It is very interesting to watch the various theories people come out to justify equity valuations. We are really ingenious in coming out with creative concepts to understand crazy valuations to mentally calm ourselves and make sense of the madness..
We started with Par values and then slowly moved on to the concept of premiums, wherein we were willing to pay something higher today considering the possibility that the stock price might soon catch up. Then some analyst came and taught us the concept of P/E ratios when we graduated from the world of additions (premiums) to the world of multiples (P/Es). When it became difficult for us to justify the stock prices even according to this concept of PE, we then went one more step ahead.
We broke down PE into trailing PEs and Forward PEs and calmed ourselves saying that a forward PE after all makes more sense. However, at today's Sensex levels even the forward PE is not in a position to justify valuations. But I read an article today which seems to have an answer. The article makes a convincing argument for coming out with a new measure - Market Cap to GDP.
The crux of the article is - Market cap of a company represents a public consensus on the value of a company and GDP is the sum of value added at every stage of production of all final goods and services produced in a country by both listed and unlisted entities. Market cap and GDP of a country together form a positive relation to determine the growth potential of the economy. The article thus concludes that India's Market Cap to GDP is as of now just 0.99 as compared to other countries like Singapore (2.65), UK (1.6), US (1.35) and China (1.10). It thus represents that India is significantly undervalued even at present levels.
There is a theory in marketing which states that once consumers have purchased a certain good/ service, they then look for reasons to justify their purchase behaviour. To me these things appear to exactly satisfy this concept. I dont know what measures will these guys come up in future to still justify that we are undervalued. Let me make their life simpler by suggesting a few things...
1. Earning Potential Vs. Market Cap - India's working population and their potential PPP adjusted average wages scaled up to developed economies compared with the market capitalization
2. Population to market cap - Assuming that the per capita market cap in US is XXXX, in India it should be atleast 3.5XXXX because we beat them black and blue as far as population is concerned.
3. Employees to Market cap - A US company produces so much revenues with X amount of employees. In India, we produce the same amount with 3X employees. So our market cap should be atleast 3x times that of US.
Dont laugh at these. The gravity defying Sensex might actually make all these ratios come true pretty soon.
Wednesday, October 24, 2007
Friday, October 19, 2007
The fever begins
The elective terms have started... ISB is very different these days. During the core terms there was a common thread running through all the students. All of us had the same profs, assignments, tests, exams, groups, sections... All that has changed in a single sweeping moment. Each of us now have different schedules, different profs, multiple sections, different tests... But its good fun. From this term on, we dont need to take subjects which we dont like. We even have freedom to choose the pedagogy (to a limited extent). So most of us dont complain these days.
On the other side the action is even getting better. The placement fever is slowly catching up. International companies have started flowing in. The scene as of now looks bright and sunny. Every ISB student nowadays carries his resume on a A4 sheet. Trespassers would be severely punished and asked to review his/ her resume. Almost four times a week we have one company or the other coming to ISB for an official pre-placement talk. At the end of every talk atleast 75% of the students mentally make a note that this is the company they want to join in. The other 25% would have already made that decision before the talk began.
This apart we also have the flagship events of various clubs lined up. The flagship events of the Real Estate and the Pharma club just got over. The events of the Marketing, Net Impact and the Finance clubs are scheduled for the near future.
Finally, almost every student is busy participating in the countless B-school competitions which come our way. We can do anything. We can write research papers, design mutual funds, make a marketing plan for an MNC for a multi continent launch, answer 100 questions in 30 minutes, advice a multi billion dollar company for an India entry strategy, study emerging trends in technology, advice leading CEOs what should be their next steps, write business plans.... anything.
Anything for just another bullet point in our resume to differentiate ourselves from 425 other most sought after b-school grads...
On the other side the action is even getting better. The placement fever is slowly catching up. International companies have started flowing in. The scene as of now looks bright and sunny. Every ISB student nowadays carries his resume on a A4 sheet. Trespassers would be severely punished and asked to review his/ her resume. Almost four times a week we have one company or the other coming to ISB for an official pre-placement talk. At the end of every talk atleast 75% of the students mentally make a note that this is the company they want to join in. The other 25% would have already made that decision before the talk began.
This apart we also have the flagship events of various clubs lined up. The flagship events of the Real Estate and the Pharma club just got over. The events of the Marketing, Net Impact and the Finance clubs are scheduled for the near future.
Finally, almost every student is busy participating in the countless B-school competitions which come our way. We can do anything. We can write research papers, design mutual funds, make a marketing plan for an MNC for a multi continent launch, answer 100 questions in 30 minutes, advice a multi billion dollar company for an India entry strategy, study emerging trends in technology, advice leading CEOs what should be their next steps, write business plans.... anything.
Anything for just another bullet point in our resume to differentiate ourselves from 425 other most sought after b-school grads...
Monday, October 15, 2007
Farmers of ISB
Our life at ISB closely resembles that of an Indian farmer...
1. If there is a bumper harvest, a typical Indian farmer doesn't rejoice. Instead he is sad (he gets a much lesser price). Same thing here. If an exam is easy, we feel sad, because its all relative grading. An easy exam means the class average is going to be sky high, hence even a small slippage costs us dearly.
2. If there is a draught a farmer doesn't cry if his relative misfortune is lesser. If the exam is really tough, there is a silent smile which crosses our lips.
3. The land bank owned by the farmers put together in India is huge, but we are plagued with productivity problems because of fragmented land holdings. Same stuff here... the relative knowledge we hold amongst ourselves is huge, but we are afraid to share it with others/ dont find the right incentives to share it with others. So, while we are collectively rich, many a times we are individually poor.
4. An Indian farmer knows that he might not be able to service the loan he takes, yet he takes it and enters the classic debt trap. Here too, we know that if we are not regular with our studies we will find it extremely difficult. But still, that never translates into action, despite such commitments and resolutions being made at the beginning of every term. Both of us never learn..
5. A typical Indian farmer's farming strategy can be summarized in one word - "HOPE". He has no control over the rain, wind, climate, soil conditions, expected market prices, expected costs in future in terms of transport, storage, interest rates etc.... Still he goes and farms every year with the hope that he will somehow make a profit. Again its the same story here... We almost have no clue/ control on the number of things that might affect our grade, yet we start each term with a noble intention. Most often we do not know whats hitting us and from which direction? Homeworks, Assignments, cases, class participation, mid term, end term, presentation, group projects... Yet we feed on HOPE..
Contrary to what you might expect at the end of such a pessimistic post, right now it is raining in my farm land. It is this rain, which really forced me to think, do i deserve this rain? But then i neither deserved the draught earlier....
I have decided to get drenched while i can.
1. If there is a bumper harvest, a typical Indian farmer doesn't rejoice. Instead he is sad (he gets a much lesser price). Same thing here. If an exam is easy, we feel sad, because its all relative grading. An easy exam means the class average is going to be sky high, hence even a small slippage costs us dearly.
2. If there is a draught a farmer doesn't cry if his relative misfortune is lesser. If the exam is really tough, there is a silent smile which crosses our lips.
3. The land bank owned by the farmers put together in India is huge, but we are plagued with productivity problems because of fragmented land holdings. Same stuff here... the relative knowledge we hold amongst ourselves is huge, but we are afraid to share it with others/ dont find the right incentives to share it with others. So, while we are collectively rich, many a times we are individually poor.
4. An Indian farmer knows that he might not be able to service the loan he takes, yet he takes it and enters the classic debt trap. Here too, we know that if we are not regular with our studies we will find it extremely difficult. But still, that never translates into action, despite such commitments and resolutions being made at the beginning of every term. Both of us never learn..
5. A typical Indian farmer's farming strategy can be summarized in one word - "HOPE". He has no control over the rain, wind, climate, soil conditions, expected market prices, expected costs in future in terms of transport, storage, interest rates etc.... Still he goes and farms every year with the hope that he will somehow make a profit. Again its the same story here... We almost have no clue/ control on the number of things that might affect our grade, yet we start each term with a noble intention. Most often we do not know whats hitting us and from which direction? Homeworks, Assignments, cases, class participation, mid term, end term, presentation, group projects... Yet we feed on HOPE..
Contrary to what you might expect at the end of such a pessimistic post, right now it is raining in my farm land. It is this rain, which really forced me to think, do i deserve this rain? But then i neither deserved the draught earlier....
I have decided to get drenched while i can.
Friday, October 12, 2007
Pehla Nasha...
It was somewhere about an year back that i first saw her. She was sitting like an angel amidst countless earthly beings. It was love at first sight for me. There was something inside me which said that we were made for each other.
Overcoming my initial trepidations and with an anxious heart, i slowly proceeded towards her. She was openly flaunting her looks and men of all statures were gaping. Our first interaction was not so pleasant. I thought she acted pricey and arrogant. Anyways I had already lost my heart and decided to go against what my rational mind was screaming from inside and accepted her. My life was never the same again.
I am at times very demanding and if someone doesn't meet my expectations, i lose interest very fast. But not once had she ever let me down. There were times in which she had cooperated with me throughout the day and the night. She has donned various roles to please me. She has given me the best of the news and she had stayed with me right through when things did not seem so pleasant. She had sang for me, showed me the worlds which i never knew existed, had entertained me when i was bored of life and had revealed her secrets to me. Many a times, i had woken her up at all unearthly hours, but not once had she ever complained. I am not sure if my life at ISB would have ever been the same without her.
But she is getting older by the day... her once beautiful body has today lost its sheen and is marred by scratches, her battery life is running down.... My sweet HP Laptop
Overcoming my initial trepidations and with an anxious heart, i slowly proceeded towards her. She was openly flaunting her looks and men of all statures were gaping. Our first interaction was not so pleasant. I thought she acted pricey and arrogant. Anyways I had already lost my heart and decided to go against what my rational mind was screaming from inside and accepted her. My life was never the same again.
I am at times very demanding and if someone doesn't meet my expectations, i lose interest very fast. But not once had she ever let me down. There were times in which she had cooperated with me throughout the day and the night. She has donned various roles to please me. She has given me the best of the news and she had stayed with me right through when things did not seem so pleasant. She had sang for me, showed me the worlds which i never knew existed, had entertained me when i was bored of life and had revealed her secrets to me. Many a times, i had woken her up at all unearthly hours, but not once had she ever complained. I am not sure if my life at ISB would have ever been the same without her.
But she is getting older by the day... her once beautiful body has today lost its sheen and is marred by scratches, her battery life is running down.... My sweet HP Laptop
Monday, October 1, 2007
Buffett and the Beast
Some of the best quotes of the man who tamed the beast (read markets...)
1. It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.
2. Wide diversification is only required when investors do not understand what they are doing.
3. Only when the tide goes out do you discover who's been swimming naked
4. Chains of habit are too light to be felt until they are too heavy to be broken
5. If past history was all there was to the game, the richest people would be librarians
6. When a management team with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.
7. In the business world, the rearview mirror is always clearer than the windshield
8. Our future rates of gain will fall far short of those achieved in the past. Berkshire's capital base is now simply too large to allow us to earn truly outsized returns. If you believe otherwise, you should consider a career in sales but avoid one in mathematics (In his letter to the shareholders)
9. Price is what you pay. Value is what you get.
10. In a bull market, one must avoid the error of the preening duck that quacks boastfully after a torrential rainstorm, thinking that its paddling skills have caused it to rise in the world.
1. It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.
2. Wide diversification is only required when investors do not understand what they are doing.
3. Only when the tide goes out do you discover who's been swimming naked
4. Chains of habit are too light to be felt until they are too heavy to be broken
5. If past history was all there was to the game, the richest people would be librarians
6. When a management team with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.
7. In the business world, the rearview mirror is always clearer than the windshield
8. Our future rates of gain will fall far short of those achieved in the past. Berkshire's capital base is now simply too large to allow us to earn truly outsized returns. If you believe otherwise, you should consider a career in sales but avoid one in mathematics (In his letter to the shareholders)
9. Price is what you pay. Value is what you get.
10. In a bull market, one must avoid the error of the preening duck that quacks boastfully after a torrential rainstorm, thinking that its paddling skills have caused it to rise in the world.
Saturday, September 29, 2007
The Gladiators
When you enter ISB you will be put into study groups (the composition of which is decided by ISB). You and your study group (of 4 or 5 people) will stick together, like the Gladiators trying to fight off and survive whatever comes off out of the gate, in the first four terms. All your group assignments, presentations, write ups etc have to be submitted group wise. So it goes without saying that a good portion of your fortune at ISB in terms of grades is decided by your study group.
I must say that one of the best parts of my stay at ISB was my study group. Not because we four were the toppers of the batch or we scored highest in every assignment, but because we cried together and laughed together, we enjoyed and suffered and we did learn a lot from each other...
Here goes my blog in the honour of my study group - C11. A brief profile of the rockstars of this group
Kaustubh Verma: He can sing in 9 languages, can play the guitar (all learnt by himself) and he is one of the most "networked". He will be the first to invite others for a game of cricket/ tennis, he is the first to vote for a party, he is the first to take a short break in any assignment, he is active in most clubs - consulting, operations, energy, social life.....but if you really think he is a Poet (which is what he claims in his blog - http://www.kaustubhverma.blogspot.com/), you are badly mistaken. Whenever our group reaches a deadend in any assignment, we all look up to him and he will not disappoint us... This man from L & T is truly Lovable & Talented..
Sudhanshu Dutt: We call him Mr. President, for he leads the Real Estate club at ISB. He is one of the most organized persons i have ever seen. A health and fitness freak. A work machine. He never gets tired and its rumored that he can study non-stop for 100 hours. In ISB sometimes.. sorry most times, the amount of work involved is herculean. And many people just give up, but not Chugi (his nick name). Irrespective of how many assignments, how many pre reads or how many cases have to be read, our man is always prepared for everything. Dont know where he gets the time.. Its going to be easy for the real estate firms this year at ISB, they know where to look for...
Ashutosh Kumar: (http://www.ashutoshatisb.blogspot.com/) A banker. If i were to describe him in just one word, i would say "Determination". He is a truly self-made man. Hails from Bihar, studied physics but then joined a bank. Rose through the ranks, worked hard for GMAT and here he is now at ISB. If he has reached till here, i know nothing can stop him from his dreams. May be he will start his own bank someday...
Rangarajan Krishnan: Come on, you know me... i am not going to bore you..
Yesterday we finished our last group assignment for the core terms and went out together for dinner. My best wishes to these gladiators to come out in flying colours in the days to come...
Thursday, September 27, 2007
Connecting the dots
Unplanned chance random events sometimes can have profound implications in our lives. Many a times, if we look back at our own lives, we will find that it is these chance events that leave a indelible mark on our lives. These chance events can guide us, warn us and put us back on our life's path.
History is abound with examples... Narayana Murthy might have never started Infosys, had he not had a chance encounter with a computer scientist on a breakfast table... Apple Computers might have never thought of GUIs, fonts and fancy stuff had Steve Jobs not learnt Calligraphy (totally unplanned though) during his college days. Today our finance prof was telling that he decided to take up finance seriously, only when his marketing prof asked him a question for which he did not know the answer.
To quote Steve Jobs.. "Its not always easy to connect these dots (random events) looking forward, but these dots will certainly form a brilliant design when we look back someday"
History is abound with examples... Narayana Murthy might have never started Infosys, had he not had a chance encounter with a computer scientist on a breakfast table... Apple Computers might have never thought of GUIs, fonts and fancy stuff had Steve Jobs not learnt Calligraphy (totally unplanned though) during his college days. Today our finance prof was telling that he decided to take up finance seriously, only when his marketing prof asked him a question for which he did not know the answer.
To quote Steve Jobs.. "Its not always easy to connect these dots (random events) looking forward, but these dots will certainly form a brilliant design when we look back someday"
Wednesday, September 26, 2007
A million dollars or knighthood
A million dollars - No more cramming up crazy management theories, no more assignments, no more mind numbing case studies, no more tests, no more getting crushed between bird-brained subordinates and dinosaur-egoed bosses, no more alarm clocks, no more traffic signals, no more deadlines, no more appraisals, no more worries..... Just beaches, babes, bars and BMWs... Sounds too good to be true.
....but wait a minute. What sort of a life is this? Whats the one differentiating factor between you and an animal. Whats your motivation to live? What do you look forward to in your life? Whats the one thing you want to accomplish today? Is there one being in this world which would look upon you as a role model?.... this side of the coin looks terrible...
How about knighthood? This option seems to address all the downsides of the million dollar option. Kids look up to you as their role model. You automatically command respect wherever you go. You are consulted upon on all matters of importance and you have a meaningful life. But whats the use of knighthood if you don't have the means to enjoy your life or live comfortably? How about leading a life of a pauper knight? You command respect alright, but you don't have money to fill your own stomach. A knighthood sans money looks terribly miserable too..
Be it a million dollars or a knighthood, what matters is what would you do with it once you achieve it. Both are meaningless if not put to proper use.
What do I want? I want to be a knight with million dollars. But there is one difference though. I don't want either of these thrusted on me. I don't want to wake up one fine morning and realize that I am either a knight or a millionaire from that day on. I want to earn it. I am convinced that the journey towards achieving these would be as meaningful as the destination itself. I want to experience the immense sense of satisfaction and the feeling of a life well-lived, when I get there. I want to show others that it is not difficult to achieve...
....but wait a minute. What sort of a life is this? Whats the one differentiating factor between you and an animal. Whats your motivation to live? What do you look forward to in your life? Whats the one thing you want to accomplish today? Is there one being in this world which would look upon you as a role model?.... this side of the coin looks terrible...
How about knighthood? This option seems to address all the downsides of the million dollar option. Kids look up to you as their role model. You automatically command respect wherever you go. You are consulted upon on all matters of importance and you have a meaningful life. But whats the use of knighthood if you don't have the means to enjoy your life or live comfortably? How about leading a life of a pauper knight? You command respect alright, but you don't have money to fill your own stomach. A knighthood sans money looks terribly miserable too..
Be it a million dollars or a knighthood, what matters is what would you do with it once you achieve it. Both are meaningless if not put to proper use.
What do I want? I want to be a knight with million dollars. But there is one difference though. I don't want either of these thrusted on me. I don't want to wake up one fine morning and realize that I am either a knight or a millionaire from that day on. I want to earn it. I am convinced that the journey towards achieving these would be as meaningful as the destination itself. I want to experience the immense sense of satisfaction and the feeling of a life well-lived, when I get there. I want to show others that it is not difficult to achieve...
Tuesday, September 25, 2007
Economic logic
This term we have a paper on Government, Business and Society. The professor who taught us this course, Mr. Mudit Kapoor presented us some of the most compelling economic arguments we have ever encountered. And this course is clearly is one of my favourites at ISB.
Some of the counter intuitive economic logic I came across in this course are:
1. Government subsidies incentivizes farmer suicides.
2. Private sector benefits maximum from regulation.
3. A bribe could actually help in better economic allocation
4. Markets can be used for creating cleaner environments
5. Being righteous may be good for the individual, but in some cases the society is worse off
Some other interesting stuff which came along our way...
CEOs:
1. Stock prices on an average have historically increased, when a CEO dies
2. There is some empirical evidence which suggests that CEOs are actually being compensated for luck and nothing else.
Rules of Economics:
1. Every economist has an equivalent opposite economist
2. And both are wrong
Useful advice - Never ask an economist for a solution:
Some economists in US were asked to study the impact of making seat belts compulsory, on accidents. They came out with their findings that making seat belts compulsory would actually increase the number of accidents, as people would start driving more recklessly. So, when these economists were asked to come out with a solution to counter this problem, their suggestion was
"Put a dagger on the steering wheel"
Some of the counter intuitive economic logic I came across in this course are:
1. Government subsidies incentivizes farmer suicides.
2. Private sector benefits maximum from regulation.
3. A bribe could actually help in better economic allocation
4. Markets can be used for creating cleaner environments
5. Being righteous may be good for the individual, but in some cases the society is worse off
Some other interesting stuff which came along our way...
CEOs:
1. Stock prices on an average have historically increased, when a CEO dies
2. There is some empirical evidence which suggests that CEOs are actually being compensated for luck and nothing else.
Rules of Economics:
1. Every economist has an equivalent opposite economist
2. And both are wrong
Useful advice - Never ask an economist for a solution:
Some economists in US were asked to study the impact of making seat belts compulsory, on accidents. They came out with their findings that making seat belts compulsory would actually increase the number of accidents, as people would start driving more recklessly. So, when these economists were asked to come out with a solution to counter this problem, their suggestion was
"Put a dagger on the steering wheel"
Sunday, September 23, 2007
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Tuesday, September 18, 2007
Life under a normal curve
If there is one thing that you are going to hate in ISB it is the Normal curve. ISB follows a relative grading system and uses a "bell curve" grading system, wherein the grades are assigned according to the frequency distribution known as the Normal distribution. While it does benefits a few, its victims easily outnumber the beneficiaries.
Why should grades be normative? When scores are referenced to the performance of group member, there will always be students who have lower scores than this, even if the individual student scores are themselves quite high when evaluated against specific performance criteria or standards. Conversely, if all students perform poorly relative to a larger population, even the highest graded students may be failing to meet standards.
More fundamentally, this whole process is based on a deep misunderstanding of statistics. Many measurements can be approximated by the normal distribution, not the other way around. A class’s marks are not an imperfect observation of what should be the normal distribution. The marks are what they are. The normal distribution might or might not approximate that. If it does not, mathematically transforming the grades to match it is meaningless. Instructors should grade papers according to their intrinsic merit and give out whatever grades result even if the distribution results in a lot of A's or F's. On tests, an instructor should know, before looking at the results, what score will be required for each grade and what grade this paper deserves. How can the performance of one student go down just because the someone else has also performed well? Why should good grades be a commodity in short supply?
I have no grudges against using the normal distribution where it is appropriate (e.g., in estimating confidence intervals from random samples). To make this correct usage clear, it might be wise to revert to the original phrase used to describe the normal curve - "Normal curve of error." This would make it clear that the normal bell curve is "normal" only if we are dealing with random errors. Social life, grading, IQ, attitudes etc. however, are not a lottery, and there is no reason to expect these variables to be normally distributed.
I hope the law of averages will catch up and today's victims (Me) will benefit someday from the same stupid concept.
Why should grades be normative? When scores are referenced to the performance of group member, there will always be students who have lower scores than this, even if the individual student scores are themselves quite high when evaluated against specific performance criteria or standards. Conversely, if all students perform poorly relative to a larger population, even the highest graded students may be failing to meet standards.
More fundamentally, this whole process is based on a deep misunderstanding of statistics. Many measurements can be approximated by the normal distribution, not the other way around. A class’s marks are not an imperfect observation of what should be the normal distribution. The marks are what they are. The normal distribution might or might not approximate that. If it does not, mathematically transforming the grades to match it is meaningless. Instructors should grade papers according to their intrinsic merit and give out whatever grades result even if the distribution results in a lot of A's or F's. On tests, an instructor should know, before looking at the results, what score will be required for each grade and what grade this paper deserves. How can the performance of one student go down just because the someone else has also performed well? Why should good grades be a commodity in short supply?
I have no grudges against using the normal distribution where it is appropriate (e.g., in estimating confidence intervals from random samples). To make this correct usage clear, it might be wise to revert to the original phrase used to describe the normal curve - "Normal curve of error." This would make it clear that the normal bell curve is "normal" only if we are dealing with random errors. Social life, grading, IQ, attitudes etc. however, are not a lottery, and there is no reason to expect these variables to be normally distributed.
I hope the law of averages will catch up and today's victims (Me) will benefit someday from the same stupid concept.
Friday, September 14, 2007
The Emperor’s clothes – Part II
All of us would have at sometime heard the fairy tale – “The Emperor’s New Clothes”, the story of a little boy puncturing the pretensions of the emperor's court. We now have a sequel – The Subprime
Here is how the whole thing had worked –
Scene 1: Home loan borrowers with less than stellar credit were approved for a mortgage. The emperor (lenders) obviously wanted to get the monkey off his back and so invited the wise men – The investment agencies.
Scene 2: The rating agencies knew that the emperor was indeed naked. But may be they were willing to pull of an impressive story, for a fee. All of a sudden the risky consumer loans were reconstituted into something seemingly no more risky than a government Treasury bond and highest ratings were being issued. Of course like the wise men in the original fairy tale they too claimed that those who do not see these investments as safe were either stupid or not fit for their position.
Scene 3: Enter the investment banks. (I bet they knew clearly that the emperor was indeed naked). But why miss an investment opportunity, if the whole world is ready to believe that the emperor’s clothes’ are indeed magnificent, based on the claims of the wise men? Result – dress up these pigs into princess and sell them to the suitors.
Scene 4: It took a little boy to say that the emperor is indeed naked to actually wake up the world from its blissful slumber. Skeletons are being unearthed by the hour - allegations of predatory lending, misrepresentation and omissions related to the valuation of the loans and the profits from selling or servicing them, suitability of investments, breach of contract related to loan servicing, fraudulent conveyance issues, collusions with rating agencies…
It might be of interest to note that one of the wise men in our drama – Moody’s earned about $3 billion from rating structured deals from 2002 through 2006, and this area accounted for 44% of its 2006 revenues. Since the subprime fallout S&P has downgraded more than $ 12 Billion worth of these bonds and Moody’s has followed suit with downgrading more than $ 5 billion.
In one of the recent conference calls which this rating agency had with a hedge fund, the MD of the fund had a question:
I'd like to understand why you're making this move today and why you didn't do this many, many months ago."
It's a good question," responded the analyst.
"You need to have a better answer," said the MD.
Here is how the whole thing had worked –
Scene 1: Home loan borrowers with less than stellar credit were approved for a mortgage. The emperor (lenders) obviously wanted to get the monkey off his back and so invited the wise men – The investment agencies.
Scene 2: The rating agencies knew that the emperor was indeed naked. But may be they were willing to pull of an impressive story, for a fee. All of a sudden the risky consumer loans were reconstituted into something seemingly no more risky than a government Treasury bond and highest ratings were being issued. Of course like the wise men in the original fairy tale they too claimed that those who do not see these investments as safe were either stupid or not fit for their position.
Scene 3: Enter the investment banks. (I bet they knew clearly that the emperor was indeed naked). But why miss an investment opportunity, if the whole world is ready to believe that the emperor’s clothes’ are indeed magnificent, based on the claims of the wise men? Result – dress up these pigs into princess and sell them to the suitors.
Scene 4: It took a little boy to say that the emperor is indeed naked to actually wake up the world from its blissful slumber. Skeletons are being unearthed by the hour - allegations of predatory lending, misrepresentation and omissions related to the valuation of the loans and the profits from selling or servicing them, suitability of investments, breach of contract related to loan servicing, fraudulent conveyance issues, collusions with rating agencies…
It might be of interest to note that one of the wise men in our drama – Moody’s earned about $3 billion from rating structured deals from 2002 through 2006, and this area accounted for 44% of its 2006 revenues. Since the subprime fallout S&P has downgraded more than $ 12 Billion worth of these bonds and Moody’s has followed suit with downgrading more than $ 5 billion.
In one of the recent conference calls which this rating agency had with a hedge fund, the MD of the fund had a question:
I'd like to understand why you're making this move today and why you didn't do this many, many months ago."
It's a good question," responded the analyst.
"You need to have a better answer," said the MD.
Wednesday, September 12, 2007
EOGO
This is the new mantra at ISB. Most of us in the current batch, have volunteered to be part of the Admissions Task Force Committee. As a part of this group we undertake activities such as interacting with prospective candidates, resolving queries, providing guidance, mentoring etc..
This year ISB has invited each of us to encourage atleast one brilliant student with leadership potential, to apply to ISB. After having identified this candidate, we could then refer them (along with our comments) to the admissions committee. Simply put this policy is called "Each One Get One" or EOGO...
Am still looking around for exercising my right...
This year ISB has invited each of us to encourage atleast one brilliant student with leadership potential, to apply to ISB. After having identified this candidate, we could then refer them (along with our comments) to the admissions committee. Simply put this policy is called "Each One Get One" or EOGO...
Am still looking around for exercising my right...
Wednesday, September 5, 2007
Windfall weeds
One of my colleagues circulated a very interesting entrepreneurial story, which illustrates the power of Internet and the new opportunities it has opened for all of us.
Here is an entrepreneur who did not have any earth shattering idea. Nor did she have money. But she has created a successful venture of her own. Here goes the story...
Linda Katz sells tumbleweeds on the Web.The lowly tumbleweed is a nuisance to most inhabitants of Western Kansas. The Russian thistle bushes are everywhere. They clog drainage ditches, pile up against fence rows, and have even been known to cause traffic accidents.
"It all started as a joke,"says Katz. She asked her son to build her a family Web page so she could communicate with friends and give it the tongue-in-cheek name Prairie Tumbleweed Farm. Never mind that she didn't even live on a farm, but in a subdivision. Nevermind that you can't cultivate tumbleweed, which spreads its seed as it tumbles in the wind. For authenticity's sake, Katz added a price list ($35 for a big weed, $25 for a midsize one, $20 for the small economy model). And she guaranteed that each tumbleweed was "Y2K compliant" and quality-tested to tumble in even the gentlest of breezes.
Remember, Katz wasn't looking for business, but it found her all the same, thanks to the power of Web search engines. Orders started to pour in from all the places where people love Hollywood Westerns: Alaska, Austria, Britain, Hong Kong, India. Japanese customers proved so eager that she has added a section to her Web site in Japanese. Movie and TV production companies in Britain, Finland, and the U.S. have ordered tumbleweed for props, too, including a $1,000 order for the children's show Barney & Friends. A scientist from New Mexico wanted tumbleweed for research purposes. Many of Katz's newfound customers use tumbleweed to decorate their homes, even in lieu of the traditional Christmas tree.
During Katz's first two months on the Web, the site logged 2,000 visitors. By mid-January, the number had grown to more than 56,000. Katz says she's making about 30 tumbleweed sales a week, which suggests revenues of about $40,000 a year.
That may not sound like much, but neither are her costs. She fills orders by grazing Kansas fence lines for tumbleweed and buys her mailing boxes in bulk lots. For labor, Katz uses her five nieces and nephews (aged 11 to 19) to help collect the stuff, and she gives them a share of the profits.
So why are u waiting? Go find something to sell on the net...
P.S: For the curious souls who wish to check if this is actually true... check out http://www.prairietumbleweedfarm.com
Here is an entrepreneur who did not have any earth shattering idea. Nor did she have money. But she has created a successful venture of her own. Here goes the story...
Linda Katz sells tumbleweeds on the Web.The lowly tumbleweed is a nuisance to most inhabitants of Western Kansas. The Russian thistle bushes are everywhere. They clog drainage ditches, pile up against fence rows, and have even been known to cause traffic accidents.
"It all started as a joke,"says Katz. She asked her son to build her a family Web page so she could communicate with friends and give it the tongue-in-cheek name Prairie Tumbleweed Farm. Never mind that she didn't even live on a farm, but in a subdivision. Nevermind that you can't cultivate tumbleweed, which spreads its seed as it tumbles in the wind. For authenticity's sake, Katz added a price list ($35 for a big weed, $25 for a midsize one, $20 for the small economy model). And she guaranteed that each tumbleweed was "Y2K compliant" and quality-tested to tumble in even the gentlest of breezes.
Remember, Katz wasn't looking for business, but it found her all the same, thanks to the power of Web search engines. Orders started to pour in from all the places where people love Hollywood Westerns: Alaska, Austria, Britain, Hong Kong, India. Japanese customers proved so eager that she has added a section to her Web site in Japanese. Movie and TV production companies in Britain, Finland, and the U.S. have ordered tumbleweed for props, too, including a $1,000 order for the children's show Barney & Friends. A scientist from New Mexico wanted tumbleweed for research purposes. Many of Katz's newfound customers use tumbleweed to decorate their homes, even in lieu of the traditional Christmas tree.
During Katz's first two months on the Web, the site logged 2,000 visitors. By mid-January, the number had grown to more than 56,000. Katz says she's making about 30 tumbleweed sales a week, which suggests revenues of about $40,000 a year.
That may not sound like much, but neither are her costs. She fills orders by grazing Kansas fence lines for tumbleweed and buys her mailing boxes in bulk lots. For labor, Katz uses her five nieces and nephews (aged 11 to 19) to help collect the stuff, and she gives them a share of the profits.
So why are u waiting? Go find something to sell on the net...
P.S: For the curious souls who wish to check if this is actually true... check out http://www.prairietumbleweedfarm.com
Tuesday, September 4, 2007
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..
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..
Wednesday, August 29, 2007
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.
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.
Saturday, August 25, 2007
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:
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...
Friday, August 24, 2007
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"
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"
Monday, August 20, 2007
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!"
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!"
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