craschworks

http://www.economist.com/science/displayStory.cfm?story_id=1045223

Human behaviour
Deviations from the mean
Mar 21st 2002
From The Economist print edition
AP

Biologists are helping economists to explain why humans are not always selfish

AT SOME point during their education, biology students are told about a
conversation in a pub that took place over 50 years ago. J.B.S. Haldane, a
British geneticist, was asked whether he would lay down his life for his
country. After doing a quick calculation on the back of a napkin, he said
he would do so for two brothers or eight cousins. In other words, he would
die to protect the equivalent of his genetic contribution to the next
generation.

The theory of kin selection-the idea that animals can pass on their genes
by helping their close relatives-is biology's explanation for seemingly
altruistic acts. An individual carrying genes that promote altruism might
be expected to die younger than one with “selfish” genes, and thus to have
a reduced contribution to the next generation's genetic pool. But if the
same individual acts altruistically to protect its relatives, genes for
altruistic behaviour might nevertheless propagate.

Acts of apparent altruism to non-relatives can also be explained away, in
what has become a cottage industry within biology. An animal might care for
the offspring of another that it is unrelated to because it hopes to obtain
the same benefits for itself later on (a phenomenon known as reciprocal
altruism). The hunter who generously shares his spoils with others may be
doing so in order to signal his superior status to females, and ultimately
boost his breeding success. These apparently selfless acts are therefore
disguised acts of self-interest.

All of these examples fit economists' arguments that Homo sapiens is also
Homo economicus-maximising something that economists call utility, and
biologists fitness. But there is a residuum of human activity that defies
such explanations: people contribute to charities for the homeless, return
lost wallets, do voluntary work and tip waiters in restaurants to which
they do not plan to return. Both economic rationalism and natural selection
offer few explanations for such random acts of kindness. Nor can they
easily explain the opposite: spiteful behaviour, when someone harms his own
interest in order to damage that of another. But people are now trying to
find answers.
Good for you, good for me

The favoured tools for exploring seemingly odd behaviours are called
public-goods experiments and ultimatum games. In a public-goods experiment,
each member of a group of subjects is given a financial stake and asked to
use this money to contribute to a common pool. This pool is then expanded
by the experimenters and redistributed to individuals in the group.

One recent public-goods experiment was conducted by Ernst Fehr from the
University of Zurich and Simon Gächter at the University of St Gallen in
Switzerland. Sets of four students were given around $20 to participate in
a group project. They were told that they could keep any money they did not
invest. The rules of the game were that every $1 invested would yield
$1.60, but that these proceeds would be distributed to all group members-in
other words everyone would get 40 cents. Thus if everyone invested, each
would walk away with $32, and the public good would have been served. If,
however, only one person invested, that sucker would take home a mere $8.

The experiment was run first as a series of six rounds in which the
participants were anonymous, investment decisions were taken
simultaneously, and no two participants interacted more than once. At the
end of each round, each player was told how other members of the group had
invested and what the individual pay-offs would be. In this version of the
game, people quickly learned not to invest. By the sixth round,
contributions to the pool had dwindled to nothing.

The second version of the experiment, though, gave the individuals the
opportunity to punish each other financially at the end of each investment
round. At a cost of $1, a group member could anonymously fine another $3.
Of the 240 participants in the experiment, 84% punished at least once and
around 9% punished more than ten times. Most punishment was imposed by
above-average contributors (deemed co-operators) on below-average
contributors (deemed defectors or free-riders). Punishment was related to
notions of fairness; the amount of punishment given was directly related to
how far a free-rider's contributions deviated from the group's average. And
punishment had an effect. It substantially increased the amount that was
invested in the public good: more than 90% of the participants contributed
more money when punishment was a possibility.

These punishments might look spiteful. In fact, they were altruistic. This
is because, at the end of each investment round, the participants were
swapped between groups so they would never invest with the same people
again. Participants were therefore paying to punish someone with whom they
would not interact again. Altruism, in other words, emerged in the second
form of the game, as punishment, but not in the first.

The idea that people sometimes value “fairness” over personal gain was also
suggested by an ultimatum game run last year by Joseph Henrich, an
anthropologist at the University of Michigan's business school, and his
colleagues. In an ultimatum game, a participant is given what is for him
the equivalent of a day's wages, and asked to contribute a portion of this
to a second, anonymous person whom he will never meet again. The recipient
can accept or reject this offer, but if he rejects it, neither party
receives any money.

The logic behind an ultimatum game suggests that, if people wish to
maximise their resources, as standard economics assumes, a recipient will
accept any offer made by a donor. Conversely, the donor will always offer
as little as possible. But that is not how things turn out. Offers are
guided by notions of what is fair, as are rejections. The researchers found
that offers ranged from 22% to 58%, and offers higher than 50% were
sometimes rejected.

This evidence and the findings of public-goods experiments led the
anthropologists to conclude that acceptance and rejection were strongly
linked to feelings of fairness and reciprocity in addition to material
benefits. People reward those who act in a co-operative manner and punish
those who do not-even if such behaviour costs them something personally.

That is, of course, only a scientific confirmation of a human commonplace.
And when a new phenomenon is recognised by science, a name always helps. In
a forthcoming paper in Human Nature, Dr Fehr and his colleagues argue for a
behavioural propensity they call “strong reciprocity”. This name is
intended to distinguish it from reciprocal altruism. According to Dr Fehr,
a person is a strong reciprocator if he is willing to sacrifice resources
to be kind to those who are being kind, and to punish those who are being
unkind. Significantly, strong reciprocators will behave this way even if
doing so provides no prospect of material rewards in the future.
Turn and face the change

That does not, of course, explain how strong reciprocity evolved in the
first place. The modern theory of natural selection sees the process
working on individuals: if you are “selected out” (ie, killed), your genes
cannot contribute to the next generation. Most selective pressures
(predators, sexual competitors and so on) work at the individual level.
Those that might wipe out whole groups at a time, such as infectious
diseases, are not susceptible to collective action, so might as well be
individual pressures. However, if what kills individuals frequently kills
entire groups, but is something that collective action might successfully
combat, the unit of selection might become the group. In the case of human
beings, who (thanks to language) can collaborate in detail, a wide range of
group-threatening risks-wars, famine, environmental catastrophes and so
on-might be susceptible to such collective action. Groups containing strong
reciprocators might be better adapted to survive, particularly since their
behaviour coerces even the selfish into action that favours the common
good. Genes for strong reciprocity would thus spread.

The idea of strong reciprocity explains both previously inexplicable
altruistic acts and the existence of spite. That makes it theoretically
attractive. Its boosters also think that it might have practical
applications. A pair of economists, Samuel Bowles at the Santa Fe Institute
in New Mexico and Herbert Gintis of the University of Massachusetts in
Amherst, has suggested that if policymakers want to achieve certain public
goods, such as the sharing of common resources, it might be useful to
provide opportunities for the public-spirited to punish the free-riders in
society. This kind of thing works in small fishing communities, where
free-riders are punished by social exclusion. Extending these sorts of
penalties to society at large could pit the better side of human nature
against its other half, and make things better for everyone.

Measuring Percentage Body Fat in Healthy Individuals
by Fiona Hayes

http://www.the-summit.co.uk/article4.htm

Justifications given

For some years obesity has been linked to increased risk for diseases such as coronary heart disease, type II diabetes, hypertension and some types of cancer. (Schull W.J. 1990; Gledhill N. 1990). Obesity has been defined as a body mass index of greater than 21 or body fat greater than 30%. Medical opinion is that to be healthy a total body fat percentage of no greater than 25% for women and no greater than 15% for men is desirable.

Over the past 20 years activity levels in the UK have fallen by an average of 800 Kcals per day and Intake has fallen by about 750 Kcals, per day (W P James: 1995; Hendler R.G. 1995). The remaining 50 Kcals causes a positive energy balance which is reflected in an increase in average adult weight. Added to this, a decrease in activity levels exacerbated by ageing causes a decrease in muscle mass, (Evans W. J. 1993; Tseng B.S. 1995; Going S.1995), which alongside the increase in weight gives a considerable rise in average total fat weight or percentage body fat.

The western world is apparently very interested in weight loss/management as witnessed by the popularity of slimming products. The U.S. National Centre for Health Statistics shows that nearly 50% of adult women are dieting to loose weight (DHSS publication 1990). It would appear therefore that loss of weight is a possible motivating factor for people to start on, or adhere to a regular exercise programme. For these reasons many health clubs and fitness centres include an estimation of percentage body fat in the battery of fitness assessments that they offer to the general public. Goals are then set for the client and these may include a target loss of body fat.

Sports coaches also often use estimations of % body fat and encourage athletes to achieve certain standards identified as desirable for elite performers in that particular sport.

Although estimations of percentage body fat are useful in collecting statistical data to identify population trends in public health, it is questionable whether the routine measurements carried out as part of fitness assessment in health clubs or as evaluation of factors leading to better sports performance are justified.

Methods
Hydrostatic Weighing

The gold standard for body fat measurement is considered to be hydrostatic weighing. This uses a model of reference man that is made up of two components. Fat and lean tissue. (lean tissue being all that is not fat.) It also assumes that the density of each component is known and that densities are constant amongst individuals. It assumes that the densities of lean tissue components are constant within and amongst individuals with a constant proportional contribution to the density of fat free mass. Finally it assumes that individuals being compared, differ only in the amount of fat when being compared to reference man (as described by Behnke and Wilmore 1974). (Behnke A. and Wilmore J.1974; Wilmore J. 1983; Skinner J. 1990).

As muscle and bone densities vary considerably between people, between male and female and between people of different ages, as well as at different body sites in the same person, the equations leading to the estimation of body fat using this method may well be inaccurate due to the assumptions made. Young and old populations tend to be overestimated whilst some athletic populations tend to underestimated. (Skinner J. 1990)

Hydrostatic weighing is expensive, uncomfortable and inconvenient and is therefore inappropriate for measuring large numbers of individuals, however it is the bench mark against which other methods of measurement of body fat are validated.

Anthropometry

One of the most common methods used for estimating body fat is skin fold measurements. This method measures folds of skin along with the underlying sub cutaneous fat at various sites on the body and then using regression equations estimates total fat from these measurements. To be close to accurate the skin fold calliper pressure should not vary by more than 2 g•mm-2 over a range of 2 to 40 mm and should be 9 to 20 g•mm-2. (Skinner J 1990), and the skin folds sites must be determined using anatomic reference points. The measurement should be read no more than two seconds after applying the full force of the calliper.

Problems occur because of error on behalf of the person measuring, difficulty in measuring obese individuals, poor quality or badly maintained callipers and assumptions made when preparing the equations used to determine % body fat from the sum of the skin fold sites. For instance the assumption is made that in young adult individuals subcutaneous fat amounts to 50% of total body fat and that distribution is consistent between people.

As ageing occurs less fat is deposited subcutaneously and more intra abdominal fat is present, thus a scale which takes into account the ageing process is used. How much of body composition changes are due to ageing and how much are due to lack of activity is at present undetermined, therefore whether this scale is accurate for very active or highly fit older individuals is questionable.

Bio Electrical Impedance

A relatively economical and increasingly popular method of estimating body fat is by use of bio electrical impedance. This is based on the concept that electric flow through hydrated fat free tissue and extra cellular water meets less resistance than through fat tissue. Thus impedance to the flow of electricity will be directly related to the amount of fatty tissue.

Because hydration affects the normal concentrations of electrolytes in the body the accuracy of this method will be affected by either over hydration or dehydration. Dehydration will decrease the impedance measure to yield a lower % fat, whilst over hydration will have the opposite affect.(McArdle Katch and Katch). This has implications when measuring female subjects who may retain large amounts of fluid during the luteal phase of the menstrual cycle.

Skin temperature may also affect readings.

Despite this, if specific reference data is collected, both BMI and bio electrical impedance may be very useful when measuring children or elderly subjects for whom skin fold measurements are inaccurate. (Lohman T.G. 1992; Chumlea W.C. 1991; Chumlea W.C. 1991)

Others

Other measurements of sub cutaneous fat include roentgenography, ultra sound and magnetic resonance imagery, however these methods are expensive and raise ethical questions such as those surrounding the use of x-rays. They do however have an advantage over skin fold measurements in that bone and muscle can be imaged and could possibly be directly measured.

Body stature and girth measurements, although often used in isolation may be especially useful when used in conjunction with sum of skin fold sites as in the Canadian Standardised Fitness Test, in which body mass index (BMI) is calculated by dividing body weight in kilograms by height in metres squared and is reviewed alongside the sum of five skin fold measurements to determine whether a high BMI is due to excess adiposity or to muscularity. The body fat distribution is then also determined using waist to hip ratio and the sum of two skin folds taken at the sites of the iliac crest and sub scapular.(Gledhill N. 1990)

What is normal

Tables showing 'Normal' or desirable body fat percentages for different ages and genders are often used to determine whether a person needs to lose body fat. Typically, an across age figure of no greater than 25% fat is quoted as desirable for females and an across age figure of no greater than 15% fat is quoted as desirable for men.

These figures are based on young active or athletic populations and do not take into account individual genotype or culture. It is thought that about 25% of the variance in fat mass can be accounted for by genetic transmission and about 30% can be accounted for by cultural transmission.(Bouchard C.1990).

Giving an individual a target fat loss based on an active young population may therefore be inappropriate. A more appropriate target would be based on an estimate of what is possible and acceptable taking into account the individual's age, genotype and cultural background.

Risk to health

As well as this, questions still remain around the effect on health of total body fat as compared to the distribution of body fat, and the negative effect of weight cycling that may result from an individual's repeated attempts to lose weight interspersed with weight gain.

Body fat content alone may not be the main risk to health. People with large partially filled adipose depots may have less risk than those with smaller but completely filled adipose depots. In animal studies restriction of energy intake in genetically obese animals increases longevity and decreases signs of ageing, even though the animals remain obese. (Abernethy R.P.1994) In humans centrally distributed body fat is associated with a higher risk of cardiovascular disease than is peripherally distributed body fat. (Bray G.A. 1988).

Weight cycling, that is repeated bouts of weight loss and weight gain, may carry a higher risk for all cause mortality and for mortality from coronary heart disease than does a body fat percentage consistently above that which is recommended for health. (Brownell K.D. 1994; Brownell K.D.1987)

Accuracy

If population studies describing health trends, especially those associated with obesity, are the reason for measuring body fat, then the measurements used need to be economical, highly reproducible and accurate.

Currently there are problems associated with all the methods used for indirect measurement of body fat and these may be amplified in particular sectors of the population. Measurement of body fat in the elderly could be used to prevent malnutrition in institutionalised elderly persons, to predict health risks and to plan and evaluate intervention strategies, to study associations among fat patterning and mortality to develop improved reference standards for the elderly. However current methods of estimating body fat in the elderly are limited by the lack of suitable reference data. (Chumlea W.C. 1989; Chumlea W.C. 1993; Kuczmarski R.J. 1989; Van Itallie T.B. 1990)

Body fat assessment in females is fraught with problems. Estimations have been largely extrapolated from male studies however, compared to men, fat regulation in women is far more elaborate with more and different sites for storage and a greater amount of essential fat. There is a larger proportion of fat distributed to the extremities thus a waist to hip ratio is less reliable in predicting health risk. The assumptions made about bone mineral density and body water to fat free mass may not hold through the reproductive cycle. In addition to this, for women involved in sport, disruptions to the menstrual cycle and hormonal changes that may occur with training may significantly alter bone mineral density and distribution of muscle mass. (Vogel J.A. 1992; Shangold M. 1988)

Target fat loss

If body fat estimations are used to provide fat loss goals for the general public, then the administrators of the tests need to be highly trained in the correct use of appropriate methods of measurement and need access to data that is appropriate for the population that they are measuring. They also need to be trained to give individual targets based not only on the figures in front of them but also on the individuals genetic and cultural background and psychological aspects of change. They should also be able to advise on appropriate methods of influencing a positive change in body composition. The author's view, based on observation, is that at present in this country most assessments are carried out by people untrained in these areas.

If target body fat percentages are used for athletic populations the sports coach should also be trained in the above areas and should be sensitive towards the athlete who has difficulty achieving or maintaining fat weights that are considered desirable for their sport. Many female distance runners, dancers and gymnasts have developed complications such as under nutrition and osteoporosis through maintaining a body weight that is unnatural for them as an individual. (Shangold M. 1988) Athletes attempting to reduce percentage body fat should be given a range of acceptable figures and should be monitored for changes in health and performance.(Hergenroeder A.C. 1990)

Health Care

Good health, whilst it is adversely influenced by being over fat is also adversely influenced by lack of exercise, which in it's turn may be a contributory factor to becoming over fat.

Trying to control fat weight and influence percentage body fat by restricting energy intake alone is not likely to improve health dramatically. In fact only 5% of patients in Canada who diet to achieve permanent weight loss succeed and reap the associated health benefits.

The implications of failed dieting include negative effects on both physical and psychological health ( Kirkland L. 1993). Thus for individuals who are overweight, assisting them to adopt an exercise programme and a healthy diet that they could maintain throughout life and that would achieve desired body composition changes with minimal lean weight loss, or even by gaining lean muscle mass, may be more appropriate than concentrating on target fat loss.(Stefanick M.L. 1993)

Conclusion

More research into accurate measurement of body fat percentage in specific populations such as females, athletes, the elderly and children is needed to develop improved methods and improved reference standards suitable for these populations.

Research into the minimum exercise dosage and types of exercise needed to improve health and positively affect body composition in different sectors of the population are needed.

Community support is necessary for people who are attempting to overcome long term problems with over fatness.

Education of those people involved in giving advice on exercise and health and in measuring fitness parameters including body composition is needed. This education should include some psychology training for those who are dealing with the sensitive issue of body fatness.

Given the inaccuracy of the measurements presently available and the lack of training of the people carrying out the measurements and giving advice on weight loss, measurement of body fat in healthy individuals is largely meaningless and may cause unnecessary concern in individuals.

With improved techniques it may prove to be a useful tool in monitoring public health in populations, and given improved training it may provide a useful motivational tool for those professionals involved in prescribing or advising on exercise programmes.

References

Abernethy R.P.1994; Black D.R. 'Is Adipose Tissue Oversold As A Health Risk?' Journal Of The American Dietetics Association. Jun 1994, 94(6) pp641-644

Behnke and Wilmore 1974 'Evaluation And Regulation Of Body Composition' Englewood Cliffs, NJ: Prentice Hall 1974.

Bouchard C.1990. 'Discussion: Heredity, Fitness and Health.' in Exercise Fitness and Health (Eds. Bouchard C., Shepherd R., Stephens T., Sutton J.R., McPherson B.D.) pp148-149. Human Kinetics Books. Champaign Illinois.

Bray G.A. 1988; Gray D.S. 'Obesity. Part I; Pathogenesis' Western Journal Of Medicine (US) Oct 1988 149(4) Pp429-441.

Brownell K.D.1987, Steen S.N. Wilmore J.H.'Weight Regulation Practices In Athletes; Analysis of Metabolic and Health effects' Med Sci Sports Exerc (US) Dec 1987 19(6) pp546-556

Brownell K.D.1994; Rodin J. ' Medical, Metabolic And Psychological Effects Of Weight Cycling'. Arch Intern Med (US) Jun 27 1994, 154(12) pp1325-1330.

Chumlea W.C 1991; Baumgartner R.N; Vellas B.P. 'Anthropometry And Body Composition In The Perspective Of Nutritional Status In The Elderly' Nutrition (US) Jan-Feb 1991 7(1) pp57-60

Chumlea W.C. 1989; Baumgartner R.N. 'Status Of Anthropometry And Body Composition Data In Elderly Subjects' American Journal of Clinical Nutrition Nov 1989 50(5 suppl) pp1158-1166

Chumlea W.C. 1993; Guo S.S.; Kuczmarski R.J.; Vellas B. 'Bioelectric and Anthropometric Assessments and Reference Data In The Elderly' Journal Of Nutrition (U.S.) Feb 1993 123(2 suppl) pp449-453

DHSS publication 1990. National Centre for Health statistics. Health. United States 1989. Hyattsville MD: Public health Service (DHSS Publication No PHS 90-1232) 1990

Evans W. J. 1993 Cambell WW. 'Sarcopenia And Age Related Changes In Body Composition And Functional Capacity' . Journal Of Nutrition (Us) Feb 1993 123(2 suppl) P 465-8

Fitness and Health (Eds. Bouchard C., Shepherd R., Stephens T., Sutton J.R., McPherson B.D.) pp109-112. Human Kinetics Books. Champaign Illinois.

Gledhill N. 1990 'Discussion. Assessment of Fitness' in Exercise Fitness and Health (Eds. Bouchard C., Shepherd R., Stephens T., Sutton J.R., McPherson B.D.) pp122. Human Kinetics Books. Champaign Illinois.

Going S. 1995, Williams D. And Lohman T. 'ageing And Body Composition; Biological Changes And Methodological Issues' Exerc Sports Sci Review (US) 23 Pp411-458 1995

Hendler R.G. 1995, Welle S L.,Statt M. C., Barnard R., Amatruda J.M. 'The Effects Of Weight Reduction To Ideal Body Weight On Body Fat Distribution' Metabolism Clinical And Experimental. (USA) 1995 44(11) pp1413-1416

Hergenroeder A.C. 1990; Klish W.J. 'Body Composition In Adolescent Athletes' Paed Clin North Am (US Oct 1990, 37(5) pp1057-1083

Kirkland L. 1993; Anderson R; 'Achieving Healthy Weights' Canadian Family Physician Jan 1993 39 pp157-158

Kuczmarski R.J. 1989; 'Need For Body Composition In Elderly Subjects' American Journal of Clinical Nutrition Nov 1989 50(5 suppl) pp1150-1157

Lohman T.G. 1992; 'Exercise Training and Body Composition in Childhood' Canadian Journal of Sports Science Dec 1992 17(4) 284-287

McArdle Katch and Katch .'Exercise Physiology' third edition Lea and Febiger 1991 pp623

Schull W.J. 1990. 'Heredity, Fitness and Health' in Exercise Fitness and Health (Eds. Bouchard C., Shepherd R., Stephens T., Sutton J.R., McPherson B.D.) pp137-138. Human Kinetics Books. Champaign Illinois.

Shangold M. 1988; Mirkin G. In 'Women And Exercise . Physiology and Sports Medicine' F.A. Davis Company. Philadelphia.

Skinner J. S. 1990, Baldini F. D., Gardener A.W. 'Assessment of Fitness' in Exercise

Stefanick M.L. 1993. 'Exercise and Weight Control'; Exercise and Sports Science Review (US) 1993 21 pp363-396

Tseng B.S. 1995; Marsh D.R.; Hamilton M.T. ;Booth F.W. 'strength And Aerobic Training Attenuate Muscle Wasting And Improve Resistance To the Development Of Disability With Ageing' Journal Of Gerontology And Biological Sci And Med Sci (US)

Van Itallie T.B. 1990, Lew E.A. 'Health Implications of Overweight In The Elderly' Prog Clin Biol Res (US) 1990 326 pp89-108

Vogel J.A. 1992; Friedl K.E. 'Body fat Assessment In Women; Special Considerations' Sports Medicine (New Zealand) April 1992, 13(4) pp245-269

W P James: 1995. 'A Public Health Approach To The Problem Of Obesity' International Journal of Obesity Related Disorders. Sept. 1995 19 Suppl 3 pp37-45

Wilmore J 1983. 'body Composition In Sport And Exercise: Directions For Future Research.' Med. Sci. Sports Ex. 15: pp21-33 1983

© Copyright Fiona Hayes 1998

Dr. McDougall's Right Foods

Ramen City

Fantastic Foods

Vigui

Most body building magazines are the male equivalent of Cosmo. http://www.ironmind.com/milo_subscription.shtml>Milo is different. Lots of useful, hype-free information.

*South Park* is another movie straight from the smoking pits of Hell.

Well, in 1900, they could.

No doubt, great grandpa Joe was a heroin fiend…Thanks to whip_lash for posting the link the Harry Browne article which linked to the article above.

Some useful articles here:

http://www.glenndaily.com/goodstuff.htm

Robert W. McGee
Policy Analysis
No. 11, July, 1996,
Dumont Institute for Public Policy Research

http://papers.ssrn.com/sol3/delivery.cfm/98031606.pdf?abstractid=74420

From Andrew Tobias's website

http://www.andrewtobias.com/temp2/gates/

“…Cosmologists estimate it has been 13 billion years since the Big Bang. I am skeptical myself. But if true, this means Bill currently has $4.63 for each year since time began…”

http://www.efficientfrontier.com/ef/998/global.htm

William J. Bernstein

Stocks? For the Long Run?

“We don't invest where we can't drink the water.” -annual report, Tweedy Browne

Most of you have heard the apocryphal story of the financier who prayed all of his life for a peek, just a little peek, at the next day's Wall Street Journal. Finally granted his wish, the first item he comes across is . . . . his own obituary. (Probably the best variation on this theme is “A Special Story,” told in the inimical style of Barton Biggs. You can find it in Classics, an Investor's Anthology, ed. Charles D. Ellis.)

Well, if you made me that offer I wouldn't want tomorrow's WSJ. Nope, I would have too much trouble finding enough leverage to exploit the juiciest 24 hour option play, and besides, I'd get an industrial grade case of sweaty palms. What I'd really want is a fast look at a copy of that venerable rag dated about 5 years after I plan to retire. The real gold mine (Remember, the dude in the white turban gives me only a brief look.) lies in the long term returns from the world's major national stock, bond, and commodity markets.

Problem is, until relatively recently we didn't even know the answer for past global stock returns. Oh, sure, the return of the EAFE and the S&P from 1969 were both about 12.5%. However, you may recall that shortly prior the human saga had a few military and economic bumps. Some cynics have even suggested that, like history in general, financial history is also written by the winners. Long term equity returns of 10-13%? Maybe if you were lucky to be living in the right place at the right time, but not in Lima, Delhi, or Budapest. In fact, like the detritus of some ancient terrestrial asteroid encounter, there was a mass extinction of entire equity markets from the 1930s to the 1960s. Stocks for the long run? Not if you lived someplace where they took Karl Marx more seriously than Groucho Marx. Not if you found yourself in the immediate proximity of a self proclaimed military and racial genius.

Since the founding of the New York Stock Exchange under a buttonwood tree in 1792, inflation adjusted total returns of domestic equity have been in the 6%-7% range. However, not until this century did this fact become known, and even then not popularly appreciated until a decade or so ago. Consider the implications of a 7% real return. If you really could invest $1 for 200 years at a 7% real rate, then you have a real $752,000 after 200 years. Invest $1 at a 7% real rate at the birth of Christ and you will have real $6 x 1058. Does that seem like a lot of money to you? It is – it's the value of a solid gold sphere 43 light years in radius.

Clearly, something is fishy here. Returns of global equity (or even debt) simply cannot be that high. A recently published article by Philippe Jorion (UC Irvine) and William Goetzmann (Yale) , as well as some data from Bryan Taylor (Global Financial Data) shed some much needed light on the topic.

It turns out that the good old USA was the winner in the global equity sweepstakes in this century. Unfortunately, many of the other horses ran badly behind, and some even broke their legs and were put down. Heard much about the Cairo Stock Exchange lately? In the 1920s it was one of the world's largest. It was done in not by war or revolution, but by a colonel who should have paid better attention in Econ 101 at U. Egypt.

The article does have a “Picture Worth a Thousand Words.” Here it is:

At first glance, things look downright ghastly – the very best returns are no higher than 4%, and many markets seem to have negative returns. In reality, things aren't that grim. It has to be realized that the y axis plots inflation adjusted, capital only, returns. In other words, inflation is already adjusted into the prices, and dividends are not included. (This is because for most of the markets reliable dividend information was not available for the whole period.) The authors found about a 4% long term dividend rate for those markets for which reliable information was available, so in reality real total rates of return were positive for all but the hard luck cases – the Philippines, Poland, Columbia, Argentina, Peru, and Greece. Even here, nominal total returns in US dollars were positive.

Just as important, there is a modestly positive slope to the data – the longer a market has been around, the higher tend to be its returns. This is a good demonstration of “survivorship bias,” a prominent characteristic of mutual funds and rock musicians – the bad ones are quickly taken out and shot, so the ones that are left give an overly favorable representation of the genre.

The authors immediately point out that this data presents an “equity risk premium puzzle” – i.e., why are investors in some nations not rewarded for bearing the risk of stock ownership? In classical Ibbotsonian terms the “equity risk premium” is defined as the excess return of stocks over t-bills. Since short duration bond returns can be difficult to come by in many markets, long bond rates may be used for comparison instead. The answer, according to Bryan Taylor of Global Financial Data, is that in nations with low stock returns, bond returns were even worse. So even in the nations with low stock returns there is, indeed, an equity risk premium. Hence no puzzle. This provides scant comfort to emerging markets bond investors; it's well to recall that for nearly a century Latin American nations defaulted on sovereign debt with near clock like regularity.

But so much for academic quibbling. What does this data mean to the average Josephine, scanning the library copy of Forbes for the Honor Roll list of foreign mutual funds? That all depends on two issues, more philosophical than financial:

1. Is history progressive or cyclical? The cataclysmic events of this century devastated entire nations, races, and social systems. Were they a singular occurrence, the likes of which we shall never again encounter? Or were they merely a depressing human commonplace, an intrinsic vicissitude of the species? (My favorite quote from the paper: “Had the outcome of the Second World War been different . . . . the beta of the U.S. on the world index would likely have been different.” Yep, suffering a global cataclysm is bad enough, but even worse, it really screws up your portfolio parameters.)

2. Even a cursory look at the above graph demonstrates that the winners and losers segregate on the basis of their avoidance of the twin scourges of Armageddon and Marx. What is the likelihood that the century's winners (the U.S., Canada, Sweden, and Switzerland) will also escape the next march of folly? For those not current on the state of the art in strategic weaponry, the correct answer is “not very.”

As to portfolio risk from the next generation of Marxist star gazers, the issues are more subtle. In 1900 who would have predicted the state takeover of the means of production in much of the globe? The key point here is that at the beginning of the century investors, blissfully unaware of the havoc Juan Peron and Gammal Nasser would wreak on their nations, probably demanded very similar risk premiums from the US, Egypt, and Argentina. These particular horses are now long out of the barn; the risks of investing where you dare not drink the water are baldly obvious. Which is why valuations in Asia and Latin America in general are currently about half of what they are in the US and Europe. In other words, the manifest risks of emerging markets investing are already priced into the markets in a way they were not at the turn of the century. It is thus quite likely that the emerging markets investor will be appropriately compensated in the coming decades. There's no Midas Muffler guarantee on this one of course. The compensation of risk with reward in the capital markets is true only in a statistical sense, and the lot of the individual financial statistic is often disagreeable.

It also has to be admitted that like generals fighting the last war, we tend to prepare ourselves for troubles which do not occur, and are woefully unprepared for those which do. It's quite likely that the forces which obliterate nations and capital in the next century will look nothing like those of the past.

Finally, Jorion and Goetzmann evaluate the long term returns of a global investment strategy by putting together an index of all of their national indexes, weighted by GDP. Even accounting for the markets which vaporized, the return of this global index was 4.04%, versus 4.32% for the US for the 1921-96 study period. (Remember, this is inflation adjusted, without dividends included.) While the authors correctly point out that the 0.28% gap makes a very big difference when compounded over 76 years, they also demonstrate that their global portfolio was a good deal less risky, with a standard deviation of returns of just 11.05%, versus 15.8% for the US market. Even more interesting, the non-US index, including the deadsters, returned 3.39% with an even lower SD (risk) of 9.96%.

Those of you familiar with these pages know what's coming — if one applies standard optimization techniques to the Jorion/Goetzmann data, does foreign equity belong in an efficient portfolio for the 1921-96 period? Does it pay to rebalance assets with a 1% return difference compounded over 76 years? To answer this, I assumed a 1% domestic stock advantage, a 0.5 correlation between US and foreign markets, and a zero return/zero SD for t-bills, and fed the data into MvoPlus, a multiperiod optimizer produced by Efficient Solutions. A screenshot of the output is reproduced below:

The above plot shows the “efficient frontier” for these 3 assets; in the low risk region (SD < 0.1) the preferred foreign/domestic ratio was about 70/30. Only in the high risk/high return upper right corner are US stocks more strongly preferred. Secondly, and somewhat surprisingly, you were better off not rebalancing annually in the low risk/return (SD<0.1) region, but better off rebalancing in the high return/risk (SD>0.1) region. In the 60/40 stock/bond world that most of us inhabit, it really doesn't matter.

This data will be widely discussed in the coming years. Many will look at the first graph and conclude that it's better to stay at home. And, as I hope I've shown, they'd be wrong. The fairest appraisal of the data comes from the authors themselves – “Based on these long term series, the main benefit of going international appears to be risk reduction rather than increased returns.” Amen.