Term 4

The last of our core terms has started yesterday. This term promises to be completely action packed.

This term is one week shorter than our usual terms. Additionally we have a host of interesting activities scheduled to take place during the term. There is a session conducted by McKinsey on Structured Problem Solving. Many international names are expected to come to campus during this term and address the student body. I just came back from a session conducted by Credit Suisse (This was scheduled at 7 AM, because that's the only time they can catch the batch as a whole.... Around 125 students attended). Citibank will also be interviewing candidates for their scholarship program this term. We have the flagship event of the Real Estate club too in this term. It brings together some top academia and professionals to deliberate on the topic "Indian Real Estate Scenario".

This apart we have a lot of club activities planned for during the term. Investment banking workshops, CV preparation sessions, case preparation sessions and a crash course on options and futures. We also need to get started on our interview preparations in case we are targeting any of the international names which might be visiting the campus late October. To top it all I am doing an ELP (Experiential Learning Program) for a private equity firm and undertaking an independent study on the IPO markets.

Today is September 4th and our end term exams commences on October 4th. Exactly a month away. And yes..... we have to study too..

Should I or should I not?

One of the favorite questions of many prospective applicants to ISB is “My GMAT score is ____ (around 600), should I apply to ISB with this score?” And the most popular reply for this question is “ISB evaluates the application as an overall package and GMAT score is only one of the ingredients, hence you can apply to ISB”. Nine out of ten people you meet will give the above answer.

I beg to differ on this issue. Actually the way this question is framed is itself self-defeating. When you ask this question to someone you are mentally not prepared to take ‘no’ for an answer and the person who answers this question has no incentive to give you a honest reply (at the risk of not offending you) and hence the obvious choice is, why not take a chance and apply?

My own perspective on this issue is that you and you alone can answer this question honestly. Nobody else. While thinking about this question, please do consider the following aspects:

1. ISB is a very academically demanding course. In a short span of about 50 weeks you would be taking around 32 courses, 60 exams, 200 assignments, amidst attending on an average about 50-60 guest lectures, taking up some independent studies, experiential learning projects, planning an entrepreneurial venture, consulting assignments, b-plan and b-school competitions, professional club activities, networking, placement preparations and attending atleast about 50 parties.

2. ISB follows a relative grading system. Hence your own grade in a course depends on the person who scores best. In a typical ISB batch you will always find student experts in every field. There will always be economics majors, finance experts, quant jockeys, IT veterans, and some people for whom statistics is a hobby (I really find this one very hard to digest). My own batch represents people from over 25 sectors. In a world of relative grading remember that you are competing against these best brains for your own grades.

In the light of the above two points it should be quite evident that ISB is not for the weak hearted. To get into ISB is only a means of achieving something else in life. It is not an end in itself.

Hence to survive in this competitive environment, notwithstanding your other achievements, academic excellence is crucial. It is hence very important for you to ask the question “Is my GMAT score a real reflection of my academic performance?” It may sometime happen that your GMAT score doesn’t truly reflect your abilities. In these cases where you believe that your potential is far higher and that your low GMAT score is only an aberration, either retake the GMAT or please go ahead and apply to ISB by all means. But if you believe that your low score is fairly reflective of your academic performance (be honest), refrain from applying to ISB blindly (notwithstanding what others might say). Concentrate first on fixing this issue and then apply to ISB. Otherwise you might end up giving up more than what you can ever hope to recoup.

P.S: The views expressed here are purely personal. I am sure even amongst the current/ past ISB students, there would be a 1000 other differing views. So be it. That’s what makes life interesting.

Sinister Subsidies

I attended an excellent presentation on WTO conducted by Mr. Shishir Priyadarshi, former officer of the IAS and presently a Director in WTO. He presented us some very interesting perspectives.

For all the hype about India being over protectionist in the WTO negotiations, consider the following facts:

India's agriculture subsidies averages about 4% of the value of the agriculture goods produced. The comparable percentages for US, EC and Japan ranges about 80%.

US provided agriculture subsidies worth $ 22 Bn last year. 90% of this amount went to 10% of the farmers in US (Because subsidies are given based on the land holdings. Hence, obviously these subsidies reached the richest of the US farmers. It should be noted here that rich farmers in US are a powerful lobby and they contributed about $ 11.5 million during last election towards campaign contributions).

In UK the largest recipient of the agriculture subsidies is THE QUEEN

In Switzerland, a farmer gets an average $ 1600 per year for every cow he owns. (Incidentally, this is more than the per capita income of two thirds of the nations in the world)

In Norway, farmers get subsidies for the hedges they maintain in the rural areas (Optical soothing)

The import tariffs for rice is Japan is more than 1000%.

In Rajnikanth style.... the rich get richer and the poor get poorer...

Ithaka

Today, our entrepreneurship professor ended his class by citing this poem. Its a poem about a man who sets upon a long journey towards his island home - Ithaka.

In a subtler sense each of us are on our journeys to find our own homes (treasures) - wealth, fame, happiness, position, power.. The point is to realize that we get rich not by arriving at Ithaka, but by undertaking the journey to reach Ithaka..

Am reproducing a few lines of this poem below..

"Keep Ithaka always in your mind. Arriving there is what you're destined for. But don't hurry the journey at all. Better if it lasts for years, so you're old by the time you reach the island, wealthy with all you've gained on the way, not expecting Ithaka to make you rich.

Ithaka gave you the marvelous journey. Without her you wouldn't have set out. She has nothing left to give you now.

And if you find her poor, Ithaka won't have fooled you. Wise as you will have become, so full of experience, you'll have understood by then what these Ithakas mean. "

You can read the full poem at
"http://homepage.newschool.edu/~wrightd/cavafy-ithaka.html"

Chasing the horizon

As a part of the Independence day celebrations we had an event titled "Bandhan" at ISB. This event basically brought together many children from various NGOs in Hyderabad to ISB. Most of these children are specially-abled. During the first part of the event we (the students) had organized various fun events for these children to make them feel special. The second part of the event was these children's turn.

One event which deeply touched me was a dance program by a group of 6 boys. They were dancing to the beats of a popular fast tune and It was exceptional. The coordination was supreme. Though it was a group dance, within that limited time frame of about five minutes, each of the boys had a specific time slot to showcase their individual talent as well, when they danced solo.

As the dance came to a close, we heard an announcement on the stage that these boys who just performed are actually visually challenged. I just could not believe this when i heard it. There were a thousand questions which arose in my mind... How could someone coach them? How could these people visualize something they have never seen and implement it with perfection? How could they achieve that coordination? What could these people have achieved had they been gifted with a sight like ours?

I do not know the answers... i may never know. But John Milton's quote clearly flashed in front of my eyes "The mind can make a heaven out of hell or a hell out of heaven".

All limitations are perceived horizons. The secret is that the mind is limitless, and that we truly have no limits except those that we have accepted as real. David Cameron puts it nicely when he says "It is all just a horizon, and no matter how much you chase the horizon, you will never fall off the end of the earth. So chase it!"

Class Participation

Almost every ISB student writes about this phenomenon in his blog. Its now my turn.

As part of the ISB grading system, student participation in class discussions carries marks and affects the final grade. The weightage varies from subject to subject. This system has been kept in place to ensure that the students come adequately prepared for class and also benefit from the views and experience of peers in the class. However, what actually translates is quite different. People in their enthusiasm to score some CP points make all sorts of comments. I have thus classified people into the following nine categories.

1. Commonsensical Point: This league of extraordinary gentlemen camouflage mere commonsensical points into brilliant works of art. They tend to take even rhetorical questions very seriously and carefully enlist their response

2. CraP: This group's only aim is to make sure that their voice is heard in the class. It is not of much relevance to them to think, if it makes sense..

3. CoPied: Brilliant imitators. Borrow ideas from others, but not words. Shrewd listeners who will be quick to borrow an idea, para phrase/ re-phrase/ cut/ edit/ add but essentially maintain the chastity of the soul and give out the same point..

4. Continuous Pain: Intellectual masturbaters. Their sole aim is display their knowledge. The problem is, they dont bother if it is relevant in the current context.

5. Crossed Past: They dont have any genuine point, nor can they display their knowledge (or the lack of it), but still they have a tremendous desire to participate in the class. So they end up asking questions which the professor has just answered. They however try to mask their intentions by keeping a seriously concentrated face which reads "genuine doubt". Fall not into this trap, for less than 10% of this group is genuinely interested in hearing the answer to the question, for the rest "asking the question" is an end in itself..

6. Chronically Pointless: They dont mind taking a ridiculous stance, questioning fundamental concepts or even making up impossible hypothetical situations, as long as it promises some "airtime" in the class

7. Calling Professor: They miss their chances to grab the professor's attention to make their point. So, when their impatience reaches a peak and they become desperate to make their presence felt, they call out the professor and camouflage their comments as questions/ doubts

8. Curtain Puller: Take a peek at the next slide and base your question/ comment on them and try to pass them off as intelligent remarks

9. Class Participant: It is this small but sensible proportion of the population that actually understands the true spirit of CP and genuinely tries to contribute towards the learning and development of the entire class...

The boy who lived

This is one of the greatest business phenomenon of our times. For those "muggles" who still couldn't make meaning of the title, i am talking about Harry Potter. Consider the numbers... More than 325 million copies of the first 6 books of this series is sold world over. The seventh installment, which was released last month in more than 93 countries, sold 11 million copies within the first 24 hours of its release.The books have been translated in about 65 languages and is distributed in 200 countries. The five movies released till date have grossed more than $ 4 billion.

I read a nice article which summarized the reasons for the grand success of this series. The article traces five basic reasons for its success - 1. Its not just a children's story, it crosses several boundaries and appeals to the interests of numerous categories of people. 2. JK Rowling's exceptional writing 3. It has chosen a subject which is universally alluring 4. It brings to life all our fantasies, everything we always wanted to be, but never can be.. 5. Its social relevance..

JK Rowling's present networth is estimated to be more than $ 1 billion. Not bad for someone who was unemployed and living on State benefits, when she completed her first book.

What fascinates me the most is the way it all started. Rowling says "It all began on a train ride in which the whole idea just dropped in my head. Harry, as a character, came fully formed as did the idea for the entire plot".

I call this a gift of god...

Ultra Super Hyper Salesmen

I have many times thought about "What constitutes an effective sales call?". And the answer is pretty obvious.. "The Sales".. If a sales call cannot be converted into sales then it is useless. Now comes the more difficult part. In a world where time is increasingly becoming more precious, and where people are willing to shell out large sums of money (Eg..fast food, home deliveries, Internet banking, air travel etc..) to maximize their Return On Time Invested (ROTI, as one of my previous bosses used to say), the effectiveness of a sales call cannot be overemphasized.

The attention span of customers is becoming increasingly shorter. Which means the time available for you to convince your client and make a sale is increasingly becoming small. It is hence very very important to deliver your best in each second that you spend with your client. People who are best at this are called Ultra-Super-Hyper Salesmen (A term i have coined :-)

I know of at least one group of people who are best at this - The beggars who stand in traffic signals. Imagine their plight. Their maximum window of opportunity is about 45-60 seconds. They have to cater to multiple clients within this time frame. No office, no air conditioning, no mobile, no handouts to help them in their sale, not even a chair to sit and many times an empty stomach too...

But they cannot afford to take no for an answer, because for them no sale means no food. They try to understand their customer's psychology and use every weapon in their armour to convert each of their interaction into a sale. Within the first few seconds they assess what sort of a customer you are, and then they come out specific techniques to cater to each of these types. And with my limited experience, i must say that their conversion ratios are at least more than 75%, if not higher. A pretty impressive feat, given the constraints...

I salute these Ultra-Super-Hyper Salesmen and hope to learn some transferable techniques...

P.S: This analysis is purely from a sales process point of view. I request readers to take it in the same spirit and not bring social issues into the picture.

Pursuit of leadership

Today, one of our professors gave a very interesting definition of business leadership... It goes as follows: "All business leadership is about chasing perpetually changing perpetually vanishing arbitrage opportunities".. I liked this definition of business leadership because this brings many other things to perspective.

First of all this connotes that business leadership is a journey and not a destination. To be on the top of the ladder requires one to continually seek newer and emerging opportunities. To understand emerging trends and opportunities, while it is necessary to have a bird's eye view of the entire landscape, it is not sufficient. You should also have your feet on the ground to feel the pulse of the market. Possessing only one of these attributes may lead us to either taking a myopic view of opportunities or in just missing out the details.

Secondly, every opportunity vanishes or runs out of steam some day. We necessarily don't need to take a very long term view of opportunities to profit from them. Every opportunity needs to be evaluated as an investment and this means weighing cost vs. benefit. We should be indifferent while weighing short and long term opportunities, if the ratios of cost versus benefit are the same.

Some people may not necessarily subscribe to this view of placing short term opportunities on an equal footing with long term opportunities. Fair enough. But what is long term? Remember what Keynes said "In the long run we are all dead"...

The 'dabba' market

The grey market or the “dabba” market, as it is popularly called is fascinating. As a company announces its IPO (book-building) dates, players in the grey market try to put a price on the shares of the company. They try to speculate market response, size of the issue and fix a premium on the shares.

This market is interesting for many reasons. It’s illegal – plain and simple. However, speculators and investors have been doing it for a long time. The grey market premiums themselves are quoted in almost every financial daily and broking firms, worth their salt. Many times these markets also decide the fate of listing gains.

There are many other interesting facets to this market... How do these dabba operators ensure actual delivery right under the nose of the regulator? Many time unscrupulous promoters use this market to fool gullible investors.. And sometimes this market is also used to infuse liquidity into the secondary market...

If you come across any article or news which is related to this, please let me know... i am undertaking some academic stuff on this...

The black swan strategy

I recently read a few articles on this subject and found it extremely interesting..

Nassim Nicholas Taleb has built his career based on the theory of unexpected rare events. Taleb calls himself a "skeptical empiricist", and believes that people generally overestimate the value of rational explanations of past data, and underestimate the prevalence of unexplainable randomness in that data. Simply put, he says that "No amount of observations of white swans can allow the inference that all swans are white, but the observation of a single black swan is sufficient to refute that conclusion."

His company Empirica follows a particular investment strategy - It trades options, i.e it deals not in stocks and bonds but with bets on stocks and bonds. It takes very small bets from people on an unlikely event. For example, if a stock has lets say never dropped below 10% in a particular month, it takes a bet from you for a very small amount (lets say 1 cent) that the stock will indeed drop by 10% or more in this month. You don't mind this bet, because this event has never happened in the past. However, the company buys millions of such options from various people. If as expected the event doesn't happen then the company loses. But remember, its loses are pre-determined and small. However, if indeed the event does happen, the company rakes in millions of dollars.

Empirica makes its money when there is an exceptional day in the market. Something new or different happens and the unexpected unfolds. Under such circumstances, which were probably all but impossible to predict, Empirica will be able to exercise its options and reap a healthy profit. Huge gains will make up for the numerous days of small loses.

Venture Capitalists use this at all times. They invest in tons of “white swans,” lose a little bit all the time on those investments, and be poised for the singular “black swan” whose returns swamp all of those losses.

In search of mediocrity

In a world where perfection is expected and excellence is tolerated, this search for mediocrity may seem quite counter intuitive..

One of our professors made us think on the merit of this advice. Many many individuals and companies are making millions by following this strategy of chasing medocrity and not excellence. How could this be done...

The new mantra for very many PE firms now is Invest-Turnaround-Harvest. They don't look for excellent companies for investing, instead they look out for poorly managed companies and use basic management principles and common sense to turnaround these companies to average performing companies and sell them at a much higher valuation.

Take the case of some individuals. A new breed of high performing operating executives are being hired as turnaround experts. These guys are not liquidation managers, they instead repair and build back poorly managed companies. Michael Capellas, who has made serial job hopping a career, is a case in point.

As head of Compaq Computer, Capellas led a turnaround and a sale to Hewlett-Packard before leaving the company in 2002. Capellas then took over MCI while the company was in bankruptcy and eventually sold it to Verizon. He has collected large paychecks along with way and is estimated to have taken home a total of more than $57 million in change-in-control payouts from Compaq, Hewlett-Packard and MCI. He was an adviser for Silver Lake Partners, a buyout firm that specializes in technology and from there on he moved as head of Serena Software, one of Silver Lake's portfolio companies. Now, Capellas is taking over as chief of First Data Corp., the payment-processing giant acquired by the private equity firm KKR in April for $25.6 billion. This will be his fourth technology company in eight years. With an ownership stake in First Data, he could take home millions more.


Convinced? If not, let time heal you..

Pumpkins and mice

With the bulls raging at Dalal Street and Sensex within a kissing distance from the giddy height of 16000, i want to reproduce one of the classic gems from Warren Buffet...

Buffet says that "The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money."

After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. These sensible investors know the cost of overstaying the festivities -- that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future -- will eventually bring on pumpkins and mice.

But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There's a problem, though: They are dancing in a room in which the clocks have no hands...

India Shining

I took this picture on my journey to Chennai during the term break. This was inside an Air Deccan flight...

....and I think this picture pretty much summarizes the India shining growth story...

The Wealth Maxi"MISERS", The woodcutters and the wise men

When you meet people and say that u r doing a PGP programme from ISB, you typically evoke some response from them. I am in Chennai on my term break and met many of friends and past colleagues. And I have tried to frame their responses under three categories - The Wealth Maxi"MISERS", The woodcutters and the wise men

The wealth maxi"misers"
This group's first question is how much does it cost to an MBA from ISB? When i tell them that its about Rs. 14 lakhs (Food and acco extra). They are then dumbfounded and ask me the same question again just to recheck if they heard me right. They then respond back saying that, It is so costly, it does'nt make to sense to spend that much money to study.

What is costly? Is a reliance stock priced at around Rs. 1900 about 400 times more costlier than Pentamedia Graphics stock which is priced at about Rs. 5? The mathematical answer to this question is a simple YES. But that's not an answer you expect from good investment analyst. Comparing two things purely based on their absolute prices is not just useless but quite dangerous. If ISB does make sense in your career and if you take ISB as an investment and undertake an effort to calculate the NPV by a discounted cash flow method and compare it with the NPV of your career without it, am sure your investment will more than be justified.

But i know that these people cannot be convinced as they generally don't hear what they don't like to hear. So, when i meet up with these people i just smile :-)

The woodcutters:
This group's reaction is "Why did u leave the job to go and study?" Leaving a job at this stage is foolish. When i meet up with them i am reminded of the woodcutter's story. Some woodcutters never waste anytime and keep cutting trees without checking if their axe is sharp enough. Sharpening the axe tantamount to wasting time and these woodcutters hence doesn't indulge in this activity.

My reaction when i meet up with these people is "I am sharpening my axe". I don't claim that ISB is the only place where you can sharpen your axe. To me i believe that ISB will help me sharpen my axe. Every person needs to decide what will sharpen their axes..

The Wise men:
It is this small percentage of the population that typically understands the value of a quality education and the greatness of ISB. When i meet up with this group, i am at home and reason out bigger things.

And what a term it was....

Our term 2 just got over. When some seniors suggested that term 2 and term 3 would be the toughest part of ISB life , i did not realize what they actually meant. But now that the term is over i fully subscribe to their view..

Of the four subjects we had in term 2, u cant prepare (in the traditional sense) for three of them. Apart from these, we had loads of stuff to do in terms of assignments, pre reads, decision submissions, case analysis, self studies and the club activities which had kicked started in this term.

I am a active member in two clubs - consulting and finance. I hold a position in the finance club as Director, Corporate Banking. These professional clubs are student initiatives and is an important aspect of ISB culture. They provide a platform to interact with alumni and professionals in the field and helps us explore career opportunities. We had three very good presentations in the consulting club during the term - by Deloitte, Mc Kinsey and BCG.
Consulting is one of the fanciest word in a B-school. Most of us(me included) are tempted by the intellectual kick, the moolah and the fast career path that a consulting job promises to offer. Hence there was an excellent turnout for all these presentations. We had also started off the internal speaker series sessions for the finance club, wherein the directors of each vertical in the club made presentations about basic stuff in their respective fields.


Overall term 2 just zoomed past.. In the hindsight i think i had learnt a lot of new things in this term. I had to deal with some of my weakest areas and now i can safely say that, while the journey was tough the results are worth it... As someone said "One can't become a butterfly by remaining a caterpillar"...

Kelly Criterion

Came across this concept while preparing for my exams and found it very interesting. This is basically a rule which helps us decide how much of our wealth we ought to bet in a situation, in which we have a percentage advantage.

Simply put this formula says that the optimum fraction for the bet is "Edge over odds". That is bet a fraction your bankrole (wealth) equal to the advantage you have when compared to a fairgame. If you have a 52% chance of winning a fairgame, your edge is 2% (52%-50%) and your odds is 52%. Hence the optimal fraction that maximises the expected growth of the intial wealth is 2%/52% or 3.85%

Whats more intersting is that the way this formula was developed. This was originally developed by John Kelly (AT & T Labs) based on the work of his colleague (Claude Shannon) who had originally developed an application for dealing with noise issues arising over long distance telephone lines. Kelly then showed how Shannon's "information theory" could be applied to the problem of a gambler who has inside information about a horse race, trying to determine the optimum bet size. The gambler's inside information need not be perfect (noise-free) in order for him to exploit his edge.

This application now finds wide application in gambling, statistical logic, blackjack and in stock markets.

The broken window fallacy

I came across this concept as a part of our Macroeconomics course. I found this one quite interesting as it helps us weigh economic arguments... The parable is as follows:

A little boy breaks a shopkeeper's window. Everyone sympathizes with the man whose window was broken, but pretty soon they start to suggest that the broken window makes work for the repairman, who will then buy bread, benefiting the baker, who will then buy shoes, benefiting the cobbler, etc. Finally, the onlookers conclude that the little boy was not guilty of vandalism; instead he was a public benefactor, creating economic benefits for everyone in town.

The fallacy in the argument is, had the shopkeeper not spent his money on repairing his window, he would have spent it on the new suit he was saving to buy. The broken window didn't create net new spending, it just diverted spending from somewhere else.

People see the activity that takes place but they don't see the activity that would have taken place.

Most of us claim that we are extremely busy and that we do not find time for anything. Taking this logic forward, it would do good if we pause and ask ourselves, are we "productive" or just plain "busy"?

Nonsense

I recently came across an article published by BCG on this topic. Its fascinating. A few perspectives i enjoyed from the articles are:

The importance of nonsense can hardly be overstated. The more clearly we experience something as "nonsense", the more clearly we are experiencing the boundaries of our own self-imposed cognitive structures. "Nonsense" is that which does not fit into the prearranged patterns which we have superimposed on reality. There is no such thing as "nonsense" apart from a judgmental intellect which calls it that.

Those who establish the established lines of thought, however, are those who do not fear to venture boldly into nonsense, into that which any fool could have told them is clearly not so. This is the mark of the creative mind; in fact, this is the creative process. It is characterized by a steadfast confidence that there exists a point of view from which the "nonsense" is not nonsense at all - in fact, from which it is obvious.

Drinking water from a hosepipe

An one year MBA programme is really like drinking water from a hosepipe. That too doing the programme from a school of the stature of ISB brings with it a lot of challenges..

We get the best of the professors and are exposed to the latest in management thinking. To get the best out of this requires lot of effort, commitment, intellectual curiosity and guts. Some people get overwhelmed by this information overload and stop learning. Some others are so much caught up in the details that they just forget the big picture and miss the woods for the trees.

In my view i think a balanced approach to this would do a lot of good. Everything that is taught need not be in our area of interest. But it is important to know that such things do exist. Even a mere knowledge that something exists will help us become better managers than not knowing at all. Moreover as future leaders of organizations we can always hire specific talent for a functional role, but we may not be in a position to get the best out of others if we are ourselves unaware of the possibilities.

My two cents for all the future MBA aspirants, think a few hundred times why you need to do an MBA? Don't do it unless you get a clear and a compelling reason. Because its this clarity that will help you cruise through this course. It is this clarity which will give you the special power to drink water from a hosepipe and enjoy it too..