Sunday, December 18, 2011

BT investor presentations-a study in the art of spin and euphemisms

As I read through BT Plcs investor presentations and conference call transcripts, I was struck by the extent of 'spin' and euphemisms. Some examples are
  1. Referring to cost reduction/restructuring as cost transformation
  2. Referring to staff retrenchment payment as leaver costs
  3. Exceptional gains/costs as specific items
  4. Economic downturn as economic headwinds
To be fair, they are probably just trying to make it easier to understand. But it seems to me as sugar coating, something more expected from a USA company than a UK one. Still, the company IS transparent in other ways. For instance, during the Q2'11 conference call, it highlighted that
Revenue in Global Services was up on an underlying basis excluding transit, up 3%. A big part of that  however, whilst it was on any metric a significantly improved  performance, was due to a milestone recognition which came  forward from Q3 into Q2. Basically we delivered really well and we  accelerated the recognition into Q2. That was worth £60m. Excluding  that milestone basically, revenue was flat. As I said, that's quite an improved performance from previous quarters, but it did come out of Q3.
Very few CEOs would prominently highlight that(instead leaving it to the analysts to pick it out from the notes or speculate), and that took up my respect for them by a few notches. Still, their surprising choice of vocabulary does not change with this.

Friday, December 16, 2011

We overrate 'new' things in the wrong ways

After the death of Steve Jobs, I've lost count of the leaders/writers who praised his innovative nature. In the Indian context, while doing that, some also trashed the innovativeness of us Indians. If we define innovativeness to mean churning our new products/variants frequently, then yes one may not be innovative. But the way I understand innovation, is merely an improved way of doing things(improved by resource consumption/functionality) and not necessarily just design/art work. And what may be innovation for the early adopter, may not be so for Joe Citizen, whose needs are limited. For example. one may not need to throw out the old smart phone for the iphone4, if that does not give any more relevant functions for that user. Of course, being seen with that brand is a different psychological  push which I don't address

There is even a logical fallacy around this(, titled appeal to novelty, which is explained well below.

Appeal to Novelty is a fallacy that occurs when it is assumed that something is better or correct simply because it is new. This sort of "reasoning" has the following form:

  1. X is new.
  2. Therefore X is correct or better.
This sort of "reasoning" is fallacious because the novelty or newness of something does not automatically make it correct or better than something older.This sort of "reasoning" is appealing for many reasons. First, "western culture" includes a very powerful committment to the notion that new things must be better than old things. Second, the notion of progress (which seems to have come, in part, from the notion of evolution) implies that newer things will be superior to older things. Third, media advertising often sends the message that newer must be better. Because of these three factors (and others) people often accept that a new thing (idea, product, concept, etc.) must be better because it is new. Hence, Novelty is a somewhat common fallacy, escpecially in advertising.The age of thing does not, in general, have any bearing on its quality or correctness (in this context), except of course food quality etc.

In my view, in fields like economics, law and philosophy, old is gold for sure! After all, people read classics for a reason, and not just to give publishers money. They are rich of ideas and philosophy, and if anything is eternal, that is. Given that the focus today is on self managing teams and human beings(as opposed to technology only), the old lessons assume much more importance. Of course, we should not swing to the other extreme and accept 'time tested' things due to Appeal To Tradition. Blindly doing that would discount survivorship bias, institutionalized prejudice etc. For instance, anyone using Tintin comics to support racism  is committing this fallacy.

Thursday, December 15, 2011

What should an university be like-lessons from John Henry Newman

The classics often have great lessons for today's situations, because they oft contain eternal truths uninfluenced by the mass media/indoctrination of today. After reading the book The Idea of a University Defined and Illustrated: In Nine Discourses Delivered to the Catholics of Dublin (,  I felt some of the ideas deserved a wider audience especially given the debate about how higher education should be/education bubble etc. I tried to do justice to the main ideas but given it was written in old English and digressed a lot on the Church-University relationship, it may not be 100% faithful to the old text. 
  1. Teaching Focused:- University is a place of teaching universal knowledge. This implies that its object is diffusion and extension of knowledge rather than the advancement. If its object were scientific and philosophical discovery, I do not see why a University should have students..
  2.  Separate research and teaching:-To discover and to teach are distinct functions; they are also distinct gifts, and are not commonly found united in the same person. He, too, who spends his day in dispensing his existing knowledge to all comers is unlikely to have either leisure or energy to acquire new. The common sense of mankind has associated the search after truth with seclusion and quiet. The greatest thinkers have been too intent on their subject to admit of interruption; they have been men of absent minds and idosyncratic habits, and have, more or less, shunned the lecture room and the public school. Examples given are Pythagoras, Thales, Plato ,Aristotle ,Friar Bacon,Newton etc. There were  great examples the other way, perhaps Socrates, certainly Lord Bacon; still I think it must be allowed on the whole that, while teaching involves external engagements, the natural home for experiment and speculation is retirement. 
  3. The tendency for professional overeach/rent seeking Every professional man has rightly a zeal for his profession, and he would not do his duty towards it without that zeal. And that zeal soon becomes exclusive, or rather necessarily involves a sort of exclusiveness. A zealous professional man soon comes to think that his profession is all in all, and that the world would not go on without it. This collision, this desire on the part of every profession to be supreme,—this necessary, though reluctant, subordination of the one to the other,—is a process ever going on, ever acted out before our eyes. The civilian is in rivalry with the soldier, the soldier with the civilian. The diplomatist, the lawyer, the political economist, the merchant, each wishes to usurp the powers of the state, and to mould society upon the principles of his own pursuit.I remark, moreover, that these various usurpations are frequently made in perfectly good faith. There is no intention of encroachment on the part of the encroachers. 
  4. The danger of  too much liberal arts education:-Nothing is more common in an age like this, when books abound, than to fancy that the gratification of a love of reading is real study. Some have a taste for reading, but in whom it is little more than the result of mental restlessness and curiosity. Such minds cannot fix their gaze on one object for two seconds together; the very impulse which leads them to read at all, leads them to read on, and never to stay or hang over any one idea. The pleasurable excitement of reading what is new is their motive principle; and the imagination that they are doing something, and the boyish vanity which accompanies it, are their reward. Such youths often profess to like poetry, or to like history or biography; they are fond of lectures on certain of the physical sciences; or they may possibly have a real and true taste for natural history or other cognate subjects;—and so far they may be regarded with satisfaction; but on the other hand they profess that they do not like logic, they do not like algebra, they have no taste for mathematics; which only means that they do not like application, they do not like attention, they shrink from the effort and lab-our of thinking, and the process of true intellectual gymnastics. The consequence will be that, when they grow up, they may, if it so happen, be agreeable in conversation, they may be well informed in this or that department of knowledge, they may be what is called literary; but they will have no consistency, steadiness, or perseverance; they will not be able to make a telling speech, or to write a good letter, or to fling in debate a smart antagonist, unless so far as, now and then, mother-wit supplies a sudden capacity, which cannot be ordinarily counted on. They cannot state an argument or a question, or take a clear survey of a whole transaction, or give sensible and appropriate advice under difficulties, or do any of those things which inspire confidence and gain influence, which raise a man in life, and make him useful to his religion or his country. 
  5. Need to study theology:-When was the world without it? Have the systems of Atheism or Pantheism, as sciences, prevailed in the literature of nations, or received a formation or attained a completeness such as Monotheism? We find it in old Greece, and even in Rome, as well as in Judea and the East. We find it in popular literature, in philosophy, in poetry, as a positive and settled teaching, differing not at all in the appearance it presents, whether in Protestant England, or in schismatical Russia, or in the Mahometan populations, or in the Catholic Church. If ever there was a subject of thought, which had earned by prescription to be received among the studies of a University, and which could not be rejected except on the score of convicted imposture, as astrology or alchemy; if there be a science anywhere, which at least could claim not to be ignored, but to be entertained, and either distinctly accepted or  distinctly reprobated, or rather, which cannot be passed over in a scheme of universal instruction, without involving a positive denial of its truth, it is this ancient, this far-spreading philosophy.
  6. The need for active reading/learning We must carefully distinguish,  between the mere diversion of the mind and its real education. Supposing, for instance, I am tempted to go into some society which will do me harm, and supposing, instead, I fall asleep in my chair, and so let the time pass by. The opportune sleep has but removed the temptation for this once. It has not made me better; for I have not been shielded from temptation by any act of my own, but I was passive under an accident, for such I may call sleep. And so in like manner, if I hear a lecture indolently and passively, I cannot indeed be elsewhere while I am here hearing it,—but it produces no positive effect on my mind,—it does not tend to create any power in my breast capable of resisting temptation by its own vigour, should temptation come a second time. A man may hear a thousand lectures, and read a thousand volumes, and be at the end of the process very much where he was, as regards knowledge. Something more than merely admitting it in a negative way into the mind is necessary, if it is to remain there. It must not be passively received, but actually and actively entered into, embraced, mastered. The mind must go half-way to meet what comes to it from without. You have come, not merely to be taught, but to learn. You have come to exert your minds. You have come to make what you hear your own, by putting out your hand, as it were, to grasp it and appropriate it. 

Tuesday, December 13, 2011

Why we need border-less interdisciplinary thinking

In a speech at IIM Calcutta, Dr Mashlekar(ex DG, CSIR) made some interesting points that triggered some further thinking. While I reproduce those salient points below for the sake of brevity, I would suggest reading that entire speech in full there( His points were

  1.  Explosive advances in adjacent sciences are shaping up the future of core disciplines. New paradigms of “seamless sciences” and even “seamless engineering” are emerging. 
  2. We work and think in isolation. The examples are
    •  Mixing is a challenge in diverse disciplines. In the case of astrophysics, one is concerned about the mixing of the interior of stars. In mechanical engineering, it is combustion. In environmental sciences, we are concerned with mixing and dispersion in the atmosphere. Oceanography deals with mixing and dispersion in oceans. Chemical engineers are concerned with mixing in chemical reactors. Physiologists look at mixing in blood vessels. Bioengineers are interested in mixing & aeration in bioreactors. Geologists deal with mixing in the mantle of the earth. All these diverse mixing phenomena occur on diverse time and length scales, differing by several orders of magnitude. However, these disciplines rarely benefit from each other, and discovery & rediscovery of concepts and ideas is common place.
    • Scientists from different disciplines have turned to the study of the human mind.  These days one meets engineers who work on speech perception, biologists who investigate the mental representation of spatial relations, and physicists who want to understand consciousness. And, of course, psychologists continue to study perception, memory, thought and action. However, I have not seen a meeting of these computer scientists, linguists, neurophysiologists, anthropologists, engineers, and so on! Understanding of mind cannot be made possible without meeting of minds of all of them.
  3. We need to ensure that our mind moves through diverse disciplines in a borderless way. The ability to correlate and link the non-obvious can lead to major breakthroughs. In the management context, an example is creation of  flexible management structures by using the concepts of self-organisation in chemical and biological systems- van der Waals model of Management
Prof JR Varma made a similar point in his Mar-11 IIM Ahmedabad working paper on improving MBA(Finance) education, where he sought the integration of conventional investing theory with neurology, economic history and other relevant disciplines. 

And in fact, the oft-cited fact of 'MBA broadening one's horizons/perspectives' can be attributed to the exposure to cross disciplinary functions and hearing those diverse perspectives during class discussions. But these are incremental innovations so as to say. 

The biomimicry(adapting insights from Nature to create business models) is in its infancy in India, with a few salient exceptions like Prof Anil Gupta, who devised and named an entire organization inspired by the honeybee behaviour. And in the field of organizational dynamics, this has ample potential, given that there is ample debate today about the role of and purpose for existence of corporates.

How to ask better questions for an email interview

Recently, as part of my responsibilities of editing my club's finance magazine, I've had to write questions for sending to very busy people, who'll respond at their leisure. Now, that exercise is easier said that done. In a live interview, one can use the feedback to adjust the pace/nature of questions, or even improvise on the spot. But in a long distance interview, that is just not possible. You are stuck with the questions you sent. And godforbid, if they are cliched/very general/beyond the person's specialization, then the person may even decline to answer them. Therefore, the exercise is tricky and needs thought. Some pointers which I've found useful are
  1. Understand your theme:-This is quite obvious but in case you were not involved in the brain storming sessions which led to the theme/concept behind the publication, then get a clear understanding of it from someone involved, so that you do not deviate too much
  2. Understand WHY you asked that person/decide what you would like from him:-Some people are invited for their knowledge, others for their brands and yet others because they are easily available. Decide which category your interviewee is in, that will inform your other decisions.
  3. Google is your saviour:-One has NO excuse to remain ignorant about people in this digital era..
  4. But try not to duplicate content of publicly available data:-Remember you are not a reporter/friendly analyst just interested in filling space. Remember that you want good original content from that person. So try not to be too close to earlier interviews.
  5. People like answering about their passions:-Whether it be distressed debt, economic cycles, corporate governance etc, people are usually passionate about one or more work related aspects(assuming we can't ask about hobbies in a serious publication). Try to find that
  6. For academics, read their latest research/course outlines:-Academics's interests can be gauged by their research publications(remember these take months/years to create!) and by what they teach(assuming they have a fair level of choice/discretion in that). So questioning in those areas would probably produce a very good answer.
  7. For those in industry, read up on their company/sector: Remember the person is daily focusing on that sector/company and literally lives it. So asking related to that, would ensure instant recognition and act as warm up for next. The research would also supply context to explain many of the answers.
  8. Try asking open ended questions instead of those to which you know the answer:These are the most difficult questions but the most rewarding. Prefer 'what'/'why' over 'how'.
  9. Try to sequence the questions in a logical flow:-That makes it easier for the person to get a birdseyeview of the questions, and to structure the answers accordingly

Wednesday, December 7, 2011

Does it make sense to self publish on Kindle Store?

 Amazon has recently been making waves by signing up 150 authors in the last quarter, to write books on its platform. Naturally, the mainstream publishers are unhappy about Amazon's ambition to transition from retailer to publisher, but for the author, this represents wider choice. Now, even before Amazon entered, it offered authors a 70% royalty, with some caveats like $0.15/MB charge for electronic delivery, 30% IRS withholding tax, and 70% only on few areas(else 35% w/o the delivery fee)! So I can my own analysis of the 70% scheme, assuming sales are in the eligible countries at different list prices, and found that to get that $100 royalty check(threshold to issue check is $100), one needs to sell 74 books priced at $2.99. Considering that a print run of 10,000 copies is considered good for a book on which an author may get say Rs 20(max)=>$0.4/copy, those figures are quite good. Lets see if I use that platform someday as a test drive of my writing talent

Analysis of Amazon 70% royalty scheme          
List price($) 0.99 1.49 1.99 2.49 2.99
Royalty @ 70% 0.69 1.04 1.39 1.74 2.09
Data Cost @ $0.15/MB -0.15 -0.15 -0.15 -0.15 -0.15
Net From Amazon 0.54 0.89 1.24 1.59 1.94
Net After 30% witholding tax 0.38 0.63 0.87 1.12 1.36
Sell these many for $100 check 264 160 115 90 74
Net Realization to author(% of list price) 38% 42% 44% 45% 45%

Sunday, December 4, 2011

Tips on how to analyze economic time series data

Be it stock prices, index valuations, budgetary spending, deficits, exchange rates; virtually any significant economic data is analyzed using time series data. In these days of Excel 2007, it is a great temptation to just plug the numbers in, select a graph and use it for whatever purpose one wants. But such a simplistic approach would be doing an injustice to the analysis, and also would reduce the chance that the data is analyzed, understood and appreciated in the way it should be. So what to do? Based on my not insignificant experience of this, I add some guidelines below. I don't claim this to be an exhaustive list, and comments are welcome
  • Adjust for Inflation:-Specially for monetary values and interest rates, this is crucial. And sometimes it gives very interesting insights. For example, the real interest rates in India have been negative for quite some time, and that makes us appreciate why the RBI is chary about reducing it.
  • Try per capital/per unit numbers:-It allows for adjustments for population/volume growth, and yields interesting results. Thanks to its population, India lags behind on such data
  • Put the numbers in context:-Expressing as market share, budget share, relative data etc puts the numbers in context, like in per capita.
  • Use Indexing if possible:-That makes the growth trend easier to understand
  • Use secondary axis if useful:-For example, you want to show that FDI inflows fell when the exchange rate appreciated. Instead of using 2 graphs, you can use 'Plot on Secondary Axis' option in Excel, and plot them on the same graph
  • Try to cover an entire economic cycle:-Otherwise, the result may just be because we are in a boom or a burst. This is true especially for stock price/valuation data
  • More the better:-We often tend to forget history, and that is a reason why bubbles repeat, whether it be across countries or across time periods. Hence, a longer data set with more sources, helps to triangulate trends and have a broader perspective. 
  • But be careful of underlying structural changes:-With Excel 2007, one can use callout and other options to depict the reasons for inflection points. Use those with care where warranted. For example, the 1991 liberalization would have lead to inflection point in most Indian data.
  • Strike a balance between aggregates and subclasses:-Given the high Gini Index/Digital divide etc, one should be careful about what the data signifies for India as a whole. Often, the divide between states/castes/gender/urban-rural population parameters, would be large enough to vitiate any extrapolating of the conclusions. For example, India telecom boom should be read in the context of rural teledensity just being 32%(versus urban of 140% or so).
  • Focus on outcomes not just on spending:- Especially in case of data on spending, avoid the tendency to mistake spending for outcomes. Try matching the spending to the outcome(say education and pass rates, health spend and mortality rate/life expectancy). For share price data, that may mean investor participation, retail folios etc

Thursday, December 1, 2011

Prof Anil Gupta's ideas on pushing the frontier of education

I had blogged earlier about Prof Anil Gupta's innovative approach( As his electives on intellectual property and sustainable agriculture draw to and end, his approach is even more in evidence. For example
  • Crowdsourcing of exams:-He invited 3 questions from each student, stating that he may modify and ask these good questions in the exams. He said that since his purpose was to increase the learning(not to assign a letter grade), he would be more than happy 
  • Focus on learning by doing:-He gives higher grades for projects/reports which can be built into something rather than gather dust somewhere. For example, studying local waste management or making a small change locally, is valued highly by him.  
  • Building on ideas built earlier:-He lamented that there was no repository of projects, and that each batch may end up reinventing the wheel without making any institutional progress towards knowledge. And to counter the concern of copying, he said that peer pressure/fear of being called out in public would stop people from copying, and also ensure that the topics are reasonably original. Actually, this is quite an obvious idea, but not done so far anywhere. He suggests having it on the intranet, and later on the internet for all and sundry. 
  • Feedback on projects:-He uploads the project proposals on the blog, and gives credit for students giving useful projects on each other's projects.
  • Student presentations given importance to:Despite his huge intellectual stature, he pays deep attention to student presentations and is free with compliments and suggestions. And to ensure that others pay attention to that, he sets questions based on the class presentations etc. 
  • No attendance sheet:-This is rare, but his logic seems(he has not explained it explicitly) is that since the outputs are graded(report, presentation), monitoring inputs are not that essential.