But, with a mule as this blog’s mascot, you would think that I could do better than that, so I have thrown my charting skills at the history of previous winners in as slap-dash a manner as I can to see where playing the historical odds would get me.

I thought I would start with colour because, even as a racing-form novice, I suspect that should have no bearing on the result and so it seems like a safe place to start. Based on the winners going back to 1861, here is the distribution of winning colours.

Cup Winners by Colour (1861-2008)

This suggests that bay-coloured horses have an edge (or maybe it is just a common colour for a horse). What about the “sex” of horse (please do not ask me what all of these terms mean, but apparently “horse” is a sex)?

Cup Winners by Type (1861-2008)

So, a plain old “horse” seems like the best bet. I notice no geese have ever managed to win. A quick check confirms that there are no unfortunate interaction effects (although this does also suggest that bay geldings and brown horses could be worth considering).

Cup Winners by Colour and Type (1861-2008)

Heading towards statistics that may actually mean something, here is the distribution of winners by age.

Cup Winners by Age (1861-2008)

So far, we are heading towards picking a five-year-old bay horse. Last, and perhaps most important (but what would I know?), here is the distribution of winners by handicap weight*.

Cup Winners by Handicap (1861-2008)

Now the median handicap weight is 51.5 kilograms (I have to admit I do not know what units that is in, but it cannot be kilograms, unless these are very light horses: at least I know they are not very heavy geese) and the mean is 51.2. So, ideally I would pick a five-year-old bay horse weighing around 51 to 51.5.

Unfortunately, a few cursory google searches have not turned up any pages giving the colour, age or type of the current field for the 2009 race, the best I could come up with just has handicap weight. If you have a better source, let me know! In this list, there are three horses weighing 51.5 and one weighing 51. Not knowing anything more about the three weighing 51.5, I cannot separate them, so on that basis alone, I will pick the one weighing 51.

So, here is the Stubborn Mule Melbourne Cup pick: Shocking.

At this point, I should remind you of how little I know about horse racing, so don’t blame me if this horse comes closer to the back of the pack than the front.

* Thanks to commenters Stilgherrian and mkl for pointing out that the weight here represents handicap weight: jockey, saddle plus ballast. It seems unlikely that this would have much bearing on the outcome as it is actually designed to level the field. In case you had any doubt before, which you should not have done, this confirms just how weak the prediction here is.

UPDATE: It has been pointed out to me that Shocking will, sadly, be starting from barrier 22, which is very unlucky from a historical perspective.

Cup Winners by Starting Barrier (1861-2008)

Since the median barrier of past winners is 4, this leads me to a secondary tip: Spin Around, which will start from barrier 4 today. It’s handicap is 52, which is not too far from my preferred 51.5 to 51 kilogram range.

FURTHER UPDATE: It was a long shot, but I managed to draw both Shocking and Spin Around in the office sweep. I feel obliged to share the comment on the Spin Around slip:

I do not think the horse should even in in the race. He is realistically a 500/1 chance.

So, it seems that my secondary tip is an appalling one. Longer odds even than drawing my two tips in the sweep.

FINAL UPDATE: Shocking won. Shocking, isn’t it? Perhaps I have a new and glorious career picking race winners. Then again, perhaps not.

The Kindle has a monochrome “electronic paper” screen rather than the pervasive LCD screens found on laptops, iPhones and BlackBerries. Also known as e-paper or e-ink, the electronic paper screen comes a lot closer to replicating the appearance of traditional printed paper. There is no back-light and in fact displaying a page draws no power, it is only changing the display that will draw on the battery. As a result, the battery life of electronic paper devices is much longer than other devices. Amazon claims that, with the wireless connection turned off, you can read on the Kindle for up to two weeks before draining the battery. This also means that the Kindle can display an image on the screen when it is powered off, which is somewhat disconcerting at first. Although the contrast is not quite as high as print (the background is not quite white and the text is a little grey), reading on the Kindle is very comfortable. Better still, the quality does not degrade in strong sunlight as is often the case for LCD screens (although they are getting better all the time). So reading the Kindle outside is just as easy as it is in bed (although you will still need a bedside light).

The book distribution model for the Kindle is tightly bound to Amazon. Users can buy books for the Kindle either via the Amazon website or on the Kindle itself via a 3G mobile network data connection. The book is then downloaded (very quickly) via 3G. Amazon refers to this network connection as “Whispernet” and it clearly hopes to achieve the same user tie-in that Apple achieved with their iTunes Store. The workings of Whispernet also help to explain why the Kindle was limited to the US for so long as the original US model of the Kindle used the Sprint EVDO network, which does not extend outside the US. The new international version makes use of the AT&T 3G network in the US and elsewhere it uses AT&T’s international roaming parters. Users do not pay directly for any data usage on the network. Instead, Amazon has a deal with AT&T to access their network and they presumably factor the data costs into the cost of the books.

Anyone who has ever taken their mobile phone overseas will know that, while convenient, international roaming does incur additional costs one way or another. No doubt until such time as it negotiates additional deals with local carriers, the cost of providing Whispernet will be higher for Amazon internationally than in the US. As a result, there are pricing differences on the Kindle for international customers. I was able to get a good insight into exactly how this works because a colleague has also bought a Kindle but, for some reason, Amazon has his configured as though he is a US customer. While most books appear to be US$2 cheaper for him (there are even books which are free in the US which cost US$2 for Australian customers), Amazon levies a US$2 roaming fee on US customers for using Whispernet outside the US. So, in the end the cost is the same unless he travels to the US to download the books. Interestingly, newspaper subscriptions appear to be the same price for US and international users but US subscribers will pay the roaming fee on top of the subscription fee outside the US.

Exciting though it is for early-adopters, users in Australia will find that the Kindle has a number of limitations. In the picture you can see the front page of today’s New York Times rather than, say, the Sydney Morning Herald because no Australian newspaper subscriptions are available. I have heard that Australian publishers were unhappy with the meagre share of the subscription fee Amazon offered and so walked away from the deal. This may or may not be true, but it sounds plausible if short-sighted. But, when it comes to international newspaper and magazine subscriptions, there are a number that are available in the US but not in Australia, including The Economist. Also, the number of book titles available for the Kindle is still relatively small (around 2% or so of the titles available in print from Amazon). Barnes & Noble are aiming to leap-frog the Kindle by providing access to over 500,000 out-of-copyright titles in the Google Book Project. Furthermore, there are plenty of Kindle editions that are not available in Australia, such as the latest book by Malcolm Gladwell, Outliers. Anyone who has been following the debate about the parallel importation of books will guess that this is related to the mess that is international book publishing rights. I don’t know how electronic rights work in this scheme, but I can only guess that it is not pretty. As I write, there are 288,816 titles available to Australian users. Admittedly this is up about 1,000 since I checked a couple of days ago, but the internationalisation that the internet is bringing surely has to start to break down anachronistic regional divides and conquer distribution deals sooner or later. As well as missing out on certain titles, Australians do not get access to the full range of features (yet?). For example, for US users, the Kindle offers basic web browsing, but apart from Wikipedia searches, this is blocked in Australia.

To purists, these are minor issues compared to the big one: the proprietary lock-in. The books you buy for the Kindle are copy-protected and so will only be useable on the Kindle (or certain Amazon-approved software readers, which may or may not be available around the world). So when you buy a book you are taking a leap of faith that Amazon will continue to support the format in a way that suits you. Furthermore, Amazon can remotely delete your books at any time, as was revealed in an embarrassing incident when a book was pulled because the publisher turned out not to have the rights. Of all the titles to be at the centre of this controvery, it was Orwell’s 1984. Critics argued that this highlights all that is wrong about digital rights management. In contrast, the Barnes & Noble Nook is built on the open Google Android platform and already some are arguing that the Kindle will rapidly lose ground if it is not opened up.

Lest you are starting to think that I am regretting my new purchase, I am still fascinated to get a relatively early glimpse of what I am sure will be the future of book publishing. The promise of a single device, the size and weight of a paperback which can store 1,000s of books is revolutionary. It can easily hold all the textbooks a student will need for all their years of high school, or all the books, newspapers and magazines that you could ever hope to read on a long-distance trip. In a year or two I am sure I will look at the Kindle and wonder how I could stand such a primitive device, but for now it is a tantalising glimpse of the future. And yes, for all the book fetishists, I still love paper books and have far too many but could never let them go. But that doesn’t stop me loving my Kindle too.

These are all initial impressions, as the Kindle only arrived two days ago, and I am sure that I will discover more good and bad things about it. In the meantime, here is a summary of the key pros and cons. I have split the cons into general limitations of the device and further “crippling” for international users.

Pros

• Lightweight and portable
• Easy-to-read electronic paper screen
• Very simple operation
• Book and periodical purchasing is easy and fast
• PDF documents (and some other formats) are readily converted to the Kindle format*
• Reasonably priced books (most are around US$12)
• Available in Australia (this is the big one!)

Cons

• Closed, proprietary system
• No ability to subscribe to arbitrary RSS feeds (US readers can buy access to some blogs)
• No ability to share purchased books with friends (the Nook apparently does allow this)
• Limited range of titles (to date)

International Limitations

• No web browsing (and no Google search)
• iPhone Kindle application not available
• More limited range of book and periodical titles
• No access to blogs
• No power adapter (USB cable only)

* Amazon does this conversion for you. When you buy a Kindle you are given an email address that looks like yourname@kindle.com. Email a PDF attachment to this address and, for a small fee, they will send a Kindle version to you via Whispernet. Email to yourname@free.kindle.com and they will, for free, email you a link to a copy that you can load via the USB connection.

West Texas Intermediate Oil Prices

The Australian dollar has been rising steadily for the last six months, pushed along by the Reserve Bank of Australia which has started raising their target cash rate. Higher interest rates in Australia make it more attractive for offshore investors to buy Australian securities and they have to buy Australian dollars to do so. Australian investors holding foreign assets may do the same.

Australia Dollar/US Dollar Exchange Rate

So what does all of this mean for prices at the petrol pump in Sydney? The Australian Automobile Association reported average prices in Sydney of just over $1.20/litre. Based on my simple regression model, the latest crude oil prices and exchange rates indicate that October prices should be about 10 cents/litre lower.

More details on this model can be found in earlier petrol posts.

Data source: Bloomberg and the Australian Automobile Association.

As a psychology student belonging to the faculty of health and behavioural sciences which also harbours biology, medical science and physiology, I was constantly hassled by my friends that were studying law, commerce and engineering and forever asking me “Can you read my mind?” or worse “Are you trying to analyse me?” as if I was Professor Xavier and I could distinguish mutants from humans. Of course I had to keep a straight face and stop myself from saying, “You’re an idiot, there you have it analysis complete” I just rolled my eyes and went with the flow. But deep down I was insulted. It was bad enough psychology had been branded as a “soft science”, which is apparently less intellectually stimulating than the “hard sciences” such as biology, physics and chemistry. But now the general view from all faculties was that psychology is akin to the paranormal, dare I say astrology!

In answer to those questions stated earlier, “No psychologists can not read your mind, contrary to what M Night Shyamalan’s The Sixth Sense taught you and no we are not analysing you, for goodness sake you study engineering you can’t exactly be that interesting!

It seems not much has changed since my university days. As a recruitment consultant, clients and candidates are now asking me those annoying questions. But now I have to treat people with an ever-increasing anxiety that has nearly reached epidemic levels and that is, “Psychometric Testing Phobia”.  But phobia is a strong word; surely people are not scared of answering some questions to examine personality traits and cognitive performance? Surely the test results won’t be used against them and or utilised by employers as a sole decision making tool towards hiring? Well those questions were sufficiently answered after reading the Mule’s post I Hate Personality Tests and hearing countless case studies of candidates who had completed some sort of psychometric test of either intelligence or personality. And by the way the verdict wasn’t good. It seems that psychometric testing is no longer associated with the scientific method or regarded as an instrumental tool utilised by psychologists and psychiatrists to examine human behaviour for the purposes of diagnoses, outcomes measurement and empirical observation. It seems that now, at least in the corporate world, psychometric tests are no different to horoscope readings. A Cleo Magazine questionnaire probably has more merit than most tests that are given to candidates these days, namely Myers-Briggs, HBDI and Keisey Temperament Sorter.

In response to my clients and candidates experiences, the Mule’s commentary post and my boyfriend’s absolute disregard for psychometric testing I have outlined five key indicators which every person must contemplate when taking a test. These points will allow you to differentiate a valid, sound empirical test from a total sham created by con artists posing themselves as psychologists in a bid to create a shit-load of money by selling these tests to HR departments who know fuck-all about psychology. (Pardon the cursing but when I get passionate about something I tend to get to show my feelings in a rather unconventional manner)

1. A test must possess adequate coverage of content domain. For example, a test that purports to measure personality needs to ensure that all major aspects of personality are covered. This can be difficult as personality is governed by an array of theories offering different viewpoints about the development and description of personality. However a test maker can make the distinction between good theories and bad ones. And besides, a test can examine personality from many different viewpoints offering a more holistic approach. As long as personality is measured from a variety of valid theoretical viewpoints, we will gain a better understanding of a person’s behaviour. Case in point: the Myers-Briggs test has its foundations in Carl Jung’s typological theory which characterises individuals on four dimensions of thinking, feeling, sensations and intuition, better known as introversion-extroversion, judgment-perception and sensing-intuition. The test has been constantly criticised as vague and general because nearly everyone can be characterised as either type. How many times have you come across a question, “Would you rather go out with your friends or stay at home and read a book?” Why the dichotomy? After all, can’t we do both and why should individuals have to be characterised by bipolar functions? The answer is we shouldn’t and the Myers-Briggs test offers little, if any, content domain on personality. For those of you who haven’t studied psychology, Carl Jung was one of Sigmund Freud’s students belonging to the school of psychodynamic theories, which has hardly any empirical justification. The fact that Myers-Briggs is still being utilised in the corporate world is nothing short of an enigma.
2. Reliability – If I take the test at Time A will I get the same the result when I take it again at Time B. Simply put.
3. Validity – If a test is measuring depression, will it relate to or be similar to other tests measuring depression? If it does we have something called convergent validity. Furthermore does the test differ from other tests measuring another construct such as psychosis? If so we have discriminate validity.
4. Usefulness – If a psychometric test has no predictive power, it doesn’t matter if other criteria mentioned are satisfied. It is commonly agreed that most valid intelligence tests are pragmatic in their ability to distinguish between individuals in terms of cognitive capacity. The same goes with depression and anxiety measures and these tests are commonly used by practitioners for outcomes measurement. How the test results are utilised in the corporate world in terms of hiring is a different matter and belongs to work ethics. I should add that using the results of a psychometric test, as a SOLE MEANS of hiring someone is wrong and not acceptable.
5. Falsification – The fundamental rule proposed by Karl Popper was that a theory or hypothesis must be subjected to disconfirmation if it is to attain scientific truth. The same goes with psychometric tests, especially personality measurement because these tests are fundamentally governed by theories. If the theories are constantly disconfirmed through experimentation then the tests should be scrapped or at least revised. Some of the best psychometric tools are constantly being revised due to the falsification of the hypotheses which they relied on. These are the Minnesota Multiphasic Personality Inventory (MMPI), Welsher Adult Intelligence Scale (WAIS – IV) and Depression Anxiety and Stress Scale (DASS – 42) to name a few.

I do hope these points are taken into consideration and that psychology can be taken seriously under the same umbrella as the “hard sciences”. If so then I may realise my dream to never hear those bothersome words again, “Can you read my mind?”

Asylum-seekers per capita 2009

One commenter rightly pointed out that the top three countries are not necessarily finding life easy with such high numbers of asylum-seekers. Malta has been criticised for using excessive force in immigration detention centres. Cyprus is receiving a large number of applications, but it appears that far fewer are being allowed to stay, although I am sure that, in his new role as UN envoy to Cyprus, Alexander Downer will be able to give them a few pointers on how to spin this for the media. Even in Norway, dealing with asylum-seekers has become a heated issue.

The chart shows that Australia, sitting in 20th place in the international ranking, has an asylum-application rate per capita that is just below the average across the countries listed by the UNHCR. Looking at the league table ranked by each country’s wealth, we are even further down the list, in 24th place.

Asylum-seekers by economy size 2009

Political debate on the subject of refugees is probably inevitable, but it is worth trying to keep a cool head and get some perspective from the numbers. Australia is a long way away from most of the rest of the world, so it should not come as a surprise that we get only a modest number of asylum-seekers by international standards. Unfortunately, this fact is unlikely to penetrate the consciousness of the more hysterical commentators.

Data sources: asylum-seeker application counts from the UNCHR, population and Gross Domestic Product from the CIA World Factbook.

So, how many more asylum-seekers should we be taking to be accepting our fair share? Keane approaches the question by considering the relative size of our population to the population of the world. However, there are many countries that are a source of refugees that could not realistically accept asylum-seekers. So, instead the baseline should be an equal share of asylum-seekers based on the relative size of a country’s population to the combined population of the 44 countries who have been taking asylum-seekers (a total of 1.14 billion).

The magic number, shown as a grey line in the chart, is 197 asylum-seekers per million population. This means that Australia’s fair share for 2009 to August should be 4,197 rather than the 3,666 we have taken so far. So, we could easily accept the 255 Sri Lankan boat people currently seeking asylum in Australia, and still have room for more. Mind you, Australia only just falls below the average rate, ranking just behind Germany which takes in slightly more asylum-seekers than average.

For anyone wishing to explore this data further, I have uploaded it to Swivel. It also includes data on asylum-seeker intake per billion US dollars of Gross Domestic Product (GDP). Population and GDP data is taken from the CIA World Fact Book. Here is a chart of rankings by GDP.

UPDATE: New and easier to read charts have now been posted here: A better view of the asylum-seeker league tables.

Country Count in Top 200 Universities List

Of course, this tally does not take into account the differing sizes of each country: with a population of over 300 million people, you would expect a good showing from the United States. So the obvious question is, what would the national ranking look like if population were taken into account? Rather than doing this based on the number of appearances each country makes in the list, I aggregated the overall “score” awarded to each univerity (which combines scores based on surveys of peers, employers, staff and students, citations and international staff and students) and then ranked each country by aggregate score per million population*.

Country Score per Million Population

This ranking puts Switzerland on top and pushes the United States down to 15th place. New Zealand has only three universities in the list, the best being the University of Auckland, but its small population of just over 4 million helps it up to third place. The United Kingdom ranks 7th and Australia comes in at a modest 10th place, both losing ground in this adjusted league table.

Interestingly, the Swiss themselves may not agree with their number one ranking. Most of the Swiss universities would have scored far better were it not for rather abysmal scores from staff and students. The University of Zurich fared the worst in this respect, with a staff/student score of only 22 out of 100.  The University of Basel bucked this trend, scoring an impressive 99/100 from staff and students. Unfortunately, employers do not share this rosy view, giving the University of Basel a mere 30/100.

Of course, I could take this further and take into account the wealth of each country, but for once the Mule has decided not to get carried away with the data analysis. Not much anyway.

* Data source: CIA World Factbook.

analysts cite the volume of cash stockpiled as a reason for stocks to keep rising

Mostly consisting of quotations from people in the equity business (who all arguably stand to benefit from talking up the market), the authors do include some data to support the proposition as well:

The latest data released by the Australian Bureau of Statistics shows that fund managers have increased their cash holdings to about 18 per cent of the $880 billion they manage, or about $160 billion. If managers were to return their cash holdings to more normal levels, there would be about $70 billion available for investment, with the local sharemarket receiving up to $30 billion.

The image of a wall of cash on the sidelines waiting to spill over into equity markets is compelling, but does it make sense? The power of this commonly used image arises from the idea that cash is somehow transforming into shares, when of course for every buyer there is a seller who gets the cash, so share trading never changes the total amount of cash in the system (note that aggregate money supply can change through central bank operations and banking deposit creation, but that is a whole other story beyond the sharemarket and is not part of the standard “cash on the sidelines” argument). Of course, this does not stop share prices from going up or down.

So, if the cash in the system does not change, what is going on?

For a start, most commentators who consider cash on the sidelines to be a driver of stock prices look at the percentage of total assets held in cash; this post on the Market Thoughts blog is a good example.  The problem with this approach is that, while it creates an apparent correlation, it is trivial and has no predictive power. This is because a fall in the value of shares (or indeed any risky asset class) will reduce the aggregate value of investment assets and, with the total amount of cash staying constant, the percentage in cash automatically increases. It will then decrease again when shares increase in value again. But of course, this means that the move in cash percentages is coincident with movements in share prices and provides no better prediction than simply saying “shares have fallen and eventually they will go back up”.

A more sophisticated interpretation is to say that “cash on the sidelines” does not mean aggregate cash in the system, but refers specifically to cash held by a segment of the market, namely investors in money market funds (the figure most often measured). The argument could go something like this: many investors target asset allocation mixes and if their cash holdings become too high, they would be forced to buy more shares, thereby adding to demand for shares, shifting the demand curve and pushing prices higher. I have a few problems with this argument.

First, if this phenomenon is significant, why would the cash imbalance have arisen in the first place? Presumably because investors became more risk averse and demand for shares decreased. If so, I would argue that what would push share prices up is sentiment: investors become less risk averse and increase their demand for shares once more. This may, as a consequence, push the cash in the segment back down if investors’ net buying was from participants outside their segment. If so, I would see that the change in cash is a consequence of a change in demand, not the cause.

Second, by segmenting you need to consider not only the demand side, but the supply side. Investors cannot simply trade among themselves, otherwise the cash in their segment would not change. Their increased holding of cash would have to be offset by a reduced holding in cash by other segments, such as the corporate segment, which may affect the supply curve. A plausible scenario would be that corporates, starved of cash, begin issuing shares to raise cash, possibly at a discount to market prices. In the process, they channel the cash back from the investor segment and push share prices down. While I am not saying this would happen, I don’t think it is much less plausible than the explanation that excess cash shifts the demand curve for investors.

A related point is that the segment of investors with money in money market funds is bigger than asset allocators. While asset allocators may feel the pressure of their cash holdings increasing relative to their target, other investors may be becoming more risk averse, offsetting the effect of the asset allocators.

So much for theoretical arguments. Since this is the Stubborn Mule, I really should look at what the data says. The AFR article refers to Australian Bureau of Statistics data on the cash holdings of fund managers. Looking at the history of cash and deposits held by fund managers and comparing it to the Australian All Ordinaries share price index, there is no obvious pattern of increases in cash holdings leading to rises in share prices.

Fund Managers’ Cash and the Share Market (1988-2009)

In case there is a hidden pattern in these time series charts, we can also look at a plot of quarterly changes in the share price index against changes in cash holdings of fund managers.

Cash versus Share Prices (1988-2009)

There are a few outliers in this chart, but certainly nothing to support the claim that cash on the sidelines can push the market up. Of course, it may be that there is a lag before the effect on share prices takes effect, so here is a plot where changes in the All Ordinaries index are lagged by six months.

Cash versus Lagged Share Prices (1988-2009)

Even with the lag, there are a couple of occasions where an increase in cash was followed by share market rises, but the biggest cash build-up was followed by share market declines and for more modest changes in cash levels, the change in the share price index is distributed across gains and losses.

So, neither theory nor data supports the cash on the sidelines argument. And finally, I’ll just note if you believed in the argument back when the article I linked to above was published, you would have gone long stocks in June 2008! So, the next time you hear someone talking about all the “cash on the sidelines”, tell them they are talking nonsense.

UPDATE: Commenting on this post, James suggested calculating the correlation between changes in cash balances and changes in share prices for a variety of time lags. The chart below takes up this suggestion. The correlations are quite variable, which is consistent with my contention that build-ups of cash do not drive share prices. But it is also interesting to note that, if there is a pattern to be found, it is that the correlations are mostly negative, suggesting that increases in cash are  more often followed by share price declines not rallies.

Correlation of Cash and Lagged Share Prices (1988-2009)

I should concede that this chart, which stretches out five years (20 quarters), ends up looking for correlations far beyond where even the most hopeful “cash on the sidelines” advocates would expect to see a relationship.

Those who are familiar with RSS feeds will already know all about this and need read no further (but should also feel free to subscribe). For everyone else, I’ll give a longer answer, explaining how it all works and describing some of the options available for subscribing to the blog.

You may have seen icons like the one here on various web-sites before. It is the RSS logo and indicates that content is available via subscription. RSS stands for “Really Simple Syndication” and over the last 10 years it has become a standard mechanism for distributing content online (for example, podcast subscriptions are built on RSS). True to its name, the way it works is quite simple. A specially formatted file* is created with a list of blog posts, podcasts, news headlines or whatever the subscription content is, along with a link to where the content is located. Whenever new content is added to the website, this file, called an RSS feed, is updated to reflect the new content. The feed can then be read by an “RSS reader” which will periodically check to see if new content is available and then download it, ready for you to read, watch or listen to.

The trick then is to find the best RSS reader and there are a lot of them, as is evident from this list of readers. Readers may themselves be on the web, like Google Reader (my RSS reader of choice), or can be stand alone applications like NetNewsWire. Some email applications can also be used as RSS readers. With an RSS reader, you can manage subscriptions to a wide range of feeds and always keep track of the latest content. Some readers, including Google Reader, also allow you to share you favourite content with friends.

If this all seems too complicated and you are not interested in a large number of subscriptions, you can also have updates to the Stubborn delivered to you directly via email. To do this, simply enter your email address in the box below and click on “subscribe”.

I have the RSS feed for the Stubborn Mule managed by a service called “Feedburner”, which is now owned by Google. As well as providing extra features like the email subscription, this allows me to track how many people subscribe to the blog…so subscribe now, I am watching!

* Like so many web standards, the RSS format uses XML.

Inspired by a chart on the Australian Stock Exchange (ASX) web site, brought to my attention by Danny Yee, I will start by considering the perils of the “secondary axis”. This is a topic that has been covered on Junk Charts, but it seems to be poorly understood by many people in finance. Bank economists seem to be particularly fond of secondary axes.

Since the ASX chart is dynamically generated, I have reproduced a static snapshot showing the key features of the chart. The chart shows (in blue) the history of the S&P/ASX 200 share price index over the last six months. The axis on the left hand side is the “primary axis” and shows the values of this share price index. Overlaid in red is the share price of Alchemia Limited (ACL), a biotech company. The price of Alchemia is shown on the axis on the right hand side, the “secondary axis”.

Alchemia Share Price on a secondary axis (on the right)

At face value, it would appear that the price of Alchemia shares has tracked the performance of the overall share market very closely. However, this is an illusion created by the use of a secondary axis. When considering performance of shares, what is important is not the share price itself, but the returns these prices generate. The upper and lower limits of each axis bear no relation to one another, but are simply determined by the range of values each price series takes and so give no insight into the returns of Alchemia compared to those of the S&P/ASX 200.

A better approach is to create a return index by considering what would happen to $100 invested in either Alchemia or the market as a whole (ignoring dividends and any costs such as brokerage fees and stamp duty). Both these indices can then be plotted on the same axis and this gives a very different picture.

Alchemia Share Price on a common axis

It now becomes clear that Alchemia shares performed dramatically better than the market as a whole. In fact, over this six month period, while the sharemarket index  returned a very healthy 32%, the return on the Alchemia share price was an enormous 304%. This return was helped, no doubt, by Alchemia’s progress in drug trials with the US FDA.

The most that can be said for the ASX chart with the secondary axis is that it reveals some correlation in the ups and downs of the Alchemia share price and the broader market. However, the chart completely missed the big story in the data.

It is worth noting that producing the secondary axis in the first chart above using the R package is rather fiddly, while creating secondary axes in Microsoft Excel is very straightforward. This points to what I expect to be a theme in future bad chart posts: if it is easy to do in Excel, it is probably bad.