A young Billy Beane

In Michael Lewis’ great book, Moneyball, he writes about Billy Beane, now GM of the Oakland A’s, when he was a high school phenom outfielder. Beane was a sure first round draft pick, which at that time meant a $100,000 signing bonus. But there was conflict in the Beane household. His parents wanted him to sign a pro contract right out of high school. Billy wanted to go to Stanford on a full ride.

Beane told Lewis that he started doubting his own baseball talent after his junior year of high school. He saw other star players catching up to him physically, and his hitting confidence was starting to erode. His senior year he was still an exceptional player, but in his heart of hearts he doubted himself.

Billy Beane took the money and did make the Majors, but he was a fringe player. When he had the chance to get into baseball management he gladly gave up the uniform. He regretted rejecting his opportunity to attend Stanford.

Now Beane is considered one of the smartest General Managers in the game. His team is in first place with a tiny payroll. He just traded his number one minor league prospect and two other highly regarded minor leaguers to the Chicago Cubs for two quality Major League pitchers, Jeff Samardzija and Jason Hammel. Oakland is now one of the favorites to reach the World Series.

I believe Billy Beane’s memory of himself as an 18-year-old “next big thing” had  a lot to do with the trade. I think he is a bit of a skeptic about “potential.”

I see a parallel debate when running a business, whether it is machining, retail or software. You must constantly weigh potential versus production in your staff. If you go with mostly youth and enthusiasm rather than pros with at least 10,000 hours experience, you are going to run into trouble with errors in judgment that could screw up the business. If you go with seasoned pros you may see a lack of risk taking and a tendency to try to recreate out of date successes. The knack is to know when to bring in youth and when to rely on experience. If you can keep experienced people motivated and willing to expand their knowledge you have something quite special.

I wish I had a guaranteed formula for success, but I think observing the Billy Beane approach in baseball is instructional. Stock up on youth and promise, but don’t be afraid to trade it in for veterans when they can seal the deal.

Question: Is your company looking to hire experienced pros or potential?

This modest 1300 square foot 3-bedroom 2-bath home in Palo Alto, sold for $1,750,000 in February of 2014.

What’s going on in the world? This is how it looks to me after two weeks in Silicon Valley, on sort of a vacation.

The U.S. economy continues to rebound – but rather like a partially deflated basketball. Growth is tepid after a rough first quarter when the ferocious five-month winter in the North killed retail. Yet the numbers show unemployment receding, with some of the long-term unemployed actually finding work, but wage growth is still very light.

New home sales are mediocre, mortgage rates are trending down again. Home re-sales are robust in San Francisco, San Diego and Boston, but mediocre in Chicago and New York. Detroit is bouncing back again, but it is long way from getting out of the toilet. Some people expected Baby Boomers to be moving en masse to apartments but it is not happening. A weak home market, especially in suburban markets, and high prices for apartments and condos in city centers make an exodus by boomers to the city uneconomic. A Boomer exodus to warmer climates has been slow to happen, probably because 60-70-year-old folks feel they need to work more to afford a pensionless retirement with incredibly minuscule interest on savings.

I have an unusual view of the housing, Baby Boomer and unemployment world. I live in the depressed area of the Southern Suburbs of Chicago, in the once high-end suburb of Olympia Fields. It is the home of the elite Olympia Fields Country Club, which hosted the 2003 U.S. Open Golf Tournament. Back in the day, it allowed no Blacks, Jews and probably not Eskimos, if any ever applied. Today it cannot afford to be quite as restrictive. A middle class Navajo might pass muster. Olympia Fields ranked in the top five Chicago suburbs 35 years ago. Today it might make the top 40 in the Chicago metropolitan area.

My 3000 square foot home is worth slightly more than the $136,000 we paid for it in 1979. My wife and I have put a ton of money into improvements for it. It is within walking distance of the Metra commuter train. You can get to downtown Chicago in a half hour on the express train.

During the housing boom of 2004-2007, many African Americans used 100% financing to buy homes in Olympia Fields. A lot of them lost their homes a few years later. Several neighbors of ours are now renting their homes from lenders and speculators who are still buying up more homes in the neighborhood for a song. Half of the re-sales in Chicago’s suburbs are for cash these days. Low mortgage rates are for the few in 2014, not the masses. My neighbors, at least those that I know, are an eclectic group of bus drivers, teachers, doctors, lawyers and retired folks.

When my wife and I travel to Silicon Valley to see our daughter’s family, we see the bungalows built in 1959 up for sale, with full page ads in local newspapers. Usually they are unoccupied, staged with brought-in furniture, carpeting, lighting and landscaping to give the small houses drama. Prices start in the $1.5 to $1.8 million range and often attract overbids. It is unusual for a house to last a month on the market near Stanford University.

New multi-family housing is going up, but there are no available vacant lots to build single family houses. If you want to buy into the area, you play the game, otherwise, head 30 miles down the freeway where more affordable housing still exists.

We’ve now had the opportunity to see both ends of the housing spectrum. Chicago is generally still soft, but where we live it is toasted marshmallow soft. Some people see depressed housing prices as part of a conspiracy against African-Americans. This month’s cover story in The Atlantic is a long diatribe, arguing for reparations for Black people as compensation for 500 years of persecution. The story focuses on Chicago.

I’m wondering. Should I be paying reparations to my next door neighbors in Olympia Fields? I get the writer’s point, but America is not Nazi Germany. Olympia Fields is not Nuremberg.

America is a country of rich and poor, to be sure, but I do not feel the outrage that I see in the popular press or from self-serving politicians and professional do-gooders.

At Graff-Pinkert we recently hired several men, comprised of Hispanics, Whites, and African Americans, for our machine cleaning department at $10.50 per hour, no benefits. They are eager to work and found the job vacancy on Craigslist. Most of them are turning out to be good workers who don’t mind working hard and getting dirty.

It’s America, summer of 2014. Boomers keep on trucking. People are finding work if they are smart enough to read Craigslist, take their hats off, and make appointments on time. Googlers are paying $2 million for homes in Palo Alto that bus drivers would pay $150,000 for in Olympia Fields. If you mow grass for a living you make the same in both locations, but the season is longer in the Valley.

Question: Do people work harder today than they used to?

Lisa Earle McLeod

Lisa Earle McLeod’s question is a simple one. “Do you have a Noble Purpose? Or do you just sell (make) stuff?”

I talked to her yesterday for quite awhile after she returned home to Atlanta from one of her many speaking gigs. I’m fascinated by outstanding public speakers, partly because I’m a mediocre one myself. I watched Ms. McLeod’s presentation on video and was impressed by her energy and authenticity. I wanted to get her take on public speaking and how it relates to her core message.

McLeod is a sales leadership consultant, whose clients include companies such as Merck, Google and Apple. Her career really started in high school. She was popular and decided to run for senior class Vice President. She had to give a speech to the class before the voting. She gave a great talk, she thought, and then lost the election. She asked a friend about her speech. The friend told her she “had put on a persona” and did not seem authentic. Lisa McLeod decided to learn from her defeat. She studied public speaking. She watched videos of the great ones like Steve Jobs, Tony Robbins and Bill Clinton. She found a professional coach and practiced. She told me you have to believe your own material, put in the time and energy to achieve mastery, and keep some bullet points in front of you, just in case you lose the thread and need a path back to your message.

Frankly, when I first heard of her work, my cynical self thought she was peddling recycled clichés. But after speaking to her and listening to her talks, she came off as real and her message had meaning.

A coal miner

McLeod argues that if you are working just to hit somebody’s numbers, even if they are your own, the work will get stale, quickly. People need to put an authentic human spin on their endeavors to fuel their motivation and be able to connect it to others.

The leader of a group can help the group forge an identity, but the group goal may not resonate with an individual’s purpose.

I have struggled with this notion throughout my career. Making a profit reselling a used machine tool hardly sounds noble to me, even if I spin it like a top and turn it inside out in my head. I’m not curing cancer. I’m not even milking cows or bending steel.

Yet I find myself absolutely engrossed in my game, even after doing it for over 40 years. When I got off the hospital ventilator six years ago, I had no doubt that I wanted to go back to the machinery trading business, and the writing game. They provided the challenge and intensity that I felt I needed in my life. For me, work is my creation. Connecting the dots in deal-making or writing a piece is what makes me feel happy and charged. When I go on vacation I don’t want to turn my juices off. My blogs are my little creations. Are they “noble”? Doubtful. But they give me energy and a reason to get out of bed and create something that did not exist before I applied my effort and frontal lobes to a problem or a blank sheet of paper.

My “Noble Purpose,” Linda Earle McLeod, is “to connect the dots to create value.” It works for me.

What is yours?

Question: Do you do important work?

For more info on Linda Mcleod visit her Web site at www.mcleodandmore.com

Michael Lewis has written several great books about various marketplaces. Two standouts are Moneyball and The Big Short. These books extol the virtue of determining the true value of an item in an opaque market. How do you find the real value of a minor league baseball player or a securitized sub-prime mortgage bond fund, then exploit that knowledge to find a hole in the market?

Lewis’s most recent book, Flash Boys, takes the opposite tack. Here, the math oriented, technically superior high-frequency traders (HFT) who are exploiting the hole are the bad guys, even though they seem to have a lot in common with Oakland’s Billy Bean, or hedge fund manager Steve Eisman.

In Flash Boys Lewis takes on the innovators, the HFT, for their predatory behavior. He also goes after the big Wall Street banks and their so-called “dark pools,” where big trades are made but no official printed rules exist, and where the banks making the market assure buyers and sellers that they are both simultaneously getting the best price. But both sides can’t be winning, and this contradictory claim is one reason customers’ trust in the big banks has eroded in recent years.

Once upon a time, as many of us remember, if an investor wanted to buy or sell a stock he would call a broker who would find a way to execute the trade as efficiently as possible — talking to other human beings. The arrival of computerized exchanges eliminated many of the people from the process. Now bids and offers are matched by computers. In theory this means that markets should become more efficient and the cost of trading should fall. But the effects of technology are rarely so simple.

Today, if you place an order for 1000 shares of IBM, the order is supposed to ping from exchange to exchange claiming a few shares at each stop, seeking the best price until the order is complete. But the moment the order hits the first exchange the information is out, and the high-frequency traders (with ultra fast computers and shorter fiber optic cable) see your order (especially if it’s large), and race ahead of you to the other exchanges. They buy the stock you want, and then sell it back to you for a slight up-charge. All of this happens in a matter of milliseconds — millions of times a day.

High Frequency Traders execute a combination of two old Wall Street scams — first, insider trading (seeing your order), and second, front running the market. However, in this situation, it is entirely legal. It is an unintended consequence of SEC Regulation NMS passed in 2007, intended to protect the consumer from paying too much. But it opens the door for HFT to squeeze in between trades and create arbitrage opportunities worth billions.

The heroes of the book are the so-called “flash boys,” Brad Katsuyama and a team of talented oddballs who ferret out the schemes going on and create a HFT-proofed exchange called IEX, signifying “Investor’s Exchange,” where the price a trader sees is the price he gets.

The exchange is backed by some leading hedge funds and banks who felt they were getting bilked by the HFT. The average small investor is also being taken advantage of by HFT but likely doesn’t notice a penny or two per share on an occasional trade. But if the investor is invested in a pension fund or mutual fund, he is being hurt by HFT.

Currently, even though the new IEX exchange is well on its way to financial success, there doesn’t seem to be any evidence that high-frequency trading has declined. And, in reality, the villains of this story, the high-frequency traders are not quite villains. They are just smarter and faster than everyone else. Even Katsuyama comments, “It’s not their fault. It’s brilliant what they have done legally, within the bounds of the regulation.”

Lewis’s Moneyball revolutionized the way the market for baseball talent is evaluated from the major leagues to fantasy leagues. It will be interesting to see if Flash Boys has the same effect on the financial markets.

Question: Do you feel abused by financial institutions?

Jerry Levine is a writer for Today’s Machining World, and a retired engineer who worked in BP’s chemical division.