My age is listed as 28, I think because the previous week’s Midtown Lunch’er (not sure what that apostrophe’s about, but it’s how Mr. Midtown Lunch writes it) was that age. Beyond that it’s all true.
There was a fascinating thread on Athletics Nation last week about whom the A’s might add to the starting rotation after ace Barry Zito heads off next spring to vastly bigger paychecks in L.A. or New York. (I promise, no more A’s posts for a while after this.) What struck me was not so much the content of the discussion–which centered on the possible return of former A’s ace Mark Mulder–but the language:
"Low risk/High reward!"
"Durability is a oversaturated market, I believe Beane is thinking. It just costs too much."
"I’m not totally convinced he’ll be undervalued enough in the marketplace to be affordable."
This is all straight out of Moneyball, Michael Lewis’s 2003 examination of how the A’s build winning teams on a tight budget. Lewis constructs his account around an efficient markets framework: A’s general manager Billy Beane saw a market inefficiency in how hitters were priced. Scouts and general managers overvalued perceived athleticism, and undervalued chubby guys who walked a lot. So the A’s signed guys, chubby or otherwise, who walked a lot. As I wrote in my Curious Capitalist blog a couple of weeks ago, this thesis–after getting lots of criticism from baseball types and even Steven "Freakonomics" Levitt–has recently received empirical backing from a study published in the Journal of Economic Perspectives. What’s even more impressive to me, though, is that all these A’s fans are now conversing in a language probably introduced to them by Lewis, the language of finance.
As someone who is writing a book that is at least tangentially related to these topics, I think there’s a lesson for me here. When people ask me what my book is about, I have a couple of answers. If they’ve been to business school, I usually say it’s about the rise and fall of the efficient market hypothesis and leave it that. If they haven’t, I try something along the lines of: It’s the intellectual history of an academic idea that changed the world of investing and then turned out to be at least partly wrong.
A few months ago, though, Michael Schrage followed up the what’s-the-book-about question with a much harder one. "What’s your thesis?" he asked. I said I’d get back to him.
I’ve taken a certain amount of (perverse?) pride in the fact that my book isn’t yet another Tipping Point/Wisdom of Crowds/Long Tail exercise in identifying a simple idea that purportedly explains almost everything. That genre’s getting a little tired (although it sure has been lucrative). But it’s not enough just to say that I’m telling a complex story rather than making a simple argument. I still need a thesis, an explicit intellectual framework that tells me as I go back through my 340 pages of manuscript what to throw out, what to leave in, and what to add more of. Sure, it’s Lewis’s storytelling that got so many people to buy Moneyball. But it’s his thesis, his intellectual framework, that has so lodged itself in the minds of A’s fans that they talk of undervaluation and market saturation and risk-reward tradeoffs when they talk of baseball.
So what’s the thesis of my book? Is it that markets are sort of efficient but not perfectly so, and that this distinction matters a lot in some situations and very little in others? Is it that social-science theories that make sense in the context in which they arise can seem utterly nonsensical when removed from that context? Is it that people find it terribly hard to give up a particular worldview, even in the face of masses of conflicting evidence? Is it that the test of a scientific theory is its usefulness, not its correctness?
All those play a role in the book. But none strikes me as the unifying idea. So what is? One common trait of the books named above is that they all take ideas from academia and use them to explore everyday life. My book is largely set on college campuses. The key might be to take a concept from outside academia and use it in explaining why these professors have behaved the way they have. Maybe it’s something as simple as common sense or judgment. More news later on this same station.
In investing, it’s all about expectations. What matters is not the brilliance of a company’s business model or the competence of its management — it’s about how your expectations of its future prospects stack up against those of the market as a whole.
Sports fandom is a little bit like that. This realization originally came to me when I attended my first Alabama football game, in 1989. (Thanks for the ticket, Dr. Leitner!) I’d grown up going to Cal football games, where the baseline expectation was defeat and even glorious victories contained their share of interceptions and ridiculous penalties. My first game in Tuscaloosa was against some lesser opponent or other (Ole Miss, perhaps?), and the sour, sure-hope-the-Tide-don’t-screw-up mood in the stadium shocked me. Hardly anybody, except the drunk students, seemed to be having any fun.
So anyway, game three of the American League Championship Series is about to start, with my Athletics down 2-0. The special A’s martini at right (with olives and a twist) was made to celebrate the glorious three-game victory over the Twins in the division. Now things aren’t looking so good, but the tone on Athletics Nation remains mostly positive. In fact, most of the fans posting there seem to relish the fact that their team has dug itself into underdog status. If they come back, it’ll show those no-good Yankee fans on ESPN and Fox! And if they don’t, well, they will have still done pretty well for a team nobody gave much of a shot to even get past the Twins.
The A’s, then, are a value stock. Or maybe they’re a GARP (growth at a reasonable price) stock. After all, it’s not much fun to support a team that’s never been anything but bad–the Devil Rays, for example. But neither does it seem to be a lot of fun to be a Yankees or Chelsea fan these days. It might be okay if you acquired your fandom during some long-forgotten streak of losing seasons. But that’s not when most people adopt teams. Which is true in investing as well.
UPDATE: After all that brave talk, it was still pretty unpleasant to watch them lose 3-0 tonight. I even switched over to Daisy Cooks! for a couple of innings.
Mrs. By Justin Fox, whom some of you know as Allison Downing, is deeply involved in the fundraising operation at Manhattan’s P.S. 163, the fine educational establishment where The Boy attends second grade.
One of the many P.S. 163 fundraising efforts involves selling books in front of the school on Fridays, when the 97th Street sidewalk is also host to a wonderful farmers’ market. Friday of the week before last was an especially beautiful day. Many books were sold. And the niece of a recently deceased resident of a nearby apartment building stopped by, wondering if she could offload some of his books. She was in from Illinois, and was more than a little daunted by the prospect of clearing out her uncle’s cluttered apartment in a city with which she was entirely unfamiliar.
By the end of the day, several loads of books had been hauled down to the sale, and another P.S. 163 parent had effectively become co-executor of the man’s estate. Allison was up in the apartment a week later, helping clear things out. While there, she found a first-edition copy of E.B. White’s Here Is New York, a book I’ve been meaning to give to her ever since we first moved here in 1996, but which has a nasty habit of disappearing from stores around Christmastime.
The oft-quoted thumbnail sketch of New York is, of course: “It’s a wonderful place, but I’d hate to live there.” I have an idea that people from villages and small towns, people accustomed to the convenience and friendliness of neighborhood over-the-fence living, are unaware that life in New York follows the neighborhood pattern. The city is literally a composite of tens of thousands of tiny neighborhood units.
We’ve been living in this particular tiny neighborhood unit for a bit less than three years now. At the farmer’s market last Friday I saw at least three people I know (not counting the people selling stuff, whom I feel like I know although I’m sure we customers are all just a blur to them), and talked one of them into buying a couple of porgies (it’s a kind of fish) to be baked later in a bed of kosher salt. Allison sold books much of the day, when she wasn’t helping clean out that apartment. Over the weekend we went to The Boy’s soccer game in Central Park, which I coached, attended a college football game (Columbia vs. Princeton) where we met up with friends, went to two (!) church services, had lunch with friends, and went out for a drinks with other friends who also happen to be our neighbors. That we didn’t have anybody over for dinner was mainly a product of Saturday night being our 11th wedding anniversary.
I’m familiar with the whole “Bowling Alone” argument, that we Americans have been loosening the bonds that tie us together and thus squandering precious social capital, or something like that. But I think that’s a trend that played itself out a few years back, a product of suburbanization, both spouses going to work (which isn’t a bad thing in itself, but leaves less time for bowling leagues), idiotic urban “redevelopment” efforts, and the economic pressures that have left American livelihoods less secure (even if, on average, far more bounteous) than they were before the 1970s. New York in 2006 seems headed in the opposite direction. I don’t bowl, but if I did, I don’t think I’d be able to get away with doing it alone.