Thursday, March 28, 2013

About FGCU (and some bad analysis)

Deadspin has a fairly interesting article up today about Florida Gulf Coast University, this year's surprise entrant into the NCAA Tournament's Sweet Sixteen. Touching on some topics that I've previously discussed in posts here and here, author Jonathan Mahler puts a different spin on this Cinderella story.
Don’t waste your time wooing Nobel laureates to your faculty or trying to recruit National Merit Scholars to a college they’ve never heard of. Do what any self-respecting entrepreneur would do: Devote your resources to building a first-class Division I basketball program.
It’s not going to happen overnight, but FGCU pulled it off pretty quickly... The Eagles basketball program started in the National Association of Intercollegiate Athletics and had to apply more than once before being accepted into the National Collegiate Athletic Association—at the Division II level. Even after being granted permission to move up to Division I, the team had to wait three years before becoming eligible for postseason play.
Florida Gulf Coast University won its first NCAA tournament game in the school’s second year of eligibility, a mere 16 years after graduating its first student. Harvard won its first tournament game this year, too—371 years after its first commencement...
Just how valuable is a strong showing in the NCAA men’s basketball tournament? As it happens, Butler, whose improbable run to the 2010 Final Four is still the stuff of legend, has studied this very question. Its near-championship run—it lost in the finals to Duke—generated precisely $639,273,881.82 in publicity for the university. That’s to say nothing of the increases in merchandise sales and charitable giving, or the 41 percent surge in applications.
Interesting stuff, although as I've pointed out in my previous posts, not all schools are as successful at this game as FGCU has been—many more have thrown untold millions at their athletic departments and had hardly any success at all on the field or as an institution. On balance, it's pretty much a zero-sum game—some win big, but many others lose just as much.

Of course, where the author really lost me wasn't in this conclusion, but in his odd insistence that this Cinderella run somehow should have been foreseen by all of us, or that it was somehow inevitable. Mahler writes:
[Head coach Andy] Enfield hasn’t exactly had to scrounge for talent at FGCU. His team’s point guard, Brett Comer, grew up playing youth basketball with Austin Rivers, a current starter for the New Orleans Hornets and the son of former NBA star Doc Rivers. The father of one of Enfield’s bench players, Filip Cvjeticanin, played alongside Vlade Divac and Drazen Petrovic on the Yugoslavian national team that won a silver medal in the 1988 Olympics.
These are some pretty tenuous links here, my man. I, for example, grew up playing baseball against this guy, in games umpired by this guy, and I coached this guy at a baseball camp when I was in high school. My father, meanwhile, shared a Pulitzer Prize for national reporting in 1983, when I was two years old.

Do these connections alone make me a top-tier athletic talent, or a budding superstar journalist? Of course not. All they do is illustrate what we already know about the world, which is that it can be a pretty small place sometimes. If you play sports for long enough, you're pretty much guaranteed to line up with or against somebody who's pretty talented—and if not, you've probably got a relative who did (hey, come to think of it, my uncle did play hoops against Patrick Ewing in the Boston city championship way back when... maybe I've got more of a future in basketball than I'd realized).

As for FGCU, if they had really figured out a way to somehow magically attract top athletes to their school, they wouldn't have been recruiting kids who "grew up playing youth basketball with Austin Rivers", they'd have been recruiting Austin Rivers himself. This isn't to say that these FGCU kids aren't talented—in fact, they are. I've been amazed by what these guys have done, and it's no fluke. I can't wait to watch them continue their run tomorrow night against Florida (late game, eh, CBS? I see what you did there...), and I hope they take this thing all the way to Atlanta for the Final Four.

But to pretend as though FGCU was some sleeping giant—with tons of top talent that nobody bothered to talk about—obscures the real lessons that we could be learning here. Namely, that a coach and a team playing incredibly well as a unit while having fun and playing with reckless abandon can do some pretty special things on a basketball court (and that the NCAA probably screwed up a bit with this year's seeding of the tournament). Not to mention, this isn't exactly a unique story in recent years—George Mason, VCU, and Butler all preceded (and exceeded) FGCU in this regard. Sure, FGCU reaching the Final Four would be unbelievable, and I'm certainly rooting for it, but we're not there yet.

When a big sports story like this one comes along, a lot of bad journalism is bound to be written, so this particular article is hardly a surprise. I just wish that, for once, we could all just enjoy an awesome story on its own merits, without having to draw some bigger (nonsensical) lesson about it all. Unfortunately, that's just not what we in the internet age like to do.


Monday, March 25, 2013

Sergio Garcia is a weird dude

This post will be one of those "quick-hitters" that I mentioned in my welcome-back post earlier today. Just thought I'd put that out there in advance, in case you were wondering (I should also mention that "Clip of the Week" and "Quote of the Week" are being done away with, at least in their traditional formats—if I come across a clip or a quotation that's share-worthy, I'll share it immediately without further comment, rather than waiting for the prescribed time. Okay, good talk.)

Either way, we need to talk about this shot, played yesterday down at Arnold Palmer's tournament at Bay Hill (which Tiger won, which puts him back as the world #1, and all credit goes to Lindsey Vonn, because why not). Sergio Garcia, everybody:

The shot itself is obviously impressive enough, and I give Sergio huge credit for even trying it. But it's the context of the shot that makes it most noteworthy in my eyes. Because after playing this shot, Sergio badly chunked his next shot, made a double-bogey on the hole, and then walked off the course and withdrew from the tournament 2 holes later, with only 6 holes left to play. He cited nagging injury problems, injuries that were apparently exacerbated by the (odd) decision to climb a tree and play the shot this way rather than just taking an unplayable lie. Weird dude, man. Weird dude.

But also, as a long-time golfer and fan of the game, I have to wonder: why was he allowed to climb on top of a golf cart in order to get up into the tree? If you follow the game at all, you'll know that golf is full of all sorts of obscure, bizarre, and outdated rules that generally continue to pretend that golf is being played in the 19th century where electricity and television don't exist, and that there's nothing but a man and a golf course out there, relying on his own honor and that of his playing partners.

If you don't believe me, ask Craig Stadler or Dustin Johnson or this guy or really any of the guys on this brutal list. Or just go back and read this post or this post, some of the first work that I ever produced for this blog. Golf rules are nutso. Period, end of story.

And so, if Craig Stadler can be DQ'd from a tournament for kneeling on a towel, and if golfers can be routinely disqualified for signing scorecards that have the wrong numbers on them, even though TV cameras (and ShotTracker representatives) have followed their every move, to the inch, and therefore everyone in the world knows exactly what everyone's score is... then why is Sergio allowed to receive "assistance" from a golf cart that just happens to be sitting there? Isn't that an unnatural advantage? If he can use the cart to stand on, then why can't he use it to ride around the course from shot to shot (pipe down, Casey Martin)? Why can't we give a guy a ladder or a rake or a scuba suit to help him play his next shot? It's weird, no?

Golf rules baffle me. So does Sergio Garcia. But this shot was still awesome, no matter how you cut it.

On the importance of Excel

Four years ago, when global markets were going completely haywire, one of the more important events that helped "turn things around" was FASB's relaxation of mark-to-market accounting standards, a decision that allowed banks to value many of their "distressed" assets based on, basically, whatever their internal models said they were worth. We can argue all day about the long-term costs and benefits of this decision (as you might imagine, I'm pretty aggressively negative on the decision), but ultimately the short-term impact was to place a significant amount of the world's financial stability on the shoulders of one computer program—Microsoft Excel.

We'll turn things over to Baseline Scenario's James Kwak for some more color on the topic (all emphasis mine):
I spent the past two days at a financial regulation conference in Washington... In his remarks on the final panel, Frank Partnoy mentioned something I missed when it came out a few weeks ago: the role of Microsoft Excel in the “London Whale” trading debacle (note: read more about it here)...
To summarize: JPMorgan’s Chief Investment Office needed a new value-at-risk (VaR) model for the synthetic credit portfolio (the one that blew up) and assigned a quantitative whiz (“a London-based quantitative expert, mathematician and model developer” who previously worked at a company that built analytical models) to create it. The new model “operated through a series of Excel spreadsheets, which had to be completed manually, by a process of copying and pasting data from one spreadsheet to another.”
The internal Model Review Group identified this problem as well as a few others, but approved the model, while saying that it should be automated and another significant flaw should be fixed. After the London Whale trade blew up, the Model Review Group discovered that the model had not been automated and found several other errors. Most spectacularly,
“After subtracting the old rate from the new rate, the spreadsheet divided by their sum instead of their average, as the modeler had intended. This error likely had the effect of muting volatility by a factor of two and of lowering the VaR ...”
Microsoft Excel is one of the greatest, most powerful, most important software applications of all time... it provides enormous capacity to do quantitative analysis, letting you do anything from statistical analyses of databases with hundreds of thousands of records to complex estimation tools with user-friendly front ends. And unlike traditional statistical programs, it provides an intuitive interface that lets you see what happens to the data as you manipulate them.
As a consequence, Excel is everywhere you look in the business world—especially in areas where people are adding up numbers a lot, like marketing, business development, sales, and, yes, finance...
But while Excel the program is reasonably robust, the spreadsheets that people create with Excel are incredibly fragile. There is no way to trace where your data come from, there’s no audit trail (so you can overtype numbers and not know it), and there’s no easy way to test spreadsheets, for starters. The biggest problem is that anyone can create Excel spreadsheets—badly. Because it’s so easy to use, the creation of even important spreadsheets is not restricted to people who understand programming and do it in a methodical, well-documented way.
This is why the JPMorgan VaR model is the rule, not the exception: manual data entry, manual copy-and-paste, and formula errors. This is another important reason why you should pause whenever you hear that banks’ quantitative experts are smarter than Einstein, or that sophisticated risk management technology can protect banks from blowing up. At the end of the day, it’s all software. While all software breaks occasionally, Excel spreadsheets break all the time. But they don’t tell you when they break: they just give you the wrong number.
Yikes. As Kwak later points out, this is likely a systematic problem, and not just an unfortunate one-time mistake. If the modeler's error had served to increase the amount of risk at the end of the day, then the mistake no doubt would have been caught, since it would have affected the bank's bottom line. But because senior executives and traders were explicitly hoping for a model that underestimated the risk profile of their portfolios, the "mistake" here went unnoticed and uncorrected, which is so absurd that it's almost comical.

If a mortgage officer at a small regional bank made a similar mistake—say, inadvertently doubling the annual income number for a loan applicant, and then approving said applicant for a number of low-interest loans—that officer would undoubtedly be fired at the end of the day. But here, at JPMorgan, we have a guy who made a similar error on a much larger scale, with much riskier assets and a whole lot more money on the line, and the whole world shrugs its shoulders and goes on about its business. That's scary.

What are some of the other bank models out there telling us about banks' risk profiles and the strength of their capital bases? Should we expect those models to be any better than this one? I suspect not, and I think the (over)reliance on Excel will likely lead us to some very negative outcomes down the line. Of course, as I've said before, this doesn't mean that we should blame the model if and when things go horribly wrong—models, at the end of the day, are only as good as the people who write (and monitor) them. Instead, we need to start blaming the people who write and implement these models, and then holding them accountable for their errors.

[Baseline Scenario]

Getting back at it

Hey, folks. As you may have noticed (and I certainly hope you have), it's been quite a while since my last post up here. I've been busy with work and family obligations, and I've also been battling a variety of annoying little illnesses that have sapped my usual energy (come on, winter, cut the crap). But most of all, I just felt like I really needed a break from blogging.

In recent months, I haven't felt as though my posts have been of the caliber that I expect from myself, and too often I was throwing something up here just to say that I had produced something, out of a sense of duty. As a result, I kept pounding away at a lot of the same story lines, and the good, in-depth, original content that I take pride in creating (stuff like this and this and this and this) was becoming ever more scarce. This blog deserves better than that, and so I took a bit of a hiatus to recharge my batteries and reconsider the future direction of the Crimson Cavalier.

To answer the first obvious question: no, the Crimson Cavalier is not dead. Not hardly. But I will be posting less frequently than I used to—instead of 1-2 posts daily, expect more like 3-5 posts weekly, with a few quick-hitters (with minimal added analysis) sprinkled in along the way. As a trade-off, though, at least once a week, I intend to write a longer-form post about a topic that I think is interesting and important. Yes, some of these topics—like 3-D printing, say, or public debt dynamics—will be familiar, but I'll try not to beat any of them into the ground unless the news flow commands that I do so. Ultimately, expect more quality than quantity, with the same point of view that you've come to expect from me.

Somewhat ironically, this blog hiatus coincided with a very big moment for the blog, as I started coming across some of my own original content on other people's blogs. Last year, you may remember me welcoming March Madness with a mock-up of Simpsons characters to represent the various Atlantic Coast Conference (ACC) teams (an amendment by me of an idea that I'd seen elsewhere). I was pretty proud of my Photoshop work at the time, and now it seems like the Simpsonization of collegiate athletics has become a bit of an internet meme.

I first found my work posted, quite by accident, by a friend of mine on Facebook. I laughed and thought it was an isolated incident, but then, later that week, I found this blog post on SB Nation, with my ACC work buried amidst the other conferences. It was a very strange moment for me, as my heart swelled with something approximating pride. In my own humble opinion, I think my fitting of the characters to the schools is better than most efforts on there, but I digress—I have to say that the SEC one is a particularly awesome piece of work.

Either way, hooray for the Crimson Cavalier! I'm semi-internet-famous now. Now, with my batteries re-charged, I hope I can get back to doing what I do best. I hope you'll all still be here to witness it.