Blessed by the Potato

A reader recently emailed me saying that he liked my investing book so much he was going to read it again after letting everything percolate for a few months. He wanted to know if I had a second edition coming out soon. It has been two years now since I wrote the book, so perhaps a revision is due.

I’ve given very nearly zero thought to a second edition: I have an errata page to catch the very few corrections and changes that cropped up, and other than updating the historical results for the past two years there really isn’t anything fundamental to change. That’s the beauty of a simple, passive approach. I might give it another round or two of editing/polish, and maybe add a graph or two, but nothing so major that I would go to the trouble of doing a new edition — it was intended to be timeless (also: sales have dropped to zero, removing motivation).

Reader feedback has been universally positive — it’s actually freaking me out. Most people (as expected) don’t write a review or pester the author, but a few have written back with brief notes of thanks or praise. No one has suggested changes, said that a part confused them, or that something obvious was missing. It makes me wonder if Wayfare wakes up early every morning to clear the inevitable negative ones out of my email and comment queue to spare my ego, as there’s no way nobody has wanted to complain that it was a waste of their $5, the world just doesn’t work that way. It may be due to the small sample size: even after two years I’ve still only sold a few dozen copies.

So an open question: what would you like to see in a second edition?

I cut a few chapters from the initial outline: I wanted to finish before my PhD thesis defense prep picked up again, and more importantly, thought it was vital that the book be short and approachable (unlike my blog). I figured there were numerous sources on the whys of investing and the indexing choice, and on budgeting, so I could focus on the missing component of the hows. One I’ve been thinking about has been expanding the single page on planning, in large part because I’ve had a few decent blog posts on the matter for material (including a rather important spreadsheet) that came out after the book was published. However, there are whole books on planning — whole careers on it — and it could rapidly grow on me to become a book in its own right, not to mention that it’s not really my specialty (maybe I can convince Sandi to co-author it and do most of the work?).

But maybe you think less is more: is there something that should be cut? Have other, newer books on the market supplanted the need for my book entirely?

Let me know what you think, what you want, what you never knew you needed until this one perfect moment of comment section inspiration seized you.

As an aside, PSGtDIYI (wow that’s an ugly acronym, no wonder I just call it the book) is self-published in electronic-only formats (though with a letter-sized PDF version for easy printing at home). That was in part to test the market before committing the time and resources to finding a publisher or making print versions — and the response was not strong enough for me to look into that further. But my dad at least thinks that this material would be better-suited to a print version, and suggested I do a small print run for it. Though I doubt a serious publisher would be interested in it (the format is too weird), that route might lend it some additional credibility. If nothing else, a print version is something I can give away to people who need it and they might actually read it. Very roughly speaking, I would likely need to charge closer to $10 for a print edition, even for a quick copy shop spiral-bound deal (and bear in mind it is a very thin book printed out, and many people value their books by weight). Thoughts on that?

Not so long ago, I read an article refuting efficient market theory, using the example of Tanzanian Royalty Exploration as a case of an obvious inefficiency. It’s a strange example to pick, because it doesn’t actually support the thesis.

A quick refresher: just over two years ago Sino-Forest was exposed as a fraud (at the time, alleged to be fraudulent). It plunged in price, losing some 75% in the first few days. Sino-Forest traded on the TSX under the symbol TRE. At the same time, a company called Tanzanian Royalty Exploration fell about 8% in a few days. It happened to have the same ticker symbol — TRE — but on a different stock exchange. The story was that in the panic to dump Sino-Forest, some people were entering the wrong exchange for the TRE symbol and accidentally selling off Tanzanian. Ha ha, crazy market, what a clear inefficiency! Tanzanian even went out of their way to change ticker symbols to avoid the confusion/stigma.

As cute as that narrative is, it hasn’t panned out: here we are almost two years later and Tanzanian has not come anywhere close to its May 2011 high. The drop co-incident with the Muddy Waters report on Sino-Forest could perhaps have been an inefficiency, but given the continued slide (now down 55% in two years) it appears as though it might have been a true, “efficient” decline after all. Perhaps the close timing and similar tickers are merely one of life’s funny coincidences. Nobody who identified the coincident ticker symbols and price drops at the time and assumed it was a market inefficiency made any money trying to play it. And I don’t think anyone using the example a year or more later is making a very strong case for active investing.

In my last post on what you wanted to see on the blog, Wayfare playfully suggested that I switch to the anachronistic double-space after the period writing style. I am on record as saying that using two spaces after a period in a modern variable-width font (basically all of them) is wrong wrong wrongity-wrongo. It’s so wrong HTML will try to automatically correct that anachronistic habit. You have to manually put in non-breaking spaces to force it to do that (or have your WYSIWYG editor do it for you), which makes weird things happen at line breaks, like leading spaces. Double-spacing after a period is a dark, dark part of our past that we have collectively left behind, and even the most traditional style guide is now embarrassed to even mention it.

Egos were crushed in the flamewar that brought single-keypress variable-spacing standards to the world. You rebel scum disrespect them with your ancient rituals and superstitions. Coming across a mouldy high school teacher that forces double-spacing on her students because “that’s the way [she] was taught” is sad and uncomfortable. There was a point, maybe in the 50’s, where the whole “this is the way we should shape our beautiful and equitable society” idea was still kind of new, so we silently tolerated some backwards beliefs, calling them a personal style, knowing one day the holdouts would fade from this plane. But now, there’s little to no excuse for that behaviour.

Because I have been dealing with it for half the day, Rebel Scum, here is the other problem with your backward double-spacing ways (aside from disharmony): you lose count. People trained to press space bar once after a period are — I find as an editor — pretty damned reliable at putting in one and only one space. 99.9% of the time, they’ve got that trick nailed. Double-spacers form bad habits and inconsistencies slip in — if you add extraneous spaces because the standard variable-width spacing is not enough for you, where does it stop? “Hmm, still doesn’t ‘look right’, needs another space after the period.” Today I was editing a document by someone who is nominally a double-spacer, yet double-spaces were in the minority. About 10% came out as singles. About 30% had an extra space for a triple. Another 20% were quadruples, and nearly 5% were just vast chasms of spaces. The kind of pattern you see when someone likes to absently tap the space bar as they’re trying to think of how to start the next sentence.

That ancient ritual, unwittingly performed: the DecaSpace invoked. I looked into that void today, and saw a possible future past in which all of mankind was swallowed by that emptiness between . and T. That impossible, despairing chasm sucked at my soul, attempting to pull me into the UnContent between words; unravelling the very structure of the document. The blinding, beckoning bright white heart that is the purest essence of writer’s block we will ever see this side of Minesweeper sent its tendrils out to me, feasting on my hopes and dreams, threatening to leave nothing but a glassy-eyed stare and a haunted feeling that I will live the rest of my days with that eerie feeling that the word I need is just on the tip of my tongue.

I escaped (mostly) alive, of course, and corrected the error. Here I am, relating the tale, and in reflection glad not only that the Space Wars brought harmony to the universe, but that it was the single-spacers that won, long before I was old enough to choose a side and know what I had to fight for. Never again do I wish to have such a profound glimpse into the mind of another author through contact that should be as casual as punctuation.

I’m quite tolerant of people’s quirks, and try to work with an author within their own style, merely ensuring that they stay consistent to it. Oxford commas, or not; spaced n-dash or unspaced m-dash; singular they or some other convention, whatever the author chooses. Nevertheless, in my shop double spacing is now an error that gets corrected. No longer will I tolerate the reckless frolicking of these fools who seek to harness powers they do not comprehend, merrily, blindly dancing on the edge of oblivion because their grandparents thought it safe.

I tend to write long blog posts, using as many words as I need to get my point across. Sometimes more than that just for the sake of a non sequitur. This verbosity is in part because this is something I do in my spare time when I should be sleeping, so I don’t take the time to make them shorter, in part because I tackle a lot of complex multifaced issues with much to say or explain, and in part because I know for a fact deep down inside that the internet doesn’t have a word limit. But mostly because I trust that my audience contains smart, well-read (and attractive, did I mention attractive?) people with attention spans that are up to the challenge I present to them. If I post a 1,200 word article once a week, and they prefer a daily 250-word snippet, well, they can spread it out and make it last at their own pace. If I don’t post every day, I’m sure they’ll find something else to occupy their time and that doing so doesn’t mean they won’t read what I have to say three days hence.

This goes against the advice of a lot of studies on reading habits and ess eee ooo¹, which say that articles should be short (~250 words), skimmable with bullet points, key points highlighted in bold (or random sentences if you don’t know what your key ones are, or just alternate bolding sentences if you hate eyeballs²), liberally sprinkled with keywords, and posted on a regular schedule (preferably 5 days a week). Even better if you can intersperse unrelated³ text links with the body; the more like your ads you can make your text the more likely it is a reader will get confused and click. At this point every time I see one of these robot-generated top X ways to Y posts I just skip right on by. I simply have no interest in posts written by robots for robots. So little effort and expertise is put into those things that they’re often worse than useless.

Yet this is the majority of what you’ll find out there because that’s what makes money: the reason ess eee ooo is so important is because by and large your loyal daily readers don’t click on ads, it’s the visitor deposited from a web search that tends to traffic the advertisers (whether on purpose or because they haven’t yet mastered the confusing layout to parse content from ads has not been determined). However, they also don’t tend to scroll — seriously, research from other sites finds that the majority of viewers will only read what fits on the screen when they first land (in our case, that would be about 300 words), if that much. I write for many reasons, but maximizing revenue⁴ isn’t one of them. If I’m going to say something that you’ll enjoy (or you’ll at least walk away from a little wiser) then you’re going to have to scroll with me a bit. Put your head under, explore the depths with me. It could be fun.

One thing I’ve never understood is the use of completely unrelated photographs. Many sites (including almost every online story for a newspaper) have an image box that must be filled, even though 99% of the time it’s a completely unhelpful unenlightening bit of clip art or a stock photo. Yet even where I work — writing science stories for lay and non-specialist audiences — we always include a figure (which ~50% of the time is some unrelated bit of stock photography and ~40% of the time is some only loosely-related bit of general anatomy/technology), and target our stories to <250 words. I don’t understand why this is such a universal requirement (the photos moreso than the word limit) — indeed, I’ll note that Sandi provided one when linking to my last post⁵. I’ve come up with a quick mnemonic to help myself: at work I primarily edit, write succinctly and avoid Oxford commas or talking to myself while wearing pants and a button-up shirt; at home I mostly write without editing, use proper punctuation, talk things out with my cat whilst in my skivvies, and I only use figures when they actually add information or enlighten.

Another trend is the disappearing paragraph. It is partly due to the deteriorating writing skills in our civilization: structuring a post/essay into paragraphs of related sentences with a logical flow isn’t a priority when texting and twitter preclude even multiple sentences. It’s also partly because of the nasty influence of newspaper editors: when laying out a story to fit the newspaper page editors will often need to crop an article to fit at any point. So they encourage their writers/reporters to compose articles as single-sentence paragraphs, often with no relationship between any of the ones near the end so that the article can be cut at any given point from about the halfway point on and still make some kind of sense (even if inelegantly) to the reader. Now, I don’t think the dying newspaper industry is one bloggers should want to ape, but the reality is that some of the more commercially successful bloggers have gone on to get columnist gigs (e.g. in personal finance see Robb and Krystal), which allowed them to learn such habits directly from the newspaper editors. And from there to the PF bloggers who are inspired by their success, follow them, and mimic their style.

But as annoying as this style is to sit down and read as a coherent story, it’s moderately good for skimming, as when skimming we tend to go topic sentence to topic sentence (though with next to no paragraphs they’re almost all topic sentences). And skimming, of course, is what the big-money search engine visitor is looking to do before going back to read the context of their sought-after term. Plus it’s easier to blend in the often single-line referral links since the body text starts to look more like them (though again, I don’t think modifying your writing to come off as ad copy is really a virtue to pursue, said the guy who spends money on his blog).

As much as I disdain writing for search engines, if it also improves readability I’ll give it a whirl — though I’m doubtful on that point. It’s hard (for me) to tell a coherent story in 200 words, harder still to limit myself to 6 bullet points. But if my actual, human readers of whom I am fond think that my writing style is too academic/mental patient fusiony then I’ll consider change. For a little while.

There has also been some discussion on the value of comments lately. John Scalzi (as usual) has some good things to say on comments: “In a general sense, though, I think it’s well past time for sites (and personal blogs) to seriously think about whether they need to have comment threads at all. What is the benefit? What is the expense? Blogs have comments because other blogs have comments, and the blog software allows comments to happen, and I suspect everyone just defaults to having comments on.” That comment about the default did make me think, and personally, I love the comments. They did definitely start because of the WordPress default to have comments — I never thought about it on the old notepad site.

At this point, I get about 1000 spam comments for every legitimate one (partly a function of my decreased posting frequency since graduating and reproducing, which brought down the comment signal as you all have fewer opportunities to respond). That’s a pretty low signal-to-noise, but it doesn’t take me that long to clean out the spam bin, and I do love your (few) comments. I have been slowly deactivating commenting in posts older than about 3 months, as really no human comments much on a post much older than a few weeks (and I can always add a comment from email if someone does). I’ve also stepped up the blacklist threshold — putting more comments directly into the trash without ever having to double-check the filtering (I sure hope no one legitimately wants to talk about a Zune — those 4 letters instantly delete your comment with no hope of recovery). So far no one has complained of a comment disappearing (though many of you do get comments stuck in the grey list for a few hours). I think this is a decent way to go: I find registering to comment too restrictive, and though the comment volume is low I can’t imagine turning it off completely on you guys.

I had one other set of pressing questions to ask, but this is already at 1200 words so it’ll wait for another post (I’m doing it already!).

Now my question to you, dear readers, is what do you want to see here? Does the style work for you, or would you prefer I arbitrarily cut posts off at 300/500/1000 words and make you wait a day for the (usually not very) thrilling conclusion? Are you confused when you come across a period and it’s not followed by a line break? What topics would you like to read about (in particular any I’m not hitting on now)? What do you want to ask of me or find out that you haven’t thought to ask before this incredibly open and unexpected question floated in front of your eyes? Do unrelated stock photos actually make you want to read an article?

I don’t know how much I can (or want to) change my style, but if you guys seriously groan every time you have to [gasp!] scroll then I can start breaking my rants into subposts/chapters. Likewise, I’ll probably write about finances and cats in the proportion that they capture my attention anyway, but can throw in some more on other topics if you’re missing them.

1 – I don’t even want to spell that term out for the spam magnet that it is, but for those who don’t know it’s search engine optimization, the black art of trying to drive more people to your page in ways other than being legitimately awesome and popular.
2 – fuck eyeballs amiright?
3 – saying “related:” does not make it so.
4 – here, at least. Freelancing/professionally it’s all dolla dolla bills.
5 – and against all earlier ranting, the post was about sampling, and the totally apropos photo appears to be of someone sampling a population of potatoes.

…or Real Estate: Changing Sales Mix and the Effect on Averages.

The average is a very important way for us to reduce the complexity of a large number of things down to one measure that we can then compare to other groups of things. It’s a simple grade-school concept, yet we must at times remember that there are different ways of creating an average, and they may give different results depending on how the raw data is distributed. There are issues of weighting data, and that we have to be aware that sampling subsets of a large population does happen, and that how data is sampled can affect the outcome.

For the real estate boards (e.g., TREB) they report the “average house price” which is a simple average of all the property sales in a given region within a given month. Now for an organization that is primarily concerned with how much commission-generating activity is taking place, a simple average is great (multiply the average by the number of sales and you get the total sales volume). However, it doesn’t truly answer the question many people have, which would be something like “how much more/less is my house worth?”

The sales mix — how many condos versus detached houses, which neighbourhoods have more activity — affects the average, especially when it changes. You see, the average price in a month or a year is not a census; not the average of all properties across the city, weighted by how many of each there are, but rather the average of those that sold. With a large enough city over relatively normal periods the distinction shouldn’t matter that much: the properties that sold should be a random and consistent sample across the city. Maybe condos turn over more often than houses, but as long as that’s a constant influence over time then you can still make year-to-year comparisons.

But Toronto has seen a massive real estate boom over the last decade that included an insane amount of condo construction: 50,000+ units built and another 60,000+ under construction*, in many cases removing single-family houses in the process. And the sales mix has changed even more, as condos become investment commodities to flip rather than places for long-term occupation.

The result? The increase in average price that so many find concerning may actually be understating the degree of price increases that have occurred (though price-to-rent analyses sidestep this). Moreover, as this effect unwinds it will mask price decreases. For an example of the change in weightings affecting the average, see the May condo numbers: 416 condos were up 1.2%, 905 condos up just 0.6%, yet the overall GTA average was up more than either at 1.6%. This seemingly illogical result came about because the sales volume dropped so much more in the 905 — these lower-priced units counted for less in 2013 than in 2012 so the overall average was up much more than any single component. With a large enough swing in sales (the weighting factors) you could see average prices rise even if each individual component had decreasing prices.

My thinking is that condos are the most speculative component in Toronto real estate, so as the market starts to correct the sales volume (and prices for that matter) on condos will be affected more. Indeed, sampling** a few months shows that this year is showing a decrease in the ratio of condo sales to detached sales from the previous few years (detailed data doesn’t go back far enough to show how the mix changed as a bubble inflated). So as we get through the Wile E. Coyote phase of the correction, the change in average prices may continue to look positive (or less negative) due to changes in the sales mix, even if the actual prices on individual properties are going down.

Now, it’s not a huge effect: a few percent one way or the other, and it doesn’t compound. But when you have a market on the edge, with large changes in sales mix happening, where a few percent one way or the other would have large psychological effects, then it’s an effect worth keeping in mind.

In a similar vein, there seemed to be a lot of media attention around the last two Urbanation rental reports, which described steep increases in Toronto rent costs. However, I seriously question the reliability of these reports, particularly when it comes to their sampling.

Ideally, when looking at any population we’d have the full set of data to analyze. But you can’t measure the length of every fish in the lake without draining the lake to catch them all, and for large populations even if you could measure everything you’d end up with a massive amount of data to crunch. It would be nice to have the rent rates of every rental agreement everywhere, or to run an appraisal on every property every year so we could analyze the data as we see fit. But that wouldn’t be worth the cost and effort of doing so, so realistically we have to sample: pick a few fish out of the lake, phone up a few potential voters, or get information on some rental agreements out of the city and find out what the average of those are, estimate how our sample differs from the overall population and go on with our lives. A good sample should be representative, random, and appropriately sized.

Urbannation doesn’t provide their raw data (indeed, they charge an arm and a leg to get at the report), but the information in the press tells us that with several thousand data points it’s likely large enough. You could probably get a good sample with just a few hundred representative rentals. However, it is not representative. Their report is based on the sample of all rental agreements that go through the MLS system. When you’re talking resale housing transactions MLS is a great sample — it captures almost the entirety of the market, and there isn’t necessarily an obvious bias to what’s missed. For rentals however, MLS is a small slice of the market and is definitely not representative. Many landlords advertise their rental using low-cost methods such as ViewIt, Craigslist, Kijiji, or the local hospital/university bulletin board. The standard charge for an agent to list a rental on MLS is one month’s rent. For a 1-year lease that might get renewed for 2-3 years that’s ~3-8% of the gross — quite the cut for advertising and an illegal “custom” lease on what is already a loss-making “investment”. So we can’t really expect any old random landlord is going to go and get an agent to list their rental on MLS with some equal probability. In my anecdotal experience, the MLS listings are largely from cases where the landlord already has a relationship with the realtor, either a recent sale (“now that I’ve sold you the place, how about I get a tenant for you?”), or a current listing that’s failing (“geez, 45 days and not a single bid, how about I help you rent it out and we can see if the market improves in the spring?”), or is completely out to lunch/out of town.

The Urbannation rental report might say less about the increase in rental demand than it does about the increased use of MLS for rentals. The headline could just as well have been “rental demand unchanged in Toronto; Sales collapse means more people with more expensive units resort to renting out via MLS.” We don’t know how the represented areas and units changed over time (perhaps a few years ago cheap CityPlace units were over-represented while it was newly flipped; now maybe more inherently expensive developments are dragging the average up).

Now I don’t personally track the downtown condo lease market so I can’t say what correlation there is between the Urbannation report/MLS data and what’s actually happening with like-to-like rents. I can say that it does not look like the outskirts of the 416 (North York in particular) are experiencing anywhere near the same level of rent inflation as they suggest. Indeed, anecdotally I’ve heard a few cases of landlords voluntarily freezing rent north of the 401, as even the 2.5% rent control increase can’t be justified by the market rents that could be sought if a tenant left (which is likely reflected in the 2014 cap of 0.8%).

* – the 2nd figure is across the GTA, so perhaps closer to 40,000 units under construction in Toronto proper.
** – I wasn’t able to find the data in a spreadsheet for ease of analysis, so I had to manually parse a few months and build my own spreadsheet. I wasn’t going to go through that for more than a few sample months.