Outliers story of sucess by Malcom Gladwell

Outliers the story of success by Malcom Gladwell is an interesting book that I just finished reading. The defintion of outlier in the book is someone that has excelled in his area, that is done much much better than average.

Malcom goes on to point possible causes behind personal success. Perhaps the most important teaching of the book is that while talent is important, it by itself does not guarantee success. Other factors are just as important such hard work and being at the right place at the right time.

The book starts on an example about Canadian Ice hockey players and their birthdays. Somewhat amazingly almost all the best players have a birthday early in the year. Assuming that talent is evenly distributed between children, regardless of when they are born in the year, it is obvious that almost half the kids that are born late in the year are missing the opportunity to play ice hockey at high level.

The cause of this effect is the outlier effect; children born early in the year are a bit bigger and therefore in most cases a bit better in a physical sport such as ice hockey. Those kids get more attention and therefore proceed to receive better training making them a bit better each year. In the end the difference between the children born early in the year and late, can be the difference between success and failure.

If this effect was limited to ice hockey it would not be of so much concern, but sadly, it seems to be present in other areas such as the educational system, financial system and pretty much everywhere else. This kind of makes me glad that my son was born in March rather than later in the year. (But of course I would still love him as much if he was born any other day of the year).

Outliers are everywhere you look, CEOs, inventors, high profile bloggers, presidents etc... Can you spot the reason why people close to you are successful? Are there other reasons than talent and hard work?

I would highly recommend this book and recommend being aware of the outlier effect.

Quote:
Every little bit counts.

Icelandic real estate price development

Following the financial crisis in Iceland the real estate market has been quite turbulent. Although housing prices declined, only about 15% from peak to trove in Icelandic kronas the actual decline was in fact much higher. Price decline in a currency that has as rampant inflation, as the Icelandic krona (ISK), gives in fact very little information about changes in valuation of the object.

Therefore, it is necessary to use other metrics to calculate changes in valuation for the Icelandic real estate market. It would be more accurate to compare the price trend developments to inflation (consumer price index) and wage and building cost index. Another potential metric would be to compare the costs against other currencies, but that also has its limitations since other currencies fluctuate as well and suffering from the same drawbacks such as inflation albeit to lesser extent.

Charts

    

As can be seen from the charts it is clear that prices in terms of ISK are almost back to their pre crisis highs. However, in actuality the value of the underlying assets value is actually still quite a bit below the highs. This highlights the importance of using other metrics than just price for evaluvaluation of real estate properties. The date from the chart is obtained from Iceland national register and statistics Iceland. Each index is set to 100 at the start of January 2007 so comparative differences are easier to detect.

Future developments? 

Only time will tell how the property market will develop, however many people currently believe it is in its own mini bubble in part because of easier credit due to the currency restrictions. With limited options to bring money out of the country to invest globally, there are not that many ways to put ISKs to use. Also for the first time in recent history, banks are offer mortgages at realistic rates in ISK, with rates locked for up to 5 years. These loans are unlike the traditionally Icelandic loans and are not  inflation adjusted. Furthermore there is a common believe that the local currency is overvalued, hence it may be preferable to park the money into hard assets rather than relying on paper. Additionally the rental market has been red hot with any open propertiy being swooped up almost as soon as it is available. These facts have made it much more appealing to invest in real estate than would otherwise be the case.

 

On the other hand...

Although the rates of non-inflation is very low especially when accounting for inflation that may not be the case for long. Just last week the Icelandic reserve bank raised the interest rates, and further rates hikes are expected later this year. While the reserve bank does not dictate the rates on mortgages as such, the effects of their currency control are usually carried over to the banks. Additionally higher interest rates also mean it is more tempting to leave the money in the bank rather than in housing.

Icelandic paternity leave

Following the birth of our son I decided to stay at home for the first two months in order to try to make a good first impression. Additionally I will take one extra month of paternity leave in Nov/Dec when my girlfriend will taking exams. We think its worth taking this time off even though it will adversely affect our income for those months.

The Icelandic paternity/maternity leave system is quite simple if you sit down with pen and paper and draw it up. The basic rules are below but note that there are other conditions such as how long you have been working in Iceland etc… which can be found here in more detail.

After the birth of a child the parents get nine months total of paternity leave. If there is more than one baby arriving at the same time additional three months are award given for each one.

Out of those 9 months, 3 of them belong exclusively to each parent. The remaining three can be split between either one, although more often than not it’s the mother that makes use of them.

The amount paid is calculated per month in the following way:

The average income over the last 12 months is used to calculate payout. Out of the first 200.000 Icelandic krónur (ISK) earned, 80% is added to the paternity leave payments. Further 75% of income after 200.000 ISK is added to the paternity leave payments.  The amount is never lower than 127.000 ISK (about 1000 USD) for person working between 50%-100%. However, the maximum payment is 300.000 ISK (about 2.500 USD) which is not so much when taking into account the local prices and taxes.

Students that are studying full time get a grant of about 127.000 ISK about 1000 USD

Thoughts:

Overall I really like the Icelandic paternity leave system as it gives both parents chance to spend time with their newborn baby. Prior to having a child of my own I probably would not have understood why people, and especially fathers, would choose to stay away from work for so long.

However, the cap of 300.000 ISK makes it hard for many parents to use up all their leave. I realize though that there are actually very few countries which offer paternity as a real option for both parents as opposed to just maternity leave. Hence I will keep my complaining to a minimum.

p.s. there used to be no income cap, but the cap was added since several former bankers got really high payouts from the paternity leave fund. The initial cap was much higher but was lowered to the current amount after the recession.

From duo to a trio

The best weekend ever

Last weekend my girlfriend and I were blessed with a beautiful boy. The birth went without a hitch and the boy arrived on Saturday morning weighing almost 3 kg. We are now settling into our new family live getting used to being a trio rather than a due.

Although the boy is a true blessing there are two areas which he has adversely affected our lives. The first is the lack of sleep. Although he is still a sound sleeper, late night feedings are still costing my girlfriend and by extension me a lot of sleep. However, I figure this problem will take care of itself eventually, I hope J

The other area that has negatively affected our lives our finances as we needed to get a lot of baby stuff and have lost some income in paternity leaves (more on the latter later).  Although the boy means more to me than any amount of wealth we have or will have, we still have tried to cut costs as much as possible to secure both our financial futures and perhaps more importantly his.

The three most important things that we did is to borrow, buy used and suggesting gifts.

1.       Borrow, borrow, borrow

A few day old babies will not notice the difference between a new cradle and an old one, nor would the baby care even if it knew. In addition, old baby just ends up as stuff (junk) once the babies are too old to use it and clutter up the house or storage. In fact, people we borrowed from were usually just very happy that someone wanted to use their stuff.

The only negative thing about borrowing is that if we are ever to have a second child we will have to start up our collection almost from scratch.

2.       Buy used

Things that its not possible to borrow nor feasible is best to buy used. Quite often, you can get fully functioning equipment for fraction of the price a new thing would cost.

The only thing that I would not buy used, nor borrow unless I really knew and trusted the previous owner is car seats. Car seats can be damaged during a crash, without any visible sign on them and hence it can be difficult to detect whether they are safe to use or not.

3.       Suggesting gifts

It is quite common that people want to give gifts to a newborn, so try to give people some idea of what you actually need rather than having them just randomly buying something. In our case, for example, the baby was a bit smaller than expected and thus we needed additional small clothes. People that asked what to give the child were directed to small clothes or other items we needed.

These ideas may seem obvious but its amazing how many people insist on having everything new.

Related quote:

"People who say they sleep like babies usually don't have them." 

Leo J. Burke