Does Moneyball Give a Gliimpse of How to One Up Wall Street?

I realize that not everyone is a reader. When I interviewed the famed British illustrator Ralph Steadman (think of Hunter Thompson's Fear and Loathing in Las Vegas for example), I mentioned that I had started as an artist and became a writer. He replied that he started as a writer and became an artist, "because no one reads anymore."

Near two decades have passed, and the readers of this world still love their books. Many of us have not only read 50 or a hundred books a year most of our lives, but we've read many of those books more than once and as many as four or five times possibly.

I bring this up because I am currently reading, for the second time, Michael Lewis' Moneyball. After my first reading it was made into a movie starring Brad Pitt and Philip Seymour Hoffman. Now, near 20 years later, I am seeing it with new eyes, not as a baseball fan but from the point of view of an investor. 

The book is about how baseball historically came to place value on certain factors that statistics actually proved were backwards. Billy Bean, who had been drafted as a most-likely-to-succeed superstar, is at the center of this story about the Oakland Athletics. Bean is GM, the decision maker regarding the makeup of the team. His experience as a failed potential superstar gave him an insight into the game that most front office folks could never recognize. 

How this applies to investing is obvious. The conventional wisdom is that the prices of stocks (which represent partial ownership of companies) are fairly valued by the market. That is, if the price of one share of a company is seventeen dollars, the company's true value will generally correspond with that in the aggregate of all its shares. Or more correctly, the price of a share will correspond to the future earnings based on risks and potential rewards.

If this is so, how then does a bridge player  from Omaha do so phenomenally better than a majority of others when purchasing portions of company's shares? How does he succeed where others fail? 

It may be like the story in Moneyball. Conventional wisdom is safe but backwards. Warren Buffet made a name for himself by (a) doing more homework than the herd, and (b) by using a different set of measurement tools.

I like the illustration of the herd because it corresponds to life as a zebra on the Serengeti. There is safety in the herd. The reason is that to leave the herd is to become vulnerable to the lions. 

The problem for the zebra in the herd, though, is that the grass gets shorter and shorter. Outside the cluster of zebras in the herd there is ample food, but how retrieve it and enjoy it without risk of become food oneself? 

Somehow Warren Buffet is getting outside the herd and avoiding the lions as well. How he does this is not my point. The point is that there are opportunities available by shucking off conventional wisdom. This is what Billy Bean did because he saw with great clarity how wrong the "experts" were about him.

I once published an article titled "Who Are Your Experts?" in which I challenge people to think for themselves, or at least recognize that when choosing experts you are ultimately responsible for the choices you make. 

Desert Storm was another example of how the conventional wisdom was wrong. Experts were saying that we were about to enter a protracted war with Saddam Hussein that would end up as another Vietnam. Instead, Iraq capitulated in 100 hours. (This was Desert Storm under George Herbert Walker Bush.) There were many lessons for both businesses and investors from that brief war.

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The subtitle of Moneyball is, The Art of Winning an Unfair Game. Wall Street, which Michael Lewis has also written about in the past, is also considered by many to be an unfair game. Can the lessons Billy Bean learned about player valuations be transferred to the Street? 

To some extent it may be possible. When everyone loves a stock because of the personality of its leader or for any other reason trotted out by the media, it valuation goes up, and likely exceeds its real value. The diamonds in the rough, like some of the players with apparent flaws -- a pitcher with a quirky delivery, for example -- may be neglected and undervalued, until someone notices that they have been consistently making a boatload of money for years, and with no end in sight.

All decisions involve weighing risks and rewards, and learning how to identify what has real value and what only has the illusion of value. Be wise.

Kinkade, Elvis and American Conservatism

"Making money is art and working is art and good business is the best art." ~Andy Warhol.

The recent passing of Thomas Kinkade brought to the surface a number of questions that in another context might make for a good discussion. Is a person a good artist because he has technical facility? Is a person a good artist because she is good at selling her work? Is the price people will pay for a piece a measure of its worth? What is the relationship between the artist's work and the way the artist lived?

According to the website Celebrity Networth, Thomas Kinkade was worth 70 million dollars while he was alive. His estate will no doubt increase in value since it is customary for artists' work to have great value after they die. He made this small fortune through a combination of talent, mass-production and American enterprise.

There are not a lot of artists who have become a household name. Picasso and Dali are two who crossed over into popular culture. Though not of their ilk in importance, Kinkade did succeed in creating a name for himself as a "Painter of Light" and something more. His Christian-themed art was beloved by the masses because, he says, God was guiding his brush and his life the last 20 years.* In a New York Times article he was quoted as boasting that he is a successful American artist because his works are in 1 of every 20 homes in America. 

I'm having a difficult time articulating what I want to say here. Maybe that there is something weird about the way liberals and conservatives line up behind people for reasons that have nothing to do with the art itself. For example, Last Temptation of Christ was a dumb film, but liberal critics praised it to the hilt. Martin Scorcese is a friend, but it didn't work as a film and to give it four stars was silly. Christian conservatives for the same reason (because of Thomas Kinkade's marketing) say his art is great when it is simply technical facility and sweet themes. And he was a Christian.

But the guy was not who he says he was. According to reports he was an alcoholic, a bully and was living with a younger woman instead of his wife of thirty years. According to this story in an LA Times blog the woman says he died happy. The Kincade estate would prefer his image be less tarnished so that his paintings maintain their value. (One of his originals flew up in price by over $200,000 after he died last month.)

I've hardly scratched the surface here as regard what I am internally wrestling with. In my mind are images of Elvis wrapping himself in an American flag, and of Elvis portraits painted on black velvet. And an Elvis mansion. And... somehow this is all wrapped in our fascination with the surface of things and what they stand for instead of thinking more deeply about what is really going on.


I'll be returning to this subject soon because it ties into another theme that I have had on my mind, the National Endowment for the Arts. I used to be agin' it and now I'm for it, more than ever.

Have a good weekend, friends.

*Kim Christenson, L.A. Times, Dark Portrait of a "Painter of Light" (Mar. 5, 2006)