Showing posts with label financial analysis. Show all posts
Showing posts with label financial analysis. Show all posts

Sunday, September 21, 2014

A Book and OODA Loop: A Worthy Read? OODA Loop in One's Life


A Decade in the Making

It has been a great while since I have posted here. As most long-time readers (probably less than five) know, I had been plugging away or finishing up my pièce de résistance, a baseball book, titled, Bringin' Gas and Dialin' 9: A Seven Score  Addiction to the National Pastime (1869-1949), Volume 1. Quite a mouthful, and well, I say a lot over 517 pages (with appendices). 

While I could give you a quick synopsis about all the topics, ranging from the faithful beginnings of the game to macrosabermetric analysis of top baseball prospects and their intrinsic value in the present day, I'd rather not. Instead, I want to say that while I accomplished something nearly a decade in the doing, I feel a severe let down in this moment.

Maybe it comes from the personal energies expended this summer to rewrite and edit together many working parts in the last section, in particular. Or the dissatisfaction I still have that I could have expounded more on the game, through its first century (the actual time frame is longer than the title suggests) of the game. Or even the much harder task of marketing the book - as I'm not all that keen to that proposition - even as I attend Valparaiso's MBA program and work on a Global Marketing class at the present. I should be really thrilled to apply lessons on branding, creating channels to the product, pitching it, finding markets, and otherwise, making people more aware of it through Facebook, Twitter, LinkedIn, Outbrain, and all the baseball websites in existence. (And create an outlet on Amazon - which is another story, tied to formatting.)

No, those things are in mix, to be sure, but don't quite nail down what is driving the undercurrent of the recent letdown.  I wish those loved the most dearly in life were alive to see the final outcome of the project: my mother atop that list. I acknowledged this here and here. I won't recount the story in this blog, but we all have reasons we do things and for people we admired and inspired us to just try. Just try. Give it the college try - as the cliche goes.

But motivation to carry on - that daily will to endeavor on something of greater significance - has been absent. Other priorities, namely, the pressing venture back to full-time employment and those unknowns (at the moment), seem hollow, and a bit underwhelming. If recent contacts and recruiters are of any indication to those prospects. (To a future employer: Look, if you are happy every single day with your career, family and daily tasking, I commend you. But I suspect that's not what is really going on. My realism on this subject is acknowledging a verity, for me, at least: I have a sinusoidal curve when it come to my emotions about things.)

 OODA Loop

 I guess to show I am making efforts to break this funk, I will include something of recent learning in my marketing class, which I have shared a few places online. The OODA loop, which like the DMAIC cycle and other ideas on learning, quick decision-making, or dramatic process improvement methods, has application towards creativity, breaking out of a rut, and acting based off all appropriate information and acknowledgement of internal biases versus an external world through feedback. Air Force Colonel John Boyd is given the most credit for creation of this concept. His thinking behind it significantly altered businesses, military strategy, and even, litigation methodology. 


Quote from Wikipedia:
Boyd’s diagram shows that all decisions are based on observations of the evolving situation tempered with implicit filtering of the problem being addressed. These observations are the raw information on which decisions and actions are based. The observed information must be processed to orient it for further making a decision. In notes from his talk “Organic Design for Command and Control”, Boyd said,
The second O, orientation – as the repository of our genetic heritage, cultural tradition, and previous experiences – is the most important part of the O-O-D-A loop since it shapes the way we observe, the way we decide, the way we act.
From Mindtools - the first two concepts break out into questions one should ask themselves.

Stage 1. Observe

At this initial point in the loop, you should be on the look-out for new information, and need to be aware of unfolding circumstances. The more information you can take in here, the more accurate your perception will be. Like an F-86 pilot with a wide field of vision, you want to capture as much incoming data as possible. The kind of questions you need to be asking are:
  • What's happening in the environment that directly affects me?
  • What's happening that indirectly affects me?
  • What's happening that may have residual affects later on?
  • Were my predictions accurate?
  • Are there any areas where prediction and reality differ significantly?

Stage 2. Orient

One of the main problems with decision-making comes at the Orient stage: we all view events in a way that's filtered through our own experiences and perceptions. Boyd identified five main influences:
  • Cultural traditions.
  • Genetic heritage.
  • The ability to analyze and synthesize.
  • Previous experience.
  • New information coming in.
Orientation is essentially how you interpret a situation. This then leads directly to your decision. 
Interpretation of events is analysis or synthesis part. Previous experiences (conformation bias) leads to all sorts of unfortunate "processing errors" (called Decisions cum Actions) once we move on into the decision and action phases of the OODA loop. Even with feedback - as we can readjust our observations or orientations in REAL TIME - many don't.

I have often failed at this.  As a flawed human being, I have more than my fair share of biases and erroneous observations that have resulted in bad conclusions. Guilty as charged.

Sadly, many millions, and billions, do this also. Even those that proclaim what is right, and defend their ideas quite arrogantly - because, well - it behooves them to in order to maintain face, credentials as an "expert," their current control, or status in life. Or to keep things just the way they want it - heritage or tradition in the orientation - because who really wants to change anyways? We all want to feel we are good enough at present - even when we add more complexities or technologies or stuff into our lives?  (With an undergrad in "change" engineering, industrial, I found most workplaces saying all the right things, "we want things to improve, run better, cost less, be more competitive," but somehow this also meant, someone's job or career would invariably be altered, or cut out from the team or reduced in some way. As a result, creative destruction is apart of any such cycle. It's also called a dirty word: progress.)

The Synthesis of These Connections

Synthesis of these two topics together: I am feeling caught in orientation traps unable to DECIDE what is the best path ahead. I know it. My prior experiences say, "what gives now?" How do I take a route I haven't been on before? Because those have worked out so well - insanity doing the same.

Observe. The world is not getting easier to stomach as it is. The facility in this country to seek some version of the American Dream correlates to how adept one is/becomes with an accelerating technological path at home, or abroad. At 42, I don't feel that's my best use of my time: to dive head long in technology field. Namely, I am no coder; no app writer; and not one that's gonna make a mark writing code in whatever programming language is gonna be hot. Not saying it has to be "totally" about that - but you still have to find your place in that technology pie. And get on the inside somewhere.

Yet, I feel I can identify the useful mechanisms to improve myself, and more importantly: society.

So, at 42, I don't want to operate at all on a "should schedule" unless I get a whole new life experience from that.  By that, I mean, I don't want a 9-5 that (maybe) pays high XX,XXX dollars or devolves into me showing up at the same plant or factory for 2 years. Because that's the sheer limit of my patience - 2 years. I get restless very easy. And I can't afford to jump ship (probabilistically) anymore.

Orientation. Independence. I want that too. We are told erroneously we all have our bosses. Well, aside from God, I tend to feel I have to answer to no one. That means I deem society's rules just a mish-mash of current propensities to favor whatever is the most vocally expressed and the most convenient for a politician to vote on to keep the masses mildly contented, at best. And most superiors found at work are generally hypocritical and loyal only to themselves - if Ayn Rand had remotely a clue. (Not that I agree much at all with her dogmas.)

But, I think I can follow the minimal, 'big rules': don't kill, don't steal, covet a neighbor's wife, and don't bear false witness. Do unto others as you'd like them to do unto you. Honor a father and a mother. Well, 50% ain't that bad on that particular one. The other rules of 'humanity' are getting really tired and unfortunate in their concept and usages. And depending on where you are - and yes, culturally, the rules are starkly different if you have the slightest concept of the globalized world - the rules and values are pretty fungible. To succeed in one cultural arena likely means you are doing some wrong in another part of the world. Keep that straight for a while, and you'll find yourself doing what others want more than you want. (As the movie Road Trip taught us about cheating.)

At Valpo, they implored us to explore values-based leadership. Well a few of my values are: loyalty, honesty (bluntness), invested, and determination. Once you show I can depend on you, I am loyal to you, almost to a fault. Quite a few people in my life haven't understood this about me to their loss. (As they became undependable for support; or sadly, I gave them too much loyalty before they were dependable on too many occasions - such are the erroneous judgments that abound my life.)

I am damnably blunt - I don't think beating around the bush, or using PC language helps us understand the way the world works or addresses the crises very well at all. Invested in doing better, or time on something to get it better (not perfection), and locked on a path, a direction, of some redeemable nature. Determination - if persistence and perseverance can't win, well, nothing can aside from divine intervention can. So be determined to accomplish a good goal. Maybe God will too.

Stage 3 Decide.

 I look at it in this calculated way. We sleep or rest 1/3 of our life away.

As of now, if I live to 70 - 28 more years - I got about 18 plus years of wake time left to do something I think will survive me. 20 years, if I don't sleep in too much. If 80 years of age, that puts me at 25 plus years. So, should I do more than half of it working for some monolithic company, knowing, as I know, once I die, my efforts with them will be basically a blur, a forgotten, an unnoticed cog? (Maybe a retirement dinner - ha!)

Leaving me with less than 10 years of time to accomplish much else? (Mom, and both her parents, passed away at 59-64 years of age. So, I am being quite generous - OODA genetics and heritage, folks!)

I realize I could start a family. Well, she hasn't presented herself to me. I've looked, and I've waited too. Time's a wasting on that idea. I'd like to have a couple of kids. Teach baseball. Would even be a stay-at-home dad, if she desires to be the "career person," my ego will not be crushed. (This doesn't mean I am lazy...) I suppose she'd have to love me first. Applications are taken here.

Stage 4 Action. 

See, I do have many more thoughts, in book form. I'd rather do that instead - if for nothing else - to somehow leave a record on things I noticed: history, people, the journey, love and the mysterious sadness of it all too. Sadly too, the book market ain't gonna pay the bills. So, I asked myself: "what is the minimal amount of money I need to do what I want, but still survive?" Or: "What can I do that I can work 3-4-5 months and get enough out of, then spend 6 months writing and researching?" Or: "Should I get a PhD in Business? (4 years of school on a stipend with the dissertation to complete? Can I even get accepted? This delays the decision of what to really do too.)

I'd like feedback - from my outside environment, my peers, the external events that could lead to other choices.

   









Monday, November 25, 2013

Masahiro Tanaka to the Detroit Tigers: Is the plan for Dombrowski & Towers to Improve by Risk Analysis?

Masahiro Tanaka: The Next Ace of Detroit???

First Dombrowski Domino: Miguel Cabrera Can Deliver At 1st Base

Last week, Detroit and Texas pulled off one of those trades that shook the MLB world because it made so much sense. Prince Fielder to Texas and Ian Kinsler to Detroit, and Miguel Cabrera to first base, a place he stops by frequently en route to a .320 plus average with 5+ WAR. In that trade, Fielder moved to a hitter's haven; Kinsler provides decent 2B glove, good contact, and most importantly: a much shorter, less pricier commitment. Cabrera replacement at 3B potentially Nick Castellanos.

 Ian Kinsler vs. Prince Fielder Analysis @ Various Rates of Returns


Rate of Return 8%






Time 0 1 2 3 4 5 6
Year 2014 2015 2016 2017 2018 2019 2020 Value($M)
Ian Kinsler $16.0 $16.0 $14.0 $11.0 $11.0

$68.0
Det Adj. Payroll $16.0 $14.8 $17.1 $13.5 $12.5 $4.1 $3.8 $81.8
Prince Fielder $24.0 $24.0 $24.0 $24.0 $24.0 $24.0 $24.0 $168.0
Detroit Pays TX

$6.0 $6.0 $6.0 $6.0 $6.0 $30.0
Texas Adj. Payroll $24.0 $22.2 $15.4 $14.3 $13.2 $12.3 $11.3 $112.8









Differential $M Prefers
Yr-W Ian Prince $Ian/WAR $Prince/WAR
5% 33.85 Detroit
0 3.5 5 4.57 4.80
6.50% 32.34
1 3 4 4.94 5.56
8% 30.95 Neutral
2 2.5 3.5 6.86 4.41
10% 29.28
3 2 3 6.75 4.76
12% 27.78 Texas
4 2 2.5 6.25 5.29




5 0 2 - 6.13




6 0 1.5 - 7.56




Total  13 21.5 6.29 5.24
The breakdown of the financials at various Rates of Returns shows the relative savings Detroit got and the potential upside from this domino falling in place. In real terms the savings is not $70M. Detroit depending on interest rates (the cost of capital and return rate expected for such risks) will be more in line to obtain only $31,000,000 in actual real savings at 8% Rate of Return.

Detroit will save the money, to be sure, but it hinges on how Prince declines or Ian declines. I made a very modest assumption on the fall off of Prince. I think he's start off well in Texas, all-star. Meanwhile, Ian will be about his normal rate of WAR, aside from one monster year in 2011. The differential of cost per WAR reflects Ian as a cheap front side option, whereas, Prince costs a bit more in those first years and his final years. Others peg it this way from MLB Trade Rumors:
  • Dave Cameron of Fangraphs loves the trade for Detroit, as they escape the burden of Fielder's contract and replace him with a player Cameron feels will post a similar WAR total in 2014. Plus, he adds, the $76MM savings would be enough to potentiall add Curtis Granderson and Joe Nathan to the fold. "Kinsler, Granderson, and Nathan, or Prince Fielder? These aren’t even close," writes Cameron.
  • Cameron also analyzed the deal from the Rangers' point of view, and while he's not as quick to heap praise on Texas, he understands the thinking and doesn't consider it a loss for the team. GM Jon Daniels found a good way to move Kinsler and add a first baseman, and opened up a hole for someone who is expected to become a very good player, says Cameron, "...But it was an expensive trade to make, and no team has unlimited resources."

The Next Step: Japanese Import Lands in Detroit

Detroit can now do various things with that money saved. Owner and former minor leaguer Mike Ilitch, at 84, likely can't spend all his money made from pizzas, Little Caesar's, and other numerous ventures. So, he may have given permission to Dombrowski to go for broke on a few candidates: Robinson Cano, Jacoby Ellsbury, Shin Soo Choo, or Masahiro Tanaka.

Tanaka? Why? Tigers had plenty of pitching for they post season, they just came up short, partly due to Fielder.

Well, Max Scherzer, represented Scott Boras, is in his final arbitration/soon-to-walk year. Boras also represents Ellsbury and Choo, and once did Cano, now represented by Jay-Z's new agency. So, no matter what you will be dealing with either Boras, or the new Boras, who wants to bid up Cano to astronomical levels ($300 million over a decade!) Even the mighty Yankees balked.

Scherzer's extension will be based off his last two seasons. Boras will move the needle towards a 5-6 year deal at $25 million on a 30-year old pitcher, who has been durable and reliable, but is: 5 years older than the Masahiro Tanaka.

Tanaka was analyzed on this blog. At that moment, I felt $90-100 million felt about right. I have reconsidered that once you factor in the new $25M per team in TV MLB revenues, also discussed on this blog he's gonna be well over a $100 million dollar add option. The market is slim on top tier pitching as teams are generally risk-adverse to give up young pitchers who are evaluated as top-of-the-rotation possibilities, until their market prices (20M+/yr) drives them out of price range of mid-to-small market teams. Those teams then look for other top-tier prospects in return - pitching if possible - and then repeat the cycle as needed. 


The short of it on Tanaka: It is not necessarily more risky if you think Masahiro Tanaka and his 24-0 record in Japan and stuff can be a six-year-$150 million dollar deal, plausibly producing 30WAR in his prime years. Even at 20 WAR, while you  potentially overpay $44.6M, accounting for rate of return at 8%, that will be mostly negated by $31M in savings from the Fielder deal if you were Detroit in this example. If Tanaka lives up to Yu Darvish-lite comparisons, he's worth the $80 million bid and $70 million sign over 6 years.

That said, the upfront investment costs of $80M is substantial and a regular sign would provide unique savings too. But the New York Daily News puts it this way:
Masahiro Tanaka, a 25-year-old right-handed pitcher for the Rakuten Golden Eagles, has what a teammate describes as a bulldog competitive nature and has drawn comparisons to Greg Maddux for his pitching precision. He threw an eye-popping 160 pitches in the only game he lost all season - Game 6 of the Japan Series - and then closed out the championship clincher the next night.

Several baseball folks said they could see Tanaka eventually scoring between $50-75 million, or more, for Rakuten in a posting fee and then getting perhaps $75 million more in a contract from his new team. That’d made him the priciest Japanese pitcher ever, passing Yu Darvish, who commanded a $51.7 million posting fee and a $60 million contract two winters ago.

For all that money, a club would be getting a pitcher who was 99-35 with a 2.30 ERA over seven seasons in Japan. Tanaka can “touch 97 (miles per hour) with his fastball and pitch around 93,” says a big-league scout sent to Japan last season to evaluate him.

The scout says Tanaka’s fastball is his best pitch of the six (fastball, curve, slider, changeup, cutter, splitter) he can throw.

Tanaka vs. Scherzer Financial Analysis



Masahiro Tanaka -

As you see, it ain't simple financially. But there are other motivations aside from just picking a relatively unknown to America, but obviously well-scouted Japanese pitcher, over a Cy Young award winner. That's leads to the final step.

The Final Step: Max Scherzer Traded back to Arizona

This one, cooked up by my zombie brain, takes place in a world with AZ President Kevin Towers being goaded a little more and then lubricated with alcohol. However, bare with me as I try to improve two teams to battle their nemeses in their respective leagues.

Detroit has 2013 Cy Young award winner Max Scherzer in his final season. He's now an ace, his xFIP (used for that Wins Above Replacement calculation) has always been mid 3's, but went down to a sparkling 3.16 last season. His stuff is every bit of that label - Ace.

So, his final season is gonna cost Detroit over $10M but maybe under $15M. Cheap. And extension would be undoubtedly be in the 5/6-year range for upwards of $150 million, especially since, an older Jason Vargas just got a 4-year deal at $32 million for being a 1-1.5 WAR/year pitcher. Scherzer's valuable floor, so far, is that of a 3WAR pitcher, while he just topped out at 6.4, according to Fangraphs. That range is part of the discussion used in comparing him to Masahiro Tanaka.

I think Scherzer is still at least a 20WAR pitcher for 6 seasons. Maybe a bit more (18-24 would not be implausible). However for this analysis, Arizona needs a 6WAR+ pitcher in the fold today, in 2014, if they are to match the payroll-is-no-object moves of the LA Dodgers, who just signed Dan Haren, ex-Arizona pitcher, and 2B Guerrero to friendly terms. Or San Francisco, who corralled their own 2-time Cy Young winner in Tim Lincecum, and good vet, coming-off-unfortunate injury in Tim Hudson to go with RF Hunter Pence for about $150 million, all total. Even San Diego signed Josh Johnson, the brittle man, hoping to get a recharge in park friendly PETCO before trying to land another payday.

So, Arizona needs to step it up a notch...or just bide time until Hillary gets elected in 2016.

The Trade : Ace for Potential Ace, a vet Bullpen Ace, and Middle Infielder that hits (so far)

Arizona does have limited payroll ability to sign guys in 2014-2015, however, they maybe can entice Detroit, who had bullpen problems, to take a package of veteran closer in J.J. Putz, top pitching prospect 21-year old Archie Bradley, and 22-year old SS/2B Chris Owings.

1) JJ Putz is a decent veteran closer, that could be an option for Detroit. 1 year left on the contract. So no commitment. A 2014 push for World Series...via the motivated vet wanting that title.

2) Bradley is a future ace potential. But that is still to be seen. Yet, as a top 10 prospect, his WAR value probably can't be under the 15-20 range as his floor for 6 seasons. He's 1 year away- or likely midseason - depending on the Arizona development plan, and arbitration clock for monetary reasons.


3) Owings did well in his call up and is very young. Detroit can pair him with Jose Iglesias or Kinsler. Basically, they have a guy that can fill in the middle infield, and hits well enough so far, that maybe he spells Kinsler or picks up Jose Iglesias's slack.

But Arizona gets a top of the rotation horse they know well. They traded him off to Detroit. Now, the Cy Young award winner, is signed and traded back? The new TV revenues will help Arizona out, one can presume, as does revenue sharing system that garnered $27M for the team. Their pitching lineup is better with Scherzer, Corbin, Miley, Cahill, Delgado, and Skaggs. They shop Brandon McCarthy as back end option - getting out from under the contract a bit. And therefore, can do a Scherzer deal.

Of course, this conjecture only works if Arizona values Scherzer for potentially an offset to the LA duo of Kershaw/Greinke, or SF's trio of arms in Bumgardner, Lincecum, and Cain, not necessarily in that order.

Now, is Archie Bradley not potentially a Max Scherzer? Sure. It could happen. But is that going happen immediately in 2014? Or 2015? Is Arizona built to win somewhat today, or are they going to wait, hoping the Dodgers collapse due to age factors? (While they have similar problems on several less meatier contracts...)

Arizona has been kicking the tires on Jeff Samardzija, the 3WAR pitcher, has 4-5WAR potential ace-like stuff. And another year of control to the equation...and a year younger than Scherzer. Yet, Theo & Jed are probably asking for Bradley and Skaggs back at minimum. Does Arizona no good. And it's a poor sell to Diamondbacks fans. A CY Young winner, former AZ stud, easier to spin that trade as a good deal.

For Arizona, it can be ok in the future...but it's gonna be hard to finish .500 because you can't stop the Dodgers' bats at present.

Dombrowski too has multiple ways to do things if cash is not his constraint. But at some point it always is.  Tanaka may not post in 2014...then this idea goes bust!

And then he's back to Choo or Ellsbury as the missing piece at $125million plus. But a Tanaka add will not cost that 1st round pick - even as low as Detroit will pick - and this has a way of detracting those that know minor league talent keeps the major league team alive better.

So Dave: Swap talent, get younger, and add potential ace material and a potentially good bat to your order today. Arizona - you need a top of the rotation guy for at least 4 seasons. Scherzer will do so at a price. And Bradley is just a pop away from being cut open...hopes dashed.

Risk analysis at its finest!

  My Final Analysis

So: 2014 World Series, or bust for Detroit! 

Arizona, wait until Bradley becomes an ace...or spend on the gamble I have laid out.