First day of the last term …

Finally, the end is within sight. Tomorrow, the WEMBA Class 37 cohort starts its final term – 8 more sessions to go to graduation! It was a great few weeks away from school for those of us that did not sign up for Global Consulting Practicum projects or Global Modular courses in different parts of the world. Was a good time to reintroduce ourselves to our near and dear ones and spend more time with them through the holidays :).

To keep with the long-distance running analogy that this blog has had about the WEMBA program, these are the last few miles where it will be mind over matter and willpower over pain. You can see the folks that are headed towards top academic honors in good form, head over shoulders straight back and clockwork strides one after the other. For the rest of us, now’s when we’re dragging one foot in front of the next, heads drooping and backs stooping as we look ahead towards that finish line so close, yet so far away.

Many made the wise decision to load themselves up with global modular courses earlier in the program and/or GCP/DCP projects. They need very few credits to graduate – I expect to see them hanging out at the pub and in general taunting the rest of us for our misery. Unfortunately, the program saves the best for last – this term is filled with electives that are all interesting and it is a tough call to decide what to pick and what to drop. Look forward to a few posts around entrepreneurship, marketing strategy and impact investing in the upcoming months.

 

Speaking of reading and learning, I just finished reading Christopher Steiner’s Automate This, a fascinating collection of stories from different walks of our lives where algorithms have taken over. Without giving away too much of the anecdotes, let me just say that he presents real anecdotes from Wall Street, music composition, and even call centers. This completes a sequence of three awesome books through the break – Nate Silver’s book and Chris Anderson’s book being the other two. Looks like the year is off to a good start, so I look forward to more of these in the coming months!

 

10 good reads from 2012

Now that it is January of 2013, we’re all busy looking back and wondering what we liked about 2012 and making our lists of favorites. I thought I would add to that list by listing out my top ten among the books I read in 2012. Most of these were published last year as well, though some are from prior years.

1. Nate Silver – The Signal and the Noise
2. Dan Ariely – The Honest Truth About Dishonesty
3. Chris Anderson – Makers: The New Industrial Revolution
4. Charles Duhigg – The Power of Habit
5. Sam Kean – The Violinist’s Thumb
6. Nathan Wolfe – The Viral Storm
7. Clayton Christenson – How Will You Measure Your Life?
8. Robert Burton – On Being Certain 
9. Rachel Maddow – Drift
10. Jonah Berger – Contagious

It is amazing how a book can transport you from your immediate surroundings to a totally different world of suspense and intrigue, of fascinating experiments and eye opening insights. I hope that I get lucky in 2013 as well and good reads like the ones above cross my paths this year as well. Ideas have the power to transform us all, and like brownian motion, unless there are enough collisions with interesting ideas, our lives are more likely to be stuck in the drudgery of now rather than the exciting possibilities of tomorrow.

Less and less and less wrong

Knowledge is a strange beast. On a lot of topics, we start with the certainty of ignorance. Usually our opinions are point estimates, in that we believe with certainty that something is true or that it is false. I wrote about that in an earlier blog post. When consumed correctly, knowledge should disabuse us of our orthodoxy and provide us with an estimate and a range of uncertainty around it. Most answers should become – “it depends”. As Nate Silver quotes in his book from the Danish mathematician Piet Hein, we learn to “err and err and err again, but less and less and less.”

As I was driving back from school today after completing the penultimate term in the WEMBA program, these thoughts were running through my mind. It was a fascinating term where several new topics were introduced and uncertainties that exist in those worlds made known to us. Something else about knowledge is that once you know, it is hard to un-know. Now I know that statistically speaking, there is very little persistent skill involved in mutual fund returns. Or that an average investor’s expectation of returns in the market is zero. But I’ve heard of so many stories to the contrary. In a frequentist world where we base our opinions around the statistics we observe, it is hard to see how intuition can so often fail us. Though we’re built Bayesian in how our brain works and interacts with the world, somehow we find it hard to use it in certain basic aspects of our life. As you can see, life has been irrevocably altered by a term-long brainwashing by Chris Geczy in our investment management class. I’ve seen my share of smart people and great professors, and he ranks right up there. I’ve also seen my share of difficult courses, and I dread to take the take-home open-book exam that I need to turn in in a week. But man, what a ride it was!

Another finance class this term was on Capital Markets. We trudged through the minutiae of reverse repos, mortgage backed securities and CPR and PSAs, PAC bonds, soft bullets, STRIPs, reverse triangular mergers, stalking horse bidders and a host of other terms that I had never heard before in my life. It was fascinating to see how with the right mathematical tools and creative brains, any asset could be securitized, tranched and sold. And as our recent market meltdown showed us, when this is done without adequate thought to risk and correlations among assets, it can spell disaster. I didn’t have the chance to do Advanced Corporate Finance this term with Bilge Yilmaz, but between Bilge, Chris and the Capital Markets professor David Musto, it looked like we had some of the best experts in their respective fields teaching us.

This was one half of my term. Despite the principles of uncertainty and risk, finance usually involves certainty – in the sense that once you pick a distribution for your model and your data, you are expected to arrive at a consistent set of parameters to define that model – the mean, variance and other moments. So even within that uncertainty, there is a certain finality of characterizing the process accurately in the face of available data.

The other half of the term was almost at the other end of the spectrum. It was a process of successive refinement much like the images we used to download through slow internet connections where it showed us a pixelated low-resolution version first while it downloaded more of the sub-band coefficients and made the picture clearer and clearer. We started with a vague notion of what Strategic Brand Management meant. We spent several sessions with Prof. Barbara Kahn refining those views until a clearer (hopefully) picture emerged of what it meant and how we could use it to analyze the brand value of companies like Netflix, or Facebook. Or Marlboro. Or even countries like Rwanda. We learnt how Interbrand crunched numbers to come up with brand value. And the potential loopholes and caveats in that process. We also had an interesting Market Research class that some of us took in the East Coast with Prof. Josh Eliashberg where we learnt about survey design and analysis. We took baby steps towards defining a problem, designing a survey to find answers, collecting and analyzing responses and presenting insights – another series of successive refinements that told us a bit more about the world that we sought to learn more about.

I also did an independent study project with Josh Eliashberg and David Bell around measuring the success of online recommendation engines and testing for how certain sets of changes to recommendations  could change conversion rates for those recommendations. Work’s still in progress, but it provided an amazing exposure to the vast body of literature on this topic and its findings, that has over the years found its way into the e-tailer sites that we visit today,

So where does that leave us? We know a bit more about the business world around us, and a bit more about what the assumptions are that are behind those conclusions. The key, as we learnt in the investment management class, is out of sample validity of those views. If our views about the world consistently fail in out-of-sample tests, then we need to have the maturity and humility to alter those views in the face of evidence. Whether it be about our right to carry around assault weapons in the second largest democracy, or it is about our continued apathy towards rape in the largest democracy in the world – two sets of dastardly events that have shocked the two nations. Yet somehow, knowledge does not seem to make us less certain. We seem to pick and choose what we want to hear. Where we get our news from. Who we include in our echo chambers of advice and criticism.

And this is where education still has some ways to go. Unless the modern education system can teach us to understand that the more we know, the more we know that there is so much more to know, our lives in schools were spent in vain.

The A to Z of One Kings Lane

Last weekend we had Ali Pincus, co-Founder at One Kings Lane, and Greg Fant, their Chief Marketing Officer, stop by our Strategic Brand Management class and speak about their brand and how they built it over time and where they plan to take it next. It was fascinating to hear about the origins of the company – how Susan Feldman met with Pincus and founded the company based on her own frustrations with purchasing home furnishings after moving to LA from New York. At the depths of the recession in early 2009, they raised money and went about building a brand around a flash sales site with a name that stood for a street address that people could identify with. They rode the wave of flash sales growth for the next couple of years. With over $100MM in sales in 2011 , they are now a name to reckon with in the curated home-decor space, and are rapidly growing.

It was interesting to hear from Greg how they surveyed their customer base, followed around some of their key customers and held focus groups with a difference (at art museums around candle-lit get-togethers) to understand what motivates their core base. We also got an exclusive look into their new national branding and awareness campaign that got launched last month with a cool ad campaign along with Wieden+Kennedy. Greg has the perfect mix of branding background from the mother of all brands (Coca Cola) and digital marketing (eBay) and walked us through their customer life cycle as they tracked them from teenage years to old age, and showed us how their new brand campaign will try to appeal to each of these customer segments. It was also pretty cool to see how despite a huge bounce rate on their home page thanks to a sign-in requirement, they are still able to generate such impressive growth fueled by repurchase rates among existing customers. The key would be to see how they can open up the site to folks without the sign-in requirement to generate one-off purchases from less loyal customers, but increase their customer base to a much larger number. Not surprisingly, we had a few classmates who raved about their experiences with the site and how loyal they were as customers :).

With the growth of sites like Pinterest, the expectations for traditional e-tailer sites to have a visually enriching shopping experience is only going to increase. At the same time, designer brands that offer selective inventory to sites like OKL might want to offer these from their own portals as well, not to mention launching showrooms to experience more lucrative products such as furniture, which is still a less-than-perfect shopping experience online. Add to that the travails of adding free-returns to these bulky items like the other popular sites such as Zappos and Warby Parker who sell lighter items, OKL has its work cut out for itself for 2013 as they try to grow towards profitability. What they have going for them is a strong brand that their core base strongly identifies with, a unique curated shopping experience, and a hope based on customer surveys that the brand is elastic enough to grow into several adjacent customer segments and attract newer customers.

Here’s wishing them the very best as they launch this new branding campaign and scale new heights!

Obama, Silver and Bayes

One of the fascinating sideshows during the elections was the attack on Nate Silver and his predictions, and the subsequent validation of his model (and that of others who predicted with the same accuracy as well). Needless to say, his book, is now on the top of most bestseller lists as people try to figure out whether Nate was really a witch or not.

Hidden beneath the excitement of validation is also an underlying dichotomy in statistics – that between frequentists and Bayesians. While the details of this might be a bit too technical for a blog post (the earlier reference and this one can do a much better job than I ever can, if you are interested), it essentially boils down to whether you estimate the probability of a parameter given data, or whether you estimate the probability of the data given a parameter. Also if I remember my statistics correctly, a frequentist interpretation of the world requires an assumption of ergodicity, which is hard to arrive at without carefully choosing your sample populations for surveys. This article might explain the difference in easier terms.

Interestingly enough, recent research with toddlers shows that our early years comprise of Bayesian techniques of learning about the world. No wonder academics that have followed this fork in the road are gloating over the Silver lining to their cloud.

Where else is this a big deal? Take a look at the discussions about whether the God particle was indeed detected at the Large Hadron Collider or not as the two techniques collide.

Democracy and choice

I wrote about similar issues in a different context in an earlier post.

Today, the second largest democracy in the world went through the motions to elect their next leader. Like the largest democracy in the world, this process wasn’t all “free and fair” either. Several creative methods continue to be used here as well to reduce turnout and influence outcomes. The only variation seems to be that this system has had over 200 years to bake its methods to have them be more sophisticated. As opposed to outright voter fraud in the more nascent democracy in South Asia.

Another disturbing trend is the lack of choices on this side of the world, and the fragmentation of choices on the other. Here this results in third party candidates being wiped out of any debates, national media coverage, or even conversations at the national level. There the “third party” candidates are all that count, and the larger parties court them aggressively to slap together a coalition of regional parties to meet the majority requirement to form a government.

As envisioned by the human civilization that thought-up democracy and refined it over the years, this process was supposed to be much different from what it is today. The price to pay to get in the game at these levels is so high that most mortals cannot meet that without raising money aggressively from vested interests to whom they remain indebted, thereby making it harder to be objective. Lobbying, favoritism and looting all that one can while in power seem to be natural extensions of the process, to recover the investments made in the candidate.

Answers are not easy to come by. Federal funding of all campaign expenses would be a start. Uniform rules for voter ID,  voter registration and polling booth requirements would help safeguard voting rights for all, that we have achieved after decades of struggle by millions of people who wanted the right to a representative democracy. Having more options on the ballot, and giving other options more airtime would benefit as well and force the popular two voices to face tougher questions and keep them honest rather than this dance of well rehearsed moves that we see every two years between the two Goliaths.

All said and done, today is the day that the common man wins. His vote sent a man back to the big white mansion and the other to one of his big mansions. What remains to be seen is if any of the hopes and aspirations of this common man will materialize over the next four years, or if we will again see a recurrence of politics as usual, as it happens in the other democracy across the world as well. How do we ensure that we have not only a representative democracy where we get to choose who represents us, but also have an accountable democracy where we hold them accountable for wasting our dollars or disrespecting our mandate?

The history of modern finance

Now that I’m in school again at a stage in life where it is not deemed by anyone to be critical to my future or career or any such thing, I get to enjoy school more and ponder over the larger issues of how and why what I’m learning came about.

One such subject where there are fascinating back-stories is finance. If you look at the progress the theory of finance has made in just the past sixty years, it is incredible. So there it was that I decided that as part of general awareness reading for my investment management course this term with Prof. Geczy, I’d spend time understanding the history of modern finance. And there could be no finer source to learn it from than Peter Bernstein’s book Capital Ideas: The Improbable Origins of Modern Wall Street.  Written to read like a page-turner thriller (as much as a book on finance can be a page-turner), this book starts in 1900 with the work of a French mathematician, Louis Bachelier, and his doctoral work that showed that under ideal conditions the mathematical expectation of the speculator is zero. This work stayed long forgotten for a long time, until economists in the US discovered it and started buiding upon this foundation. Unfortunately for Bachelier, the financial markets were far from the focus at Sorbonne, and he had a tough time finding a good academic position. Even his teacher Poincaré could not grasp its significance.

Markowitz faced similar trouble 52 years later, with his thesis on portfolio selection that transformed the world of modern finance by relating risk and reward through mean-variance analysis. And even more curiously, his work was almost matched across the big pond by A. D. Roy at Cambridge, without the full insights and depth of analysis. I wouldn’t want to summarize the entire book here, but the anecdotes from the lives of these academics and practitioners is fascinating. The book runs through the familiar cast of characters – names, many of which  fill the ranks of Nobel laureates in economics – Tobin, Samuelson, Sharpe, Black, Scholes, Fama, Miller, Merton and Modigliani. It also paints a fascinating picture of characters who were not as well known to an outsider like myself – John McQuown, James Vertin, Barr Rosenberg, and others who were early pioneers in the portfolio management world. It retells the story of Leland, O’Brien and Rubenstein and how portfolio insurance was invented and its role in the stock market crash in 1987.

All in all, it makes for a fascinating read if you are interested in knowing how these methods were invented and how serendipity, perseverance and sheer luck helped make them happen. It shows how computers played such a vital role in accelerating research in returns on financial securities, and measuring and characterizing risk more accurately.  Bernstein followed this up with a sequel in mid-2000s, but more about that in another post.

Brazil visit – Part 3

Rio is one of those cities that you can never forget once you’ve been there. Its hard to describe the allure of the city – its natural beauty, greenery, the ocean, beaches, the bustle of activity around the city, the centuries old churches and monasteries, food, drinks … it pretty much has it all. And we didn’t even visit during the Carnival!

Quite a few of us left on the Tuesday of the week we spent in Brazil to reach Rio that night. We flew out of the Congonhas airport in Sao Paulo into the Santos Dumont in Rio. Someone forgot to tell me how short that runway was. One second we’re in the air .. the next my lunch is being dug out of my intestines at a few Gs. I guess it was long enough that we lived to tell the tale. We had rooms reserved for us in Windsor Atlantica on Copacabana beach. Of course most Bollywood fans worth their salt were well aware of Rio and the beach, thanks to Bipasha Basu doing her thing in Dhoom 2 some years ago, so it felt just like it did in the movies ;).

Given Rio’s rich history of churches, I decided to go churchhopping on Wednesday. Starting with Christ the Redeemer and the cathedral at the foot of the hill and the chapel at the top, the day provided several opportunities to marvel at the architecture, and peace and quiet at each of these monuments. In the chapel at the top of the Redeemer we were greeted by a beautiful hymn sung in Portuguese by two girls singing along with a guitar strumming the tune. The day culminated, after a long walk and some searching around and asking for directions in English+Spanish+sign language, at the Sao Bento monastery and the amazing church at the monastery. This Benedictine monastery was built in 1641 and commands your attention and awe while calming you down at the same time. They have Gregorian chants performed on Sundays. Sadly, it was a weekday so we had to miss that.

It was not all food for the soul that day. We took a long break in the middle of the day at Confeitaria Colombo, one of the most famous bakery/cafes in Rio that has been around since 1894. The dining area downstairs looks like they transplanted the Hall of Mirrors at the Palace in Versailles somehow into this distant location. The tea and pastries were just amazing and we hit the menu hard, sampling stuff from all sections, asking for menus in English and generally being touristy like the rest of the folks like us out there. Their collection of china was just mind-bogglingly impressive as well! Did I forget to mention that the first meal of the day was as impressive? The selection of tropical fruits and juices at breakfast was just incredible. Combine that with omelettes, pancakes, desserts of all sorts and all sorts of stuff with meat that I walked past – and one could easily consume enough calories for the day right in the morning before heading down to the beach.

On our last day in Rio, some of us headed out to see the Teatro Municipal  after a nice long walk along the beach in the morning before we checked out from our hotel. Right across from the Opera House are the National Library and National Fine Arts Museum. We spent some time at the Museum admiring paintings and sculptures by Brazilian artists over the past few centuries. After that, we saw the Carioca Aqueduct which was built in the middle of the 18th century, we headed to the Santa Teresa neighborhood for some food and relaxation. Described as the bohemian side of Rio by Lonely Planet folks, Santa Teresa had amazing restaurants and arts and crafts stores that tourists milled in and out of. We had a great lunch preceded by several rounds of yucca fries, beer and coconut juice (not all in that order), and then headed back to the hotel to pick up our bags and head to the airport.

The trip description would not be complete without a mention of our visit to a Botafogo vs. Internacional game in Rio at the Engenhão stadium. It was an amazing experience to cheer along with the home team and try to sing along to their tunes with words of our own. We all also did the required touristy shopping trips to buy havaianas and other memorabilia of the trip for friends and family. And of course, the mother of all clubs, Rio Scenarium,  where a good chunk of the class spent the most part of Friday night, if not all of it. Others would be more qualified to comment on the club scene in Rio, so will leave it to them, but Rio Scenarium was pretty darn impressive and could outshine most clubs I’ve been to in the Bay area any day.

Once again a big hats-off to the team that put this trip together for all their work, and for all the brave souls that brought young kids along on the trip! Many of us benefited from the latter without the travails of having to manage the kids when they were not in their best spirits..

Prior posts in this series: Part 1 and Part 2.

Wharton SF Unconference 2012

Cool things are happening at a faster clip at Wharton San Francisco this year. We moved to a new campus in January. In April we organized the first sustainability and social impact panel out here which one day will beat the Wharton Social Impact conference back East. In summer, we announced for the first-time that a cohort of full-time MBA students from class of 2013 will spend a semester in San Francisco – 55 of them. To add to that momentum, we had a group of class of 2014 full-time MBA students visit the Bay area on a startp trek last weekend.

All of this culminated in a fascinating and inspiring few hours at the first ever Wharton SF Unconference, put together by the innovative and talented full-timers on campus. The goals were simple – bring all like-minds together, put them in a room, have them ask questions about what they want to know and then collect those into sessions where people discuss those questions. We came up with 9 sessions of 45 minutes each. Topics ranged from “how to find a technical co-founder and build a great startup team”, “what are the differences between starting a B2B and B2C startup”, “what are the opportunities in emerging markets”, “what are the trends in online fashion startups”, “what are the big data opportunities in supply chain”, “what are the best opportunities for MBAs in startups” and a couple others. There was a wealth of information presented by many students in these sessions, including an inspiring talk from my classmate Amilcar on building a great startup. Kudos to Vishy, Neha, Elaine, Christine and others from the full-time cohort on putting this together!

Through these semester in SF cohorts, the full-timers get a unique opportunity to experience our great campus out here in SF and also soak in the spirit of entrepreneurship in the valley. Pretty much every full-timer I spoke to at the event wanted to know more about how one could start or join a startup out here and go about finding co-founders. We also had several first-year students from the full-time cohort from Wharton who stayed on after their startup trek to attend this event. And not to be left out, a few of us WEMBA students made it there as well to share our perspectives. We had Amilcar, Vijay, Parry and Sami speak about their experiences with starting companies and raising capital.

Here’s to more of these events and more opportunities to get to know enterprising Wharton students from back East!

Brazil visit – Part 2

After a long hiatus, here’s the second set of vignettes from the trip, dug out from a rapidly fading memory. I thought it might be worth it to just capture the places I visited and the food and drinks encountered during the week in Brazil. As a non-alcoholic vegetarian, commentary on food and drinks has to be more hearsay I guess than what was actually imbibed by me. So this post will be about the few days in Sao Paulo.

The most memorable group experience at Sao Paulo outside of the company visits was the visit to the Sao Paulo Jockey Club on the first day of our visit there. Between several appetizers and drinks of various ingredients, the class tried to figure out how the betting scene worked in a new country and a new language (those with Jared and other Portuguese speakers nearby had an edge of course) and placed bets on horses that we thought would win. I was bang on target – if I had only listened to the Costanza rule of doing the opposite of what I think. The horse that I picked decided to throw a fit and not even run in that race .. so much for gambling intuition. On Sunday,  some of us visited the Mercadao Municipal Paulistano, the Municipal market and were greeted with a dizzying array of tropical fruits and other delicacies, not to mention a wide array of fruit juice cocktails. After sufficiently filling ourselves with the fruits and juices, we headed to the Villa Madalena area of Sao Paulo and had dinner at an amazing restaurant called Pé de Manga. It was a beautifully designed indoor/outdoor seating restaurant/bar with two big mango trees that people could sit around that gave it its name. Even that early in the evening the place was bustling with activity as young couples as well as large families talked away happily as the sun began to set slowly. I got a few insights into how cold beer is made in Brazil vs. the US from my beer aficionado friends, as well as got to hear several rounds of praises for the Cachaças and Caipirinhas being served by the dozens to my group. This brought back memories of the Bodhi Tree Cafe in Phnom Penh and the natural setting in that place. We followed this extravaganza with a nice walk through tree-lined neighborhoods with big luxury condo complexes surrounded by ten-foot concrete walls and security guards on watch inside as we headed towards Por Do Sol,  an amazing perch to view the city as the sun sets over it. After spending some time there with a motley crowd of other folks we caught cabs and found our way back to our hotel. Monday night was spent by many exploring the Jardins area itself, looking at restaurants and pubs in the Jardim Paulista area where we stayed. Many of us flew out to Rio Tuesday evening, so we could party an extra day in Rio ;).

Rio updates to come in a different post. Need to keep these bite-sized so I can get them out quicker ..