A Midtown research desk replaces its buy, hold and sell ratings with a three-word verdict for a body of water
Wall Street Analysts Downgrade Cebu Beach to Sea Did Nothing
A Midtown research desk replaces its buy, hold and sell ratings with a three-word verdict for a body of water
NEW YORK – At 6:15 on Thursday morning, before the market opened and before most of its employees had finished their first cold brew, Harbinger Rowe Capital Research issued a note to clients headed “Cebu Beachfront: Rating Changed From Overweight to Sea Did Nothing.”
The note, four pages long, was authored by senior analyst Desmond Cho-Whitaker, 41, who explained at a briefing that the firm’s traditional rating system “does not have a box for a sea that is entirely innocent but widely distrusted.”
“Buy implies the sea is a good investment,” Cho-Whitaker said, standing in front of a screen showing a line chart of nothing. “Sell implies the sea has done something. We have looked at the sea. It has done nothing. We therefore introduce a fourth rating.”
The Thesis
The note was prompted by a week of unease in the Cebu property market. Philippine authorities are examining allegations concerning Thomas Markle Sr., the estranged father of the Duchess of Sussex, who lived in Cebu until earlier this year, GMA News reported. No charges have been filed. The allegations are unproven. Cho-Whitaker’s note opens by stating that “this report takes no view on the investigation, which is for the authorities, and a very firm view on the beach, which is for us.”
The beach has had a rough week by proxy. Manila News found a Mactan broker alone with three signed brochures and a cold coffee, an appraiser proposing a stigma adjustment under which a P12-million unit is worth P12 million except on bad news mornings, and a market in which buyers ask about the neighbors instead of the elevator. Cho-Whitaker read the report on a train and, he says, “felt the pull of an arbitrage.”
The Four Ratings
The firm’s new scale, effective immediately, is as follows:
- Overweight: Buy, with enthusiasm.
- Neutral: Hold, with a shrug.
- Underweight: Sell, with regret.
- Sea Did Nothing: The asset is innocent, the market is nervous and clients are advised to ignore everyone except the squid vendors.
A footnote to the fourth rating states: “This rating applies exclusively to bodies of water, retirees and goats.”
The Valuation Model
The note includes a valuation model of the type clients expect. Its central input is a variable the firm calls the Mood Haircut, defined as the percentage by which a rational asset is discounted when the news cycle has recently insulted it. For the Cebu waterfront the haircut is estimated at 9 percent in the first week, falling by half each week thereafter, “like a diminishing hangover.”
The model also incorporates the stigma adjustment proposed by the Cebu appraiser, which Cho-Whitaker described as “the most elegant piece of valuation theory to emerge from the Visayas since the invention of the calamansi.” Under the formula, a unit’s price is unchanged on calm days and falls to P40 and a bottle of juice on bad news mornings. “We have back-tested it,” he said. “It works on every day except the days it doesn’t.”
The firm’s British affiliate sent a supplementary table. The London Prat reported that British pensioners in Cebu now need two referees, a utility bill and a letter from the vicar before they may view a bathroom. The article is at https://prat.uk/cebu-estate-agents-demand-character-references/. The affiliate rated the vicar “Overweight.”
Clients React
Institutional investors received the note with a range of emotions. A pension fund manager in Boston said it was “the clearest research I have read all year.” A hedge fund in Greenwich asked whether the beach was available in a leveraged ETF. A sovereign wealth fund in the Gulf asked, politely, for a version in Arabic. A retired trucker from Amarillo, who is not a client but follows the firm on social media, wrote to ask if the unit came with a grill.
That last point connects to a Bohiney report from a Mactan open house, where the trucker, after hearing the news at a gas station, asked only about the grill. Cho-Whitaker has asked him to join the advisory board.
Comics Trade the Note
- Brandon Teller: “Wall Street has come up with a fourth rating: Sea Did Nothing. It’s the only research note in history that is also a legal defense.”
- Whitney Ashcroft: “I asked my broker what he thought of Cebu. He said, ‘Neutral.’ I asked what he thought of the sea. He said, ‘Sea Did Nothing.’ I have never trusted him more.”
- Raj Chandrasekar: “Mood Haircut. That’s what my barber charges me when I tell him I’ve been through a rough week.”
- Lucille Navarro: “A note that says ‘Sea Did Nothing’ got four pages. My last performance review was one line and it said ‘Fine.'”
The Fundamentals
The note admits that the fundamentals are firm. Colliers named the Visayas and Mindanao a key property investment hotspot in July, and developers keep launching towers. For foreigners, ownership is governed by Republic Act 4726, which permits condominium units but not land, with a 40 percent cap on foreign ownership in any project.
The note then offers a brief behavioral explanation. In their 1973 paper on the availability heuristic, Amos Tversky and Daniel Kahneman showed that people overweight vivid, easily recalled examples. “The market is trading on a headline,” Cho-Whitaker wrote. “The beach is trading on its merits. We recommend backing the beach.”
The Close
By the afternoon session the rating had been picked up by three wire services and a financial blog, and the phrase “Sea Did Nothing” was trending on the firm’s internal chat under the hashtag #innocentasset. Cho-Whitaker was asked whether he would apply the rating to other asset classes.
“Oh, certainly,” he said. “Crypto, maybe. The Fed, definitely. Anything that has been accused of something it didn’t do.”
He then paused, looked at his screen and added: “And the sea. Always the sea.”
The story continues at The London Prat and Bohiney, and for the British edition of financial doom, The Daily Mash files daily. For why a research note can be funny, see this guide to London business humour.
SOURCE: https://bohiney.com/cebu-realtor-cant-sell-beachfront-listings/