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Gal^Stad
Investments Inc.

spacer July 2000
Commentary

Tired of being one of those faceless, nameless, traders whose transactions end up in street name? Want to thrust yourself into the limelight like a Gerald Schwartz or a Steve Stavro? Well the time is now as Interbrew, the owners of the Toronto Blue Jays, are waiting for your best offer. About $150-175 million US should get the job done, give or take a few million. But before jumping into the fray to buy the franchise, you might consider a few things.

Careful consideration should be given to the corporate culture. "Going back to Gillick and Beeston, this club was run like a business," President of Baseball Operations/General Manager Ash said in a fascinating conversation with Benj at Skydome headquarters. "A lot of clubs have now moved to our model. At the end of the day, it's planning and budgeting and trying to stay ahead of the competition. Quite frankly, the whole thing boils down to personnel."

While the public generally concentrates on what happens on the field, there is a heap happening behind the scenes. There is someone in a Blue Jay uniform 365 days a year. While fans only see the best that the operation has to offer, players, coaches, medical staff, etc., there are about 250 people working in numerous countries continually trying to improve the organization. Technology is being incorporated into the scenario. One of the keys to success is developing tomorrow's stars, and the Blue Jays have their travelling scouts using laptops, tapping in data on the best and brightest, along with the undeveloped hidden gems.

As Ash philosophizes, "Baseball is full of intangibles. It is an individual sport played as a collective." In the same manner as other enterprises, the key is to make the employees perform. In that regard, the organization has established industrial business practices, to understand what makes players tick. "You have to know whether to press a guy to perform, or praise to perform."

A few other difficulties are to be considered when launching your bid for the franchise. The Montreal Expos and Blue Jays are handcuffed to a large degree by the exchange rate. The majority of their costs are in American dollars, and the slide in the C$ over the past few years has hurt the competitive ability of both franchises hard. If the loonie appreciates, as we think it will, buying the squad makes even more sense.

Sounds like the analysis for evaluating stock purchases, doesn't it? Well, it ain't all the same.

One difference and major challenge is that many employees likely will cash bigger cheques than the new owner. Ballplayers making million dollar salaries are commonplace, and more and more players make salaries that exceed $10 million annually. It can be hard to sit in the executive box when your minions are laughing because their shoes are better than yours. A bigger danger is that fans are being turned off by the carping of many of the super rich brats. It is hard to empathize with people who complain they are underpaid when one year of their salary equals 500 years of yours. It also makes it more difficult to fork over the admission fee if those expensive stars are hamstrung by an also ran squad.

Unless you have particularly deep pockets, it would be wise to adhere to Ash's reminder: "There's a feeling amongst a lot of fans that sports teams are here for civic pride. We're accountable to Interbrew. They want us to operate on a break-even level. Too often sports franchises have to apologize for that."

Another major league difference. As Ash stated, "We're not a day-to-day business, but often in the public mind, whatever happened last night is what matters today." While some lousy streaks work short-term minded fans into a lather, Ash recognizes that good teams, excellent hitters and pitchers have their cold bouts. After more than a couple of decades in the business, he knows not to become overly concerned about a bad home stand -- that at the end of the day it is the record at the end of the season and beyond that counts. Sound like investors who get nervous after a bad quarter or year?

Seventh inning stretch
This perspective of time relativity has overriding investing applications. While the short-term matters -- for it is a series of short-terms that determines the long-term- it is the overriding strategy that is critical over the long haul. This extended view has dimmed on radar screens as the stratospheric financial yield of the high tech sector has convinced many investors that 25 percent plus returns are commonplace. We wish.

Time is being redefined by technological innovation. Historically, time was a constant, or as the Oxford English dictionary defines it, "a limited stretch of or space of continued existence, as the interval between successive events". Einstein showed that time is a slippery concept, although this relativity is not something that we perceive in our every day lives. This continuum of our notions of time stretches from the rapidity of email and cell phones to Henry David Thoreau's vision when he wrote, "Time is but the stream I go a-fishin' in."

Somewhere between these two spaces, alternative time zones are being created. New Earth Time is based on the division of the earth's daily revolution into degrees, creating 360 "earthbeats" a day, 15 earthbeats an hour, 1 earthbeat every four minutes. While this prosaic attempt will always fall short of the mainstream, internet clocks that take into account daylight savings time and that half hour in Newfoundland make it easier to keep track of local time zones.

Swiss watch manufacturer Swatch is going a step farther with one of their latest offerings, attempting to popularize a new "standard time" based on the meridian that runs through Biel, Switzerland rather than traditional Greenwich, England. The novelty is that it divides 24 hours into a 1000 beat day. The name for this? Swatch Internet Time. Name branding time, a very cool way to advertise, if it can be slipped into the global lexicon. For investors who feel they must always be on top of things in the newly minted 7/24 stock trading world, the Stock Swatch -- our name -- might be the perfect b-day present.

Investing has been dramatically impacted by our shifting perspective on time. The fax machine dramatically increased the speed of decision making. Now people send emails and if a response isn't received within a few hours, it appears as though something is wrong. While lightning wings can have a diaphanous beauty, inherent dangers exist. There is less time for thought -- for ideas to percolate. Haste becomes the order of the day, leading to injudicious decision making. Easy access to information makes one feel like the ingredients are there to make quick, informed conclusions, when in fact, the stew should be brought to a high heat and stirred occasionally, before being put on simmer. Later, with odours wafting in the air and only after a good blow to cool should eating commence.

The time trap
Day traders are particularly susceptible to this problem, which is one reason that the vast majority lose money. Perhaps the Contra Guys have also suffered somewhat adjusting to the new time "culture", as we purchased more stocks than ever before, deals that appeared too good to pass up, with a number dramatically hurting our results. The ongoing reassessment has led to a further evolution in our procedure, one that has never, and will never, rest, as our knowledge base is expanded. Our goal, as we stated briefly before, is to reduce the size of our portfolio to between 15-25 stocks. This will benefit us in a number of ways, maintaining diversity, allowing us to focus on fewer issues, and make us even more selective in our picks. The portfolio will be less exciting in some respects, as fewer stocks mean less events happening to our companies. That's fine by us. In essence this will slow Contra time, as the interval between successive events will lengthen, allowing our minds to play while fishing.

Back to baseball. "Anyone can manage a team by relying on statistics," Ash states. "What makes managers great is their courage to their noses in the face of accepted wisdom." The man has some of our contrarian spirit. This doesn't mean of course that statistics should be ignored, but they should be put in their respected place.

Of course, this knowledge does not necessarily help after another pasting, when the phone lines light up, and the emails flow in with complaints. "You should have known that you needed a fifth starter," Joe Blow from Wawa will screech while scooping another mouthful of chips and a final swig off his 2-4. Every fan becomes an expert. This is not like operating a General Motors. The business section of the newspaper doesn't report on how the line had an off-day, losing a tad of production, leading to scores of complaints from the general public. As Ash states, "Learning to live in the glass house is part of it. I go to a store and people want to talk to me about business." Anonymity is not a part of the job.

So if your interest is perked, here's the plan to get you into the clubhouse. Assemble a few of your best buddies. Buy a shell company on the CDNX. Issue 30 million new shares at $10 bucks a pop, and make Interbrew an offer. Once you're in the driver's seat, don't forget who sent you. We'd love to have the chance to help manage a ballclub along with our stock portfolio.

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