About Me

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This is written with serious investors in mind, though sometimes they're just drafts in progress. I'm a former reporter, private investigator and institutional equity analyst who digs deep to find niche undervalued and undiscovered securities. I manage money for individuals, institutions and family offices via my business Long Cast Advisers. This blog is part decision-diary, part investment observations and part general musings about Philadelphia sports. It should not be viewed as a solicitation for business or a recommendation to buy or sell securities.

Sunday, November 17, 2013

My Neighbor's House is for Sale

My neighbor's house is for sale. They are asking $1.425M for it ...

... I'm told they bought it in 1998 for $98,000. That's an implied 19.4% CAGR over the last 15 years. My neighbor, two Polish sisters, have handily outperformed the stock market and have roughly matched Warren Buffett over that time period. Pretty impressive though I don't expect anyone will write any books about them.

If that current rate of growth continues, in 2028, the house will be "worth" $20M.

It's almost inconceivable to imagine this: What would have to happen over the next 15-years for the value of the house to rise that much? Concurrently, if asked that question in 1998, what would the answer have been?

The rapid growth in real estate prices around NYC and - generally speaking - in many major global cities over the last 20 years has several ramifications. The obvious wealth effect benefits the few who were lucky enough to buy and retain real estate before the bubble.

As far as negative consequences, I view it as part of the larger recurring transfer of wealth in this country from the young to the old. Concurrent with other costs that absorb incremental income for young people (healthcare, older people's pension liability and student loan debt), I'm struck by the imbalance. It's a pet peeve of mine, this generational wealth transfer from young to old. It's the inverse of historical norms and incongruent with a country's long term growth and sustainability.

I don't have a crystal ball on future real estate prices and everyone knows trees don't grow to the sky, but history is rife with sustained disbelief, so the current situation can persist until it doesn't anymore. I suspect that eventually as recent progress in education and crime slips, so will demographics and pricing.

Regardless, from a non-financial perspective, I hope we get a good neighbor, so we can cut the fence between our yards and make a big space for the kids to run around. That would make a rare and unusual property. I like rare and unusual things most of all, as they tend to grow in value over time.

Friday, November 15, 2013

Amaro Leading the Phillies as Fast Food Franchise

Welcome back Marlon!

An article by David Murphy in today's Philadelphia Daily News about the Phillies GM Reuben Amaro considers a range of errors in decision making related to the $16M 2-yr contract to 37 year old Marlon Byrd.

He observes that the signing reflects a misuse of data by the GM for
taking opinions from his scouts and acting on them without weighing, considering, waiting, questioning, analyzing or assessing. An error that pertains to investors and other in the world of information analysis.

Taking input without assessing it is ideal in the fast food world (do you want fries with that?), but in a decision making industry its a recipe for another losing season.    

The writer says context and opportunity cost analysis are lacking in the decision making process. "[The GM is] responsible for placing that evidence [from the scouts] into the context of all of the other evidence available to a major league front office in the year 2013".

Regarding the Byrd signing he says, the problem "lies not in the justifiability of the signing, but in the method of justification that Amaro says he employed.

Quoting Amaro: "We talked to our scouts about how his swing path and approach changed. He's worked on it. I have to trust my scouts on it." 

The writer's point is that in today's world, managers take in information and then weigh, assess and decide, not simply do what the scouts recommend. It's like a portfolio manager's actual job. 

Most everyone agrees $16M seems like a lot of money for an aging and deteriorating ball player, that the Phillies recent history is rife with examples of large contracts to old free agents and they are not sufficiently developing their farm system. In short, that their leadership is making lousy choices. 

Why - and how it's become this way - reflects a Phillies management team in disarray since Pat Gillick left, but who himself inherited the legacy of Ed Wade, in whose tenure from '98-'05 Pat Burrell (1998), Chase Utley (2000) and Ryan Howard (2001) were drafted and a new stadium built. The World Series was won around that core. Under Amaro, a loyal serf to the multi-partnered ownership family, the choices have been abysmal.  

This will continue, the writer says - and I paraphrase here - until the GM makes better decisions, interprets and utilizes probabilities at least as much as he interprets a player's ability. 

"Everyone sees the same numbers, the same games, the same video," the author writes. 

In that regard, Amaro is a lot like every other investor. He just happens to be a really bad one. 

Full article here: http://www.philly.com/philly/sports/phillies/20131115_Phillies_following_wrong_swing_path.html