The Government Accidentally Launched A $3 Trillion Industry And Other Facts
Welcome to What We Learned This Week, a digest of the most curiously important facts from the past few days. This week: explaining WTF an ETF is, eating like Dwayne Johnson and crying over a seagull.
WTF DO THESE WORDS MEAN?
The SEC Did Not Intend For ETFs To Get This Big
In the wake of 1987's Black Monday, the SEC released a 840-page report on why the crash happened.1
In that report, the SEC outlined a potential new type of financial product that by it's very nature would incentivize the market to keep in balance. Nathan Most, then a product developer at the American Stock Exchange, took this hypothetical product and made it real. Thus, The Exchange Traded Fund was born.
And how they work is sort of simple? Imagine you have a basket. In that basket are three treats. You can buy a share of that basket, which costs the sum total value of those treats. When you sell that share, you get back whatever the sum total value of those treats are at the time of selling.
Throughout the day, the prices of those three treats go up or down independently. Maybe one day the price of Treat 1 sky rockets while Treat 2 and 3 stay fairly level. Maybe one day Treat 3's value plummets while the other two are slightly up. Now, what you can do, as an owner of a share of that basket, is look at the net value of the basket, compare it with how much you originally paid for your shares, and decide to sell or buy more. Which: duh, this is stock market 101.
The crucial part, though, is that when you're buying or selling, you're buying or selling a share of everything in the basket. So even if Treat 1's value is sky high and you want to offload some of that, you're still selling shares in Treat 2 and 3 — which ends up balancing things out. If you want to try your hand at it, or even just see how this all works in realtime, you should check out Bloomberg's handy ETF toy.
So, even though the SEC accidentally created a financial product that now houses some $3 trillion in wealth, it's sort of a good thing?
SEARCHING FOR A PLANE, AND AN INVESTOR
Two Pilots Think They Only Need $5 Million To Find MH370
Just over a week after Malaysian Airlines flight 370 vanished over the Indian Ocean, licensed pilot Chris Goodfellow came up with a theory. Somewhere off the coast of Australia, the pilots of MH370 encountered a cockpit fire, deemed to turn back, and then lost the plane to the fire. The official search operation ignored it and wasted months finding nothing but a 19th-century shipwreck.
And so Goodfellow partnered with private pilot Simon Gunson and formed what any sane advocacy group does these days: a Facebook group, VeritasMH370. Using their own calculations based on Goodfellow's theory, they've determined a search area where we might find the missing plane. So, if you'd like to give Goodfellow and Gunson the $5 million to prove out their (very) educated guess, they'd be happy to take you up on it.
[Wired]
A SALTY REACTION
Liquid Salt And Liquid Water Do Not Mix
Combining two things that have a vast difference in temperature is always going to elicit some extreme reaction. Here, the molten salt enters the water, near-instantly turning that water into a vapor, which rapidly expands which we observe as an explosion. Also, we should not that while the Backyard Scientist regularly does these sorts of experiments, it's probably not the best idea to wear shorts when you're dealing with molten anything.
[Digg]
IF YOU WORK OUT A LOT
The Dwayne 'The Rock' Johnson Diet Actually Works
Dwayne Johnson eats a lot. Every day he consumes 5,000 calories split amongst 7 meals which consist of chicken, eggs, steak, vegetables, potatoes and a lot of cod. Granted, Dwayne is a large man who works out a lot. But: what would happen if your average person decided to follow the same regimen? Mark Webster decided to do just that. And, for the most part, it worked. Mark went to the gym like Dwayne, ate like Dwayne and then started to see Dwayne-like gains. It's true that life is not fair, but it's heartening to see that if you work hard and eat a lot of white fish you too can achieve some modicum of self-determined success.
MIGHT DEPLETE SOME EGOS
One Of The Most Important Psychological Findings Could Be Wrong
It seems intuitive: we all feel like we have a finite amount of willpower. Particularly now, as the weather goes from gray and cold to green and warm, it feels as if the amount of heck we have to give is increasing. This phenomenon, known as ego depletion, was first demonstrated in the '90s by psychologists Roy Baumeister and Dianne Tice. In their experiment they put two group in a room, forcing one to eat freshly baked chocolate chip cookies and the other to eat radishes. The two groups were then asked to solve an impossible problem. The cookie eaters persevered long than the radish eaters ‚ thus supporting the idea that we only have a limited amount of motivation.
This paper has been cited more than 3,000 times. And now, a new paper, which tried to replicate the cookie/radish experiment over thousands of people from around the world, concludes that ego depletion doesn't actually exist. Which: by itself isn't too crazy. Life will go on if we haven't found an accurate understanding of willpower. But the larger implication — that such a highly-cited study can't be replicated at a larger scale — runs along the lines of "If that's not right then what else isn't?" It's a real existential crisis in the field of psychology.
[Slate]
WELL THIS IS A BUMMER
The Octopus Is A Cruel Animal
Why are you doing this octopus? It doesn't even look like you're trying to eat this poor seagull. It looks like this seagull entered these watery shallows and you're just drowning it.
[Digg]
In short, traders insured their investments by betting against the market. When the market dipped, they would sell their futures, recouping their losses. Of course, when the market dipped in October '87 and a large amount of people tried to sell their stock index futures this reduced their value, which then caused the owners of the stocks propping up those futures to sell as well — and you could see where this is going.
