
It was definitely a win.
Kurt Dupuis:
Then I humbly bowed out after that point.
Steve Seid:
Yeah, it was a really fun interview. Dr. Wayne Winston was my professor in MBA school at Indiana University Kelley School of Business, he's kind of a legendary professor there.
Kurt Dupuis:
I could see why.
Steve Seid:
It's funny, people ask about, because I've gone to MBA business school, how do you choose schools and things like that. And I think one of the big things, besides the job opportunities, is also quality of faculty and stuff
like that. It was folks like Dr. Winston that made that experience just incredible. He's clearly a genius, there's no doubt about that.
Kurt Dupuis:
Definitely.
Steve Seid:
He's eccentric, I would describe him as eccentric, but in the best way. Dr. Winston if you're listening, I mean that in the best way possible.
Kurt Dupuis:
Totally agree.
Steve Seid:
But yeah, a little bit about him, I just mentioned he's a professor there at the Kelley School, I think he's retired now only does some things. But he's won like every teaching award there is out there. Interestingly, he's worked with several NBA basketball teams, including the Dallas Mavericks, the New York Knicks. We didn't ask him about that, I'm going to assume Mark Cuban got him into that because Mark Cuban's also a Kelley grad.
Kurt Dupuis:
We'll just as Mark when we have him on the pod.
Steve Seid:
Mark, we're going to be reaching out to you. But yeah, he's done work with the NBA, he's a Jeopardy winner, he does a ton of work on Microsoft Excel, how-tos, et cetera. Multiple different books, including his latest and really, from my perspective, the whole reason that we had him on and the focus of our discussion, was about decision-making. How to make better decisions. So if you want to learn, if you want to get better in how you approach and how you address decisions, that's definitely something we want you to take away from this interview. The other thing was, getting into Excel. Financial professionals use it to various different degrees, but I've talked to plenty of people, Kurt, that's just like, "I want to get better at using Excel. And I know there's all kinds of stuff there that I should know that I don't." And it's still pretty amazing, I know there's all kinds of tech out there, but the basic Excel, you can get a lot done.
Kurt Dupuis:
It's good bang for your buck.
Steve Seid:
Yeah.
Kurt Dupuis:
To up your skills there.
Steve Seid:
There's no doubt about it. So anyways, we had a ball with this interview, we hope you'll enjoy it. If you want a copy of Dr. Winston's book after listening to him, reach out to us and we're happy to get you a copy.
Kurt Dupuis:
Yep. And you're listening to us so you must like us to some degree. So it really helps us out if you subscribe, write us a review on Apple Podcast and any questions, comments, or critiques on Seid, not me, feel free to reach out to thewholetruth@touchstonefunds.com. And here he is, Dr. Wayne Winston.
Steve Seid:
We are absolutely delighted to have Dr. Wayne Winston on the show. I took his class in 2008, he is a legendary professor at the Kelley School of Business at Indiana University. I did a lot of searches on MBA schools, finally chose Indiana, went to the orientation. And so they team you up with these second-year students and you're asking them questions. Basically, they're there to help you get integrated into the program. And the one piece of advice he said, "If I can give you one piece of advice, take Winston's class." That was the one piece of advice that they gave.
Kurt Dupuis:
Really?
Steve Seid:
Yeah, and I know, Dr. Winston it's interesting, because I listened to you on some shows and you're this amazing professor, but you didn't always start out that way. I heard you made a comment that actually when you started, you didn't feel like you were great at all. So how did you evolve into this teacher that's won all these awards, dozens of them?
Wayne Winston:
Oh, thanks. I came in the 1970s, to give away my age, and I was really a pretty terrible teacher for a couple of reasons, I was pretty shy and basically I had terrible handwriting. By the time you took my class, we did everything on the computer. My last teacher in college said, "Write with your other foot." So I really had pretty bad handwriting. And so I just thought about it, I was pretty boring in class and we'd write stuff on the board. But then when I started teaching with Excel in 1992, I saw how the stuff I was teaching it was really boring. We would solve optimization problems by hand, which is the most boring thing in the world, but everybody taught it. But then Excel put in this thing called the solver that would solve them automatically and then we'd concentrate on how to set them up.
And for your financial professionals, they know about portfolio optimization. How to find the minimum risk portfolio with a given mean return? And so to do those things by hand or explain them in class, would have been just horrible, but in Excel, they're very intuitive to explain. And then I think, I got to be less shy and I got to be more confident. But mainly with the Excel stuff, I think it was the way I taught the material that made me a good teacher. Then I'd get off the subject, when you were in class maybe we talked about Gossip Girl.
Steve Seid:
He would just start throwing, "Hey, did you just see this on TV?" In the middle of a...
Wayne Winston:
Yeah, there was a new Gossip Girl reboot, which I've heard is horrible. Now, I'm watching season two of Ted Lasso, which is really popular. Although, season two to me is not as good as season one, but the reviewers thought it was better. I would always ask trivia, so Ted Lasso has now in the most Emmy nominations of any TV show in history, it got 20.
Steve Seid:
I haven't seen it yet. I got to see that.
Kurt Dupuis:
Just started a second season?
Wayne Winston:
Well, you got to have Apple TV. And then what show swept the Emmy's last year, winning every Emmy it was eligible for? The answer is Schitt's Creek, which I really like.
Kurt Dupuis:
That's a good one too.
Wayne Winston:
They're both good-hearted shows, in today's era of the pandemic, we need good-hearted shows.
Steve Seid:
Absolutely.
Wayne Winston:
And that's probably as important as what we're going to talk about, but go ahead.
Kurt Dupuis:
And before we get into the more serious stuff, because we want to talk about your book and I've got a great little anecdote about your book. But I understand being on Jeopardy was always a big dream of yours in 1992?
Wayne Winston:
92' is when I was on, in 1992.
Kurt Dupuis:
With the most epic, mustard yellow suit jacket. It's on YouTube. If you want to go see it.
Wayne Winston:
It was a camel jacket and I had an IU color jacket. If you want some stories on Jeopardy, I'd love to talk about that.
Kurt Dupuis:
Well, I'm curious how that all went about? How did you apply? How long did it take you?
Wayne Winston:
Okay, that's a really good story. So I would come home from elementary school when Art Fleming was the host and I'd watch it and I said, "I wanted to be on this show." And so in the mid-1980s, I met my wife and before we got married, I'd go to her apartment, we'd watch every night and we'd keep score. And I said, "I want to be on this show." Okay. So it's been a lifelong ambition. So we went to LA to the tryouts and I passed the test. One out of four people roughly pass the test, now you can take the test online. So one out of four passed the test and if you pass the test, there was about one chance in six then you got on. Now, I don't know what the odds are, but so I passed the test in 87, didn't get picked.
So then in 1992, they had contestant search in Indianapolis. And so to get into the room, whatever hotel it was, you had to send in postcards and they would randomly pick 300 people to take the test at this hotel and then interview you. So basically we sent in 300 postcards. So they picked my postcard and I got to take the test. The last day of the month I was eligible, I got a call and I picked it up, I thought it was one of these spam calls, but he said, "This is Glenn from Jeopardy." I said, "Oh, you got to be kidding." He said, "Well, we're going to tape your show the end of February, 1992."
And so then I went out there, I read the Almanac and I tried to study for a month. I couldn't sleep, I was so nervous. And basically I backed the car into the garage door without putting it up because all I did was study the Almanac. So I got out there, you do five shows in one day, five minutes between shows. And when Alex, the late Alex Trebek, was done reading a question, a red light comes on around the screen. And if you buzz in before the red light, they lock you out a 10th of a second each time you buzz in. So the trick is to hit the buzzer, you can't wait for the red light. You have to hit the buzzer and hope you hit it right when the red light comes on. But so if you don't get in, you don't know if you're too early or too late. So you have to adjust your strategy, and into commercials they try and help you. They try and say, "I think you're buzzing too late." They want a close game.
So the first game I had more than double the other people, I won easy and then we ate lunch. And it's five shows in a day, I was the third show of the day and I really was good the first game, I don't know why. But then we ate lunch and I sat next to the person who would actually beat me and I started talking, "Hey, the key to this game is the buzzer." Being an idiot that I am, I talked all about... Because they thought I was really good because I was good the first game. So then right after lunch on the next game, I'm in last place doing the final Jeopardy, I need them both to miss and me to get it. And so the question was, "Last blood type to be discovered?"
I said AB is confusing, maybe they thought it was A, maybe they thought it was B. So I said, what is AB? And I got it right. But I didn't think they'd both get it wrong. They both said, "Oh." So then I went from last place to first place, then we changed clothes. And then the next game, I just didn't play well and he was really good, turned out he won five games in a row, was an undefeated champion, a retired army guy.
Kurt Dupuis:
Because you gave away your secrets too, huh?
Wayne Winston:
I like to think that, but he would have beat me, he was good.
Steve Seid:
I'm so grateful that they actually had the clip on YouTube, that we got to see it, that it's on there.
Wayne Winston:
Oh yeah, one of the Kelly MBAs put that up, and I think the whole episodes are up, but I don't want to see myself 29 years ago. Just one statistic on Jeopardy, let’s see if your financial professionals can get this answer. What fraction of the people who go on jeopardy don't win a game? So you might say two thirds because there's three people, but it's higher.
Kurt Dupuis:
It's got to be more, right?
Wayne Winston:
It's like 75% because some people, like Ken Jennings, hog all the wins.
Kurt Dupuis:
I have a joke for you.
Wayne Winston:
Oh good.
Kurt Dupuis:
What's the plural of anecdote?
Wayne Winston:
Is it anecdotes, no?
Kurt Dupuis:
Data.
Wayne Winston:
Oh, that's great. That's great.
Kurt Dupuis:
How about that?
Steve Seid:
That's a good Wayne Winston joke right there.
Wayne Winston:
I'll have to use that when I give webinars and stuff like that. Yeah, I'm a data driven person and where this is really important, it's like on the COVID. So people say, "I know one person who got vaccinated who got sick." But then the plural of that anecdote, and that's true, but the plural of that anecdote is 99% of the people in the hospital haven't been vaccinated.
Steve Seid:
Yeah.
Wayne Winston:
And so that's the data, with 165 million people haven't had the shots. So there's lots of strange things with COVID.
Steve Seid:
What we're going to be talking about with you is decision-making and statistics and how to think about that. When I was coming on, I was thinking to myself, the world must be driving you absolutely crazy nowadays. With the internet and people making up their own realities, does the world make you crazy right now?
Wayne Winston:
Yeah, it really does. The misinformation and the stuff like that, misinformed posts will spread quicker than informed posts. Where I think your financial professionals, here's a point that I think is very important, when we look at data. So people make forecasts for the future, the people listening to you have to forecast stock prices, interest rates, things like that. So artificial intelligence is a big thing now, and so you give artificial intelligence a lot of data, then it's going to try and make forecasts or you use algorithms to forecast the future sales of your product. But the problem is, suppose you use the last five years of data to forecast sales of your product, or to forecast stock prices or interest rates. Well, the last five years of data is 2017 through 2021. So the data before 2020, to me, is useless. We have a new world, we have no idea where this world is going.
Kurt Dupuis:
So one thing to discuss that I think would be helpful is, talking about common mistakes in data. For instance, when is something statistically significant and so significant that you can base decisions off of it?
Wayne Winston:
Well, that's a good question because if you think something should have a 10% chance of happening and that's your null hypothesis and you look at a million people and 10 and a half percent of the time it happens, it'll be statistically significant. But it's not practically significant, so I think that's the question. Things can be statistically significant and a big issue, this came up in psychology, there was a book, I forget the name of it, but it just came out. Roughly half the studies that clinical psychologists do and publish in top journals, they'll say statistically significant at the 5% level, which means what happened in the study has less than a 5% chance of happening given your hypothesis. When people replicate those studies, less than half the time can they replicate them.
Steve Seid:
Interesting.
Wayne Winston:
I don't want to accuse people of being dishonest, but it just means you can cherry pick. Studies that show drugs are not effective, don't get published. So if you test a hundred drugs and none of them are any good, five would come out looking good by statistical significance. Those are the ones that are going to get published and the other 95 are not going to get published. So you try and do meta analysis, put everything together, but it's really hard. Statistics can be very misleading, just one example, so if you try and predict the price of the Dow Index tomorrow from the Dow Index today and use 20 years of data. You get an error score of 99%, so this is a mistake people make. So 99% of the variation in tomorrow's Dow Index is explained by yesterdays. So why is that? Well, because the market tomorrow will be near what it is today. That doesn't tell you anything.
And basically it's almost impossible to predict changes in stocks or the market, you can predict the value of it. And what we need to know, some people say they can beat the NFL betting maybe by picking one or two games. But there's a site your listeners should look at, predictiontracker.com. It shows how Vegas does and all the computer systems do. And I downloaded the data in the last five years, Vegas' predictions beat all the computers. Now, maybe you can pick a couple of games a week and make money, but basically if you want to pick every game every week, Vegas is better than you. I defy anybody to show me somebody who's better than that.
Steve Seid:
Are there stats that you see people using really often that they shouldn't? Is it just insignificant sample sizes? What major mistakes do you see people making?
Wayne Winston:
Okay, I guess back to the previous question in this one, what data do you need to solve your problem? I think I'm pretty good at this, you give me a problem I can figure out what data I need. So let's talk about NBA basketball, we worked for the Mavericks for 10 years. They had the second best record in the league when we worked for them and they won a championship. And we worked for the Knicks one year, that sounds like that's really bad. But the year we worked for them they won 54 games and they won a play-off series. That's their best performance in the last 20 years. And we analyze player and lineup data.
Kurt Dupuis:
Are you arguing causation or correlation?
Wayne Winston:
I think a small cause. So you ask a question in your business, "Okay, what am I going to sell the next year?" Or, "What's going to happen to the market?" And you try and figure out what data you need to solve the problem. So basketball, what defines a good player? So I think we were the first to change the view of this, everybody before us looked at the box score. So the box score has points, shooting, rebounds, assists, turnovers, block shots, steals. So the problem with the box score, it's weighted towards offense and basketball's half defense. So what we said, we want to get the data, who's on the court every minute of the game? And we want to know how the score moves. If you're a good player, the score should move in your team's favor.
So that's a totally different data set, now everybody uses that data set. ESPN has real plus-minus, which is very good. And if I can just throw one thing in here, for a lot of our listeners, a really good way to forecast that's in its infancy is use Google Trends. Google Trends gives you searches. Basically you can go online, you can get monthly sales of every US car, you can get Google searches for every US car and it's called an outcast... If somebody is going to buy a Subaru, they're going to go online, how far in advance? I don't know, a week, a day, a month, to search for Subaru online. Okay, and then using those forecasts, you should be ahead of the game.
So it's easy to work with that data, there's some tricks you need to know. But that Google Trends data, I think is waiting to be mined, to all look for inefficiencies. But a big question is if you come up with the problem you want to solve, what's a good basketball player? Who's a good basketball player?
Think of the data that will help you solve the problem. If we want to predict sales of 3M painters tape, what data do we need? We need daily sales, we need to know what the price of the competitors was, was the product on display? Stuff like that. That's what we need to know, things like that. So I think once you have the right data, the main thing is you got to see it for forecast, do they work out of sample as well as they did in sample? It's not that hard to do with data that's out there now.
Kurt Dupuis:
So, Godfather of Excel, is that a little bit over the top?
Wayne Winston:
It's over the top. I would say I'm the best in the world if you combine four things. Excel, mathematics, knowledge of business and swimming.
Kurt Dupuis:
There you go.
Wayne Winston:
I'd say just put those four together and you weighted them, I might be the best in the world, but I'm not the best at... There are people who are better at Excel than I am, let's put it that way. I think I'm really good and I'm really good at explaining it, but when you combine the Excel and the math, I think my book is probably about the best-selling book that covers all of Excel's features. As a matter of fact, when they hire a new program manager for Excel Microsoft they give them my book. They told me that, because basically I'm the only book that goes over the advanced... There's plenty of good books on Excel, but I think I'm one of the few that goes over the advanced mathematical parts of Excel. And they've added a lot of great new stuff lately by the way, which I think we'll talk about.
Kurt Dupuis:
So I'm going to simplify an analogy and do the opposite of the desert island thing, like you can't take one function. I'm going to say here's five functions, take one off the list because it's not important.
Wayne Winston:
Okay, I'm listening.
Kurt Dupuis:
So, VLOOKUP, COUNTIFS, SUMIFS, AVERAGEIFS and IF, which function would you leave off?
Wayne Winston:
AVERAGEIFS for sure because you can do AVERAGEIFS if you have SUMIFS and COUNTIFS. So I could still survive on my island. If your listeners want, Winston@Indiana.EDU, if they have an Excel question it doesn't take me much time, I like having questions because I can build webinars around them. And so basically I would say over half the questions I get, I can solve by writing a clever IF statement. IF statement is sort of a way to program in Excel.
Kurt Dupuis:
I want to transition to your book a little bit, your most recent, Analytics Stories.
Wayne Winston:
Okay, good. Okay, I have it right here.
Kurt Dupuis:
Yes, there it is. So Seid did all the heavy lifting because that's the division of labor that we have on this podcast. But I ordered the book, it hasn't come in yet…
Steve Seid:
It’s a terrific book
Kurt Dupuis:
…but I ordered it strictly based off of one, four star review that I saw on Amazon because it was extremely approachable to me. And the headline read, "Exciting chapters, but shallow for nerds." Which is right in my wheelhouse.
Wayne Winston:
Oh, the guy didn't like the way I tried to show Bernie Madoff was a fraud.
Kurt Dupuis:
You know who wrote that review?
Wayne Winston:
I don't know, I read the review. I don't know the guy. But that's fine. So an interesting thing on that, Benford's law, I wonder how many of your listeners know about this. Look at financial statements and here's a question, what fraction of the first digits begin with one through four? So there are nine first digits, one through nine. So it turns out roughly 70% of the numbers on financial statements begin with one through four. And so if you look at Bernie Madoff's made up returns, first of all he had a sharp ratio, which was out of sight, it was way too high. Nobody had one that good, so that was fake.
And then if you look at his returns, too many of them began with a one, roughly speaking, and he violated the Benford's law. But Benford's law is commonly used to spot fraud in financial statements. I'm not sure it always works, but if you see only 50% of the numbers in a financial statement begin with one through four, it's almost surely fraud. And so fraud detection is a big thing, Daniel Beneish is the guy I'm talking about in the Kelley accounting department. And basically he has a lot of research on, he had a formula called Beneish's M-score that would hopefully figure out the chance that a company manipulated earnings.
And hedge funds used this for a while, but once people use something, then it becomes not worth anything because the market adjusts. So a good example - in baseball and fielding, so people didn't understand the importance of fielding in 2008, when the Tampa Bay Rays won the American League. They bought up the fielding cheap and they're run by expert Bear Stearns guys. So they saw fielding was cheap, they bought fielding, they won 12 extra games, now everybody knows fielding's important. They know how to measure it.
Steve Seid:
I have to ask you this question because this is something I was thinking about. So if you go back, there's these factors that people say are in the market, that if you buy them, you'll get higher risk adjusted returns and its value and it's small cap over large cap.
Wayne Winston:
We can check that.
Steve Seid:
Yeah, and it's amazing that ever since that study has been published since I've been in the market, those things don't seem to work anymore. And I wonder if it's known, will it be...
Wayne Winston:
Yeah, I think that's a true statement and people are smart, people want to make money. And so basically if you make public, that's why if you talk to NBA teams on what they do with analytics, they won't tell you.
Steve Seid:
Yeah.
Wayne Winston:
Because it's a competitive market.
Steve Seid:
Your book is such a great read because you get, and you answer 61 different questions. For example, is Carmelo Anthony a hall of famer? Should I go to a state university or Princeton? Why do I pay too much on eBay? It was just the coolest read because you're just answering questions and you're using data to help with-
Wayne Winston:
That's all I do Steve.
Steve Seid:
Talk about “Excel With Wayne” because I do think our audience should know about that.
Wayne Winston:
Okay. Thanks, well Excel With Wayne, I partnered with somebody I had, a student at the University of Houston, Ryan Vaughn. We put up 60 hours of video on Excel and analytics, which I think would take you through everything I know about Excel and analytics. We keep uploading new stuff here because for instance... Can I talk about the Office 365?
Steve Seid:
Yeah, go ahead.
Wayne Winston:
There's amazing stuff, I would wager, I might lose, but over half your listeners have Office 365 and just don't know the great things that the Excel team has added. So you have financial people. There's a function stock history that you can put in and get daily, weekly or monthly past stock prices for any stock, most mutual funds, any exchange rate information, you can't get the Dow and the NASDAQ because they don't have access, they didn't pay for that.
But if you want to test your financial ideas that you were talking about, Steve, whether they work, you can download daily prices on 10, 15 years of data, and then you can use maybe eight years of data to fit it and see if it works out a sample.
Steve Seid:
Wow.
Wayne Winston:
And so if somebody here listening wants to get a job in finance. If I was trying to hire somebody, I'd say, "Hey, show me your system works. Fit it to some data and then I'll test it out of sample. Show me what you got on these years and test it out." So the stock history function makes it very simple. There's an IFS function to make it much easier to do IF statements, you don't have to type all the right brackets and repeat IF.
But the most amazing things they have now, there is something called data types. So basically Excel can now scrape the web for any piece of data that you want. So basically if you put in a company like Microsoft and you make it a data type, you can get information on employees, the beta of Microsoft, you'd put in the city, you're in San Francisco. I can put in San Francisco, I get the demographic information with a function, I get the crime rate, I get the income distribution, I get the degree of income inequality. I can try and predict crime rates based on the demographics and the income distribution in your city. So this is going to revolutionize the way we teach.
And so then the thing that your audience really needs to know about, is dynamic arrays if they have Office 365. So you may have 50,000 rows, one column is sales person, one column is location and one column is product. You want to know every unique combination of sales person, product and location. So there's a function for that called UNIQUE now. So if you type equal UNIQUE, it gives you every unique combination.
Steve Seid:
Oh, interesting.
Wayne Winston:
And if you add new data, it updates to include that. And so all your listeners sort, so you use data sort. There's a sort function now, so if you add new data your sort will automatically update. There's a filter function, so you might want to find every sale by a day of painters tape in March in San Francisco. So you can write a function that will pull that out, and if you add new data it automatically updates. See, the sort filter, there's a sort by function and UNIQUE, those are the main ones, there's a couple of other ones. But the sort, sort by filter and UNIQUE will revolutionize the way your listeners set up their spreadsheets. Because when they add new data, things will update all the time.
Steve Seid:
Nice.
Wayne Winston:
Look at “Excel with Wayne”, or just go on the internet, the things I just talked about, search for them and learn how to use them. You have no idea how more productive and fun your life will be on Excel. I think we're going to start in the next month doing webinars for 20, 25 bucks, a webinar on Office 365.
Steve Seid:
That's awesome.
Wayne Winston:
For example, a very reasonable price, where I'll spend an hour and a half going through these new things…. with Zoom of course.
Steve Seid:
Excellent. So let's transition with the last 10 minutes we have with you, let's talk through some of the chapters in your book. We'll just start throwing chapters at you and you comment. So here's a chapter, is the lot of the American worker improving?
Wayne Winston:
That's a good question, it depends. So this gets to statistics, what do you look at? So you can look at average to keep it simple. The government puts out median salary and that's 50th percentile, half the people make more, half the people make less. After inflation we haven't done much better on that. Although, I think there's been new research to say if you include social security payments, that may be changed. But if you look at average salary after inflation, it's gone way up. So we use median when the data is fairly skewed and income is very skewed because people make a lot of money, like Bill Gates and basically Jeff Bezos. And so basically median is a better measure of how the average person has done. And so when you say the average has gone way up and the median has not gone up at all, what does that mean? More money's at the top, which is the inequality.
Steve Seid:
Why do we pay so much on eBay?
Wayne Winston:
Winners curves because basically people... If you win a bid, and this goes for free agents in sports, so if your team gets a free agent, it probably means you paid too much because you bid more than everybody else.
Steve Seid:
By the way, if anybody wants a copy of Wayne's book, let me know. I think I'm going to buy a bunch of them and give them as gifts because they're so good.
Wayne Winston:
Well, that would be great.
Steve Seid:
You monitor that, we're definitely going to buy some books because I think this is...
Kurt Dupuis:
But if you leave a review under five stars on Amazon...
Wayne Winston:
No, that’s ok, I average four and a half on my book.
Steve Seid:
Here's an interesting one, will my new hires be good employees?
Wayne Winston:
So everybody wants to know if you can have a good employee. Okay, so they've done lots of studies, what data do you need to see if you have a good employee? So what you need to know is, what did you know when you hired them? Interviews, intelligence, integrity, references. So you've dumped all that stuff in, that's your independent variables. Your dependent variable is how well they did on the job. And I think a lot of this data comes from the Armed Forces because the Armed Forces know exactly what's going on when somebody enlists. And then they know exactly how high up they went. Okay, so the one thing that comes out all the time as being important is intelligence. And basically after you adjust for intelligence, there isn't much else.
Steve Seid:
Interesting.
Kurt Dupuis:
Do NFL teams pass too much?
Wayne Winston:
The answer is they probably don't pass enough. I'm glad you asked that one because I think there are two changes in the NFL in the last 10 or 15 years. Teams used to never go for it on fourth-down, fourth and one, they would always punt. How stupid can that be? And teams would run and pass roughly equally. When I was growing up, we had the Gale Sayers, the Jim Browns, the running backs were valued. But essentially, what's the right metric in a sport? So in basketball it's points per possession. Shooting three pointers will get you 1.05 points for possession. Shooting a layup will get you 1.3 points for possession. You shoot any other shot, you'll get about 0.8 points for possession. That's terrible, so you shouldn't take those shots. Now I think 60/40, it should probably be maybe 65/35. And so if you look on first-down, teams get way more points per play on passes than runs, but most teams run on first-down. And so on going for it on fourth-down, how would you tell they don't do it enough?
You look at expected points gained on field goal attempts, versus expected points gained on going for it on fourth-down. Expected points gained is much better going for it on fourth-down. Now, one economist said, "Even if it's fourth and two on your own five yard line, you should punt. You should go for it." That's ridiculous. The key in football, you're trying to score the most points, and passing is much more important than running. Running backs never get picked in the first round now basically because they don't matter. Offensive linemen, quarterbacks, the second highest paid position, actually the highest paid position I think, is offensive tackle because a lot of quarterbacks don't get paid that much money. But if you look, what percentage of the money that NFL teams spend goes to the passing game? If you pick a defensive end it's for the passing game. You pick a linebacker, it can be for both, but a defensive end is more valuable than a defensive tackle because they're the ones who sack people. The best predictor of how an NFL team does, is points per pass attempt.
Steve Seid:
Got it.
Wayne Winston:
Yards per pass attempt is the key statistic in pro football.
Steve Seid:
Interesting.
Wayne Winston:
If you rank the teams on yards for pass attempt, offense minus defense you're ranking the teams. There's not much else that matters.
Steve Seid:
Do hedge funds work? This is a good one for our industry.
Wayne Winston:
There's really limited research on this, I don't know why because it's hard to get the returns on the hedge funds. And so what you have to look at, their sharp ratio, you have to look into a risk adjusted returns because they're supposed to cut risk. And so the studies I could find when I wrote the book, they were really inconclusive. The problem with sharp ratio, our usual measure of risk is standard deviation, so I should have said this earlier. That's not a great measure of risk because it counts upside the same as downside.
So if I have a stock that half the time gains 50%, half the time 150%, give me that stock, I'll get on my hands and knees. But that stock has a high standard deviation. So there's a lot of occasions, I think that Sortino ratio, which they talk about, they talk about Sortino on “Billions”, but nobody would know what it means. But I think it counts downside risk more. The stock history function will give you on most mutual funds if you find the letter code for the monthly or daily returns. And so I can do all the calculations on all these mutual funds and I can see the recent history is trending down or up, but for hedge funds, it's tough to know...
Kurt Dupuis:
We're going to end here and it's a nice, easy layup.
Wayne Winston:
I doubt it.
Kurt Dupuis:
Can analytics save our republic?
Wayne Winston:
Oh, that's a great one. So that's like we need the third party. So in other words, I think 10% of the people vote in the primaries. The primaries determine who wins the election. The country has never been more polarized and it's not getting better. And whether you're far left, far right or in the middle, I think we'd all agree, I'm sure the far left thinks the country's going to hell, the far right surely thinks the country's going to hell and the people in the middle think the country's going to hell, and so maybe we are going to hell unless we do something about it. And so I think changing the way we decide the elections, rank choice voting where you have, like Indiana we have, I think, 10 Congresspeople. So we might have a three person district, a three person district and a four person district.
And then basically you do rank choice voting and the top three win. Then third parties have a chance, and I think we've got to take the money out of financing. I want the working man, basically the person who drives the school bus, the fireman, the person who picks up the trash... Literally, if I wanted to save the republic, I would use a random number generator, pick 435 people who registered to vote and that's the house of representatives. That's how I would save the republic. I would just have normal people, so maybe one of the students in Steve's class said, I think it was in your class said, "What's wrong with polygamy?" Now, there's plenty wrong with polygamy in my opinion. But when you have lower approval rating than polygamy, you're probably not doing a good job.
Steve Seid:
That's a good place as any to end.
Wayne Winston:
Okay. All right, thanks I enjoyed it.
Kurt Dupuis:
I'm going to go back to that Amazon review and say, "So the shallow, not for nerds answer to that question, is yes. Analytics can save the republic."
Wayne Winston:
Okay, thank you. That was great, I really enjoyed it.
Steve Seid:
Well, thank you to Dr. Wayne Winston. Go check out “Excel for Wayne”, the book is “Analytics Stories”. This is The Whole Truth, stick with us.
Steve Seid:
And welcome back to our final segment, as always Costanza Corner and Kurt you're up.
Kurt Dupuis:
Well, we're really going to end on a high note on this one. Does the name Ibrahim Hamadtou mean anything to you?
Steve Seid:
It does not. Should it?
Kurt Dupuis:
Probably not because I don't think you're on Twitter as much as I am, but there were tons of tweets going around about this guy, Ibrahim Hamadtou, I'm probably butchering that name. But it's this ping pong player playing in Tokyo right now in the Paralympics that is playing with no hands.
Steve Seid:
What?
Kurt Dupuis:
You have to Google this guy.
Steve Seid:
What is he playing with, his mouth?
Kurt Dupuis:
He puts the paddle in his mouth, he throws the ball up with his foot.
Steve Seid:
You're kidding me.
Kurt Dupuis:
It's incredible.
Steve Seid:
Wow.
Kurt Dupuis:
He lost his arms at 10 and apparently he was really good at soccer too, but he thought ping pong would be more of a challenge, so he got into the sport and I think they're in the quarter or sem-finals.
Steve Seid:
What an awesome guy.
Kurt Dupuis:
Yes.
Steve Seid:
Here's a guy who had this adversity, I don't know how he lost his limbs, but regardless-
Kurt Dupuis:
Train accident I believe.
Steve Seid:
Crazy. And then he turns it into this where he's a master at something. I'm in awe of someone like that is all I can say.
Kurt Dupuis:
Talk about grit, man. More than you and I will probably ever have combined.
Steve Seid:
It's amazing.
Kurt Dupuis:
Love to see it. So yeah, Ibrahim Hamadtou, shout out to you, man. You've definitely inspired me this week.
Steve Seid:
Thanks everyone for listening, we'll see you next time.
Kurt Dupuis:
You can find The Whole Truth and subscribe for free on Apple Podcast, Spotify, or your favorite podcast app. We'd love it if you took the time to rate and review the show on Apple Podcast, it helps others find the show. And for more episodes of The Whole Truth, go to www.touchstoneinvestments.com/thewholetruth. That's touchdowninvestments.com/thewholetruth. All one word.
