Michael James on Money: Understanding Correlation

Michael James on Money: Understanding Correlation

The idea of correlation can be confusing. Most of us have an idea of what seems correlated when we look at a stock chart, but this everyday idea of correlation can be very different from mathematical correlation.

Consider the following hypothetical chart of two stock indexes.

What would you guess is the correlation is between stocks indexes in this chart? Maybe 70% or 80%? They seem to move together quite a bit. When we focus on 1-year periods, the answer is a correlation of -0.2%! That's right – essentially no correlation.

However, if we look at rolling 5-year periods, the correlation is 88%. So, we get a completely different picture if we look at 1-year returns versus 5-year returns.

This discussion of 1-year and 5-year correlations can be confusing. After all, aren't we talking about 30 years here? Mathematical correlation in this context is about comparing two strings of numbers. We can make these two strings of numbers be 30 numbers long and consist of 1-year growth values, or we can make the strings 26 numbers long and consist of rolling 5-year growth values.

There is always a way to look at the numbers to get the result you want. As the saying goes, there are lies, damned lies, and statistics.

Ring Of Fire : An Indonesian Odyssey Documentary - Psychedelic Adventure

Ring Of Fire : An Indonesian Odyssey Documentary - Psychedelic Adventure

"Ring Of Fire : An Indonesian Odyssey" is an educational documentary highlighting the mysterious surroundings of the Spice and Aru Islands, which are found within the archipelago that makes up the beautiful country of Indonesia.

Watch as producers Lorne and Lawrence Blair take viewers beneath the blue waters on a dive in search of pearls and deep into the green jungles with the native Bugis tribes. Running 58 minutes, this cultural adventure is a "Mystic Fire Video" and one installment of the Ring of Fire collection !

In the mid-1970s, documentary filmmakers Lorne and Lawrence Blair ventured into Indonesia. They hoped that their decade-long spiritual journey would somehow result in a feature-length film that would accurately, and eloquently convey their experiences. The Blairs ended up with five films, which were released to television and theaters under the blanket title "Ring of Fire - An Indonesian Odyssey".

Each film, or "volume," depicts a single fascinating aspect of Indonesian life and customs. The five volumes include "Spice Island Saga," "Dance of the Warriors," "East of Krakatoa", "Dream Wanderers of Borneo" & "Beyond the Ring of Fire".

The Ring of Fire - Spice Island Saga

Dance of the Warriors

The brothers sail to the islands of Komodo where they encounter the Komodo Dragon, Sumba where they witness human sacrifice, New Guinese where they meet the Asmat, and finally Bali where they build a home in a village.


British brothers Lawrence and Lorne Blair set out in the 1960s on a marvelous, thought-provoking, ten-year adventure through the 3,000-mile length of the remote Indonesian archipelago. Inspired by a dog-eared copy of Alfred Russell Wallace's The Malay Archipelago -and his nineteenth century voyage of scientific exploration and discovery--their unforgettable odyssey set sail out of the Celebes (Sulawesi) for the Spice Islands on a perilous schooner crossing with the seafaring Bugis. Tossed to and fro from home port Makassar to isolated Aru Island-stalked all the way by rotting ship beams and the specter of pirates-they were rewarded with one of the rarest sights on earth-the fluffy white plumage of the elusive Bird of Paradise.

Metaphysical, anthropological, and intellectual in tone-with a healthy dose of dry wit and humor-the Blairs take you along as they confront komodo dragons, chew betel nut in Sumba, witness a traditional Pasola battle, and herald the annual arrival on shore of the sacred nyale sea worms. Full of naive courage and boundless curiosity, they sought out Asmat headhunters/cannibals in the highlands of Papua New Guinea. Undaunted, these dream wanderers went eye to eye with the fiery blast furnace of simmering Krakatoa. They commandeered a longboat upriver and trekked through the leech-ridden jungles of Borneo with native guides on an arduous land search for the secretive, traditional Punan hunter-gatherers. Ring of Fire chronicles their cultural encounters on Java as they visited the sultan's court (and sacred "kris" knife) and an acupuncturist who harnessed yin/yang energy to heal the sick with self-generated electric charges. Open-minded and non-judgmental about the diverse religions and customs they encountered, the Blairs became deeply enchanted by trance, and by the shadow screen nether world of the wayang kulit. Their travels took them back to Sulawesi for the funeral of the last king of Tanah Torajah-into a unique architectural-animist pocket where boat-shaped roofs rise out of the cool forest floor representing ancestral sky ships on their descent from heaven to earth.

The thrill-seeking, nomadic Blairs unexpectedly found themselves permanently landlocked and suspended-mind, soul, and body-in the island Shangrila that they discovered in Bali. An artist friend in Pengosekan-a vibrantly creative community of farmers and painters-invited them to build a new house on his land. In true, cooperative Balinese style, the brothers had only to pay for the necessary raw materials (bamboo, coconut wood, and elephant grass) and the religious celebration at the completion of the structure. The people of Pengosekan freely contributed their skilled labor and artistic expertise; this shared investment in and commitment to each other's dwellings works to further bind the village together. Sleeping and learning in their open-air platform obervatory perched high above the sculpted jade rice terraces, the Blair brothers came to call Bali their very own, lifelong island of the gods. They would return time and again-in between sometimes dangerous, always enlightening meetings with natural peoples along the equatorial frontier-to their permanent home base in Bali. It is here that they fell in love with one culture and one island out of the hundreds that they visited. Lawrence and Lorne fully explored their adopted pied à terre-from startling footage of the eruption of Mt. Agung in 1963, to the cremation of famous 116-year-old Balinese artist Lempoad, to the opulent funeral procession of the last rajah of Gianyar. (When Lorne died on his beloved Bali in 1996, he was cremated and his remains returned to the sea in accordance with Bali-Hindu religious rites.) Their amazing adventures (available in book or video format) are the stuff of storybook legends-from the hidden rainforest peoples of Borneo, to islands where magicians still hold sway, to the sun-speckled spiritual haven of heart-shaped Bali.

East of Krakatoa

The 10-year voyage of two filmmakers, brothers Lorne and Lawrence Blair, through the world's largest and least known archipelago - the exotic, mysterious islands of Indonesia. These island form a chain of active volcanoes that arc down and around into the Pacific to form the "Ring of Fire." To pass beyond it is to cross the threshold into another dimension, a magical land where ancient myths still flourish. East of Krakatoa - In the shadow of Java's constantly erupting volcanoes, the Blairs descend from the crater of the newly erupted "Child of Krakatoa" and encounter a world of medieval courts, mystical shadow puppet plays, forgers of magical swords, healers with supernatural powers and whole communities ruled by the powerful "Spirit of the South Seas." Back in Bali, they meet such sages as the master artist Nyoman Lempad, who was to die a conscious death on the day of his choosing at the age of 116. And among the Toraja people of the Celebes highlands, they share in the massive funeral rites of the last king of the tribe which believes its ancestors came from the stars in skyships.

Dream Wanderers of Borneo




Beyond the Ring of Fire

do you want to be a Billionaire ?

The concept of a billion dollars is pretty hard to fathom, which is okay because about 99.999% of us will never really have to deal with it. According to Forbes, the world has 1,011 billionaires out of nearly seven billion people, so it's not exactly an everyday occurrence. Those that do become billionaires seem to do it through a mixture of ingenuity, intelligence and timing, or they just inherit it. For the rest of us - those working average jobs, investing normally and living an average lifestyle - how long would it take to become a billionaire? Is it even possible?

IN PICTURES: World's Greatest Investors

If you're making around $50,000 per year, it won't take forever to amass a million dollars, and indeed, many people will be able to achieve that in their lifetime. But a billion dollars? That'd be 1,000 lifetimes, kind of. We'll check out a range of jobs in the U.S. and some typical investments to see how long it would take someone to become a billionaire. We'll be using the saving rate of 10% of someone's income for the year, which may be a little bit optimistic, but it gives a good picture of how long it takes to become a billionaire on an average joe's salary. (Are savings accounts your best bet when it comes to returns? Learn more in The 7 Best Places To Put Your Savings.)

Teaching Your Way To a Fortune
There are more than one million teachers in the U.S. according to the Bureau of Labor Statistics, and the mean salary for elementary and secondary school teachers is $55,210. If you're a teacher and are able to put aside 10% of your salary every year ($5,521) then it will take around 186 years for you to become a billionaire if you have your money in a long-term savings account paying 5% interest compounded annually. This means, if you start saving when you're fresh out of college and never touch the money, you could be a billionaire when you're 208!

If you invested in a more lucrative vehicle, like the stock market, you can become a billionaire much quicker. Looking at the returns of the Dow Jones over the past 40 years, there is an average return (CAGR) of 6.68% per year. If these returns are similar for the coming years, then the teacher who puts away 10% of his or her salary per month could become a billionaire in just 145 years. If you only wanted to become a millionaire, it would take you between 46 and 47 years in a 5% savings account and around 39 years if you followed the 6.68% returns of the Dow. (To learn more, see Index Investing: The Dow Jones Industrial Average.)

High Earners
It seems nearly impossible to become a billionaire making the salary of the average American teacher, but that's not really a surprise. How about if you're in a higher salary range, like a surgeon or another specialized doctor? An average anesthesiologist in the U.S. makes $211,750, according to the BLS, and if that anesthesiologist was able to put away 10% of his or her earnings every year into our savings account it would take around 160 years to become a billionaire.

And if that anesthesiologist put their savings into an index that tracked the Dow, it would still take more than a lifetime at 124 years. With that kind of salary it seems like you just can't get there on hard work alone.

To give you more perspective, it would take a postal worker (mean salary $48,940) around 188-189 years to become a billionaire using a savings account, and 146-147 years investing in the market. It would take a lawyer (mean salary $129,020) 131-132 years to make a billion in the markets, and 168-169 to make a billion in a savings account. So, when you think of it, whether you're a lawyer, a teacher, a postal worker or a surgeon, the great equalizer is that you'll never be a billionaire.

Out of Reach?
So, who can become a billionaire? How much would you have to have on hand every year to invest and be a billionaire at a time where you could still spend it? If you could put away $1 million a year, you're still looking at about 80 years of saving or 64-65 years of investing before the big payoff. Even actors and athletes who can make millions a year, rarely have the staying power to make it every year for 80 years. (How much are the top sports pros making? Find out in Top 7 Pro Athlete Contracts.)

So, sorry to come to such a heartbreaking conclusion, but it's hard for anyone to become a billionaire using traditional methods. To see a billion dollars during your lifetime (40 years of saving), you would need to put nearly $5.5 million into a fund that mirrors the Dow's average growth of 6.68%.

The Bottom Line
Though there are over 1,000 billionaires in the world, it's still an exceptional occurrence, and is owing to momentous business dealings, kick-starting an industry, inventing a much-desired service or concept, and other extraordinary events. For the rest of us, maybe we'll just have to make due with a million. (Depressed? Don't be. Check out our Millionaire Calculator to see how much you need to save to become a millionaire.)