08.16.07
Posted in Finance at 3:33 pm by Valentine
Me: “R., don’t put that cup down on the bed or it will spill. Be careful to hold the cup or it will spill.”
[I walk out of the room for a moment. Thirty seconds later…]
R.: “Baba, the juice spilled! Help! The bed is all wet!”
The “subprime crisis” continues to rock the global financial markets, pressuring everything from consumer spending (Walmart has cut their earnings outlook) to corporate bonds (reportedly the core of the Sowood Capital Management strategy). A few thoughts… Read the rest of this entry »
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08.10.07
Posted in Finance at 10:50 am by Valentine
Boston.com is headlined with the news, “Stock prices fall again” with a subtitle of “Time to review your portfolio?” For most people, that is the worst possible advice. Too many small investors sell after a big drop in the market, then stay on the sidelines until the market is nearing its next peak. They chase the “hot” sectors, ensuring massive losses when those sectors ultimately cool.
Is your portfolio appropriately diversified? David Swensen recommends that no more than 30% of your portfolio be parked in a single asset class (e.g. US stocks, international stocks, real estate, bonds, TIPS). My own target allocation, with a focus on long-term growth, is roughly 40% US stocks, 20% international, 15% real estate, 25% bonds/TIPS/cash. Your own situation might easily be different, but one essential principle applies: if your portfolio was appropriately allocated in June, it is appropriately allocated today.
This is the wrong time to suddenly decide that you have too much in stocks and too little in cash. Portfolio allocation is a long-term decision that should not be made on the basis of short-term market swings. If your allocation needs adjustment, then find a time when the market is not playing havoc with your emotions to make the change. Until then, pick up a beer, turn a baseball game on the radio, and pick up a copy of Hitchhiker’s Guide to the Galaxy. Oh yes, and DON’T PANIC!
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08.08.07
Posted in Children at 12:40 pm by Valentine
So many people pontificate on the evils of television. Behavioral psychologists are concerned about teens and pre-teens learning violence and inappropriate sexuality from television. Health researchers tell us that people eat more when the TV is on, contributing to obesity. Educators worry that excessive TV viewing cuts into study time. Why so much fuss? Television is intended as mindless entertainment, no more. There is a role for escapism, in moderation, but surely nobody would ever confuse it with reality? Or education? Or use it as their primary source for news and knowledge about the world?
Then again, I might be overestimating people. This recent study by pediatric researchers from the University of Washington analyzes the viewing habits of children ages 2 to 24 months. A surprising 29% of parents feel the most important reason for their children watching the babble box is that it “teaches my child something” or “is good for their brain”. Another 9% believe that they benefit because “it is time spent with another sibling”. More than a third of parents believe the viewing is beneficial for the child. Read the rest of this entry »
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08.07.07
Posted in Finance at 11:46 am by Valentine
Many details and facts borrowed from Steven Syre’s article in the Boston Globe. I commend it to your attention.
In tumultuous financial times, there always seem to be a few rats that get shaken loose from the ship. The latest to suffer this fate is Jeffrey Larson, founder and principal of the Sowood Capital Management hedge fund. Once a key manager of the Harvard University endowment, Larson is an accomplished professional with years of experience in the capital markets. His fund promised “to generate superior risk-adjusted returns for clients by applying our collective skills and experience rather than relying on market conditions” (taken from the Google cache of the now-defunct Sowood front page). Larson thought he had a sure thing. He hedged every bet. Yet he lost an estimated $1.5 billion of his clients’ money, including roughly $350 million for his former employer and another $30 million for the Massachusetts State Pension. Read the rest of this entry »
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08.06.07
Posted in Baseball at 3:21 pm by Valentine
“That bum! I can’t believe they gave him $30 million!” It is hard to comprehend the magnitude of some of the deals in major league baseball, especially in light of the mediocre performances they often buy. Yet the free agent market is the primary avenue by which the wealthiest teams can convert their riches into on-field success. If the Red Sox or Yankees were to turn their back on free agents entirely, they would need to compete on an even basis with the Oakland and Minnesota franchises. While that might be more satisfying on some level, it undoubtedly would hurt their playoff chances.
The Red Sox were active players in the 2006-2007 market, acquiring three front-line players for a total cost of over $200 million. How do these contracts compare on a “value” basis to the other major free agent signings last winter? There were fourteen deals in excess of $30 million. I will analyze each briefly using some basic “rate” statistics (BA/OBP/SLG for hitters, ERA/WHIP for pitchers) as well as using WARP3, an estimate of the overall offensive/defensive/pitching value that a player brings to a team compared to a “replacement player” that you might freely acquire in the minors.
The contracts… Read the rest of this entry »
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08.03.07
Posted in Baseball at 2:48 pm by Valentine
Are you a Boston Red Sox fan, looking for quick cuts on the hometown team? I have been regularly updating two pages of comprehensive individual comments, covering the lineup and the rotation. Let me know if there are any changes or additions you would like to see!
Link to the Offensive Lines
Link to the Rotation Roundup
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08.01.07
Posted in Baseball at 1:49 pm by Valentine
In the card game of “Hearts”, the usual goal is to avoid ending up with hearts (hence the name) or the queen of spades. However, if a player manages to collect all fourteen of these cards, then the other players are marked down the points. A player who attempts to “shoot the moon”, as this is called, accepts the risk of a poor result in the hope of a massive victory.This is similar to a pennant-race deal in baseball. A contending team will offer up major-league-ready prospects in exchange for a key player that improves their chances of completing the drive to the playoffs and winning the World Series. You cannot evaluate these deals strictly on the basis of value exchanged. The prospects offered up will bring their new team six years of cheap service before reaching free agency, while the veterans going the other way are frequently a two-month rental. The gap does narrow a bit if you factor in the opportunity to sign the veteran to an extended deal, or receive draft-pick compensation when he leaves, yet the prospects in almost every case can be expected to return greater long-term value. The justification for the deal is not winning the most games, but winning the games that matter the most. Thus you cannot evaluate these deals without consideration for the pennant-race context within which they occur.
The Mark Teixeira deal is a clear example of a team “shooting the moon”. Read the rest of this entry »
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07.29.07
Posted in Baseball at 5:56 pm by Valentine
The Red Sox have allowed only 3.94 runs per game this year, a marked improvement from their mediocre 5.09 mark set last year. Much of the credit is due the pitching; Beckett has shown better command, while both Matsuzaka and Okajima have played key roles. Yet even the best pitchers rely on their defense to make the plays, and the Red Sox growth defensively has contributed to their success at run prevention.
Defensive skill is commonly measured by “errors”, however an error is rarely scored on a ball the fielder fails to reach. The league leaders in fielding percentage are often players with soft hands but very limited mobility, making it a very poor measure of effectiveness. Range Factor is perhaps slightly better, counting the number of plays converted successfully, yet it is a poor tool for assessing a team. After all, there are only 27 outs to go around and somebody has to convert the putout. Neither does it differentiate between fielding a batted ball (hard!) and catching a thrown ball (easy!). A first-baseman who plays in front of a ground-ball pitching staff could be expected to lead the league in Range Factor simply by standing on the bag to receive throws.
The best commonly available defensive measure is Zone Rating, a percentage of the balls hit to a player’s typical “defensive zone” that are converted for outs. It isn’t perfect by any stretch of the imagination; there are significant park factors, especially for outfielders, and it does not sufficiently reward players with exceptional range who go “outside their zone” to make plays. Still, a player with a strong Zone Rating over the course of a full season can be presumed to be strong defensively and a player with a very weak Zone Rating likely does not belong at his position. I will also cite Defensive Rating, a normalized statistic (100 = league average) calculated by Baseball Prospectus. These statistics will tell largely the same story, though some discrepancies can be expected.
So how have the Red Sox fielders fared this year? Read the rest of this entry »
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07.27.07
Posted in Finance at 1:01 pm by Valentine
I found this recent interview with Bill Miller to be interesting. Now I’m not a “great investor” by any stretch of the definition, but several of his comments reflect my own philosophy. Read the rest of this entry »
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07.19.07
Posted in Finance at 2:29 pm by Valentine
Welcome back! I’ve been enjoying my break for the last month, recharging my batteries so to speak, but there is so much to write about…
Most recently, Reuters reports on a poll: 40% of drivers will cut back on their driving if gas hits $3.50/gal.
Over the last two years we’ve already observed some moderation in the number of miles driven. Both the number of licensed drivers and the GDP have steadily increased, yet the miles driven have leveled off. The truncated summer peak you observe in the chart to the right suggests that people might be reducing their discretionary miles. Read the rest of this entry »
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