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January 2007 Archives

January 4, 2007

Ceci n'est pas une Weed Shirt

Despite what everyone seems to think at first glance, this is not the logo from a shirt that depicts any kind of illegal substance:

Rather, it's a quite clever take on the logo of the New York City Parks and Recreation Department, in which the maple leaf points have each been replaced with the silhouette of a famous NYC skyscraper. Can you name them all?

Thanks to the clever folks at Recon.

January 9, 2007

MEJAN LABS : From Reality and Back

[Syndicated from del.icio.us/fruminator]

I'm going to Sweden to play with 3D. An Eyebeam hangover of sorts, but it should be really fun. Northern Europe is so nice this time of year!!!

As Rational as it Gets

A fantastic interview with Fred Salvucci [PDF], one of the premier transportation engineers and policy-wranglers of the latter half-century (and a prof in the program at MIT that I'm applied to). The subject is the Big Dig, which, amazingly turns out to be an "anti-highway project." What I didn't know was that the massive upgrade to Boston's mass transit system was actually a key part of the Big Dig, in terms of funding, politics, and project sequencing. This is certainly one of the most clearly stated presentations I've read of why it doesn't make sense to rip highways through city cores or neighborhoods, and what it takes to implement alternative solutions. For example:

Q: Do you remember your major victory when Frank Sargent publicly reversed his policy on highway building?

A: Yes, of course. In many ways the most thrilling moment in the history of the antihighway fight was when we won. And then Governor Sargent went on television and said, basically, he had been the public works commissioner who had fought for the inner belt earlier in his career and, as governor he said it was a mistake and "I'm going to admit that mistake and stop the program and we're going to shift towards public transportation." I mean it was thrilling. It was thrilling for us that had worked hard on it, but also, in fairness to Sargent how often do you see a public official who gets up and says, "I was wrong"? I mean it was an incredibly courageous hing for Frank Sargent to do, and I'm a Democrat. I don't say many good things about republicans. But he was a great man. I mean he had worked for this program. He always had an environmentalist bent to him. [A] lot of people do political analysis as to why he did this or that. I think he just believed what he said. "This was a mistake and we're going to go in a different direction." It was a thrilling moment in the history of it.

And then we actually moved in that new direction. I mean we shifted the funds, partly under Governor Sargent, partly under Governor ukakis. Those monies that were going to go into destroying those neighborhoods or building the highways were shifted into refurbishing the commuter rail system, extending the Red Line, relocating the Orange Line, basically rebuilding the public transportation infrastructure of the city. That came out of that decision and another component of the same decision -- you can go check that speech that Frank Sargent gave -- was that the only highways that would continue to be studied within Route 128 would be the depression and widening of the Central Artery and the extension of I-90 over to Logan in an additional tunnel, the two components that are today called the Big Dig. Those were really part of that, if you will, anti-highway -- "anti-highway's" probably the wrong name -- pro-city decision that was made by Frank Sargent to shift towards a transportation strategy that would build the city instead of destroying it.

And a major component of that was, stop building destructive roads. Another major component was, put a lot of money into improving public transportation, and the third component that we're seeing built now is, take the existing Central Artery that's there and fix it. I mean fix it both from a transportation point of view, because it doesn't work, but also fix what it did to the city by etting it underground and knit the city back together again. That was a very thrilling moment in my life, when Sargent did it. And I've always respected him a great deal because of the courage that it took to do that.

Also, an as-of-yet unread interview with David Luberoff [PDF], co-author of the as-of-yet read great book Mega-Projects: The Changing Politics of Urban Public Investment.

January 12, 2007

A Tale of Two Money Managers

I happen to have two accounts at my friendly neighborhood long-short, highly-leveraged, growth-focused, discretionary money management firm. Like your typical brokerage, my accounts are each managed by a single individual with his own ideas, prerogative, and strategy. Unlike your typical brokerage, they trade stocks for me without asking, and quite aggressively at that. In some respects, it amounts to a hedge fund for us little folk. How well do they do? See for yourself:

Account Date Opened Returns To Date* S&P 500 on same interval Russell 2K** on same interval
Money Manager 1 Mar, 2003 155.21% 64.31% 113.55%
Money Manager 2 Sep, 2005 56.67% 15.38% 17.96%

* After all fees, but not including tax consequences

** Rather than the S&P, these managers benchmark themselves against the Russell 2000, an index of small-cap equities

Both have done substantially better than the market, but could it be just because they trade on margin and the markets have been up? That is, how do you isolate the component of success attributable to the investment strategy, as opposed to just amplifying the swings of the market? For now, we will focus on one account, the one that has been open the longest:

Money Manager 1 (MM1) certainly tracks the indices in general, but there are points (eg August 2006) at which he goes up then the market goes down. As my homey JDiggitl suggests, it is possible to get a handle on this by plotting my account's monthly returns against the returns of an index over the same period of time. Do a linear regression on this, and the y-intercept suggests the expected returns when the market is flat:

The slope of the linear fit [sorta] represents the degree do which his portfolio correlates with the market. In both cases the slope is less than one because of a substantial number of short positions, but regardless he is expected to return 1.2% points better than the market. Not so shabby -- in 3.75 years he has turned $1,000 (for the sake of this discussion) into $2,552 (total) where the S&P would have only given me $1,643 and the Russell $2,136. I'll take it. I'm glad these guys make hundreds of thousands of dollars per year.

But wasn't this a tale of two money managers? I want to compare them, but it can be difficult because one account is almost four years old, the other less than 18 months. The best I can think of is, from here on out, to only use the data for Money Manager 1 (MM1) over the time period in which I have also had an account with Money Manager 2 (MM2). The basics:

Money Manager 141.47%
Money Manager 256.67%
S&P 50015.38%
Russell 200017.96%

So far, Money Manager 2 is winning out. What about those scatter plots?

Money Manager 2 has a larger overall return, and while they are similarly correlated with each of the indices, MM2 can be expected to do about 0.7 percentage points better than MM1 when the market is flat. To augment this analysis, we can also apply some of the standard metrics for comparing money managers. The below table is a summary of calculations from the excel spreadsheet from whence all this analysis flows.

 Money Manager 2Money Manager 1 (since 9/05)
Avg Monthly Return3.09%2.43%
Stddev Monthly Return0.0330.045
Risk Free Rate*0.41%
Total Months15
Total Risk Free Return6.29%
Beta (vs Russell 2K)**0.6060.640
Beta (vs S&P 500)**0.9911.034
Sharpe Ratio0.9300.544
Jensen's Alpha (vs. Russell 2K)43.31%23.11%
Jensen's Alpha (vs. S&P 500)41.38%25.78%

* Assumed 5% year (i.e T-Bills), monthly rate
** note how close these Beta's are to the slopes of the linear fits above

Every metric, from absolute percentage returns to the basic measurements of portfolio theory suggest that Money Manager 2 is better than Money Manager 1. Sharpe Ratio is only to be used as an ordinal comparator, but I believe that Jensen's Alpha actually quantifies the excess returns that can be attributed to the smarts (or luck) of that particular investor's strategy.

Do I take my whole account from MM1 and give it all to MM2? Transaction costs aside, this analysis would suggest that I should, but it's hard to call up a guy who has more than doubled my money while I slept and tell him that. Regardless, I have benefited a lot from access to these smart and hard-working investors. If I'm really lucky, they will outpace the New York Real Estate market and one day I might get to live in the same neighborhood I grew up in.

We all know that past performance is no guarantee of future results, but if you have $10,000 and want to take a chance, let me know. They only take clients by referrals.

Update, 8 months later (12/07 to 8/07, over which time the the S&P and Russel 2000 are up 2.49% and 1.4%, respectively):

Account Returns Since 12/06 Total Returns To Date
Money Manager 1 8.59% 177.13%
Money Manager 2 5.68% 65.57%

January 18, 2007

Lessons From The Number 7 Train Extension

[Syndicated from del.icio.us/fruminator]

Bruce Schaller in effect. Most important is the use of Tax Increment Financing to fund a new subway line/extension:
One key to the No. 7 extension’s fast progress involved the financing. Mayor Michael Bloomberg and Deputy Mayor Dan Doctoroff, champions of the project, recognized early on that the 7 extension would go nowhere if it had to compete for funding with the Second Avenue subway, connection of the Long Island Rail Road to Grand Central Terminal, airport rail access projects, a new tunnel from New Jersey, replacement of the Tappan Zee Bridge and other mega projects. Thus, they developed a novel funding method. The bonds issued last month, and another set of bonds to be issued in several years, will be paid off using payments made to City Hall in lieu of taxes by new residential, retail and office development on the West Side, payments for development rights in the eastern part of Hudson rail yards themselves, and from other taxes collected from the area. Having its own funding source was immensely important to bringing the 7 extension along.
This isn't really that new a concept for transportation funding, just in America! It is generally referred to (eg in Cervero) as Value Capture. And what, putting the Gowanus Expressway underground?

About January 2007

This page contains all entries posted to Frumination in January 2007. They are listed from oldest to newest.

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