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Interesting Questions Models Things Explained

Viruses and Vaccines: How They Work

You certainly hear enough about both viruses and vaccines these days, but how much do you actually know about them?

When I asked myself this question, answer was: “surprisingly little.”

This world is wonderfully complex; it is impossible to have a working knowledge of all of it’s complexities. That’s simply too much for any brain to handle. But having a basic understanding of a diverse range of topics is, in my opion, both desireable and possible. The secret is to keep it simple and focus only on the most generalizable and basic concepts within each domain. Being able to represent the information graphically certainly does not hurt either.

So, here is what I have learned over the past few weeks (or maybe months, it’s hard to tell sometimes). I hope you find it useful and enjoyable.

What is a virus and how does it work?

First, let’s start with the anatomy of a virus. There are, of course, various viruses (each with its own specific traits), but certain elements are common for most viruses:
1. a core with DNA or RNA,
2. a body with protein spikes, and
3. various enzymes.

As with most creatures, the “goal” of the virus is to multiply and spread. To this aim, the DNA/RNA can be thought of as the blueprints of the virus, containing all the necessary information for replicating the virus. However, the virus itself does not contain the necessary production facilities to perform the replication. This is where the protein spikes come in to play.

Utilizing the protein spikes, the virus binds to, then enters the cell of a host — for instance, when you get infected with a virus, you are the host. Since your cells contain all the necessary production capacities required to replicate the virus — these are the same production capacities used in the daily operations of healthy cells — the virus hijacks the production line and uses it, in conjunction with its own DNA/RNA, to replicate itself. From there, the new copies of the virus exit the cell and go on to look for new factories to break into and use to replicate themselves further.

How does your body protect itself from a virus?

Naturally, your body does not like that this unwelcomed guest is using its resources for malicious purposes. When the virus is detected, your body launches a defensive effort to kill the virus and stop it from spreading. Part of this effort consists of making antibodies that stop the virus from entering your cells.

Antibodies work by binding to the protein spikes, thus neutralizing the virus’s ability to bind to and enter cells. In fact, antibodies cannot enter cells either and can only neutralize viruses that are intercellular (between cells).

As you can see in the depiction on the right, the antibody fits perfectly to the protein spike in the virus. Since most viruses have differently shaped protein spikes, your body needs to develop new antibodies when it encounters novel viruses. Once a particular virus has been encountered, however, your body will keep the information about how to create the antibodies to protect itself from that virus in the future. This ability is often called immunological memory and is how you gain immunity against antigens you have encountered previously — which brings us to the next topic, vaccines.

How do vaccines work?

Vaccines are hardly a new concept to most people alive today; vaccines against COVID-19 are being rolled out across the world, with tons of publicity. But how do they work?

This is where it gets interesting. Your immune system does not have to encounter the pathogen (the whole virus) to learn how to create antibodies to defend against it; it is enough to introduce the antigen (the protein spikes). This is the part of the virus the immune system reacts to and what antibodies attach to.

Put simply, then, the idea behind a vaccine is to isolate the protein spikes of a virus, then introduce these spikes to the immune system. By doing so, there is no chance of the virus replicating in the vaccinated person’s body, as there is no DNA/RNA to orchestrate the replication process. That’s how vaccines are both safe and effective.

Now that we know the basic goal of a vaccine, let’s explore the different strategies we can use to get there.

Traditional Vaccines vs. mRNA Vaccines

Traditional Vaccines

Let’s start with traditional vaccines, which follow the most straight forward path.

Their production looks something like this:

1. Get ahold of a sample of the virus.

2. Grow more of the virus. The amount of virus to be grown is determined by the demand for vaccine doses. A lot of virus has to be grown in order to vaccinate a lot of people. Typically, the virus is injected into eggs, where it has all the stuff necessary to replicate. The US government actually keeps a lot of chickens — on farms all around the country — dedicated to laying eggs for making vaccines (if you are interested, check out this short podcast on the subject).

3. Inactivate the virus, so it won’t replicate any further from this point on.

4. Isolate the antigen.

5. Introduce the antigen to the immune system of people through a vaccine.

mRNA Vaccines

The mRNA vaccine pursues a different route which requires a bit more sophisticated methods, but ultimately simplifies the production and logistics of the vaccine.

An mRNA vaccine is produced as such:

1. Get ahold of a sample of the virus — it’s hard to get by without this step.

2. Sequence the virus genome and isolate the part of the “blueprint” that encodes the information about how to create the protein spikes.

3. Use the information from the previous step to copy that portion of the genome as many times as necessary (depending on demand) and introduce it to the immune system of people through a vaccine.

Key differences

There are some key differences between the two. Obviously, traditional vaccines require far more eggs, but there is more to take away than that:

  • You can distribute mRNA vaccines faster and further than the traditional variety. Think of sending a physical package (traditional) vs. sending an email (mRNA).
    • Once a traditional vaccine is formulated, samples of the virus have to be transported (by plane, train, boat, etc) to production facilities across the globe. Then, you have to grow more of it. All of this takes time.
    • One of the coolest traits of an mRNA vaccine is that once the genome has been sequenced and the recipe for the protein spike (the antigen) has been determined, the recipe can be sent to labs across the globe instantaneously. From there, the labs can replicate the antigen as many times as needed, using ingredients they already have available.
  • For traditional vaccines, the virus needs to be kept alive and is even actively grown; for mRNA vaccines, the virus itself is only necessary until you have sequenced it. Traditional vaccines are still produced in a very safe manner, but when you don’t need to keep the virus alive for production purposes, there is even less risk of accidental contamination or loss of control.
  • Finally, there is the potential of damaging the protein spikes through traditional vaccines. As we neutralize and take apart the virus to isolate the spikes, there is a chance that some of them get damaged, rendering the resulting vaccine less effective. The mRNA vaccines simply provide the blueprint for constructing the spikes — relying on your cells to do the rest. Thus, the spikes are made brand new every time and bear the closest resemblance to the spikes on the virus you might encounter later on. The result: a more effective immune response (a.k.a. a better vaccine).

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Models Things Explained

How healthcare insurance works

For those in a rush: Skip to the pictures to learn how healthcare insurance works

A while back, I heard a story about someone in the US that ended up in a car crash and had to spend some time in the hospital – let’s call her Jane. To add insult to injury, Jane did not have healthcare insurance. When she got the bill, she quickly realized she could not afford it. Jane talked to the hospital administrators about her lack of coverage, which resulted in a far lower bill. The bill still was not cheap, but it was at least feasible for Jane to pay for it. Relieved, she left the hospital. She didn’t start contemplating how easily the hospital administrators had lowered the bill until later.

At first, she thought they had just felt bad for her and made an exception. But it had been so easy for them. Would it not have been more complicated to get the authority to lower the bill if it was a rare exception?

When Jane asked around, she found out that other people in her position (no healthcare insurance) had had the same experience. Maybe they were all just very lucky? Or maybe it was standard for hospitals to reduce the bills of people with no healthcare insurance?

The first seems unlikely; there are too many people who have had the same experience. The second begs the question: If prices can be lower, why would insurance companies – who notorious for avoiding payouts at almost any cost – pay more? And so much more too.

That is the question that I could not get out of my head: Why do healthcare insurance companies get far higher bills for the same treatments? And perhaps more importantly: Why should you care?

Why do healthcare insurance companies pay more?

The answer to this question is baked into the very regulations that govern how healthcare insurance companies can make money. These regulations limit the annual profit a healthcare insurance company can make to 20% of the payouts made during the year. The idea is to avoid a scenario where healthcare insurers hike the premiums to increase their profits. Super high premiums would be bad for the people who need insurance, so this seems like a good measure.

However, insurance companies are profit-seeking enterprises and as the adage goes: Where there’s a will, there’s a way.

It requires some creative thinking, but it is not hard to increase profits under these conditions. All you have to do is increase payouts:

Healthcare insurance companies benefit from increased payouts, since profits are limited to a percentage of payouts.
By doubling the payouts, profits double too. Thus, payouts are good for the healthcare insurance provider.

Typically, companies want to limit their expenses in order to increase profits. But this is not a typical scenario. Since the profits are dependent on expenses, increasing payouts (expenses) is, in fact, the only way healthcare insurers can increase their profits.

Thus, insurance companies are happy to pay more than necessary for medical treatment. Hospitals and other medical facilities are, of course, more than happy to oblige, as it puts more money in their pockets too.

Why should you care that healthcare providers pay more?

So we have established that more expenses mean more profit for the healthcare insurance providers and the medical facilities, but why should you care?

Well, at the end of the day, the insurance companies need to bring in more money to afford the increased payouts while still having revenues that are higher than expenses. Where do they get the money from? You, the insured.

Though the goal of limiting the profits to 20% of payouts was supposed to ensure lower premiums, it has not. As often is the case, there are unforeseen consequences to new regulations. In this case, healthcare insurance premiums are simply increased to accommodate higher expenses (and profits). At the end of the day, you are still paying more than you should for medical care. It is just hard to tell, as it is paid indirectly through insurers.

That is why Jane and others like her were able to get cheaper medical care from the hospitals: The price paid by healthcare insurance companies – the default price for treatment – is artificially high.

Summed up in a couple of pictures:

Costs of medical treatment without healthcare insurance vs. without.
Why higher profits for healthcare insurers are dependent on higher payouts and higher premiums: Map of logic.

NOTE: If you found this topic interesting, I recommend listening to Peter Attia’s podcast with Marty Makary on how the healthcare system works and how it might get fixed.

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Interesting Questions Things Explained

Do you need a financial advisor?

Do you need a financial advisor? Market graph.
Do you need a financial advisor to invest successfully?

Do you need a financial advisor to invest your money successfully? The people in the industry certainly want you to believe that you do. Of course, that’s how they make their money – they are not in a position to give you an unbiased opinion. I, however, firmly believe they are no more than unnecessary middlemen, at best. More often, they are directly counterproductive to making money investing (I will show you how later). The financial advisors are more than happy to place themselves in the middle and take some of your money, without really offering much except for a facade of expertise.

I say facade because they are too unreliable at their job – beating the average market return. Don’t let the fancy jargon they use trick you into thinking they know what they are doing; they don’t. They might even be smart people, but not that smart.

How do I know? I have outlined the reasoning below. Once you have read through it once, you won’t be fooled by them again. The logic is quite simple to follow; most people have just not spent the time to inform themselves. In 15 minutes or so, you’ll be happy that you did!

Setting a baseline – The Market Average

When you invest your money, the goal is to earn as much return as possible. Now, you might be thinking that you have no idea how to accomplish this. The financial markets are complex and hard to navigate, so I don’t blame you for feeling a bit lost. In fact, people who are confident their abilities to pick “the winners” are likely in a worse position than you. Sure, they may have got lucky once or twice in the past, but they are not telling you about their failures. More likely than not, they have or will make costly mistakes that tarnish their overall average returns.

Financial advisors supposedly have the skills to invest your money in a manner that beats what you can achieve on your own. Confidence can get you a long way and they use theirs to deceive you into thinking your money would be better off in their hands. Yet, this is not the truth.

Let me explain.

First, we need a baseline of what level of return you could achieve on your own. “I don’t know that I could get any positive return through investing on my own,” you might think. Here’s why you are wrong: Anyone can earn average market returns by investing in an index fund, such as the S&P 500*.

If I’m going to pay someone to invest for me, they better get better returns than I can by investing in an index fund. If they cannot do that for me, why would I pay them?

Can financial advisors beat the market average?

So, can your financial advisor consistently beat the market average?

It is highly unlikely that they can. Most of the US stock market trading is done by people who are at least as qualified as your financial advisor. In fact, the bigger firms have far more resources dedicated to this pursuit and should, therefore, be expected to do better than individuals with limited capacity. Even, in a level playing field, only half of the people investing can ever be above average. To make matters worse, there is almost no correlation between the performance one year and the next. This means that the financial advisor with the best returns this year may very well have the worst returns next year.

What if they do beat the average consistently?

As a matter of fact, even if your advisor beats the market every year, they may not make you more money than if you invested in the S&P. That seems odd, right?

This is, of course, due to the fees they charge, which can be as high as 2.5%. How does this affect your return?

Let’s say you invest $100,000 and the average market return that year is 9%. Your financial advisor, however, boasts 10% returns. How much would your investment be worth through each investment strategy?

Index fund:

($100,000 * 109%) = $109,000

Financial advisor:

($100,000 * 110%) = $110,000
Fees = ($110,000 * 2%) (2,200)
$107,800

As you can see, once the fee is factored in, the financial advisor still earns you less money than the market average. The after-fee return above for the financial advisor is actually 7.8% instead of 10%.

With this in mind, financial advisors don’t just have to beat the market average to be beneficial to you; they have to beat it by a lot, and very few do that consistently**.

Conclusion

Financial advisors that are worth what they charge are few and far between. To make matters worse, there is no way of telling if you found one that is, until after the fact, making it a gamble. In most cases, financial advisors are actually hurting your returns by taking a sizeable chunk of your money in fees every year.

Let me be clear, I don’t hate the people who decide to be financial advisors. I know some who are nice people and I have heard of several more. But it’s a bit like paying for a friend at that point. If that is what you are after, a financial advisor might be the thing for you. But from a financial standpoint: Do you need a financial advisor?

No, you do not need a financial advisor.


Notes

* The S&P 500 tracks the performance of the 500 largest listed companies in the US and is, therefore, a good proxy for the US stock market.

** Remember that financial advisors still charge you fees when you have had a bad year and lost money. As such, the fees are consistently impairing your ability to capitalize on the effects of compounding, which is key to good growth over time.

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Things Explained

Flattening the curve

Since all we seem to hear about these days is COVID-19 I have tried to not write anything on the topic. However, the phrase “flattening the curve” keeps coming up and few people seem to comprehend what it means. I have a suspicion that most people have never actually considered what the graph they are referring to would look like or what it depicts, so let’s take a quick look and see if that clears up some confusion. 

Flattening the curve is done to bring the number of people in need of hospitalization at any time below the healthcare capacity.

The first graph depicts the expected progression of the virus with no intervention. In this case, it spreads to the whole population quite quickly. Eventually, the size of the population limits any further spread, as most people have had it already. 

In the second graph, the spreading of the virus is slowed down after the initial peak. However, social distancing does not completely prohibit the virus from spreading since it is done imperfectly and some people are still working. The lower-than-normal interaction among people keeps the number of infected people at any given time down. 

In either case, the number of people that are expected to get infected and need medical assistance – the area under the curve – is the same. It is the blue area – the area under the curve but above hospital capacity – that we are concerned with. A certain amount of people will get infected and not make it, despite getting the medical attention they need. There is not much we can do about that. The deaths we are trying to avoid are the deaths in the blue zone, where people need attention but do not get it. In order to make this group as small as possible, we need to either increase the capacity (shifting the red line up) or keep the number of infected people down (flattening the curve). 

Increasing the capacity sounds like a good idea, but it is tough in practice. Hospitals take time to build doctors and nurses take time to train, and making more equipment takes time too. Time we do not have available. In different circumstances, it might be possible to get doctors and surplus equipment from other places to temporarily increase the capacity and set them up in temporary hospitals – this would take relatively little time. Yet, as the rest of the world is in the same boat or anticipating that they will be, shortly, there is no surplus to borrow. 

This leaves only the option of flattening the curve. As can be seen in the second graph above, the idea is to keep the number of infected people at any given time below hospital capacity. Done properly, people still get infected, but the ones who need medical treatment still have it available. It follows then, that once the social distancing regulations are made more lenient, we should still expect new cases. Hopefully just not enough to exceed the capacity line. 
The strategy in Sweden – another popular topic – is based on the idea that the health care system will have the capacity to deal with the outbreak without slowing it down. Theoretically, no more deaths should result from this strategy, but the death toll early on will be higher due to the number of people infected. Their graph would look something like this:

Think about it as paying for something in installments. For the sake of ease, picture buying a car that costs $10,000. Most people do not have the capital available to pay the full amount upfront. Instead, they choose to pay monthly installments of $364 for 30 months. Essentially, this is what most countries are doing. They do not have the money (hospital capacity) to pay the full amount upfront, so they are prolonging the payment period and paying in smaller amounts – Sweden, having the available cash, is simply paying the full amount upfront. As most people know, these installment plans are not free though and you need to pay interest. The interest being paid for flattening the is the cost of shutting down large parts of the economy to facilitate social distancing to the maximal (practical) degree.


Ideally, we would all want to pay the full amount upfront and avoid the steep interest rate charged, but without the available resources, we are forced to pay in installments and eat the interest costs. We simply have no choice if we wish to avoid higher death rates.