This from a gal I know who’s been touring Spain…
I ate a quarter of a suckling pig today. I feel like a monster for eating such a young animal; a rotund, content, sleepily sluggish, well fed monster.
If you’re going to kill an animal, kill it when it’s young. It so much more barbaric that way…
And she sends along these pictures.
Is that not the voice of a character speaking to you?
Zing, Baby!
In Why Publishing is Making You Crazy—and What You Can Do About It: The Tao of Publishing, Steven Axelrod and Julie Anne Long write an interesting post that takes some findings made by Duncan Watts and attempts to explain why writers should only focus on the quality of their work because they cannot reliably affect popularity in any other way.
I agree with them that social-influence seems like a good explanation for the sometimes unexplicable successes we see in publishing and the difficulty publishers have in both predicting and producing a steady stream of hits. However, I do not find support for their main conclusion that writers can do nothing but write. In fact, I suggest that Watts’ findings show quite the opposite.
Axelrod and Long base much of their argument on an experiment conducted by Duncan Watts that tested the power of social-influence on music selection in some controlled music websites. Watts summarizes his findings in the excellent Is Justin Timberlake a Product of Cumulative Advantage?.
In his part of the post, Axelrod points out that the Watts findings indicate “50% of the factors affecting your career could be totally outside of your control—totally random” and that “unless we can separate out those random factors which contributed to an author’s past success [and we can’t, Axelrod suggests], anything we can say or predict about why she succeeded will invariably be way off-the-mark.” And therefore “what’s interesting—and chilling, as well—is that there’s evidence that the harder a person works to make sense of a random event, the farther they’ll end up from the truth.”
In other words, the only thing an author can reliably do to improve the popularity of his stories is focus on their instrinsic quality. And get more stories out so he has more shots in the fickle social-influence game.
I agree that having more product in the market increases your odds. I also agree that focusing on the intrinsic quality of the writing can do the same. I even agree that this is where authors should spend most of their time. However, Watts’ studies do not indicate other efforts are wasted. In fact, they suggest the opposite.
Watts does not controvert anything we now know about marketing. What he does is clarify the power of social-influence in our decision making and the dynamics of ONE type of endorsement system. What Watts shows is:
These findings, however, need to be put in context. From cars, to camcorders, to recipes, the popularity of a product depends on three main factors. These aren’t new ideas and publishing is no different than any other industry. The factors come from long-standing marketing practice:
Each of these three affects the other two. Visibility makes endorsements and initial attractiveness possible. Endorsements make a product more attractive and more likely to be visible. Attractiveness makes something more visible and more likely to be endorsed. And round and round we go.
It’s true that Watts shows 50% of the effect is due to endorsement. But nowhere does Watts suggest an author cannot increase the probability of visibility and endorsement.
In the study, the endorsement method used was a counter showing the number of times the song had been downloaded. It was random, anonymous, and perceived as unbiased. That was a controlled environment. However, what if a singer had been able to ask all those he knew who loved his song to download it from the site? Or what if someone organized such a campaign independent of the singer? Both actions would immediately affect the probability of the song increasing in visiblity and endorsement and, hence, popularity.
It’s too bad Watts didn’t test this in one of his sites to see if he could make a winner. As it was, all Watts was doing was seeing if he could predict a success by quality alone. He was passively observing, not actively taking measures to increase visibility and endorsement.
Furthermore, the counter is just one type of endorsement system. There are a number of others. We’ve all seen how an Oprah endorsement can move the market. The identity of that endorser is NOT random and has great predictive value. Her decision to endorse is still random. But what if you have a way to make your book visible to her? Would it be a waste of time to do so?
Robert Sawyer loves to tell of one action he took with someone with much less endorsement power than Oprah and the effect it had on his sales. Was Sawyer guaranteed visibility and endorsement from that action? No. However, he DID increase the probability, and it resulted in sales. Here’s his account.
Watts confirms that endorsements have a mighty effect on popularity. Even something as simple as a “most downloads” counter can easily overwhelm a listener’s own reactions. But the logical conclusion is not to do nothing. The logical conclusion is that if authors want to increase their popularity, they must not rely only on the intrinsic value of their product, but they must also search for ways to increase visibility and endorsement.
Axelrod is correct that it’s sometimes difficult to see the effect of any given marketing campaign or tactic. This is because marketing efforts are probabilistic, not deterministic. However, probabilistic does not mean random. Furthermore, it does not indicate you cannot increase the probability of success. While publishers may not be able to produce best sellers every time, I’m confident if they decided to stop marketing altogether, sales would drop.
Will all efforts succeed? No. Any marketing progam needs to consider the effect of diminishing returns. The effectiveness of some actions may be difficult to test. Furthermore, authors may not have the budget to run a campaign large enough to increase their probabilities, although there are strategies to become a big fish in a small pond (see Geoffery Moore’s Crossing the Chasm).
Despite all these issues, we know, in general, getting endorsements helps. In general, the right placement in book stores increases visibility. Author visits to schools, if done right for middle age readers, can also increase visibility. Radio interviews, if done right, do the same. There are many things that DO improve an author’s odds. We can increase the probability of visibility and endorsement by taking intelligence, consistent action.
And that’s good news. We might not be able to guarantee a hit, but one thing IS certain—we’ll have no direct influence on visibility and endorsement if we do nothing.
(BTW, for those interested, here’s a great presentation on a related idea:Six Degrees: The Science of the Connected Age a presentation by Duncan J. Watts.)
Radio and TV have incredible power. But until the last decade they were always constrained by time and signal power. You had to listen when the station broadcast it, and you had to listen where you could pick up the signal.
Living out in the boonies we don’t get good radio or TV reception (no I don’t subscribe to satellite). Which is why the internet is so wonderful.
You can listen and watch almost anything when you want from almost any location–yes, even in Laketown, UT, Boonie Central. Millions listen to music, conservative talk, or libral talk (NPR) via the internet. I enjoy all three depending on my mood. But there’s so much more out there than music and blah blah blah, as much as I love it. For example, you can listen to the British BBC. You can listen to the Dutch. See what’s going on in Australia. Doesn’t matter that they are a number time zones away and all asleep when I’m working. I love the internet.
One of the best programs I’ve heard in the last six months is the three-part “Parasites” presented by Radiolab. In a fascinating hour they address the following questions:
Along the way they tell a number of amazing stories. Listen now. You won’t be able to stop.
Get zinged, Baby!
Call the Nestle Hotline at 1-800 295-0051.
When asked if you want to continue in English or Spanish, wait quietly for about 10 seconds and you will smile.
Keep going and press 4. I personally loved option 7. What’s your favorite?
Don’t think it’s legit? It is: http://www.nestlecrunch.com/
Crocodiles scare the crap out of me. In fact, I think they’re the scariest things on the planet. Gators make a close second. But they aren’t just monsters to humans. It appears gators have got blood that’s an infection’s worst nightmare.
So I predict right here that in the not too distant future we’re going to have a product called “Gator Cream” and it will rival the wonderful Neosporin.
How would you like to listen to a master story teller for almost an hour? You can. Radio West recently interviewed Pete Docter who directed Pixar’s recent motion picture Up.
Docter has been with Pixar since the beginning and he shares a number of insights into story telling. He talks about the importance of emotional hooks, getting ideas and developing them via the creative Q&A process, and editing a story from schlock to greatness, and much more. What a wonderful interview.
With the current financial “crisis” I kept wondering what went wrong. Read this article on the AIG mess from the guys at the Motley Fool. That explaination of the AIG mess is very interesting. The other part of this current financial mess, the loaning-of-money-to-people-who-were-idiotic-credit-risks and the making-me-foot-the-bill-for-someone-else’s-assumption-of-ridiculous-risk, those two parts torque me.
So why am I posting this in the Zing and Writers categories?
Because it IS zing to me. You could write a high-finance thriller about this. You could write about a character who leveraged himself silly and is about to lose it all–in a smaller sense. You could write, hey, wait a minute. I just read a book about something similar–THE CHAIRMAN by Stephen Frey. It’s a 2.5/5 star book. Good enough that I had to finish it. Although not good enough to make my recommendation list.
The point is that stories are about problems and conflicts. And this understanding of the insurance industry provides some fertile ideas for both problems and conflicts.
And since I can’t get the blasted link to work, here’s the full deal.
AIG’s Failure Is So Much Bigger Than Enron
By Andrew Sullivan, CFA
September 17, 2008 Comment (54) Recommend (124)
Enron — reviled, fraudulent Enron — destroyed more than $60 billion of shareholder value.AIG (NYSE: AIG), which the government just took over, has destroyed $180 billion already — and it almost brought down our entire financial system.
We don’t know money
Which is ironic, given AIG’s old television commercials, in which the giant letters “A I G” displayed on the screen while text flashed underneath that culminated in the following phrase — all in capital letters:WE KNOW MONEY
There were no smiling couples, young children at play, or lounging retirees. No, AIG was above that — it was better than that.
But here’s a news flash, AIG: You don’t know money.
If you did, you’d have realized a few things. Insurance is terribly simple, as long as you follow the Three Rules:
Price your risk correctly.
Invest conservatively so you can pay out claims when they come due.
Don’t do anything else.
Sit back and collect the spread. That’s it, folks.Seriously, that is it. Ask Warren Buffett, and he’ll probably tell you that if you follow those three rules, you’ll be fine. You won’t be the biggest or fastest grower, but you’ll be absolutely fine.
The problems come when you get greedy and aren’t satisfied with the spread. And your greed can lead to certain actions that aren’t stated anywhere in the rules, including:
Diversifying into fast-money proprietary trading.
Leveraging your company 11-to-1.
Neither of these is a goal of a well-run insurance company, yet AIG embraced both with open arms.Diworsifying
But AIG self-destructed not because it screwed up in its insurance business. It didn’t fall into the trap of mispricing risk, as so many other insurers over the years have done. It also invested premiums fairly conservatively. So it followed Rules 1 and 2.Where it slipped up was in Rule 3. See, the folks at AIG thought they were so smart at insurance that they could start other capital-markets businesses … including proprietary asset management in things such as commodities, currencies, energy, interest rates, and the selling of default swaps on collateralized debt obligations (CDOs).
This strategy worked beautifully — for a while. AIG created a separate business segment called Financial Services to trade in the aforementioned assets. This business had $204 billion in assets at year-end 2007, up from $60 billion in 1998.
Operating income surged from $900 million in 1998 to $4.4 billion in 2005. Some of the moves it made were brilliant, such as the purchase of ILFC, an aircraft-leasing business. But the other trading businesses were the Medusa that turned the whole company to stone.
Let me make one thing clear: Proprietary trading isn’t bad, in and of itself. Warren Buffett engages in it. But just like atomic weapons in the wrong hands, proprietary trading can do a lot of damage. The problem is when you start to get aggressive and don’t heed proper risk — when you start to speculate instead of invest.
And there’s one other critical ingredient for disaster.
The “L” word
As in “leverage,” the sharp knife in corporate seppuku dramas. Leverage is, by my estimation, the No. 1 reason why companies fail.And compared with its peers, AIG had one of the sharpest knives around. Here’s how its leverage (assets to equity) stacked up against other insurance operations as of December 2007:
AIG: 11 to 1.
Markel (NYSE: MKL): 4 to 1.
Berkshire Hathaway (NYSE: BRK-B): 2 to 1.
Montpelier Re (NYSE: MRH): 2 to 1.
Travelers (NYSE: TRV): 4 to 1.
White Mountains Insurance (NYSE: WTM): 4 to 1.
Chubb (NYSE: CB): 4 to 1.
I would love it if someone gave me a rational, believable explanation of why leveraging your equity 11-to-1 is a good thing for an insurer. The sole job of an insurance CEO is to ensure that his or her company stays in business; the CEO’s job has nothing — absolutely nothing — to do with growing profits every year in a steady, smooth line.Surprises in insurance are almost always negative, so simply staying solvent is the overriding priority. A company can do just that by following the Three Rules.
Two years ago, a few of my Fool colleagues had an interesting conversation with Chris Harris, the chief investment officer at reinsurer Montpelier Re. Harris noted that Montpelier invested its float primarily in U.S. Treasuries, Fannie and Freddie bonds (back when they were considered safe), and the like.
When asked why he didn’t invest more aggressively, Harris said the company believed that it got all the risk it could handle on the other side of the fence, insuring against megacatastrophes.
Even if you disagree, as an investor you have to recognize the judiciousness in this way of managing one’s business. An insurer that has to pay big claims from hurricanes Ike and Gustav and Typhoon Sinlaku — and additionally worry about the rapid decline in its investment portfolio as a result of the higher level of risks it has taken on — has a big problem.
That insurer, folks, is AIG. And that big problem is now yours and mine.
This really is bigger than Enron
The edifice Hank Greenberg built has all come crashing down. Apparently, AIG didn’t realize that almost 40 years of 15% growth multiplied by a big fat zero equals just that: zero. It didn’t consider that its leverage left it exposed to a liquidity crisis, and it didn’t consider that its non-insurance businesses could bring down the whole company.In all fairness, management did not realize how much exposure it had to CDOs backed by subprime loans. This may or may not be true, but Buffett has famously stated that each one of these prospectuses has something like 15,000 pages, so it’s unlikely they were gone through in any great detail.
But investing in things you don’t know is a huge risk, right? And that risk was compounded by having so much leverage. The fact is, the more leverage you have, the more careful you must be with the investments you hold, because your own capital structure is that much riskier.
AIG did nothing of the sort. And so even though it has a rock-solid, wonderful insurance franchise, its greed and lack of care in its investing decisions took down one of the world’s great companies.
What a shame. What a shame for all of the investors who lost billions thinking that this company was conservative. What a shame for taxpayers like you and me. What a shame for the United States’ reputation as a beacon of financial stability and conservatism.
For Fool.com’s continuing coverage of this week’s events, check out “The Biggest Financial Story of the Past 50 Years.”
Andrew Sullivan has no financial interest in any of the companies mentioned. Montpelier Re is a Motley Fool Hidden Gems selection. Markel and Berkshire Hathaway are Motley Fool Inside Value recommendations. Montpelier Re and Berkshire Hathaway are Motley Fool Stock Advisor picks. The Motley Fool owns shares of Berkshire Hathaway and has a disclosure policy.
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I’m not touring Spain, I live here. I guess you imagine what that means: I’m a monster on a daily basis and I intend to keep it up.
Yummy yummy pigglets. Not to speak of suckling lamb…
The picks aren’t by me, I ripped them off the interwebs somewhere. But you get the idea of just how crunchy and evil eating pigglet feels like.
[lol]
Sounds like it feels evilicious.
I didn’t know you LIVED in Spain. How wonderful!
Evilicious is now my second favorite word after clusterf- – – – -.
🙂
See you around!