Now Would be the Time to Add That Position

August 2, 2018

(Guest Post by Matthew Ladner)

As longtime JPBG blog readers may or may not be aware, one of my hobbies is college football, specifically Longhorn football. One of my favorite posters on the Orangebloods site goes by the handle Orbea and focuses on financial information in his posts, and this recent post in particular struck me:

This is a post about sentiment. This is a post of how frequently it is the case that when investment management companies close funds, fire managers, and change strategies it marks the end of a trend and the start of a new trend in the other direction. 

But first some prior examples. These are done from memory. Because of that I likely have some of the details a little off, which in no way is a detraction as the gist of the story is basically correct. 

Tom Jackson
Tom Jackson was a deep value equity manager with an impeccable track record. In the late 80’s or early 90’s he was hired by Prudential Mutual Funds to manage their flagship equity mutual fund, the Prudential Equity Fund. He went on a tear for the first half of the 1990’s, won a couple of awards, and was on the cover of investment magazines (that in and of itself is a sign that a trend is over). Then in 1996 Technology stocks took off and Jackson started to lag badly. By 1998/99 Jackson was holding a third of the fund in cash because there were no deep value stocks to buy. In early 2000 Prudential fired Jackson and revamped the strategy of the fund to be a large cap growth fund. 

Of course, Prudential fired Jackson at the wrong time. Large cap growth tanked over the next three years while deep value went up.

Michael Metz
Michael Metz was the Chief Investment Officer for Oppenheimer (the brokerage firm, not the mutual fund company). In the first half of 1998 Metz recommended selling stocks because valuations were ridiculous and buying the 10 year Treasury. The official investment position of the firm was not to own equities but to own the 10 year. Unfortunately, stocks went on a tear to the upside for the next two years and bonds went down in value. In the early 2000 Oppenheimer sacked Metz and recommended selling bonds and buying stocks.

Of course, Metz was ultimately correct. Over the 5 year period from 1998 to 2003 the 10 year Treasury handily outperformed the S&P 500

Third Avenue Focused Credit Fund
Third Avenue management company was found in 1986 by Martin Whitman. Whitman was often called a revolutionary deep value manager with a speciality in small cap stocks. Often times deep value involved buying bankrupt bonds or distressed bonds. In order to expand their mutual fund offerings, sometime after the last recession, Third Avenue decided to open a junk bond fund. Since the bias of the company was in deep value and distressed securities the fund was chock full of the worst bonds imaginable. The fund did well for a few years, and then credit spread started to widen. Credit spread really widened on low tier debt (which was basically all the fund held). From the summer of 2014 through December 2015 the fund cratered. In December 2015 Third Avenue, in a surprise move, decided to close the fund and liquidate the holdings.

Of course, the decision by Third Avenue to close the fund came within 45 days of the bottom in junk bonds. 

A tip of the hat to @mm1966 who pointed out to me that the name of the fund was the Third Avenue Focused Credit Fund and not the Third Avenue High Yield Fund. 

Andy Hall
Hall was referred to as the God of the energy and oil markets. He rose to fame when he earned a $100 million bonus in 2008 as an energy trader at Citi. He went on to start his own hedge fund. For a number of years Hall racked up huge gains in the energy markets. Then the 2014 oil price collapse happened. Hall looked to be recovering from the collapse until the 2017 decline in oil prices happened and his fund lost 30% of its value in the first half of 2017. In July 2017 Hall shut down his primary hedge fund stating that $50 a barrel oil was the new normal.

Of course, the fund was shut down within weeks of the 2017 bottom and oil is now at $70.

Vanguard Changes The Strategy Of Its Precious Metals Fund
Vanguard just announced that it is changing the investment direction of its Precious Metal Fund. The new name of the fund is Global Capital Cycles Fund (whatever that is). The rationale for this change was to (and I quote) “to broaden the fund’s mandate and diversify the portfolio”.

Over the last seven years the fund has lost 60% of its value, which was right in line with the GDX (the gold miners ETF). 

This a recurring story with investment manage firms. By the time an investment firm throws in the towel on an asset class, then the bottom in that asset class is not far away. 

So, if you don’t have a small position in precious metals and miners – now would be the time to add that position.

Why post this on an education policy blog? I’m not sure but I’ll just leave this here in case anyone wants to consider the possibility that they sold their “Let a Thousand Flowers Bloom” stock prematurely:

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I’ve been CHAITED, been MISTREATED, when will wildly successful low reg charter sectors be loved?

September 7, 2017

(Guest Post by Matthew Ladner)

HT to Asness on the title

I stopped reading Jonathan Chait’s piece on charter schools when I came across this:

The most successful charter systems tend to be highly regulated, with controls to require high-quality operators and close down low-performing schools.

This statement is the precise opposite of the truth. High regulation charter sectors seem extremely adept at preventing charter schools from opening, but not much else. Meanwhile we have multiple examples of states with low NACSA scores for their charter laws but very promising student outcomes (Arizona, Colorado, Florida, Idaho, New Mexico, Utah).

Let me help you out JC:

The most successful charter systems tend to be highly lightly regulated, with controls competition to require high-quality operators and close down low-performing schools.

Happy to be of service. Carry on.


Deep down in places they don’t talk about at parties, suburbanites want that wall, but broad choice can take walls down

June 12, 2017

(Guest Post by Matthew Ladner)

Important new study from the Fordham Institute on open enrollment in Ohio. The map above shows dark blue show districts not participating in open enrollment, and they just happen to be leafy suburban districts who are both higher income with student bodies that tend to be pale complected that also happen to be near large urban districts with many students who are neither of these things. Feel free to reference this map the next time someone claims that public schools “take everyone.”

Many moons ago I wrote a study for the Mackinac Center about the interaction between charter schools and open enrollment in Michigan. I found a very clear pattern among some of the suburban districts whereby charter schools provided the incentive for early open enrollment participants to opt-in. After one district began taking open enrollment transfers, and some additional charters opened, it created an incentive for additional nearby districts to opt in- they were now losing students to both charters and the opted in district. Through this mechanism, the highly economically and racially segregated walled-off district system began to:

Not every domino fell however. I interviewed a superintendent of a fancy inner ring suburb who related that they saw their competitors as elite private schools, not charter schools. When I asked him why his district chose not to participate in open enrollment, he told me something very close to “I think historically the feeling around here is that we have a good thing going, so they want to keep the unwashed masses out.”

Contrast this as well with Scottsdale Unified in Arizona, which is built for 38,000 students, educates 25,000 students, 4,000 of whom transferred into a Scottsdale Unified school through open enrollment. 4,000 transfer students would rank Scottsdale Unified as the 9th largest CMO in Arizona, and they are far from the only district participating in open enrollment in a big way. Why is Scottsdale willing to participate unlike those fancy Ohio districts? They have 9,000 kids living within their boundaries attending charter and private schools.

Why haven’t choice programs torn down the Berlin walls around suburban districts? Sadly because they have been overly focused on urban areas. The National Alliance for Public Charter Schools Dashboard shows that 72.6% of Ohio charter schools operated in urban areas. The voucher programs likewise started in Cleveland, and then expanded out to include failing schools (and children with disabilities statewide). More recently a broader voucher program has begun the process of phasing in slowly on a means-tested basis, but the combination of adding a single grade per year and means testing promises to unlock a very modest number of walled off suburban seats.

These programs have benefits, but they will not provide an incentive for fancy suburban districts to participate in open enrollment any time soon. Informal conversations I have had with Ohio folks related to me that Ohio suburban and rural dwellers- aka the people who elect the legislative majorities-tend to look at charter schools as a bit of a “Brand Ech” thing for inner city kids. Rest assured that the thousands of Scottsdale moms sitting on BASIS and Great Hearts charter school wait lists do not view charters as “Brand Ech.” Likewise these folks probably see themselves as paying most of the state of Ohio’s bills through their taxes and just might come to wonder why the state’s voucher programs seem so determined to do so little for their kids and communities.

A serious strategic error of the opening act of the parental choice movement was to look out to places like Lakewood Ohio or Scottsdale Arizona and say “those people already have choice.” This point of view is both seriously self-defeating in terms of developing sustaining coalitions, it also fails to appreciate the dynamic interactions between choice programs. Arizona’s choice policies include everyone and have created a virtuous cycle whereby fancy districts compete with charter and private school options for enrollment. This leads to a brutal crucible for new charter schools in Arizona whereby parents quickly shut many down because they have plenty of other options. Educators open lots of schools and parents close lots of schools-leading to world-class Arizona charter scores. Arizona’s charter NAEP score triumph was more or less mathematically inevitable once this process got rolling. Did I mention the part about Arizona leading the nation in statewide cohort NAEP gains since 2009? That too but Ohio not so much.

I’m open to challenge in the comment section from any of my Ohio friends or anyone else, but by contrast to these eyes Ohio’s choice programs look to be mired in an urban quagmire and they need the leafy suburbs to play in order to win. Current policies not only have not unlocked Ohio’s Scottsdale Unified equivalents, they likely never will. NACSA put Ohio’s revised charter school law in their top ten, but allow me to pull up a couch and heat up some popcorn for the next few years as charters lawyer up and parents resist arbitrary bureaucratic closures, and the rate of new schools opening goes glacial.

Competition is by far the best method of quality control and bringing the leafy suburban districts into the melee is crucial if you are in the urban fight to win. The districts currently largely untouched by charters and private choice overlap with those not participating in open enrollment. Regulating urban charters is not going to make your suburban districts into defacto CMOs. This.isn’t.hard.to.figure.out. While counter-intuitive to many if you want to secure improved education options for the poor, you need to include everyone.

 


Community Inclusiveness by State Charter Sector

April 12, 2017

(Guest Post by Matthew Ladner)

The National Alliance for Public Charter Schools dashboard has lots of cool data on state charter school sectors. I decided to take a look at the geography data by state to see how some of my favorites do on community inclusiveness. I don’t believe that we are likely to find charter sectors that precisely match the districts for a number of reasons, but large imbalances carry substantial drawbacks imo.

Bad:

 

Better:

Best:

Note that all three states over-represent in cities and there are practical (population density) and morally compelling (lower average performing district school options) reasons to do so. Texas however has focused on urban areas to such an extent that in communities that elect most of the state’s dominant political party (urban Texas is deep blue, with “urban” trumping “Texas” in voting preferences) schooling remains mostly a take it over leave it proposition from the districts. I heard from a CMO that operates charters in both Arizona and Texas that suburban demand for charters was even stronger than in Arizona in terms of generating wait-lists. In Arizona charter school competition is everywhere and even Scottsdale Unified needs and wants out of district transfers. Texas suburban districts meanwhile surround their new schools with trailers and keep increasing property taxes, and have limited interest in out of boundary transfers.

The “Size Does Matter” mantra again comes into play as the share of Arizona city children attending charter schools is likely considerably higher than the same share in Texas despite the fact that Arizona is more inclusive of towns, suburbs and rural areas (Texas has more urban charter schools than Arizona in absolute terms, but a much larger urban student population as well.) Thanks you again 9/33 NACSA scored charter law!


Arizona Charter and Magnet Schools Top the List for College Attendance of 2015 Graduates

September 26, 2016

az-college-attendance

(Guest Post by Matthew Ladner)

‘Nuff said…


Grasping at Straws Over Detroit’s Charter Schools

July 1, 2016

grasping20at20straws

(Guest Post by Jason Bedrick)

Following the exposure of all the errors, distortions, and key omissions in the recent NYT hatchet job on charter schools, the new line from the reporter and her teacher union allies is that the CREDO data is current only through 2011-12, but the charter cap was lifted starting in the 2012-13 school year. So sure, charters may have been outperforming district schools before “opening the floodgates,” but now the supposed “free market” (which, for the record, has no price mechanism, no free entry and exit, and lots of regulations regarding school mission, admission standards, testing, etc.) is letting in all sorts of bad actors.

But is there any hard evidence for this? Charter critics point to several anecdotes, but as Jay noted earlier, the plural of anecdote is not data. They’re simply grasping at straws.

Until CREDO updates their report or some other group tries to replicate it, we won’t have accurate apples-to-apples comparisons. Until then, we can’t conclusively reject or accept that hypothesis. But what data we do have cast doubt on it.

According to the Mackinac Center’s “2014 Michigan Public High School Context and Performance Report Card,” which used data through 2013, Michigan’s charter schools are punching above their weight: “Though charter schools make up just 11 percent of the schools ranked on this report card, they represent 35 percent of the top 20 ranked schools.” Two of the top 10 high schools in the state were charter schools in Detroit. The study awarded an “A” or “B” to four of the 14 Detroit charter high schools, while only two received an “F.” By contrast, 12 of 14 non-selective Detroit district schools received an “F.”

Results from their 2015 Elementary & Middle School Report Card are more mixed, but charters still come out slightly better.

The Great Lakes Education Project also broke down the 2015 M-STEP proficiency and found that Detroit’s charter schools–which must have open enrollment–outperformed Detroit’s open-enrollment district schools, although they lagged behind Detroit’s selective-enrollment district schools (and, frankly, none of the sectors have particularly stellar performance). Again, this is not an apples-to-apples comparison, so we should be cautious in interpreting these data, but they certainly don’t lend support to the notion that the charter sector is particularly troubled.

ed561657-352e-434f-ac45-8ff15d0854ab

Detroit’s open-enrollment charters outperform open-enrollment district schools.

Moreover, as shown in this infographic that GLEP put together, Detroit’s charters are over-represented among the top-performing schools and outperform Detroit’s district schools on average:

18 of the Top 25 schools in Detroit are Charter schools

22 of the Bottom 25 schools in Detroit are DPS schools

 Charter average: 14.6%

 DPS average: 9.0%

 Charters are 62% more proficient than DPS

 71 charters (79%) perform ABOVE the DPS average and 19 charters schools (21%) perform BELOW the DPS average.

 20 DPS schools (30%) perform ABOVE the DPS average and 46 DPS schools (70%) perform BELOW the DPS average.

 12 DPS schools (18%) perform ABOVE the charter average and 54 DPS schools (82%) perform BELOW the charter average.

 40 charter schools (44%) perform ABOVE the charter average and 50 charter schools (56%) perform BELOW the charter average.

To reiterate yet again, these are not apples-to-apples comparisons. For that we will need another carefully matched comparison, like the CREDO studies, or (better yet) a random-assignment study. But until then, charter critics should be more circumspect in their allegations. Certainly there is plenty of room for improvement in both Detroit’s charter and district schools. But the charter critics have not presented any hard evidence that Detroit’s charter sector is particularly troubled, or that the increased choice and competition is at fault for the poor performance in either sector (especially since Detroit’s district schools have been seriously troubled for decades).

Neither Detroit’s charter schools nor their district schools are above criticism. But critics should put their criticism in its proper context — and be sure to bring evidence.


Is Political Control Over Charter Schools Wise?

June 29, 2016

democracy-is-two-wolves-and-a-sheep-voting-on-whats-for-dinner

(Guest Post by Jason Bedrick)

In a recent essay, Andy Smarick proposed democratically controlled charter authorizers:

If a city has a large charter sector, state government could create a new authorizer with an elected board (or require existing authorizers to move to elected boards). That democratically controlled authorizer would then have a performance contract with each of the city’s public schools, including those operated by the district.

Smarick’s “middle path” approach is an interesting idea that’s worth consideration, but education reformers should have serious reservations about it. In particular, it’s not clear what the problem is that this approach is trying solve or why this approach wouldn’t lead to the same problems that political control over traditional district schools has caused.

Smarick’s case rests on the claim that “communities” are “demanding more democratic control.” But are they? Which communities? Or, more precisely, which voices in those communities? After all, it’s exceedingly rare that everyone in a given community speaks with one voice. And what are these voices saying? Smarick name-checks a few cities but cites no evidence that would answer any of these questions. He merely asserts that “authority that is both local and democratic has also been in demand.” Okay, sure, maybe. But it’s still not clear why ed reformers should accede to these (anonymous) demands.

Smarick continues:

A community’s voters want to have a say over what types of schools exist, what constitutes “good schools,” who runs them, how an area’s culture and traditions are passed on, and much more. Decisions are more reflective of the public’s will when these issues are litigated through the democratic process. Additionally, we can have faith that the discussion is transparent, that people feel agency, and that the results—even if imperfect—will be durable and respected.

Are any of these claims necessarily true?

  • Is it true that democratic control is necessary for communities to pass on their culture and traditions? Aren’t most mediating institutions — churches, private schools, non-profits, sports leagues, museums, farmer’s markets, small businesses, professional organizations, etc.  — decidedly not subject to political control? And to the extent that some of these organizations employ some measure of democratic decision-making, isn’t it only the members of those organizations (and not the community at large) that have the right to vote?
  • Is there such a thing as “the public will”? At best, this means merely the will of the majority, which often comes at the expense of the will of the minority (or several types of minorities). Moreover, as Terry Moe and others have detailed, political control often means control by well-organized special interests like teachers unions. In any case, political control entails citizens fighting against each other to have their preferences reflected rather than each being able to have their preferences met in a market. To the extent that a “public will” exists,  it is multi-faceted, hence a system of decentralized choices better reflects the public will than a centralized system.
  • Is it true that there is more transparency when institutions are subject to political control? Forget Clinton’s emails — elected school boards regularly lack transparency.
  • Do people feel more agency in political systems? Perhaps the majority does, but do the minorities? Wouldn’t those minorities prefer options that weren’t subject to majority control?
  • Is it true that political decisions are “more respected and durable”? 2016 is an odd year to be making that argument.

On Twitter, Smarick claimed that a democratically controlled charter board’s “incentives [and] ability to interfere [with] schools drop dramatically when board authorizes but does not operate schools.” Possibly. But as Jay pointed out yesterday, traditional school boards don’t “operate” the district schools either, yet there is plenty of room for mischief. After all, Smarick himself argued that these boards should decide what “types” of schools exist and what constitutes a “good” school. That’s an awful lot of control.

As Smarick himself recognizes, elected boards shift power away from families to “the community” (i.e., whichever group can seize political control). As he explained:

Today’s decentralized systems of choice empower families and enable a wide array of options, but they inhibit the community’s ability to shape the contours of the local school system.

It seems that Smarick — who is generally quite conservative — is embracing the progressives’ preference for political control over mediating institutions that Yuval Levin has so insightfully described:

Progressives in America have always viewed those mediating institutions that stand between the individual and the government with suspicion, seeing them as instruments of division, prejudice, and selfishness or as power centers lacking in democratic legitimacy. They have sought to empower the government to rationalize the life of our society by clearing away those vestiges of backwardness and putting in their place public programs and policies motivated by a single, cohesive understanding of the public interest. This clearing away has in some cases consisted of crowding out the mediating institutions by taking over some of their key functions through direct government action. In other cases, it has involved turning elements of civil society and the private economy into arms of government policy — by requiring compliance with policy goals that are foreign to many civil-society institutions or consolidating key sectors of the economy and offering protection to large corporations willing to act as public utilities or to advance policymakers’ priorities.

I hope that Smarick will reconsider his support for empowering the government at the expense of school autonomy and families’ preferences. Perhaps the angel on his right shoulder will whisper Yuval Levin’s counsel into his ear:

Conservatives have always resisted such gross rationalization of society, however, and insisted that local knowledge channeled by evolved social institutions — from families and civic and fraternal groups to traditional religious establishments, charitable enterprises, private companies, and complex markets — will make for better material outcomes and a better common life. The life of a society consists of more than moving resources around, and what happens in that vital space between the individual and the government is at least as much a matter of character formation as of material provision and wealth creation.

As I noted above, I do believe that Smarick’s proposal merits serious consideration. Although I don’t think he has made a strong case for a democratically controlled charter board, I do think he’s onto something when he says that there is strong demand for democracy, at least in some quarters. That said, I think the more viable “middle path” is down a different road. There are numerous mediating institutions in society that engage in democratic decision-making, but only members have a vote. Instead of giving a vote to everyone in the community — wolves and sheep alike — perhaps charter schools could give a vote to parents of students who are enrolled there. This way, parents who want democratic agency can enroll their children in democratically run charters, while other parents can choose schools that have different missions, and in no case will outside special interests be able to seize control.

I’m sure there are other arrangements that could also achieve the balance that Smarick seeks. But please: don’t give power to the wolves!