The Buying Slow but Selling Fast Bias

In this clip professional money manager Ben Griffiths approvingly quotes fellow-trader Larry Williams, “If you get one thing right in your career it is to learn to be a slow buyer and a fast seller”. “If you can master that”, Griffiths continues “you will be well down the way to being a successful manager of money.” Using a huge database of 783 portfolios averaging $573 million in size and covering 4.4 million trades over 16 years, Akepanidtaworn, Di Mascio, Imas, and Schmidt show that professional money managers follow exactly this advice and it is exactly wrong.

Professional money managers do well on their “slow”, buy decisions–somewhat surprisingly, well enough to beat benchmark portfolios. It’s on their “fast”, sell decisions that money mangers significantly underperform the market. Remarkably, the authors show that on average professional money managers would have done better had the chosen what to sell randomly. Why? On their buy decisions money managers put in effort–you can tell they are putting in effort because their buy decisions cannot be explained by simple heuristics based on past returns (such as buy past winners or buy past losers). On their sell decisions, however, managers do appear to follow a heuristic of selling their big past winners or past losers. See the graph where the blue buy decisions are independent of past returns while the red sell decisions show a clear preference to sell positive or negative return outliers. The authors show that this bias reduces return (just as you would expect). When you sell fast you sell what comes to mind quickest, an availability bias, and that’s often a past winner or a past loser even if greater thought would convince you that these are not the best stocks to sell. The sell fast bias, however, is pretty easy to fix. I expect that institutional investors will induce money managers to take a second look at sell decisions, much as computer systems now ask physicians to check branded prescriptions when generics are available.

Addendum: In related news, Deep Mind’s Alpha Star trounced human players of StarCraft II, a game of imperfect information that is much more complicated than chess. Amazingly, Alpha Star made fewer actions per minute than the human players. As with GO the AI developed new long-range strategies never before seen.

Eric Kaufmann’s *Whiteshift*

The subtitle is Populism, Immigration, and the Future of White Majorities, and might this be the must-read book of the year?  It is “to the right” of my views on immigration policy, but still I found it informative, fascinating, and relevant on just about every page.  Here is the author’s opening framing:

First, why are right-wing populists doing better than left-wing ones?  Second, why did the migration crisis boost populist-right numbers sharply while the economic crisis had no overall effect?  If we stick to data, the answer is crystal clear.  Demography and culture, not economic and political developments, hold the key to understanding the populist moment.

Kaufmann, by the way, is Professor of Politics at Birkbeck in London, but hails from Canada.  As for the basics, there is this in addition:

Much of this book is concerned with the clash between a rising white tribalism and an ideology I term ‘left-modernism.’

If you wish to understand “all the stuff that is going on today,” maybe Whiteshift is the best place to start?  Kaufmann, by the way, is not a mega-pessimist and he seems to think that “broadening the category of white” will lead to a “good enough” solution for many of the Western democracies.  Still, much of this book is disturbing, especially for readers who might consider themselves to be on the left.  Most of all, he sees “whiteness” as a legitimate cultural interest, and one which, if we deny, will lead to more overt racism rather than less.

Here is Kaufmann on Brexit, brutal but I think largely correct:

…many analysts bring a political lens to their analysis which inclines them to want to tell a story about wealth and power.  Over half the country voted Leave and we can’t condemn such a large group.  So we pretend populist voters are motivated by the same things we are: economic stagnation (for fiscal conservatives) or, for left-liberals, inequality and resentment of the establishment.

Kaufmann also has strong evidence for the “immigration backlash” hypothesis, for instance:

…a higher immigrant share is a consistent predictor of higher opposition to immigration over time…in Western Europe there is a .63 correlation between projected 2030 Muslim share and the highest poll or vote share a populist-right party has achieved.

On top of all of its other virtues, Whiteshift provides the best intellectual history of the immigration debates I have seen.  It also has the best discussion of why Canada seems to be different when it comes to immigration, and I may cover that in another blog post.

Kaufmann does very much argue that the left-wing values of diversity and solidarity stand very much in conflict.  How is this for an “ouch” sentence?:

Casual observation would suggest that being black in diverse San Francisco is not necessarily better than being black in white-majority Fargo [North Dakota].

By no means am I convinced by everything in this book.  I don’t think European politics can handle systematized refugee camps in Europe itself (rather than Turkey and Lebanon), and most of all I am not sure that recognizing whiteness as a legitimate cultural concern will diminish rather than boost racism.  I wish he had said much more about gender, and how immigration and gender issues interact.

Nonetheless this book has more points of interest yet, including an original and persuasive take on residential clustering, a good analysis of racial intermarriage, and a sustained argument that avoiding the “no dominant ethnic group” approach of Guyana and Mauritius is imperative.

Strongly recommended, it is out next week, you can pre-order here.

Sunday assorted links

1. Gonzalo Schwarz reviews Stubborn Attachments.

2. Singapore: that was then, this is now, thirty years apart.  Perhaps it is politically incorrect for me to suggest this on MR, but many of the earlier images I find more attractive.

3. The airport where robots will park your car.

4. Coming out in world literature (NYT).

5. 3-D printed concrete bridge in Shanghai (does this matter?).

6. Are gondolas a transportation trend?

Dalrymple on Aleppo

The history of Aleppo is terrible stuff; a long succession of massacres and sieges disappearing into the mists of Syrian pre-history. First held by the Hittites, it was captured in turn by the Philistines, Assyrians, Babylonians, Persians, Greeks, Romans, Persians (again), Byzantines, Arabs, Mongols and Ottomans, each of whom vied to outdo the carnage of their predecessors. The Assyrians were the most imaginatively sadistic: they impaled the town’s menfolk on their spears and feasted for two days while their victims groaned to a slow death.

In between invasions Aleppo was ruled by a succession of aristocratic thugs who exacted outrageous taxes and perfected ingenious ways of bankrupting their burghers.

In all the town’s history there are only two cheering anecdotes. The first tells of the Arabs who captured Aleppo by dressing up as goats and nibbling their way into the city; the second concerns Abraham, who is supposed to have milked his cow on the citadel’s summit. It is not much in ten thousand years of history, especially when the one story ends in a massacre…and the other is a legend, and untrue. It is the result of a misunderstood derivation of the town’s (Arabic) name Haleb, which comes not from the Arabic for milk (halib) but a much older word, possibly Assyrian, connected with the mechanics of child abuse.

From William Dalrymple’s In Xanadu written in 1989…things have not since improved.

Library of Congress to archive Marginal Revolution

From my email:

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That was then, this is now (a continuing series)

Even if the Nobel committee does not consider Mr Tsipras and his Macedonian counterpart, the 44-year-old Greek prime minister is barely recognisable as the leftwing firebrand who threatened to denounce Greece’s eurozone bailout, ban German politicians from visiting Athens and pull the country out of the euro if its creditors rejected his demands for debt forgiveness.

Four years after his first narrow election victory for his radical Syriza party, Mr Tsipras has become a surprising anchor of Greek financial discipline. His government is generating the sort of budget surplus that Athens’ creditors could once only have dreamt of. And he has reinvented himself as a southern European pragmatist, committed to being a co-operative EU partner while deepening relations with Washington in the interests of regional security.

“Tsipras now has a new international profile, that of the mature leader ready to incur political cost to carry out unpopular policies, whether it’s over Macedonia or the difficult economic reforms needed to keep Greece in the eurozone,” said Aris Hatzis, an Athens university professor of law and economics.

Here is more from Kerin Hope at the FT.  Note that Tsipras is currently not especially popular in Greece: “he is widely expected to be ousted from office when Greece holds a general election this year. Opinion polls show Syriza still lagging more than 10 points behind the centre-right opposition New Democracy party, which has rejected the Macedonia deal.”  Bryan Caplan, telephone!

Steven Pinker on slavery and the Enlightenment

Here is his Quillette response to critics.  Here is one of his arguments, one where I do not find the framing so convincing:

Slaves were always the most desirable spoils of conquest, and anyone who has been to a Passover seder or seen the movie Spartacus knows that slavery was not invented in 18th century Europe or America. Blaming the Enlightenment for slavery is particularly ludicrous given the chronology of abolition…

As the historian Katie Kelaidis put it in The Enlightenment’s Cynical Critics, “Millennia of great moral teachers sought to come to terms with slavery and to mitigate its inhumanity, but no one—not Jesus, not Buddha, not Muhammad, not Socrates—considered the complete liberation of all slaves prior to the Enlightenment. … The Enlightenment was not the inventor of slavery, but it was the inventor of the notion that no one should be held as a slave.”

This strikes me as a classic case of mood affiliation: “we must have a positive mood toward the Enlightenment!”  And perhaps we must. But what is wrong with this alternative formulation?:

“Early modern Europe, including its later manifestation of the Enlightenment, brought great benefits to the world.  Part of those benefits involved enhanced capacities.  Some of those enhanced capacities were used to do great evil, such as to capture, transport, and hold slaves on what was probably an unprecedented scale.  The extermination of many indigenous groups could be added to that ledger too.  Therefore we should beware of greater capacities, because even when they bring significant good, they also can carry great evils.”

More accurate than Pinker, but it also invokes a more complicated mood toward progress.

I would note also that so many of the most radical abolitionists, including in Britain, were Christians.  It is fine to consider them part of the Enlightenment as well, but still to describe the Enlightenment as “the inventor of the notion that no one should be held as a slave” seems off-base to me.  The 16th century Spanish Salamancans — theologians I might add — strongly opposed slavery well before the Enlightenment.  To call the Salamancans themselves “proto Enlightenment” is perhaps not wrong, but also has a tautological element if such a move is being used to defend the primacy of the Enlightenment (otherwise identified by Pinker as originating in the 18th century) in this regard.

It is also worth a query of the Pinker passage “Blaming the Enlightenment for slavery is particularly ludicrous given the chronology of abolition…”  First, you can hold a properly mixed opinion about this whole matter without “blaming the Enlightenment for slavery.”  (Most of all I would blame the slave capturers, traders, and owners.)  Second, “particularly ludicrous” is too often the mark of an under-argued claim, beware such rhetoric.  Third, so many of America’s greatest Enlightenment figures were themselves slaveholders or at least slavery defenders or tolerators.  I don’t mean to suggest any simple “blame the Enlightenment” approach here, but surely that is worth a mention and discussion?  Finally, the Enlightenment in America is well up and running by 1765, and slavery lasts for a full century more?  More yet in Brazil.  Maybe that is worth a bit of discussion too?

I am very much an admirer of Pinker and his work, and I consider myself an optimist, especially across longer time frames.  But what is sometimes called progress does also have a dark side, and we will do better fighting that dark side if we are clearer — in our own minds and with each other — on how things have run to date.

How the government shutdown will end the real Deep State has acted

Here is a reprise from my January 17 column:

The real power here is held by government employees, especially those in critical jobs. Let’s say that more TSA screeners decided to walk off the job. It’s already the case that the TSA absentee rate has gone up to 7.6 percent, from 3.2 percent a year ago. It is possible to imagine screeners staying home in much greater numbers, thus crippling the entire nation. That could either force President Donald Trump’s hand or lead to a congressional override of a potential presidential veto.

And the close:

So what does the final equilibrium look like? Some number of extra weeks (months?) of talking about Trump and the wall. Trump over time becoming less popular. Congressional Republicans folding, and Trump lying about both the outcome and the process. Democrats looking better, at least relatively. Federal workers emerging with bruised morale, but mostly intact.

If you think those are implausible outcomes, you haven’t been paying close enough attention to the last two years.

File under Prophets of the Marginal Revolution…

Nav Canada

As La Guardia closes due to the government shutdown, this seems like an opportune time to think about Nav Canada.

We are Canada’s Air Navigation Service Provider (ANSP) managing 3.3 million flights a year for 40,000 customers in over 18 million square kilometres – the world’s second-largest ANSP by traffic volume.

Our airspace stretches from the Pacific West coast to the East coast of Newfoundland and out to the centre of the North Atlantic, the world’s busiest oceanic airspace with some 1,200 flights crossing to and from the European continent daily. It also stretches from the busy U.S-Canada border with major international airports to the North Pole where aircraft fly polar routes to reach Asia.

We are also the world’s first fully privatized civil air navigation service provider, created in 1996 through the combined efforts of commercial air carriers, general aviation, the Government of Canada, as well as our employees and their unions.

Our revenues come from our aviation customers, not government subsidies. By investing in operations and controlling costs, we strive to keep customer charges stable, while improving safety and flight efficiency.

In addition to Canada, New Zealand, Germany, Australia, and the United Kingdom have moved in recent decades towards a more private system based on user fees rather than government funding. See also my earlier post on European airports.

Friday assorted links

Unsolved Shootings are Rising

In 2015, I documented that crime in Baltimore was rising rapidly as police resources became stretched as they dealt with riots and anger following the death of Freddie Gray. I warned that the city could tip into a permanently higher crime rate.

It’s now become clear that is exactly what happened as an investigative report by The Trace reveals:

Instead of getting backup, detectives were pulled from their cases, sometimes for days at a time, to help quell the violence. By 2016, homicide investigators cumulatively spent 10,000 hours working riot duty and patrol rather than tracking down murderers…

In the ensuing months, Baltimore’s closure rate for shootings dropped to 25 percent, the lowest in recent history. More than 1,100 cases from 2015 and 2016 alone remained unsolved by the following summer.

As the closure rate fell, the number of shootings increased (see data at right).

It’s not just Baltimore, however:

The crisis of unsolved shootings isn’t confined to cash-strapped cities like Baltimore, but also hits some of America’s most affluent metropolises. In 2016, Los Angeles made arrests for just 17 percent of gun assaults, and Chicago for less than 12 percent. The same year, San Francisco managed to make arrests in just 15 percent of the city’s nonfatal shootings. In Boston, the figure was just 10 percent.

Crime is lower today than in the past but we are in danger of becoming complacent. The rate of unsolved crimes is very high and in some cities it is soaring. Any city with an arrest rate for assaults of 15% is primed for a crime wave.

We need more police as well as better policing.

Addendum: I wonder how many of these cities are still devoting significant resources to marijuana busts?

Great Britain land privatization fact of the day

What has been Britain’s biggest privatization to date?

…Britain’s biggest privatization has not been of housing or a bank.  It has been of land.  Since Margaret Thatcher entered Downing Street in 1979, and continuing all the way to the present day, the state has been selling public land to the private sector.  It has sold vast quantities — some 2 million hectares, or about 10 per cent of the entire British land mass…my best estimate…is that, at today’s prices, the land that has been sold is likely to be worth something in the order of £400 billion…

That is from the new and useful The New Enclosure: The Appropriation of Public Land in Neoliberal Britain, by Brett Christophers.  Land, land, land!  The author, by the way, is mostly critical of this privatization.

It seems to me Amihai Glazer deserves the credit here

I keep on seeing papers and notices of the notion that commonly owned firms — say commonly owned by diversified mutual funds — might collude rather than competing vigorously against each other.  After all, maximization of joint profit would seem to be the imperative, not firm-by-firm profit.

It is not so widely known who first came up with that idea, and it is my former colleague at UC Irvine, Amihai Glazer.  I know this because Ami and I had a co-authored paper on this topic, could it have been as early as the late 1980s?  (I don’t remember the year.)  And while it was genuinely joint work, the key idea came entirely from Ami, not from me.

We tried to publish the paper at several journals, but they all told us it was crazy.

I should also note Ami and I never quite agreed on what the paper meant.  I always viewed it as more of a theoretical curiosity.  I’m still not sure I understand Ami’s take, but in general he saw it as closer to a real world possibility or maybe stronger than that.  I also thought that even if joint ownership came about, forces akin to those discussed in the socialist calculation debate still would require something akin to firm-by-firm competition, rather than managed collusion (what about just picking managers with sluggish temperaments, thus leading to an intermediate solution?)  I don’t think that was Ami’s view back then at least.

I don’t know where my copy of the paper is, I hope Ami still has one.  In the meantime, I hope credit goes where credit is due, and that is to Amihai Glazer.