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