Success Equation: Role of Skill & Luck

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In one of the blogs on value investing  I read about the book success equation by Michael Mouboussin. Spent the last couple of weeks on reading this book. If you have read Taleb's Fooled by randomness, you would get the core of this book by just browsing the cover.But Michael Mauboussin focus on the role of luck and skill in specifically three areas - Sports, Investing and Business. Taleb never focused on sports in any of his books, because it never interested him as he calls that prostituted randomness. 

But in this book Michael Maubossin the biggest area of focus is untangling role of skill and luck in Sports. He does cover business and investing along with sports, but sports take the larger share. He does look into various research by sabermetrics he has used is present in almost every other chapter. Hence I understood some metrics related to baseball better after reading this book. But leaving that focus aside, he tries to get across the point that - role of luck plays a larger share in some areas compared to skill for success. By placing the various sports in the skill and luck continuum, he shows how role of skill can and luck can be untangled in each of those sports success. If roulette and baccarat are games to be placed on the extreme side of luck , chess and swimming would be in the extreme side of skill. Then there is a lot of sports that could be placed between these extremes. Let me not repeat what is in book, and leave it to the readers interpretation. But here are some of the key take away in the book, (the ordering is based on my own preference)
  1. The more skillful players enter the game, more skill is required, but along with this increased skill the role of luck increases in determining success. 
  2. When skill plays a larger role in success - focus on deliberate practice with a good feedback system in place (like a coach, mentor). But hours and hours of practice would push that small increment in skill which differentiates the experts from the rest of the majority.
  3. When luck play a larger role in success - the outcome is probabilistic in nature - focus on sticking to the right process. This is similar concept what you would learn in Bhagavad-Gita. Work with what you do seem to understand, and do not worry about the rest. This would ensure that you don't have large loss but you may hit with some occasional huge success sticking to the process.
  4. When you compete with a weaker player try to compete on own turf and directly, but when you compete with weaker player try to change the game and dont fight their own turf.
  5. Focus on the right statistic given more and more luck is getting involved in the success. Especially the
He does reiterate some of the concepts from Taleb on how to handle things in the Fourth quadrant or the black swan domain where there is extreme pay off and unpredictable outcomes as introduced by Taleb in his Black swan, how do we handle things. Overall a quick and good read , especially if you baseball statistics, you would enjoy reading this book.

Prepaid / International calling : Cheap phone and calling plans for NRIs in USA

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I moved to the US in 2013 and have been always looking for the best mobile plan which suits my customized need.  Let me profile my need, so if you fit this profile my choice might help you in choosing a best phone option. Disclaimer : This is a first person narrative, and not a paid review for any services I have called out

  • Cost of the Device / Contracts : Being from India, it was so hard for me understand how people see the carrier subsidized device like the 199$ iPhone  that is with a contract and high cost plans. I really hated those contracts and high monthly phone bills.
  • Price : Going with my frugality principle : A cheapest option for Voice , data & Text
  • Voice : Most of my calls are going to be International , especially to India. I was using very less talk time to call someone within US.
  • Text : Hardly used text, except those service messages from banks. Given we have WhatsApp, We-chat, Skype and gazillion option this is the least I wanted
  • Data : I even tried plans without data for a couple of months since I have Wi-Fi at home and office. But definitely could not survive especially some critical needs when I am out and needed to know about nearby restaurants / movies  or even for navigation using Nokia Here / Google maps. The need for data was critical, but I would say not something unlimited. I tried to log my average data usage to see what is my real need. Anything between 2GB- 3GB per month at 4g LTE / 3G speed is comfortable data limit and speed to manage. I even include the often usage of social apps, and my regular news reader Feedly , Mint etc. when I am not in Wi-Fi zones.
  • International Calling : I use about 1000-1200 minutes of international voice talking to my family and friends in India every month. Even though WhatApp , Viber, Skype, Facebook messenger offers voice calling free to folks who are in these apps , when I need to speak with some one in India who does not have a good internet connection or even a smart phone then definitely I need to call their mobile number or land line number. 

With the above needs, I initially scourged all the possible regular post-paid plans in T-Mobile, AT&T (GSM Only, since I had a GSM) and later even Sprint / Verizon. Overall the postpaid plans were definitely not cheaper options. Given I was one of those rare customers looking for Bring your own phone plans.  The next option was prepaid , which do not require any credit checks and you know what would be your monthly phone bill expense pretty clearly.  So all my options after this initial screening was only prepaid. If you have an unlocked phone with you and with the usage profile mentioned above, prepaid plans works out cheaper and most predictable monthly cost for most of you.

Prepaid phone with MVNO + International Calling cards : Prepaid options works out cheaper in USA for the usage something like above. The option that worked best in these were - Straight Talk bring your own phone from Walmart. This is a gem of a plan which is not so common outside of the college kids. You can get a 45 dollar +tax monthly pre-paid plan with unlimited voice & text (includes Global Text) and data. Here the unlimited data has a caveat - the first 5GB comes at 4G LTE speed and after which expect 2G speeds only. No carry over of the unused data speeds every month. Very fixed outgo you have every month with a solid service. Because you have choice to choose the GSM network when you buy. They have AT&T or T-Mobile option. My wife runs AT&T Straight Talk and I had T-Mobile. AT&T had better network coverage as expected. So if you do have auto renewal every month enabled, then including tax your monthly outgo per person is going to be only 48 dollars. Don’t bother about any huge bills every month. Best suited for 1 or 2 member family. 

Now for the international calling, first option I tried was Vonage. My decision after using was - please avoid this. They were giving 9.99 per month promotional 6 month plan but still you would pay about 25 dollars including some service tax +Fee. Post that expect 50 dollars for this service per month  which offers about 3000 minutes of international calling. Again this is a physical phone device at home using your internet to call. So my decision was to move away from Vonage after the initial promotional period was over. They do give a Vonage extension to call from your mobile directly. Even then it definitely does not fit my bill.

International Calling Cards : is the best one so far I have tried. To give a list of options I tried - IndiaLD, Reliance Calling Card, Viber Out, Skype Minutes, Rebtel. I landed with phone India as the best option because of price and ease of use. They give about 1400 mins at 10 dollar a month. You can have access numbers to call someone through your voice connection. Also it gives an option of an App - Keep Calling (Android | iOS). So both my wife and I had this app installed that pulled the contacts from our phone book. We also could tag favorites. So both of us could call from our respective phones through this app, and it used our phone data connection / Wi-Fi as applicable. Sometimes we also used the access numbers to call. But overall a very seamless experience at a lower cost. So you can manage your total phone bill in about 100-110 dollars for 2 person family.

Prepaid  MVNO with International Calling Ultra Mobile is the latest on the block targeting the immigrant population in USA. This is started by the founder of India LD. Ultra-mobile focus is to have direct calling to India or other 60 destinations around the world. The 29 dollar plan offers Unlimited voice and text (includes global text) plus 1 GB 4G LTE Speed and after which unlimited data at lower speeds. The biggest addition is unlimited calling ( fair usage policy apply) to 60 international destinations which includes India/ China and 1000 international voice minutes to additional 15 destinations. You can directly call those countries with the international code and no more access numbers. So this option is really testing waters to pull the price of international calling. Currently Ultra mobile runs only on T-Mobile, so I am just testing with my phone. So far good, but it still comes out with less 4G LTE data compared to Straight Talk. There is also an option to top up your data during the 30 day period of validity with 1 GB of data for 10 dollars. So Straight talk gives a 5GB data at high speed bu default, if I add that 5GB limit by top ups in this plan this would be adding additional 40 dollars. But since my data usage has been very less every month, my overall bill has reduced below the 100 dollar threshold including the expenditure on international calling. To pull that down, I have to either go for lower data which is sensible option given wifi at office / home. You can give a try. So ultra mobile is my current plan, and my wife still is in Straight talk.

I have given my choices and what worked best in my scenarios. You could choose any of them if that works for you. 

Disclaimer : This is not a paid product review, these are just my opinions based on my usage in the last 2 years and may have missed out some options. So if you find something better please leave it in the comment

If you are on International travel and looking to for a temporary option to stay connected with some phone / calling plans , I would recommend you can go through this review from Joy of Android : 5 Best Phone Plan for International Travel — Travel Overseas Wisely

Yoga Marga : Review on Isha Rejuvenation program

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Based on a reader request, I am posting a review on the Yoga Marga program. I had mentioned briefly earlier in my Master cleanse post. Today I will share the experiences about this program which I collected from my mother. She attended this program in December 2013 for a period of 21 days at Isha yoga center  Coimbatore India.  My mom was 47 year old when she attended. Disclaimer : This program is customized for every individual , so do not expect your schedule would look like the one mentioned below.

Yoga Marga is a 21 day nature treatment program which focuses on rejuvenating your body. So if you are looking for weight loss programs, Yoga Marga is not just for weight loss. It is beyond that, but you would lose some weight as a side effect ( what a great side effect!). When I was looking for some preventive care for my mother, to ensure continuity of her good health, I came across Isha rejuvenation programs. In that Yoga Marga is the longest residential program (21 days) , with other short alternative programs like Ayur Sampoorna (7 days) , Ayur Rasayana Intensive (5 days) and Ayur Rasayana (2.5 days). Given my mother was not working at that time, I chose the 21 day option and reached out to Isha rejuvenation contact.

She was not immediately accepted for the program. A pre medical assessment is mandatory before accepting her application. She had to do a self assessment of her health which included our family health history as well.  Once she sent the self assessment, the medical coordinator at the center would reviewed it and asked for additional medical test reports. I had to take my mother for recent lipid profile, thyroid test etc.  After sharing those additional test reports, the team confirmed that she can actually attend the program.  My personal opinion – this is a good screening process to ensure the program can be tailored for individual needs instead of a standard one size fit all approach. Thankfully my mothers application was finally accepted and we booked individual accommodation for her. There is a choice for shared accommodation as well for a lesser price tag.  If you had attended Inner Engineering, or Shoonya earlier, and not doing your practices, you are required to start the practices immediately once your application is accepted.  The initial expectation set to her was to expect 21 days of rigorous schedule and she cannot leave the program mid way.

On her arrival at the center, she had some additional tests and checkup and a customized schedule  of her eating time and food items was prepared, which was not shared with her. She was not required to track by the schedule, but the doctors and organizers ensured that she was given food as per the plan. So if you attend the program, do not expect you might be eating a group meal everyday. Every individual will have a different schedule for food intake. What constitutes in that food will also be customized for every one depending on the nature of your body, and your health conditions. My mother was not even given any solid food for the first 10 days and she was given mostly water , some medicinal herbs, and lentil soups occasionally. Each food item she can take was decided and approved by a set of doctors. The complete rejuvenation program is designed by an amalgamation of Siddha, Naturopathy, Ayurveda and Allopathic treatments.   Hence this is a 21 day residential treatment.

For those 21 days, her schedule was fully occupied. I asked her how a typical day looked.  She had to wake up at 4.45 am. There could be some natural medicinal intake, for example she had to have neem balls. It could be different for you. Followed by guru pooja, Hata Yoga and other kriya practices. At about 6 am they were given oil bath and a visit to Dhyanalinga for an hour long meditation there. Around 11 they were served brunch, and my mother was in water diet and most of the time she was not eating any solid food.  Afternoon they had some break to take care of house keeping like washing clothes etc. Post noon, in the afternoon around 2-4 pm they might listen to some talks by Sadhguru or other videos. About 4pm back to her hour long yoga and kriya practices. Post that, she was required to do some physical volunteering work like cleaning, walking etc. for an hour. After 6pm it was evening food intake time followed by some talks and other practices. There were also some Shoonya practices 3 times in between all these activities.  She would go to sleep around 9.30 pm – 10.00 pm. She was also given natural medicines at different schedules every day which was customized for her, and she lost track of how many times she had and what she had. All she remembers now is that there were so many occasions she had some natural medicines like neem, turmeric , Aloe Vera etc. other than food.

After the 21 days my mothers energy level were considerably high, her health improved a lot which showed in her lipid profile, blood and thyroid tests and also her weight went down by about 15-16 pounds. She also purchased some medicines to have it later when she came home.  My mother liked this program but felt pretty intensive given the 21 day period. But it definitely help her improve overall health.

A cursory look at the details, this is similar to my argument in Master cleanse and anti-fragile post. Our body is great at self healing but we need to provide the right atmosphere and stressors to aid the process. In most faiths the concept of fasting was started for this whole purpose of adding that stressors to aid our digestion better and improve our health. That is now called as Intermittent fasting (IF). So a program like Yoga marga will force us to change our strongly formed habits and improve our health. If you are someone already very conscious about what you eat and maintain high energy levels, you might need a program like this. If you are someone who are looking for some support because of some chronic ailments then this program might help.  Do not approach this program just for weight loss, and there are many other things you can do for weight loss by eating right.  But this is for improving your overall health and wellness which includes treatments that blends contemporary and alternative methods like the Siddha, Ayurveda, naturopathy that restores and help regain vital life energies.

Fragility, Robustness and Anti-Fragile

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If you have read my previous posts on Black Swan & Bed of Procrustes, you would know very well that I am a big fan of Taleb. When I read his essays, I would feel like conversing with him. An amazing feeling. Though his books take longer time for me to read, I enjoy those moments. I spent about a couple of weeks reading his work Anti-fragile. If there is one key takeaway , it would be this key fact
There are some systems that gains from volatility , and how do we best use them in our life. Those are anti fragile , exact opposite to fragile- which gets negatively impacted  because of volatility.
He applies this concept in Fitness & Health to understand our body , medicine , business , banking , risk analysis, mother nature and various areas to show the key point that randomness and volatility has always benefited us. These variability or stressors really help the system to improve.
Its quite perplexing that those from whom we have benefitted the most aren’t those who have tried to help us but rather those who have actively tried but eventually failed to harm us  - Anti Fragile, Taleb
As I looked at my own life, there had been acute stressors in my life which pushed me to improve better. Those unexpected volatility in life definitely helped become stronger eventually. As we saw in Black Swan, there are some highly consequential , un predictable and rare outcomes can define our life. The best anti dote against Black swan is not trying to predict it , but anti-fragility. Try to reduce fragility in the system as much possible which makes us robust to black swan. The best example I can take for my own personal life first from the book are
  • Avoid debt like a sin to the best in life, debt definitely makes us fragile. Trying to take many small bets which has the optionality of limited loss but unlimited gain. Try to search for these real options, these give you the anti fragility. I know of someone, who has got into multiple business, succeeded and failed in a few. Now trying to get into a new business of granite quarrying. This new business venture he is trying to get into also happened by chance event , a total serendipity. But he was in pursuit of different things which helped him land on this. That would be his credit. The business model he is trying to get in also has the optionality I called out earlier – a known limited loss, and unlimited upside.
  • In health & fitness – My mom and I are big believers of intermittent fasting, though we came to know through our religion – but later when we experienced the  changes in our body became staunch believers of this. This intermittent fasting gives us the volatility and stressors needed for our body once in a while and that definitely makes it anti fragile up to some point
I will not go through more, but just a couple of examples to highlight, the insightful learning from Anti fragility. Please do pick and read Antifragile if you have not read.

Aphorisms from Taleb

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After reading Black Swan  & Antifragile, I have become a Taleb fanatic.  He is truly an original thinker among modern writers. For fast readers who expect to get the gist of book in few hours, Taleb may not be their favorite. His writing style shows his erudition that beautifully mixes some fictitious story telling coupled with his autobiographical vignettes. But the best part is his witty aphorisms he throws all over in his Incerto series. So it was easy for him to publish a book of just aphorisms called The bed of Procrustes. This is probably the only book of Taleb, that I could complete in a day. I took more than 2 weeks to complete Black Swan or Anti Fragile, but during those times I was glued to every line of his writing. Below are some of my favorite aphorisms from Bed of Procrustes,
An Erudite is someone who displays less than he knows, a journalist or consultant, the opposite
If your anger  decreases with time, you did injustice, and if it increases, you suffered injustice
Procrastination is the soul rebelling against entrapment
The fastest  way to become rich is to socialize with poor, and the fastest way to become poor is to socialize with the rich
Nothing is more permanent than “temporary” arrangements, deficits, truces & relationships; and nothing is more temporary than “permanent” ones
Wisdom in the young is as unattractive as frivolity in the elderly
The book is the only medium left that hasn’t been corrupted by the profane: everything else on your eyelids manipulates you with an ad.
Karl Marx, a visionary ,figured out that you can control a slave much better by convincing him he is an employee
People focus on role models; it is more effective to find antimodels – people you don’t  want to resemble when you grow up.
Failure of second-order thinking: he tells you a secret and somehow expects you to keep it, when he just gave you evidence that he can’t keep it himself
Only in recent history has “working hard” signaled pride rather than shame for lack of talent, finesse and mostly ,sprezzatura
It is much dangerous to think like a man of action than to act like a man of thought
Almutanabbi boasted that he was the greatest of all Arab poets, but he said so in the greatest of all Arab poems
We are satisfied with natural (or old) objects like vistas or classical paintings but insatiable with technologies, amplifying small improvements in versions, obsessed about 2.0, caught in mental treadmill
People often need to suspend their self promotion and have someone in their lives they do not need to impress. This explains dog ownership
Robust is when you care more about the few who like your work than the multitude who dislike it (artists); fragile when you care more about the few who dislike your work than the multitude who like it (politicians)
Just as smooth surfaces, competitive sports and specialized work fossilize mind and body, competitive academia fossilizes soul
Knowledge is subtractive, not additive – what we subtract ( reduction by what does not work, what not to do), not what we add ( what to do)
Love without sacrifice is like theft
What organized dating sites fail to understand is that people are far more interesting in what they don’t say about themselves
You know you have influence when people start noticing your absence more than the presence of others
Journalists as reverse aphorists:my statement “you need skills to get a BMW, skills plus luck to become a Warren Buffet” was summarized as “ Taleb says Buffet has no skills”
The curious mind embraces science; the gifted and sensitive , the art ; the practical ,business; the leftover becomes an economist

Seattle to Portland cycling 2015 - Reflections

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What is the purpose of doing such painful long rides? Cycling is my passion but these long rides were pushing beyond my limit sometimes. This question keeps popping in my mind either during the long training training  under hot sun or during the lonely riding moments in STP.  The last 80 miles of the 206 miles STP ride , was purely a mind game. Something deep inside me gave me that strength to keep going.  So definitely, the answer to my question was beyond the endorphins or runners’ high – these experiences provided acute stressors that helped me test my limits of body and mind.  On 11th July, second year in succession, along with fellow riders we started biking to Portland
Last year STP experience was tough because of the weather, the temperature shot up to 103 Fahrenheit, the hottest day in Washington. But this year, the weather gods were so kind enough to have one of the most pleasant days to ride with some occasional showers.  But for the love of adventure, this year I met with some unexpected mechanical failures in my bike –  a flat tire ayourphotot the 110th mile. My fix a flat trainings helped me to get going within 10 minutes. But the toughest one came at 120th mile hill climb after Winlock, when the chain and rear gear derailleur broke. One of my goals this year was to complete STP in a day, and this mechanical failure posed a challenge of just an STP finish. One of the passing cars helped me to take my bike back to Winlock pit stop, where Performance Bike had a shack to help the fellow bikers.  A huge thanks to Performance Bike, who helped in changing a new chain and do a temporary fix for my gear derailleurs. But the real problem now was I can no longer shift gears and it would stay on the middle gear throughout. Getting a new derailleur was not possible at that moment. It was 3.30pm and I had lost about 45minutes in fixing the bike. With a single gear and another 86 miles to go, the hills and various climbs in the rest of the route were my real test. For the lost time and the problems with my bike, I made a choice to not stop longer in any of the stops for the rest of the 80+ miles.  I averaged at 12-13 miles per hour for the rest of the day ( this is definitely slower compared to the 18-19 miles per hour speed I averaged in the first 100 miles), but had a total of only 20 minutes stop time and I kept pedaling most of the time at a steady pace. So really the lack of gear shifting and time / speed loss was still manageable with a steady pace and very low resting time to reach the finish line at Portland.  When I reached Portland , it was 10.20 PM and my legs were arguably more soar than the last year finish because of the additional efforts on the bike , but the one day rider badge, given at the finish line, made me forget all the pain in my body.
With the help of friends and family members this year as well we were able to raise about 1000 USD for a charity organization - Asha for Education (Including matching by corporates).  Last year I worked with a different NGO called Isha Vidhya, which is still one of my favorite NGOs making changes in my home country.  I had trained with bunch of other folks in Seattle who support Asha for Education, and hence a change in the charity this year. 
My heartfelt thanks to all the friends and family members who supported me in this years biking journey to Portland by contributing generously to Asha for Education. Your support definitely would make a difference. 
Looking forward to another biking season in 2016.

White, Grey & Black Swans

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Absence of Evidence is not Evidence for Absence
Since all those swans which we have seen is white does not mean there are no black swans is an example of what Taleb would call as errors in confirmation. I spent the last two weeks reading Nassim Nicholas Taleb’s The Black Swan and had one of the best intellectual journey I have ever had. I do not want to repeat the same problem he had highlighted of writing the similar book review what is already written in the internet. You can search the internet, being a new york time bestseller, this book would have more than a million reviews.
As I read the book, I started posting those amazing quotes in my tumblr which really created an Aha moment.  So just to reiterate what a Black Swan as per Taleb – It is an event which is of very rare occurrence , but very consequential and extremely hard or rather impossible to predict its occurrence. But after the event we can definitely give a logical reason of why this was so evident and was about to happen – which is what he calls as Narrative fallacy to which we fall.
We could encounter a Positive black swan / Negative black swan depending on the consequence but we cannot predict it. So what is the point in knowing about black swan was the question I had. But Serendipity, he calls, is one of the key to exposing ourselves to those positive black swans. Avoiding ourselves in to traps like Huge debt is a way not to expose ourselves to those negative Black Swans. 
If I look at my own life there had been probably only 2 large events that changed my course of life. One event was – when my father passed away in an accident during my school time. It definitely changed the course of life for my mother and me. It was a rare, unpredictable and consequential event my life. The other event was getting an admission to one of the top B School in India. Getting that admission I would definitely not attribute to my skill, but to my luck, and do not want to be fooled by randomness. I could never have predicted which college I wanted to go, and it was a rare occurrence and it was consequential in my life which really put me on a different trajectory in my career and earnings. But I was in the state of serendipity writing one exam after the other, and had no clue I would crack one of those exam - XAT really well scoring at the 99th percentile in India. If I were asked to re write that competitive exam I cannot assure I would end up in the same percentile.  But the payoff from the event, later on definitely changed the direction of my family’s financial situation.
Coming back to the book – I read this book after reading Against the Gods, the remarkable Story of Risk. So Against the Gods gave me the history of probability and various distributions and how risk as a concept evolved. Black swan really goes a little deeper and made me really understand the Gaussian Distribution better, because he covers a chapter about the problems we have with a Gaussian distribution in some of the places where the inequality is very high.  Though the Gaussian distribution bashing would be allover the book it is abused in a lot  of places where it does not fit, but from Taleb you would really learn the distribution well.
I learnt about the concept of Fractal when I did my engineering project on Fractal Image compression based on Fractal Dimension, but never thought the concept of fractal had relation to analyzing data in the way of Mandelbrotian distribution. The concept of self-affinity and scalability which I read first in fractal for the purpose of image compression had same application in this scalable mandelbrotian distribution to analyze the fat tail distributions which we see in the field of Extremistan according to Taleb. He does explain a bit about Power laws and fat tails, but it gets too technical, which can be skipped and still the reader can get the crux of the books. Most of the happenings in the world and in your own life can be attributed to few large events ( sounds similar to Pareto 80/20 right ).

I thoroughly enjoyed reading Taleb’s Black Swan over the last 10 days  and I just followed with the book by Roger Lowenstein on LTCM – When Genius Failed. Another fascinating read, on how the most smartest people ( couple of Nobel Laurets) as well had a big Financial disaster when they over relied on predicting future with Mathematical models and brutally hit by a Negative Black Swan.  

Also do watch Buffet's elucidation of the LTCM story in one of his talks.  So what is the use of knowing black swans if they are not predictable. So instead of predicting the probability of those happening, focus on the asymmetric outcomes.  Protect yourself from negative blackswans, like having high leverage. A simple thing is buying everything on your home on EMI including a huge home with a huge debt and if they are hit by a layoff in the company ? No need to explain further. The best thing would be have some small high risk bets where you expose yourself to positive Blackswans. Working for a startup, trying with smaller ventures , or even as Sanjay Bakshi explains how to expose in investing etc. where you could hit a positive black swan which could lead to assymetric payoffs. Luck favors those who are in search of them.

Revisiting my masters by connecting with 2015-17 HR Batch of IIM Ranchi

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Recently , I got an opportunity to share my thoughts with the new HR Batch of 2015-17 from IIM Ranchi over a video. One of my batch mate from XLRI is the Professor of Organization behavior in IIM Ranchi and he looped me in to this.  Other than the regular introduction of my standard about me page contents, I tried summarizing my thoughts in to the following 3 main heads.   Below is the transcript of what I had prepared for the speech.

I am not a thought leader in the field Human resources to really say something totally new to this batch. But I consider Charlie Munger,  as one of my role models, who often talks about the idea of inversion - “Invert, always invert” (This was a thought that came from famous mathematician Jacobi). But what Munger tries to explain is -
It is in the nature of things, as Jacobi knew, that many hard problems are best solved only when they are addressed backwards.
So to invert my own situation, I asked this question to myself: If I had an opportunity to redo my MBA in HR, with this additional knowledge I have acquired over the last few years, what would I do differently. Here are the top 3 things I would focus if I get such an opportunity, which would be my thoughts to this batch
1. Understand and define my circle of competence
The career choices in the industry once you finish an MBA in HR can be broadly grouped into three categories Line HR, Corporate HR, HR consulting. I am only focusing on the industry, and hence the career choice of teaching is not included,
As a Line HR, other than a factory setup you would support the business leaders with various people related programs be it hiring, performance management, training, employee relations and investigation and handling lay-off and firing of the employees and managers under the leader’s organization to ensure business success for him. If this is a factory setup, you would have added responsibility and more focused towards trade union management, shop floor productivity.
As corporate HR you would play a center of excellence role, developing programs at a company level like developing training programs, compensation philosophy pay models, and benefits structures, venture integration and spinoffs etc.
As HR Consultant, you would manage almost every category of the activity mentioned in the above two roles for multiple companies as an external consultant. So you could see the first two roles as an internal consultant to the company. But as an external consultant you would focus and work on one or two specific HR areas but across multiple companies and industries.
So in the first few months, spend time in understanding these career options and the various HR functional areas and define clearly what your circle of competence is. It need not be the same as your friends, and need not be a job that is given by a top company in your campus. I remember my batch mates simply went mad for some companies because others considered that was the best company. That is total herd mentality. You define your circle of competence. Identify which is the area you really enjoy and are passionate about. Work on those areas. It may be labor laws, compensation, organization behavior, training and development etc. But define it well and stick to it early. Work towards them, and you would make the best job on that area in campus if you do this.
2. Avoid surface level knowledge, and get deeper understanding
Once you have identified your circle of competence, don’t study at a surface level. Get really deep and understand the concepts really well. Try to read and research as much in that particular area from books, research articles, latest industry trends and working on some projects and assignments. This can happen only if you focus on a few things, if you spread too thin, you would be at surface level. If compensation or organization behavior is your passion, better become an expert in that instead of knowing things here and there which does not help you or your future employer.
3. Focus on Multi-disciplinary Thinking
Identifying your circle of competence, and getting deeper understanding should not stop you from focusing on multi-disciplinary thinking.
This is once again a learning for me from Charlie Munger, in his famous speech on Elementary worldly wisdom he says -
What is elementary, worldly wisdom? Well, the first rule is that you can’t really know anything if you just remember isolated facts and try and bang ’em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form. You’ve got to have models in your head. And you’ve got to array your experience—both vicarious and direct—on this latticework of models. You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and in life. You’ve got to hang experience on a latticework of models in your head.
A mental model what he calls out is just representation inside your head of an external reality. So to build a latticework of mental models you would need to read, learn and experience concepts across multiple disciplines.
Let us take an example and go through this, if you have chosen Compensation as your circle of competence and being an HR consultant is your passion. Get a deeper understanding of various compensation philosophies, reward programs, compensating executives, various pay mixes across multiple industries etc. And get really deep in this subject. But to be really good in this one particular subject you would need to know few models across multiple disciplines. Here are some of models you would need from other disciplines if you are going to design an executive compensation package,
From the field of psychology you would need to know, the power of incentives. Different reward programs incentivizes different behavior. From the field of Finance & economics, you should understand the concepts of corporate governance, net present value, compounding, employee stock ownership and vesting, stock option valuation (Black Scholes model) etc. From the field of labor laws and regulations, you would need to understand taxation, disclosure of salaries, and compliance.
So this would give a sense of why you would still need to study various areas which all would add to more than the sum of parts, to get a better outcome of the one area you are focusing.
To summarize – Identify your circle of competence, avoid surface level knowledge and get deeper in understanding and focus multi-disciplinary thinking.
Do not fret about placements, if you focus on these basics right, you would make it to the best job you are really passionate about.

This is the YouTube version of video I shared with them.  If you found something meaningless or useful do share your thoughts in the comments below.

Support a child as I bike Seattle to Portland for the second year

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Back again for the second year in succession. Biking, which came into my life out of necessity, became a passion for me. I have been into biking as a passion and a hobby for the last 5 years. Since last year, with your support I have combined my passion for cycling with supporting a cause. Last year with all your help, we sent more than 10 kids to school free of tuition fee for a full year through Isha Vidhya initiative. Educating a kid who is in need is like teaching someone to fish. A good education could transform the life of not just the kid but also that of his/her family. The impact is amplified more so because most of the children we support are first-generation school goers.

To continue with this effort, I will be attempting my first one-day STP (204 miles in one day) and also raise funds to educate kids in need through Asha for Education initiative. I look forward to your generous contribution to raise $5 for every mile of my ride, with a fund raising goal of $1000.

Every single dollar of donation from you shall go towards teaching under-privileged children in India. Needless to say, this shall also strengthen my resolve along every mile of this cycling expedition. As a gesture of my heartfelt appreciation, I promise to mark your names on a “gratitude poster” and wear it proudly as I cross the finish line.

If you are an employee of companies such as Microsoft, Intel, Google, (or a few others which are similar), your contribution could be even more valuable! Your employer has committed to match your donation dollar-to-dollar, typically above a fairly low threshold ($25) - thereby doubling the impact of your generosity!

Please support Asha for Education by contributing generously using the link on this page.

Looking forward to your support.  Click the below Donate button to contribute.

Click here to donate

Link to my profile page at Asha for Education : Hariharan Ragunathan

30 Years : Probably stepping into the next half

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I turn 30 today. That is quite a big milestone, if I see that number as just my age. But 30 years have gone by and not sure how much impact I had in people's life. The first 30 years went by in just figuring out ways to just make myself employable by spending about 20 years of the 30 in various schools. And the rest 10 years went in making some money to payback all the cost of education paid to those schools and build some positive net worth. Have I really made a positive impact in my everyone I have met so far in life? Of course not, but will tryy best in th next 30. Yeah, no expectation to go beyond another 30 :) there are so many to complete in my list of passionate dreams.

Beyond that list, I would want to continue my learning journey..where relearn the basics with even more clarity and become a learning machine. My passion for learning has not changed..

The woods are lovely dark and deep
Miles to go before I sleep..
And Miles to go before I sleep..

BTW this blog is also 10 years old and captures some of the moments in my life over the last decade.

Financial Shenanigans : Ponzi Scheme

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What is a Ponzi Scheme and how did it get this name?
A scheme where we lure customers for high and quick returns without any actual underlying business, but paying the returns to the first investors from money invested by the following customers.  The oldest term referred to this scheme is robbing  Peter to pay Paul.  Charles Ponzi was the first to do this kind of financial swindling at large scale in the US later on became a de facto name for any  rob Peter to pay Paul kind of financial scheme.
How Ponzi scheme different from Pyramid Scheme?
Pyramid scheme’s is a business model that involves promising participants payment primarily for enrolling other people into the scheme. Here the participants are asked to imagesell some high priced useless product, and at the same time asked to recruit additional people under them to form a ladder. So the folks who are top in the ladder get commissions for addition of new members or sale of products in the lower levers of the pyramid. Remember the power of Geometric Progression, if each person in the ladder has to recruit 5 other people under them, within just 14 levels you would need more than 6 billion people to be part of the pyramid to sustain the scheme. At level 15, you would not have that many people across the world. There are many multi level marketing schemes which are camouflaged versions of pyramid scheme. I remember my relatives selling some high priced very ordinary products like paste, soap buy joining the scheme with some high initial deposit amount. They are assured of making money buy selling that product, as well as adding few people below in their ladder. So they get commissions for  adding, as well as trail commission for the sale made in the lower levels. Though in the beginning you may get some initial peanut amount as returns from this, but eventually this is bound to go bust and you are going to lose the capital as this is completely not sustainable as you can see. We work within a city and within our own circle and event at just say 5-6 levels, you are almost reaching a maximum and if you had joined at that level into the scheme you bound to lose even immediately.  So as said earlier, Ponzi Schemes are not pyramid scheme and no sale of products etc. It is just assuring high return on your invested money and buy paying from the next set of investments received without any actual investments happened to the inflowing money. There was a very nice Tamil short film (Ooruku 4 Peru) on MLM and Pyramid schemes , it is a good watch.
What was the Business model Charles Ponzi had and what were the problems?
Charles Ponzi started his financial company that would help customer invest and double their money. He did this in the 1920s at Boston under a company named Security Exchangeimage Company (not the regulatory body SEC which was established later). Under this scheme Ponzi assured people that he has a legitimate business model similar to currency arbitrage. He assured the investors he could double their money in 90 days, or 50% returns in 45 days. It is too good to survive right, as Ponzi kept paying the principal and interest for the early investors from the principal he received from later investors. And also using some of the money from this incoming pool for his own personal purposes. It has to get bust, and later investors lost a lot of money. Of the 20,000 people who held Ponzi notes at the time of collapse of his scheme, received refunds to 37.5% of their investment. That is a huge capital loss resulted from this get-rich quick scheme.
To begin with Ponzi had a business model in mind, it was not to started to simply swindle the money. His idea was to generate profit that could be made by taking advantage of differing postal rates in different countries ( this happens because of different exchange rates) to buy postal department international reply coupons cheaply in one country and exchange them for stamps of a higher value in another country. So later he could sell the stamps to the business at a discount and still make a profit in the range of 200 to 300% for each dollar invested.  But the only problem was that, the model existed only in paper. Because to do this in large scale there is a lot of logistical problems – for even an amount of 1000 USD he would need to buy a huge number of IRCs and would need to ship them back to US to convert as stamps. With even more money, he would need a ship full of IRCs and there are not that many printed and you cannot covert them to such large number of stamps.  But he wanted to start the company before even figuring out these logistical hurdles, and half way he realized, he was already in deep shit, and the business model he had in mind is not feasible. Since he started collecting a lot of money already from new investors he had to continue that process in order to honor the commitment made to the previous investors,  and got everyone into this huge trap. He tried to get into various business half way so that he can come out of this scheme, but it is so hard to do that once you start this cycle. 
I really enjoyed reading Mitchell Zuckoff’s book Ponzi Scheme  over the last weekend. Zuckoff is well known for investigative journalism, he has done a very good job of bringing vivid images of the real story for a non fiction book like this. He spent a lot of time collecting data across 400+ secondary sources about Ponzi’s life and his scheme, and also the photos from various news paper clipping. He also covers a bit about Ponzi’s past personal life and life after the scheme got bust. The narration about the Boston Post daily that played a key role in busting Ponzi’s scheme covers some details about the tactics played in news paper industry to increase circulation in the 1920s and also covers how there was a delay in passing information across borders which was filled by these news papers those days.  The most interesting parts of the store were - how Ponzi continued to be confident for quite sometime that he would be out of this mess and also how he kept on always dreaming he would become a millionaire someday.
What to learn from Ponzi’s story?
Only in death bed Ponzi accepted his business was fraudulent, till that time he always tried his best having Poker face that his business was legit. His statement before his death to a reporter ,
Those were confused, Money mad days. Everybody wanted to make a killing, I was in it Plenty deep. Rolling in other people money. My Business was simple- it was old game of rob Peter to pay Paul. You would give me one hundred dollars and I would give you a note to pay you one hundred and fifty dollars in three months. Usually I would redeem my note in forty five days. My notes became more valuable than American Money
When you read those vivid moments of how people reacted when they saw the opportunity to make quick money they all flocked and rushed just by hearing from others. This is completely a mob behavior, similar to lemmings following one after the other for a suicide into this without really doing any research. They just madly believed in this person without really thinking how he really made money out of this scheme. The even more interesting part was , did such incident teach us something and did we learn not repeat, no this came back in even bigger form in the same old Ponzi scheme model under Bernie Madoff
Something from my own life. This only makes me wonder at our own behavior, this includes me as well. I have not got into such a scheme that I had to write. I did remember investing a small amount of money in Reliance Power of IPO, which was over subscribe by many times, and this was in 2007 when I was still learning to invest in stock market. Though the amount I invested was 6800 INR, and expected to make listing gains. Reliance power had made projections till 2016 for their valuations, and it never took off. I was just plainly lucky that I sold the stocks at 6983 with a <2% gain after the brokerage charges over 6 months. Though it was not a Ponzi scheme, that was a similar investment mistake many other people did before, trading of a small amount with the expectation of a huge payoff.  This behavior is what that makes us to gamble as well, and hence Warren buffet rightly said,
Las Vegas has been built upon the wealth transfer that occur when people engage in seemingly small disadvantageous capital transactions -WB, 1982 Berkshire Hathaway Letter.
So Greed & Hope followed by fear have created enough financial mess - millions of dollars in the 1920s and Billions of dollars with Madoff schemes in the 21st century.

Against the Gods : Book Review

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I came across this book when I was searching for a book that covers the history of re-insurance industry.(Reinsurance in its simplest form is an insurance bought by an insurance company to spread the risk). I got curious about what was the history of insurance , and how did people create such wonderful concept of reducing risk by the concept of risk sharing in the past.  Then stumbled on this gem which had some amazing reviews, and said Against the Gods was about the remarkable history of risk.
I am a slow reader, and this book took little longer than a week for me to complete. I read about 1-2 hours a day after work, and even in weekends I get about the same time to read. So  I took about 10 days to complete this book. I would attribute the slow reading speed to the breath of the subject covered in this book. I could not easily pass through the pages, as every page had some thing new and I had to re-read the chapters sometimes. Only then I got a better understanding of how some of the greatest mathematicians and economist thought through the problem of Uncertainty and  risk. The history of probability theory laid out in the initial chapters were fascinating for me. If I had known this history of how probability evolved, maybe my understanding of the probability concepts would have been much stronger. 
Risk – derived from the early Italian risicare, which means to dare. We are always faced with uncertainty about the future and risk management is about being prepared to face those uncertainties and be prepared for the worst possible cases.  If someone says-  I have never taken risks - then they are not seeing what risk means. We take risk in every step, by forgoing some money now and going to school, we hope to make more money in the future. The risk involved is capital loss and no job in the future. But the probability of failure is very low and hence everyone of us is trying to go to school and educate ourselves.
In this book - Peter Bernstein takes through the story of risk right from the Greek history and origin of numbers. Through this journey of over ~800 years you would read about the history right from the 1200s about Leonardo Pisano’s (aka. Fibonacci), Liber Abaci  to the 1990’s Option pricing by Black-Scholes. Many mathematicians and economist were behind this area of handling uncertainty - actually all of them were male, none of them were female. The diversity numbers in mathematics and economics especially among those prodigies were pathetic. But that apart, the history was fascinating as the author takes us through the work done by each of the folks that led to further development in the areas of probability, handling uncertainty and risk management.
Blaise Pascal & Fermat started a correspondence to solve a problem on how to separate the bets in an unfinished game of chance (say throwing a die) which led to the fascinating invention of probability.  The real uncertainty that caused the curiosity to handle it was in Gambling and which had led to further development outside the game of chance. Only in the the 1650’s, the beginning probability theory happened. In the 1700’s the Bernoulli family (yes there were more than one Bernoulli in the family of which 8 of them were mathematical prodigies over 100 year period of the family) made break through in the areas like Law of Large numbers, Central limit theorem and also the concept of Utility.
The utility resulting from any small increase in wealth will be inversely proportionate to the quantity of goods previously possessed – Daniel Bernoulli
The above statement would tell you why King Midas was an unhappy man. Later Abraham De Moivre, introduced the concept of standard deviation and the bell curve, which was refined further by Gauss & Laplace. Hence the name Gaussian curve, and the way Bernstein shared this story of how they arrived at these concepts were simply fascinating. Not just this, a minister Thomas Bayes made a striking advance in this field by introducing Bayes Theorem.  My favorite story was the research by  Francis Galton, where he tried to understand why the independent and random trials form a Gaussian / Normal curve which led him to the concept of regression to the mean or Mean reversion.  He even introduced the concept of co-relation, but Galton was doing all these in an area which is totally unimaginable – Eugenics.
The book does cover the great economists who were in the history of risk like Keynes, Kenneth Arrow, William Jevons, Harry Markowitz (Modern Portfolio theory), William Sharpe (CAPM) Daniel Kahneman  & Amos Tversky  (Prospect Theory), Fisher Black & Scholes (Option pricing)  and a few more in the list.  Each of the story had some pretty deep explanation of their work and how that connected to the development in the area of uncertainty & risk.
He did cover some brief about the insurance industry especially about the Lloyd of London where it all began, and this was the reason I was searching for a book on history of risk. So over all this book covers a good mathematical & economic history in a very beautiful sequence of events with some calculations and concepts thrown all the way to keep you interested .  Thoroughly enjoyed reading the book, and had to keep referring different concepts in the internet so that I get the context better to continue with what the author was adding to it further.
There were couple of other books I had read in the past,  which had a very similar style. One of the book was about the journey in the field of Cryptography - The Code Book and the other book was the journey of mathematicians to solve Fermat’s last theorem - Fermat’s Enigma. Both those books were written by the author Simon Singh.  If you had liked these books, you would enjoy Against the Gods as well.  So Against the gods is a journey of mathematicians and economists to solve the problem of uncertainty . To end with another beautiful quote by de Moivre from the book, which he made when he was fascinated with his finding of the Normal curve, ( when orderliness of a bell curve made its appearance as the number of random and unconnected observations increased),
[A]tho’ chance produce Irregularities, still the Odds will be infinitely great, that in process of Time, those Irregularities will bear no proportion to recurrency of that Order which naturally  results from ORIGINAL DESIGN  - De Moivre

Quotable Quotes : Lessons for Life

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Various one liners , those which I remember back of my head, have helped me a lot in decision making and leading a simpler life. Most of them are basic, but it is good to remind ourselves once in a while. 
  1. Life isn't fair, but it's still good. This would make you stop gossiping, comparing with others etc.  Don't compare your life to others. You have no idea what their journey is all about. There are people better than us , also worse than us.  Envy is a waste of time. You already have all you need.
  2. Pay off your credit cards every month. I had a life lesson on this topic from my father- who showed me how not to use a credit card. He did all of them – Carrying credit card interest, balance transfers across credit cards, withdrawing from cash from credit card, and allowing your debt compound at a high rate.
  3. Save for retirement starting with your first paycheck.  I did not get this in my first paycheck, but definitely got hang of this when I took my first job after MBA. It’s a work in progress till I get financial freedom.
  4. You don't have to win every argument. Agree to disagree. Its OK to say sorry, Choosing the right battles is the wisest thing
  5. No one is in charge of your happiness but you. 90% of the pain is self inflicted and starts with our own mind
  6. Forgive everyone everything. In the last 30 years, the number of people I came across have been lot, many I don’t see again. Why to carry the grudges ?
  7. What other people think of you is none of your business. Very tough one for me, and I struggle hard at this.
  8. Growing old beats the alternative -- dying young. I totally love this, youth is wasted when we are young.  Wisdom acquisition is a moral duty as Munger calls out and the older I get, the more I read. The more I read, the more I  know how much I don’t know in Life.
  9. Yield or Help others.  Because someone yielded  (not one, many actually), I am here where I am . I should continue to make a lifelong commitment to help others.
  10. No matter how you feel, get up, dress up and show up. This was forced early in my life out of necessity, where I had to show up whatever shit happens in life be there and show up at school to ensure  I move out of the rut my family was stuck
  11. Stick to your circle of competence : I have been running here and there trying to do multiple things and  only last couple of years have tried to cut down many things which does not fit my bill. An example could be, on my hobbies. I am good with cycling and swimming, and just sticking to that instead of trying to play some game where it needs a lot of hand eye coordination , which I suck it. Trying to focus on few things where I can do the best job.
  12. Life long learning & passionately learn multiple areas. Having fallen in love with Munger’s  mental models - how to build a lattice work of them helps in decision making, I am pushing every day to be at least  a little  wiser than the previous day before I go to sleep. And reading is on thing that will help me, and have been on and off many times – but would continue reading.
12 is a good number to begin, will update If I remember more . 

Principles for surviving & thriving at home, school & work : Brain Rules

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Last week I attended a talk by Professor John Medina from University of Washington. This talk was part of a summit, which focused on creating better learning experiences in our Training and Development programs. Though we covered a lot of areas in the summit like Micro learning, Gamification , Virtual learning , MOOCs etc. The most fascinating part of the day was Learning Sciences talk by Professor John Medina which focused on areas like cognitive science, educational psychology, the genetics of human brain development and psychiatric disorders, how the mind reacts to and organizes information, and how brain science influences the way we teach. He mostly covered these topics from his book Brain Rules . Over the weekend I spent a good time reading his book Brain Rules  that covers 12 Brain rules which he has identified through research. These rules  potentially could improve the learning outcomes for the kids at school or home, or even employees in a corporate settings.
Among the 12 Brain rules called out , 3 of them were well known fact and we know the importance of Exercise, Sleep & Stress avoidance.
Rule 1, 7, 8 : Exercise boosts brain power, Sleep helps in thinking well & Stress reduces our effectiveness and curtails our learning.  Regular and moderate level of exercise  has ton of benefits to health, and we can add now - it improves our thinking and brain power. Sleep is a must, but from the book, I came to know, during sleep we are consolidating the learning we had during waking time. A moderate level of Stress is always good but chronic stress make brain don’t learn the same way.
Rule 2, 3: Survival & Wiring – This was a fascinating part, where he delved on the concept – Theory of Mind. Human beings have great capability of understanding other peoples emotions / mental states and adapting according which has helped in co-existing together as a community. In-fact he calls one of the key reason for our survival in the evolution is this capability.  Also every human brain is wired differently. in the multiple cases he has quoted, the fMRI scans shows clearly that every brain is uniquely wired and they are not wired the same way. So in a learning environment, the more individual connection we have with the teacher/facilitator and the learner creates a better learning outcome.
Rule 4: Attention : This had some very key ideas for teaching. The best thing that gets our attention is Emotions. Our brain has two forms of memory – Declarative memory which focuses on storing facts etc, and episodic memory which focuses on events. The episodic memory stays longer and gets the declarative information stay longer if both are combined.  In a class room we often lose attention after a certain span of time – and our brain needs a emotionally competent stimulus (ECS) regularly to grab attention back, (He called this a Dopamine lollypop during the talk). So adding some very emotionally connecting stories / cases which is coherent to the subject covered could grab attention again for certain amount of time. This reminds me of our Finance professor, he keeps quoting about some real world cases in regular intervals before or after sharing concepts which made us very attentive and improved our learning.  The other concept covered in this area is – our Brain processes meaning before details. This goes back to the evolution, our Brain looks for these 3 top questions first – Will this eat me / Can I eat this, Can I mate / will it mate, Have I seen this earlier?.  We can use these 3 questions to create the ECS and grab attention.   The well known and other important key aspect he calls out is the inability of the brain to multitask , and it can only sequentially process, and cost of switching to brain reduces our learning ability. Giving sufficient break is also must to improve learning outcomes.
Rule 5, 6 : Short Term & Long Term Memory : Almost 90% of the things we read , are forgotten over a period of time. So repetition is key to remember things. But our current classroom setting is an overload of information for a continuous 6-8 hours which has a very low learning.  One of the key counter intuitive fact to know were – The more the information and meaning the better the learning. The more details should ideally be resulting in a lot of effort to the brain to remember, but if the more details are around a central fact or core idea, the core idea stays longer in our memory. Incorporate new information to learners gradually and repeat them at regular intervals. This reminds me my teacher in K-12, who used to make us do repeated oral tests to ensure we remember and also created fascinating stories and funny acts for us to remember the core concepts. I still remember the concepts which he taught in Physics and chemistry well, because of the vivid images and stories he created in our mind. Environment and context helps us to remember something easily on reproducing the same environment. I remember doing my mathematics practice test in school classroom similar to the board exam timed and with similar sheets. When I went to the exam it did not look like I could remember pretty much most of them I read.
Rule 9, 10 : Sensory Information & Vision : This is another counter intuitive fact about brain – the more information about a fact makes it easier to remember than lesser information – same way if you create more sensory data for a core concept, it is easy to remember and recollect for the brain. The senses could be vision, auditory or olfactory. So in learning environment we should use all forms of learning and not just dry text books with only passages. A picture is worth more than 1000 words, and our Vision trumps all other senses. If we make the information visually appealing it is easier to remember and recollect for the brain.
Rule 11: Gender Male and Female brains are different , structurally and biochemically. So they do respond to situations differently as well. In an acute stress, women remember the emotional details and react differently, and men only get the gist and react differently. This is an interesting fact, as we have never explored how learning is impacted because of this difference when men and women are together in the classroom. Of course in work setting we know the problems of inclusion very well and every company has understood the importance and working on it, and it makes sense we should focus the gender diversity and how do we handle this in learning environment that leads to better learning outcomes for both men and women.
Rule 12 : Exploration  We learn by observation, hypothesis, experiment and conclusion right from our childhood. Specific parts of the brain allow this approach, where we keep revising our hypothesis. Our exploration and learning does not support, the brain supports lifelong learning and adult brains do create neurons and learn new things throughout if we really focus our efforts to it.
The last line is key for me, and I would want to be a life long learner and it was reassuring for me. Seeking wisdom and life long learning are something which I enjoy the most. Overall this a good read for people who are in the learning and development space as it talks about how we can use the brain rules to change our pedagogy and improve learning outcomes.

Understanding Moats : The Little Book that builds Wealth

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Couple of months back I saw one of the talks by Pat Dorsey in Talks at Google. Where he talks about Competitive advantages of companies, which is the key for shareholder wealth maximization.  Being a student of Charlie Munger, I have always been fascinated by the concept of Moats and Floats. So his talk really grabbed by attention and made me read his book Little Book that Builds Wealth, where he talks about the concept of economic moats and how to identify them. Identifying the moat is a key for us in investing, which was made popular by Warren Buffet.  In this book he gives a simple framework on how to indentify the moats, and in most cases what have been the source of this sustainable competitive advantages.

Not every industry and every business can have a sustained competitive advantage or moats.

Reminds me of my finance professor who said – Life is not Fair. Airline industry is the best example for this. I would take the Indian Airline industry as a good example, we have repeated cases now – Kingfisher, Jet Airways, Sahara and now the latest Spice Jet Fiasco. None of these companies helped with share holder value maximization but I did enjoy some good trips in each of these airlines. I also do not have any loyalty when I fly and focus only on cost and who is ready to give me low cost. An Economic moats provide the company an undue advantage to generate more than reasonable profits by way of pricing power over customers.  What contributes to these economic moats for these companies, can be broadly put, as per Dorsey, into these 4 categories.

  1. Intangibles Assets: These could be a Brand (Eg: Audi, McDonalds, Coke, etc.)  Patents (Pharma companies play this game) or Licenses / Regulatory approvals to operate in a regulated industry where there is no regulation on pricing power (Eg.: Moodys). In all these cases, Intangible assets become a moat if a brand could help the company charge a premium price, or a company has a history of filing Patents and coming up with innovations or price like a monopoly with a set of regulatory approvals.
  2. Customer Switching Costs : This would be an economic moat if the cost of switching outweigh benefits or there is a tight integration with the business.  Banks are the best example for this. I have not moved away from my ICICI account, since the time I opened my Savings account back in 2006 because of the integration it has with so many other transactions in my life. Even Once I had tried moving to Kotak Bank, but I just could not change. So once the customer is locked, they do not want to change the product, and ok to forgo a little additional cost to overcome this pain of switching. Enterprise software companies like Adobe, Microsoft etc. and  Asset & Tax management companies Vanguard, Intuit. are best example. Event if there is a significant retraining cost involved customer would stick to the same product, and that serves a moat.
  3. Network Effect :  This is my favorite and fascinating form of moat which can exist only on non-rival goods. A non-rival goods may be consumed by one consumer without preventing simultaneous consumption by others. This mostly exist in information technology industry. Some example are Microsoft, Ebay, Visa , Facebook etc. Facebook for example has more users because already more users are there. Once it has gained a critical mass it builds because of the existing mass. Microsoft office is used by many , because lots of others are already using office. Ebay – more  sellers bring more buyers, and more buyers bring more sellers. Lets take the case of App development in a platform like Windows, Android or iOS. More Apps gets more users to the platform, and more users make the developers build more Apps. There is a virtuous cycle existing here leading to a positive feedback and that serves as a strong economic moat for the company to price the product strongly and fend competition to enter into their space.
  4. Cost & Size Advantages : Companies that are able to manage low cost because of the unique asset they own (like a mine), or process or manufacturing technology that is an advantage over competitors to generate a higher profit margin. Process based cost advantage are tough to survive over longer tenure like the Southwest or Dell example. But the location (where proximity to need and cost of transportation of the product is key) and unique asset based cost advantage can sustain longer. Similar cost advantage could come from the economies of scale, where the bigger volumes can pull down the cost and often tough for new competitors to get to the scale that existing companies operate. It would need large capital and time to replicate which could serve as economic moats.

When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.  - Warren Buffet

So to identify the best bets to invest as a long term  shareholder it is important to invest based on the underlying business and what is the economic moat it has. The 3 steps that is called out are - look for the demonstrated profitable history of the company, and identify the reason for their sustained profitability over years also discounting for risks associated with their moats eroding or profits shrinking and finally value that firm based on their intrinsic valuation like a DCF or by relative price multiple valuation (P/S, P/BV  or P/E).  When we read things look easy, only when we actually dirty our hands by doing , things get hard.  A quick and crisp read if you are interested in understanding competitive advantages and how to understand these moats.

How to Lie with Statistics : Book Review

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Recently I read a book - “How to Lie with Statistics” . I stumbled on this jewel from Bill Gates Recommended reading for Ted 2015. Though this book was published in the 1950s I found this book is more relevant now with the amount of statistical data we see every day in our life and work. A small book with very simple explanation of powerful concepts. 
Statistics tell us nothing until we understand what is being counted in the first place- Tim Harford
I will try to summarize the crux of the book in few points.   So the book is divided into these broad areas, and we can use this as a lens to view the any statistical data we see in media, or news or any company’s annual reports etc.
Sampling Bias : In real world problems and scenarios we handle it is really hard to generate a random sample that is representative of the population. Always question weather the sample representative of the population or biased / not representing the actual population. When magazines share the findings, first go and look how the sampling of the population was done.
Averages - Mean, Median & Mode:  Business School Salaries reported out In India is one of the good example.( I have been on both sides, reading the figures as an outsider was astonished, and later as insider when I was also part of a business school placement process). When the report calls out the average salary of the placement offers is say 20 Lakhs INR. They mostly refer the Mean, which hides the reality of what the salaries were for the majority of the population. Suppose if 4 people out of 60 people get an international offer at 40 Lakhs INR, you know how the data would skew to show a high number. Median & Mode are extremely good statistic which reveal more information.  Suppose they say Median Salary was 10Lakhs INR , this would imply half of the population is getting a salary at or below 10Lakhs. Pretty interesting to know right :).  There are other statistic as well like the Standard deviation which was not covered in the book, but important to know if you are into investing in stock markets. Suppose the statement made is - the average annual return of the stock market for the last 5 years is 12%, then don’t think the returns were like 12% every year. It could be like this 75%, –10%, 10%,-20%, 5%. The mean hear is actually 12% but how does this help. If you have one leg in a hot stove and other leg in a cold stove with the mean at room temperature does it help you in any way? It would actually result in burning or having a frost bite but the mean statistic looked very normal. The median in the above stock market example was 5%, and the standard deviation for the above case was 37%, which shows high volatility.  This was one of my favorite chapter and fun reading.
Statistics with missing / Manipulated pieces of information:  When there is statistical data shown, there are very key information missing like statistical significance or error rate. Where the data could be +/- some range and still valid for the interpretation. There is an error rate of +/- some percentages that is allowable.  Missing / manipulation of statistics with Graphs could be scary. By changing the scale of the abscissa or ordinate, or by not mentioning what the axis represent , or the units you can manipulate the reader to infer totally opposite thing in the graph. By scaling the graph, and cutting down the axis points, I can show a marginal 5% increase as some great increase in revenues for the company pictorially. So watch out for those.
Measuring something and reporting the something close to that: Asking doctors what is their preferred brand of cigarettes and reporting to public as even doctors use this brand of cigarettes so this is a healthier option. Though while measuring all that was asked to the doctor was what is their preferred brand, and creating an assumption that doctors only choose healthy option.
Correlation does not mean Causality  : No need to say this more – if I can create data points saying that whenever I eat vegetarian food, it rains in the city. Wow, so eating vegetarian food leads to rain? Applying context and common sense is very important and correlation does not imply to causality.
The key take away were these questions that we need to ask when we see a statistical information.
  1. Who said it – Who was the person that measured this statistic, credible person and what are the incentives. Or a credible name could be used to deceive as well
  2. How he knows and What info is  missing  ( Look for some information that is hidden or not removed)
  3. Did somebody changed subject – This is to check any semi attachment or representing something totally different to what was measured
  4. Does it make sense Common sense – Apply common sense test – remember if I eat vegetarian food it rains example :)
A short 140 page quick read and a must read for all.

Retirement Accounts in India Vs US

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After moving to US, I have been researching on what are the best ways to invest in this country. Having spent a lot of time planning for my personal finance in India over the last decade, I had to re learn what are the options we have in the US. So here are some learning , where I create an analogy  of what option we have in India vs. what we have in US. Here are some very broad picture of the options and not an exhaustive list for your retirement planning.
  • 401(k) Account in US Vs. Employee Provident Fund Account (EPF) in India  (403b if you work for a nonprofit)
    • Similarities : There is a defined contribution from employee and a matching contribution to certain from the employer to accounts. It is ear marked for retirement hence there is a penalty when you withdraw early, you can definitely take a loan against this money, and not attachable during bankruptcy, you can withdraw the amount beyond certain age which is typically 59-60 years. They have the tax advantages like deferring income tax early or later to support retirement savings.
    • What is Not Similar :
      • EPF - There is a fixed interest decided by the GOI part of the budget every year.   Money is managed by EPFO or by the company trust. There is no control of the investment decisions, but the returns are assured and the interest is credited as per the rate decided every year by GOI.  No opt out options, mandatory most of the places.
      • 401K – Full control of the money the moment the money gets to the account. We can decide where to invest based on the options provided by the company’s summary plan description. Here the companies provide various options for the employees and this is different with each company. The summary plan description for 401K of each company provides the details of matching , investment options etc. Usually the account is with some brokerage firm like Fidelity , Vanguard etc. where the firm has a contract and you can login anytime to change the investment decisions among the options you have – bonds, stocks, mutual / index funds etc.  No fixed interest rate, your investment decisions decides your return. Choice of opting out, but one request, please never opt out. Take the matching contribution and save in 401K :)
  • Individual Retirement Account (IRA) ( Traditional IRA or Roth IRA )  Vs. Public Provident Fund ( PPF)
    • IRAs and PPFs  are not exactly same. Both are independent of the companies you work, and a separate savings cum tax advantaged accounts, with an annual cap of how much you can invest every year(PPF is 150K INR, IRA 5500 USD Every year). PPF has a fixed interest rate decided and regulated by government of India and purely a debt instrument. But IRA in US is also a savings cum tax advantaged account provides an option of investing in places of your choices like Debt or Equity. Similar to PPF, you can open the IRAs with any private provider. For PPFs it is the banks, for IRAs it is Brokerage firms like Fidelity or Vanguard.  PPF is EEE Tax exempt i.e ( contributions are Tax exempt under 80x, interest earned in the account is exempt, on withdrawal after 15 years it is exempt of taxes).  But IRAs has options of Traditional & Roth – where Traditional is EET and Roth is a TEE. In Traditional IRA, you can put pre tax money which is exempt from tax, and earn interest which is exempt , and when withdrawing the money you would be taxed. But in Roth IRA which is a TEE means, You would put a after tax amount to the account, and  interest earned, and withdrawal after the stipulated time period is tax exempt.