“Moneyball” and Real Estate – Part 1
Moneyball: The Art of Winning an Unfair Game is a book by Michael Lewis, published in 2003, about the Oakland Athletics baseball team and its general manager Billy Beane. Its focus is the team’s modernized, analytical, sabermetric approach to assembling a competitive baseball team, despite Oakland’s disadvantaged revenue situation. A film based on the book starring Brad Pitt and Jonah Hill opened September 23, 2011.
Synopsis of Moneyball: The Art of Winning an Unfair Game
The central premise of Moneyball is that the collected wisdom of baseball insiders (including players, managers, coaches, scouts, and the front office) over the past century is subjective and often flawed. Statistics such as stolen bases, runs batted in, and batting average, typically used to gauge players, are relics of a 19th century view of the game and the statistics that were available at the time. The book argues that the Oakland A’s’ front office took advantage of more empirical gauges of player performance to field a team that could compete successfully against richer competitors in Major League Baseball.
Rigorous statistical analysis had demonstrated that on-base percentage and slugging percentage are better indicators of offensive success, and the A’s became convinced that these qualities were cheaper to obtain on the open market than more historically valued qualities such as speed and contact. These observations often flew in the face of conventional baseball wisdom and the beliefs of many baseball scouts and executives.
By re-evaluating the strategies that produce wins on the field, the 2002 Athletics, with approximately $41 million in salary, were competitive with larger market teams such as the New York Yankees, who spent over $125 million in payroll that same season. Because of the team’s smaller revenues, Oakland is forced to find players undervalued by the market, and their system for finding value in undervalued players has proven itself thus far. Read the rest here
“Moneyball” and Real Estate
Similar to the discoveries made by Billy Beane and the Oakland A’s, we at Catalyst Analytics believe that there is a need to re-evaluate the process of site selection for retail real estate.
Retailers and restaurant owners/managers around the world use detailed customer intelligence for strategic real estate leasing and acquisition planning, new market expansion, franchise development, and marketing strategies and tactics – including product mix, pricing, promotion and advertising tailored to each of their locations. A common misconception by outsiders is that the key to retail success is “location, location, location.” The real key is recognizing that it’s not the real estate itself, but rather the make-up and spending mentality of the consumers surrounding the real estate, (including daytime employees) that will determine success or failure.
Find success in new/different retail locations
It has taken time, but most businesspeople in the U.S. have come to recognize that this “economic recovery” is very different from those in past decades. We have had major structural change that will last for years.
If your current decision making tools utilize annually updated database printouts with no means to interpret the major structural changes that have occurred within the U.S. economy since the upheavals of 2008, you may be in trouble. Your location hasn’t changed, your product mix hasn’t changed, but your customer base may have significantly changed from what you knew it to be 2 years ago, 6 months ago, or even one quarter ago. Significant structural changes have occurred in the U.S. and Global economy since 2008, changing not only who your customer is but also how and when they part with their disposable income.
To give you an brief example of a few of the changes that we are talking, about we recommend that you watch the video below about Echo Boomers and Baby Boomers.
Continue reading “Moneyball” and Real Estate and see how we use the 3L Score to help a small business owner find the best location for their growing business. Click here for part 2.
The TRUTH About The Housing Recovery
Local housing trends will impact your business in 2011-12. What’s your next step?
As we continue to emphasize, the problem in housing is DEMAND related. Despite all hope to the contrary, this problem is not going away.
Until the unemployment problem is solved with significant job creation, U.S. demand-supply imbalance will drive home prices down further across the United States.
The people on your TV keep preaching about the low interest rates, but interest rates are irrelevant if Americans can’t qualify for the loans.
The ability to qualify for and obtain these loans requires:
1. A job with stable income;
2. An acceptable credit score to insure against risk of future default; and
3. A down payment of cash to mitigate risk in the case of future default.
The arithmetic is simple, but sadly, not enough Americans have the above three basic requirements. The number of Americans that are CAPABLE of purchasing a home is nowhere near close enough to absorb the current (and increasing) inventory of homes.
THE RESULT: With the exception of a few markets, home prices will continue to fall across the U.S. through 2011-12. If you need to sell your home in the next 24 months, sell it now!
It is the land underneath the U.S. housing stock that is deflating. It will continue to deflate. Home price appreciation will only occur in the few U.S. markets where there is solid job growth and no significant inventory of discounted developed lots left – (parts of San Antonio are an example).
The reality today is there is a huge backlog of “underwater” homes that have been “pushed forward” with loan amendment/extensions where possible. In some cases, banks are accommodating live free but pay the utilities lifestyle.
There is no hope to accomplish a sale at current the house price held on the banks balance sheet. For many who can’t amend or extend their loan it will cost the banks less to let delinquent owners “squat” than to foreclose, resell, and take a price loss. It’s better to have someone not pay the mortgage but pay the utilities and maintain the property.
Not many were amending or extending loans in the start of the housing crisis, despite STRONG encouragement from the government. REMEMBER?
Time for the white hat…“Mr. Homeowner, how would you like to continue to pay us money on a home that isn’t going to be worth your monthly payment (albeit reduced)? Forget the fact that you can rent a nicer one for less. You were dumb enough to take out the mortgage originally; surely you’ll go for this terrific extension. An opportunity to pay even more money into a devaluing asset we really own!” Thanks for nothing, guys.
The new problem, partially created by the banks not dealing with this MUCH EARLIER when there was more political will for government partnership, is that the desperate American mortgagee has become “street smart” over the past two years. Desperate people do desperate things.
Many homeowners are taking a lesson from the banks….they are pretending they don’t really have a mortgage. In many cases, the banks are pretending along with them. Are the banks in denial? Absolutely not.
Don’t be fooled though, there is another wave of foreclosures coming, and unlike the first wave (which was concentrated in lower end home subprime loans) the next wave will be option ARM, jumbo, and alt A loans foreclosures in the higher price ranges!
Bottom line: house prices will continue to drop into 2011/2012, with the exception of the few market types mentioned above.
Local housing trends have an impact on your business in 2011-12.
What’s your next step?
Remember: “30 –day delinquencies are very closely tied to first time claims for unemployment insurance. The number of first-time claims fell through most of 2009, but leveled off in 2010; and have started to rise again. The increase in unemployment directly impacts mortgage delinquencies. Second, some percentage of the loans modified over the last several years has become delinquent again because those borrowers by definition have weak credit.”
Your immediate next step should be to measure the unemployment rates, mortgage foreclosure risk and housing trends (sales price, volume, price per square foot) directly around your business locations. If your concerns lead you to confront a major decision on a business location use solid information to inform your assessment, such as The 3L Score.