GMAT Study Materials

I wrote the GMAT recently. I had used a couple of books for a few days as study aids.

I was really disappointed in how they advised you to study. It was all teaching for the test type stuff. The math sections in particular advised you to not solve algebra problems, but to just plug in numbers, or to work backwards from each given answer. It works (mostly) because the test is multiple choice, so you can verify guesses quickly. I found that I could do the algebra faster than I could do arithmetic, so I didn't follow that advice. The thought of using a number to verify an algebra theorem really irked me as a mathematician. Proof by example is never acceptable.

I ended up writing a practice test before any study at all, just to get a feel for it (and for what the questions were asking). Then I studied section by section, iterating through the advice of each of the books per section. The three treatments of each test section reinforced each other. I did practice questions when I felt I needed to, but that wasn't very often. After finishing all the sections, I did another practice test to see how I was doing.

Kaplan's GMAT comprehensive program had the best strategy and primers for each section of the test. Kaplan's GMAT 800 was a little more condensed and offered a good summary of the other book. The Official guide for GMAT review offered me my last pieces of advice before moving on to the next section of the test.

There may be better books out there, but these three did fine for me. Although none of them were particularly helpful for the "sentence correction" part of the test.

Where are the Customer's Yachts? (1940)

I'm starting a financial reading list. It's got a lot of books on it, so I have decided to read them in chronological order of publication. I figure I will get the most out of them if I follow along on how one was built on top of another. The first book is the oldest one that I could find referenced from multiple recommendations.

Where are the Customer's Yachts was published as a commentary on the financial industry in 1940. It was written by a guy working in finance during the roaring '20s, and who got out after the crash of '29. [The crash of '29 was precipitated by a large amount or margin buying and exacerbated by subsequent margin calls.]

I got the following major observations from the book:

1. The financial industry is set up to make bankers and brokers rich, not consumers. This is mainly done through fees / commissions.
2. Bankers like consumers to get rich, because then they are more likely to invest more and generate more fees.
3. Consumers like to think that bankers and brokers can predict the future, though they cant. Bankers and brokers like to think that they can predict the future, as a way to justify to themselves the fees that they collect.
4. Consumers who lose money by following the advice of bankers and brokers only have themselves to blame.

Basically, the main idea is that bankers and brokers are not the great advisers as they would have you believe, and consumers are foolish for thinking that they are. A rich broker is only rich because he is a good salesman, not because he can predict the future or make customers rich. The industry is set up to "extract rents" [note: this phrase does not appear in the book, I learned it when I was debating taking the CSC] from customers through fees, spreads, charges, commissions, ratios, etc.

There is more detail about particular financial people and practices, and why they are clearly not as great as they seem, but it's all filler around the major points.

The thesis of the book is contained in the title, and there is a story to explain it more:

Once in the dear dead days beyond recall, an out-of-town visitor was being shown the wonders of the New York financial district. When the party arrived at the Battery, one of his guides indicated some handsome ships riding at anchor. He said,

"Look, those are the bankers' and brokers' yachts."

"Where are the customers' yachts?" asked the naive visitor.

[preface]

I wasn't paying attention for great quotes, but these two towards the end of the book caught my attention:

The burnt customers certainly prefers to believe that he has been robbed rather than that he has been a fool on the advice of fools. Even Wall Street men themselves tend to encourage the idea. ... Faced with the huge losses "investors" have suffered, their egos subconsciously suggest to them that it is better to be regarded as a Machiavelli than as one who has spent his adult life engaged in mumbo-jumbo. [pg 196]

The specialist, as you know, is the man who keeps the "book" in a stock. On the left-hand page of his book he enters the buy orders that are placed with him, and on the right-hand page the sell orders. Whenever the orders of a buyer and a seller come together he executes the transaction and collects a commission for doing it. This part of his duties is quite all right, and perhaps a machine could be invented to do the same thing. [pg 200]

There was also a story about a "coin flipping contest" to describe how when enough people try to win at something, a fair number of them will succeed purely by chance. These expert coin flippers will start getting media attention due to their expertise at coin flipping, then they will start to publish publish books, newsletters, and tip-lines to offer advice on how to be an expert coin flipper. I didn't note the page that it is on, but there is a similar story online: Coin-Flipping & Graham-and-Doddsville.

• Where are the Customer's Yachts? - Google Books
• Where are the Customer's Yachts? - VPL
• Where are the Customer's Yachts? - efficientmarket.ca
• Where are the Customers' Yachts? - Timeless Advice from 1920's Wall Street
• Where Are the Customers' Yachts?: or A Good Hard Look at Wall Street
• “Where are the Customers Yacht’s?” - Four Pillars

Why Old Media is Dead

Briefly stated, the Gell-Mann Amnesia effect works as follows. You open the newspaper to an article on some subject you know well. In Murray's case, physics. In mine, show business. You read the article and see the journalist has absolutely no understanding of either the facts or the issues. Often, the article is so wrong it actually presents the story backward-reversing cause and effect. I call these the "wet streets cause rain" stories. Paper's full of them.

In any case, you read with exasperation or amusement the multiple errors in a story-and then turn the page to national or international affairs, and read with renewed interest as if the rest of the newspaper was somehow more accurate about far-off Palestine than it was about the story you just read. You turn the page, and forget what you know.

--"Why Speculate." Michael Crichton, 2002

Why You Should Never Talk to the Police

1. There is no way it can help. (Any beneficial statements are hearsay.)
2. If you are guilty (and even if you are innocent) you may admit your guilt with no benefit in return.
3. Even if you are innocent and deny your guilt and mostly tell the truth, you may get carried away and tell some little lie or make some little mistake that will hang you.
4. Even if you are innocent and only tell the truth, you will always give the police some information that can be used to help convict you.
5. Even if you are innocent and only tell the truth, and do not tell the police anything incriminating, there is still a chance that your answers can be used against you if the police do not recall your testimony with 100% accuracy.
6. Even if you are innocent and only tell the truth and do not tell the police anything incriminating and the entire interview is videotaped, your answers can still be used against you if the police have any evidence, even mistaken or unreliable evidence, indicating that any of you statements are false.

1. You are not innocent of everything.
2. People are inherently honest.
3. People are stupid.
4. People like to tell their story.
5. Police are experts at interviews (you are going to lose).
6. Police are expert witnesses.

Podcasts

I started listening to real (amateur) podcasts... these people need to learn brevity and how to be succinct. The last one that I listened to was 40 minutes long and only made 3 points.

I've noticed the same thing on call-in podcasts. Callers go on and on and on to say something that could have taken one sentence.

The Paradox of Choice: Why More Is Less

Two effects of too much choice: produces paralysis, less satisfaction.

Best example: there used to be only one kind of blue jeans. Now there are hundreds. If you pick one, it will be better than the old style. But you will feel bad about it because the new jeans are not perfect.

With all of these options available, my expectation about how good a pair of jeans went up. ... Adding options to peoples lives can't help but increase the expectations people have about how good those options will be, and what that's going to produce is less satisfaction with results, even when they are good results. Nobody in the world of marketing knows this.

The secret to happiness is low expectations.

When there is no (or little choice) and you are dissatisfied with the result, who is responsible? The world is.

When there is much choice and you are dissatisfied with the result, who is responsible? You are. You could have done better. With so much choice, there is no excuse for failure. People met with this blame themselves. High standards lead to disappointment, disappointment leads to self blame.

Why choice makes people miserable:

1. Regret and anticipated regret
2. Opportunity costs
3. Escalation of expectations
4. Self-blame

• TED: Barry Schwartz: The paradox of choice
• Google TechTalks April 27, 2006 Barry Schwartz
• Wiki: The Paradox of Choice: Why More Is Less
• VPL: The paradox of choice : why more is less / Barry Schwartz.