Sunday, June 10, 2018

The curious case of grabbing everything: Givers vs. Takers

We recently made a move from US to India. As most moves go - there is a lot of packing, shipping or giving away involved.

I observed a curious behavior when it came to taking things. Obviously, you would want to sell things like - car, furniture, etc where possible. We were lucky selling off the cars and some furniture.

Most others - my wife and I decided to give away. Obviously, you would want to give things away to people who may need it. Like the student who reached out and wanted the golf set, neighborhood children who wanted the cycles, etc. Those are the perfect match.

For most others - you just post pictures / items on Craigslist for people to come pick what they like and leave. My wife had atleast dozen pictures of items to be given away on Criagslist - mattresses, household items, kitchen items, electronics, furniture, etc. It took a couple of weekends to clear away.

Few things which I observed:

  • Most people wanted to load up on things just because it came free! A few who came by took everything which was kept to be given away.
  • In the purest form, there are very few people who would say - let me just pick the crockery set and leave the carpet for someone else.
  • We had Asians, Indians, Whites and Blacks come by. 
  • I did not see a difference in any one set of people when it came to aspect of taking things for free.
  • There were cases where I asked if they would like to pay and buy something which was not put in the give-away list (like the sofa for example). After the first two times, I stopped asking.
  • There are a some who are very warm and enquire why you are giving away! They stop by and wish you the very best.
  • I was surprised to see our kids give away their toys when we told them we did not have space to carry everything back. 
  • Don't expect a thank you from people all the time. Some want to just carry as much as possible which leaves them very little time for anything else.
  • Then there are those who advise you not to move to a 3rd world country from a 1st world country. I had the guy who was picking up our mattress (for free) tell me why I am better off in the Bay Area all the while when helping him load the stuff.

The process helped me learn a lot about human behavior. Altruism is something which gives you a good feeling about yourself. If only that can be made more targeted, that will be awesome! Read more about my experience being a recipient of someone else's goodness - Altruism: Helping others with no expectation in return.

There is a good book on givers vs. takers which talks about this topic in terms of professional success. I couldn't summarize this better than here - To Give or Take? The Surprising Science Behind Success.

Ciao till next time...Harsha

Thursday, March 01, 2018

Don't just be a problem solver. Be a problem preventer.

People always like complicated things. How can we solve something that is very difficult. What can we do to showcase intellectual brilliance. I just finished read a few books on the pharmaceutical industry - mainly because a big portion of my money is invested in Indian companies in this sector and I want to understand more about the business models. There is a long runway for Indian firms particularly to grow by taking costs down. The margins of a J and J or a Pfizer or a Novartis are an opportunity for a Sun Pharma or a Ajanta Pharma or a Caplin Point.

Anyway.. I am digressing from what I had in my mind. Coming back to complicated things. Particularly how much money gets spent on finding cures for some or the other illness (you pick the disease - Cancer, AIDS, etc..). Cancer research alone in the US is a fascinating field. National Cancer Institute alone has spent over $500B in 40 years - War on Cancer. It continues to remain the second biggest cause for death (first one is easy to guess - heart disease). The general attitude of the western world is - let us declare a war on something and relentlessly pound our way to get to the cure for that. The general tendency is to find solutions for the most difficult and exciting problems.

Let's take an alternate look at this problem. If you don't get cancer - you won't die from it. It is less intellectually stimulating to advise people to get a 30 min exercise daily, do a yoga routine or create a concerted effort to educate kids to not take up smoking (which is the no. 1 reason for Cancer).

Prevention, many a times is easy and not costly. We just don't find that intellectually stimulating. Period. Simplicity is not appreciated as we want to spend time on complicated things.

There are similar parallel's in our corporate world. Problem prevention is a highly under-appreciated skill (read - things which will not get you noticed). Corporate examples:

1) Preventing a major accident/incident that could cause multiple $M's going waste.
2) Damage control exercises which prevent permanent damage that no one wants to really own or handle (these are in particular strict no-no's).
3) Prevent an exercise in futility. Refusing to do an exercise of some random analysis which will mostly indicate some random set of results which ego massage management or an activity which you would not like to do as doing nothing maybe better than doing something (my old blog: etc etc..

I just finished reading two interesting books. I highly recommend you to read that too.
They talk about the good and bad about problem prevention.

The first book is about Shelby Davis - "The Davis Dynasty" -

In this book, the key take-away for me is the aspect of just preventing all errors of trading by just holding onto high quality, undervalued insurance stocks Davis purchased for multiple decades. Its interesting to note that he held onto many of the good as well as dud stocks. He just avoided all trading errors by holding onto them over a long period of time!

What a simple problem prevention strategy. That is similar to Warren Buffett, but with a slight twist. Buffett's folksy American wisdom and well-thought-out public persona add to his fame, whereas Shelby Davis was known almost exclusively in insurance circles. He started investing relatively late in life. He would have been a billionaire many times over if he had started investing in his 20’s.

The second book is about the Vanderbilt family "Fortune's Children" - how they lost a fortune of $200M (in the 1890's which in today's value would be ~$400B) within a hundred years -

The entire book is a series of comedy of errors. From holding a fortune that was more than what was held in the entire US treasury during the 1890's to losing it all within the next 80 years is a mammoth task. A quick summary can be read here:

What am I getting at?

Human beings are wired to respond to a story. That’s pretty much how we live our lives, narrating our own story as we go along. In a sense, prevention is the anti-story. When it comes to health, wealth or professional achievements - prevention, in the best way possible, robs us of a painful story that might have had a profound impact on us.

If life is built around story-telling, it’s difficult to appreciate the full value of the mechanisms we use to prevent harm, because the corresponding stories never materialize.

It’s much sexier to be a problem solver. You see that description all over people’s LinkedIn profiles and CV's - especially now that I am trying to interview a whole bunch of people. Problem solving implies a deft intellect, a resourcefulness. Problems attract a lot of attention. Solutions bring a lot of acclaim.

Being a problem preventer is much more boring. People see the expected, repeated, competent output from a problem preventer and think little of it. Bill Gates. Steve Jobs. Jack Welch. These are problem solvers. We know their names because of it.

It would be great if everyone in leadership was a mature, patient, disciplined thinker who innately understood the value of problem prevention. That’s not always the case, though.

It is therefore important for us as smart managers or leaders to understand and appreciate this skill set. In an increasing world of loud self-promotion and advertisement - the sane voices can get trampled amid the noise. Differentiating information from noise is so very important.

Ciao till next time...Harsha

Friday, July 14, 2017

Bye bye Cypress. Funny recollections

Someone told me that finally what you remember when a good run ends are memories of the good times. After 10 years, I say goodbye to Cypress.

The other day my son and I - we were playing a game to build up his memory on country names. I ended up counting how many countries I visited during my time @ Cypress - it was 30+ countries (I forget if it was 36 or 39) in 4 continents. For giving me the opportunity to travel world-wide  and work in 3 continents - I will be forever thankful to Cypress. One's thinking expands when you travel and work with different cultures and visit different places - this is something you cannot get otherwise. I'll list the top 5 entertaining moments I had in these 10 years when traveling. Damn it.. I see there were some entertaining moments.

1) Follow-me taxi: When I joined Cypress in India, I got sent to San Jose for a knowledge transfer training. It ended up as a close to 3 months stay. After a few weeks I ventured to rent a car (with another colleague who was also visiting CY USA). We somehow lost our way and it was fun trying to knock someone's door to find directions. Finally we hired a taxi and followed him!

2) Shopping in Israel: It's never fun when you have working Sundays. Israel is one of the places that does. In my first customer trip abroad I landed in Israel on Saturday night (Sabbath) only to lose my luggage. Saturday evenings are sort of closed out (that's shopping during Sabbath!). I waited at a shopping complex for shops to open. Now comes the difficult part. Explaining what I really wanted to buy in an old traditional shop (not one of the jazzy malls) not fun. Especially try translating inner wear.

3) Detained in Switzerland: Borderless travel in Europe is no fun when you forget to carry your passport. Especially in Switzerland. I always felt traveling to customer visits in Southern Germany or Switzerland to be most fun. Trains are fast, efficient and always nice. I was on one of my usual visits in Zug / Zurich (I forget where now) and got selected for the random check ( how random can it be that the brown-skinned guy always get random checked :-))... Carrying no passport. No visa. Detained in a police station for few hours. Psst. Never ever ever leave without your passport. That was the closest I came to being sent back to my home country.

4) Chef's special soup @ Ritz Carlton Seoul: Being a veggie is no fun in far east. Especially in Korea. One of the early fun days was always the long travels that our friendly JB Raa was fond of sending me to :-) Korea being his home country, I got packed there for 4 or 5 weeks to visit customers staying locally. The bland food in my hotel finally caught upto me after the first few weeks...I bought some rasam powder (the spicy curry) from local Indian store and asked the chef @ Ritz Carlton to prepare a soup daily. It seems the chef tasted this and took a liking for the Indian soup! He promised to include this in the menu as the Chef's special soup. I need to find someday if Ritz Carlton, Seoul really has this still on menu!

5) The night-time coffee in Finland: Traveling to Nordic (Sweden, Finland or Norway) was always fun. The customers are so friendly, people are so fun to be with, the places are so vast (no doubt I really liked traveling recently to Alaska for vacation.. it's so similar)! Vaasa is an interesting place in Finland. Being close to the Arctic circle - you can always count on sun at 1am or 2am during summer-time. The coffee you drink when there is a colorful hue (is that what they call Aurora Borealis...never mind, I didn't know that then) is awesome! Who needs sleep then. Just that you need to stay awake the next day...

6) Snowed over Sweden: The Nordic telecom customers were onetime big users of our RAMs.. it was a monthly trip visiting Stockholm or Gothenburg. Anders and I, after a price negotiation were just heading to the airport in the most horrible snow storm I have seen...3 feet snow; Anders being the honest guy you can find, trying to still make it to the airport (though we both knew flights would be cancelled). Struck in airport, no flights, no hotel to stay, no taxis going out now seems like a pleasant experience (atleast the old pics seem to show a happy me!).. Tip: book a hotel room asap when it snows heavily in Nordics. Airports are no fun.

7) Losing cell-phone can be dangerous (happy wife, happy life!): Specialty Memory days were so much fun traveling into Israel for customer visits. When traveling to airport like 3 hrs before your flight (so that you clear all the security checks at Ben Gurion Airport), I called my wife to say I'm heading home. There was a cop checking our taxi (this is normal when you are entering into the airport), I told my wife that I need to hang up to speak to the cop. I left my phone in the taxi heading into the airport. She seems to have called me back only for a strange guy to pick-up the call and speak in Hebrew. She ends up calling Sumit (I hope he remembers this call), Richard (sales guy in Israel).. and the airport. Luckily I remembered to call her after passing through the security check.

8) Never mix red-bull with vodka and Irish car bomb: Kamal is not a fun boss when it comes to drinking binges. Amol and I had an interesting drinking experience when we were based in Munich. Spending a night drinking with Kamal and Ludwig.. is never a good idea. Especially when you down 5 shots of red-bull with vodka and then end up drinking Irish car bomb. I ended up taking the wrong local train in Munich.., I really don't remember much. Waking up in Stanberg the next morning, I took the 2hr train back home. That was one angry wife waiting back. My colleague Amol had pink rashes all over his face the next Monday in office. Never seen someone like that.

Well there it goes (did I say i'll write top-5?).... I have no time now to edit and correct this to top-8... its my post anyway. Who gives the tower of pisa a second glance if it were standing straight! I'll leave this as is.

Ciao till next time...Harsha

Monday, July 03, 2017

Clarity: Understanding what you do not want

I am a big fan of Charlie Munger. His thoughts on building a frame-work of mental models is top notch. One of the thoughts he brings is "inversion" - ability to think backwards instead of forwards. Example: if you want to be happy, one can do that by cutting down on things which make you unhappy. Do not be around people you dislike, do not do things which give you dis-contentment, mental pain for no gain, non-stimulation, etc etc.. cut down on crap.

In many of our work and things that affect our lives, we are more mechanical in approach and fail to question why we do what we do. Ability to focus on work is critical to success. Most successful people have found that focused work is very critical to success. You can read on what I wrote here: Focus: a key tool for success.

One of my colleagues who read what I wrote on focus asked me this pertinent question: "Harsha how can you focus on something when you really do not know what to focus on! I think I can do so much better, but I have so many things to do and all needs to get done as I've agreed to do everything"

This is such an important question in our lives. We have so much potential and still end up doing mediocre work. The potential to do wonderful things exist in all of us, but we end up with sub-par results since we are unable to focus on "what we want".

From time immemorial we humans have had the same problem. We have our lives to live, the rigmarole to make ends meet and somehow in this midst of it all, fail to focus on things we want to do. There is an inherent "lack of clarity" - the inability to understand clearly what we want, what matters and the resulting issue of mediocre performance overall. There seem to be very few people who have understood the power of "clarity".

Guru Munger says:  "Invert the problem. Always invert". So, looking at our issue of "no clarity" - it is very important for us to remove all those things which are clouding the judgement and not really important or are not giving us enough energy to drive on. Let's list all the items which one needs to remove in order to be left with "clarity":

1) Distraction. I think this is our no. 1 enemy of our life and times. We have so many distractions and so many pulls which are meaningless yet time consuming. Prevent yourself from becoming distracted. Read my "The do-nothing strategy".

We feel that if you keep running around in circles - you are creating something of economic value. Example - generating reports on why something is where-it-is or looking too much into history and forecasting what something needs to be or looking into set of random data and creating patterns where none exist and creating complex models around them, etc etc are running around tree patterns. Let's stop getting distracted.

2) Unorganized behavior or lack of prioritization. This is something I have observed increasingly after I started looking at things more critically. This tendency can affect any of us well meaning individuals. The main root cause for this to arise is due to our perceived inability to say "no" to things. Read my "Urgent vs Important".

We want to do everything. We like to be in every meeting. Read every email we are on cc, attend every single conference call which adds minimal value to us and do everything that ideally our boss has to do because you cannot say "no" to him / her. As a civilization, we have lost our capability to "say no". I think our society has built an army of yes men - which has resulted in loss of critical thinking. Sorry for the meandering thoughts.. but again prioritize. Say no more often. People understand - they actually take you more seriously once they understand that your "yes" means world-class work and your "no" means no.

3) Lack of physical energy. Some of you may be surprised at this third bullet. But, as I get older I have observed that ability to perform at sustained high quality levels need high levels of mental and physical fitness.

This was a constant problem for me with constant head-aches, migraines, back-aches, etc. The root-cause of all these was simply lack of physical fitness. An hour in the gym thrice a week or couple of hours playing tennis a week or an hour of yoga a day will normally be sufficient if you are not after that Greek-God body. But, this takes effort and the ability to mark-down a time to do it.

Well, there would be many more I suppose that needs to be removed. For starters - here were my top 3! I hope you will be left with more clarity and result in increased focus on things that you ought to focus on after reading this!

I hope I was able to bring a little more clarity in your thoughts. Do, let me know what things bring you clarity.

Ciao till next time...Harsha

Monday, June 12, 2017

Focus: a key tool for success

Our world is a very distracted place. We live in a summary world. The first thing our children or our executives or our spouses want from us is a summary of that book / that important proposal / that movie. Nobody seems to have the time to dedicate to focused effort. That has become our world today.

I watched my 2-year old son flip through youtube cartoon videos as if he's trying to get a peek into the cartoon before moving on. I tried to reason with him a few days back. I failed. I think he feels that what comes next maybe better than the current one (its a guess - nobody will come to know until he can articulate!). But - I think we all have the same problem. Its something which we brush under the garb of keeping ourselves busy.

Let me articulate my thoughts here.

If you've watched the latest documentary on Warren Buffett (on HBO) - you will notice the friendship he shares with another of the world's wealthiest men - Bill Gates. There’s a scene where Buffett and Gates had met early on and were sitting at a table, when they were both asked to write down on a piece of paper the one thing that they each felt attributed most to their success.

Surely enough, Buffett and Gates had written the same word down on their respective papers: focus.

Tom Watson Sr., the man who built IBM was asked what his secret for success was - his reply was a classic - "I’m no genius. I’m smart in spots—but I stay around those spots". Again an attribution to being focused.

Many of the highly regarded men attribute their success to a singular focus - commitment to a main goal or purpose in their lives which result in out-sized success. Be it playing a sport or running a business or creating art or whatever else that someone is endowed with enough talent - its usually the maximization of those talents that result in out-sized success.

What can we do to stay focused?

1) Limit your time spent on weapons of mass-distraction i.e., TV, Internet, Facebook, Whatsapp, Instagram, Email, etc.

Get real. Read a book. Take a walk, come out of the virtual world. Refrain from responding to that email with 50 people on cc. Who really cares anyway. If its that important - they'll call you. Probably you should make a call - if you think you're feedback is so important in the first place.

Wake up early. The one hour in the morning is a wonderful time to read 20-pages of that book. In two weeks, you will read a book. In a year - you will read 26 books.

2) Set a goal - maybe learn a new sport. Your goal should not be a laundry list of 10 or 20. Just one or two works fine.

Learn a sport. I have seen that many a sport can be learnt at reasonable prices - if only we put in the effort to go to your sports center to inquire. Its wonderful to meet new people - we are far too bucketed in the midst of people in similar jobs / roles / age. Learning a new sport gets you to meet with interesting people in different walks of life.

I took this to heart. I recently started learning golf. I met this wonderful Gujarati old man who came to the US 30 years back. He was learning the sport too, we were joking about our inability to play golf not thinking you are hitting a cricket ball. He happened to own the two Marriott's I was passing by on way to work at San Jose. He seemed to have some interesting life advise that I could not get otherwise. The 3-hours on Saturdays was well spent.

3) Is your time getting divided too much? Maybe eliminating or reducing certain distractions help.

We all have a limited amount of time and talent and we have to allocate it in a way so it will work better for us. Learning to say "no" sometimes can be liberating in life. We have become too much of "yes" men to keep us in our limits of mediocrity. At the end - the idea should be to let people do what they're best at and you do what you're best at. The rest is all crap. Really.

At the core of trying to get some focus in our lives - its important to realize that a majority of life's errors are caused by forgetting what one is really trying to do. Let's get back to basics.

Ciao till next time...Harsha

Monday, April 24, 2017

Altruism: Helping others with no expectation in return

A recent incident made me think deeply about this. I was on the receiving side of a wonderful gesture by my landlord recently when we were moving out. We had to move into a new place which would be easier commute for my wife with better schools for kids. My landlord graciously offered to give half the month's rent (since we left mid-way during the month) - above and beyond what the contract stated. The gesture left me thankful and recipient of a wonderful gesture that left me thinking.

In this competitive world - when do we pause to reflect and give something to someone with absolutely no expectation whatsoever in return? We are constantly thinking about "ourselves". The selfish gene knowingly or unknowingly gains upper-hand in our actions.

This one small gesture made me realize that there's more to human nature than just cause and effect. Maybe there are things which can truly bring us happiness by just giving.

This is just a note to myself as much as for you. Help forward. Our blessings are too many to count. The world needs more good men.

Ciao till next time...Harsha

Sunday, February 26, 2017

The Importance of Second Level Thinking

The biggest task for us when we moved to our new house was to get everything in order. Now, my main task was to get my books in order - have a library created (and create a rudimentary catalog for books I have). In my garb of buying books that seem interesting, I have now the unenviable task of reading 30+ books that are unread for the year..(I am making a mental note not to buy more until I clear most of unfinished ones.. I know I am going to fail this one).

Anyway - I just started re-reading the wonderful book by Howard Marks - "The Most Important Thing". The beauty of reading old ones you know, like and concur is like watching that old favorite movie of yours... you know whats going to come; but sometimes, just sometimes something new pops-up. You realize that you never thought about that before..

Second Level Thinking:

Let me give you some thoughts regarding this. First level thinking is when you take a first dab at anything.. Simplistic, almost superficial and usually not going to turn out the way you thought in complex situations.

Example: Oil prices are too high (flashback 2007), so they will continue to go up.. (we have reached a stage of peak-oil) or oil prices have fallen down (now in 2016 or 2017) and they will continue to go down or stay there... not really knowing the dynamics behind why the prices reached there in the first place (shale oil, horizontal drilling / fracking; geo-politics of trying to bleed Russia with low oil prices).

Now, any layman can have a "opinion" about any event that will or can happen. This is classic first level thinking.

However - second level thinking is more deliberate and something which takes more in-depth study of subject. For the example above on oil prices or commodity price behavior - one can learn a lot by reading about Shale revolution (read - The Green and The Black), geo-politics in middle east (I recommend books on - 6 Days War, Saddam Hussein - Debriefing the President, OPEC: the failing giant, among others) and biography of John D Rockefeller (the original robber baron :-)). Once someone has a understanding of the background, and understand the dynamics of what's happening - you can take a balanced view on topics where complex variables are involved.

Predicting Complex Events and a Look at Alternate History:

Most such situations are too hard to predict anyway even after understanding the dynamics at a high level (there is always a range of outcomes that are possible for any situation with probabilities for each outcome). Sometimes if the variables are limited - one can take a calculated guess at the outcome, in few others its too difficult to predict one single outcome.

So, this train of thoughts led me to have a look at what I would call as "alternate history". What could have happened if the roll of dice or favorable set of conditions existed for something that has happened in history. As an example: for the World War II aficionados, its generally agreed that Hitler's defeat was sealed when he attacked Russia in the June of 1941 (Operation Barbarossa). What is not usually known is that he had the right ingredients to succeed - and how close he came to succeed.

When the Wehrmacht invaded the Soviet Union, they were received as liberators by the common people. The Ukrainians considered Hitler as the savior of Europe. The Bielorussians were eager to fight on the German side. Many regiments of Cossacs deserted to their enemy while Georgians, Armenians, Turkomans, Tartars and Uzbeks surrendered en masse. As Erich Kern an NCO in the Leibstandarte Adolf Hitler wrote in 1948 ("Dance of Death"), "All over the city there were people waiting on the streets ready to cheers and welcome us..... Never before had I seen such sudden transformation…. Of Bolshevism there was no more."

At that point, Hitler only needed to cooperate with the Ukrainians and others and make the necessary political alliances to conquer the Soviet Union.

But Hitler had become intoxicated with power and by then disregarded this and forged ahead expecting that the Soviet Union would collapse as France and other countries had. Then, after the Wehrmacht overran the western Soviet Union, Himmler and his assassins started roaming the territories under control, murdering people - Jews and others left and right. This made the various nations within the Soviet Union realize that the Germans were not so interested in destroying Bolshevism, but to enslave them. They then changed their hatred for Stalin and channeled it into a holy war, and saw their sole duty to defend the Soviet Union in what was viewed and characterized as a "Patriotic War".

So - there goes our alternate history. So near if you look at it from this angle. Anyway - a learning for you and me is that things are not so straight-forward as they seem to be when you look at the rear-view mirror.

Things are always easier to justify when its in the past.

What Will Work? How to Look at Things?

Superior thinking is never easy. Nothing is black or white. Everything in life is in shades of gray. Some darker than others. Most things in real world depend on either - "superior skills that can be quantified" or "superior insights"

In the end superior decisions and well thought out approaches can add more positives over the long run. But - even that can be hardly perfect. The best you can hope for is that you will be more often right than wrong and successful decisions add more than mistakes subtract.

At the end - its important to develop a sense of "being humble" and "ability to learn from our mistakes and those of others" as you will realize that you "don't completely own your successes" and a lot sometimes is dependent on a range of factors.

Ciao till next time...Harsha

Tuesday, December 27, 2016

Thoughts on demonetization

It was few days after Diwali, India's festival of lights - celebrating the mythic victory of Rama over Ravana - the symbolic victory of good over the bad. Trump was kicking ass in our part of the world in the US of A. As one sixth of world population in the second most populous country were getting ready to hit the bed - something akin to the diwali pataka woke them up with shock and awe.

Modi declared in his characteristic, rustic charm on live TV that Rs. 500 and Rs. 1000 notes would no longer be legal tender. He did share that this exercise would address the topics of counterfeit currency, cross border terrorism, black money hording and corruption. The honest tax payers would be spared - Modi thundered.

In one sweep - over the next month - as common man was struck between - standing in the ATM queue to supporting the move, one way or the other every one was impacted. In one way or other - every Indian - resident or non resident got impacted (or do not yet know that he/she has been impacted).

Let's put things in perspective. I am not writing this article as an argument against or for demonetization. As far as possible I am trying to put a structure to my thoughts as I feel more comfortable with my thoughts after putting pen on paper; these thoughts are made more as an NRI - having seen the effects on my parents, friends and my personal investments.

This has impacted me as anyone else invested in the Indian stock market (this would bring in an element of bias in my analysis - knowingly or unknowingly).

First things first - what's the historical perspective for demonetization:

Germany after world war 1 was reeling under tremendous inflation. The Weimar republic was on the last gasps of breadth. The currency had totally lost its value. 100 million deutsche mark or even a billion deutsche mark was a common currency used to buy groceries, etc. Here's a pic of 100 million mark that you can buy for 25 euro cents in any flohmarkt in Germany.

Demonetization was the only way for the country to proceed. So was the case with Soviet Union when they broke up post socialism. These historical perspectives don't really chime / make a case for demonetization in India.

Mostly - demonetization was used as a tool to wipe a bad dream and start afresh. Only other large scale example of recent demonetization to curb black money proliferation was in Burma in 1988 (refer - book by Sean Turnell) which ended up as coup by the military. Only failed states can try to use this as a tool.

Why was this not thought of by Govt of India before? 

It is a rational question according to me. Why did other governments before not think of something so simple to curb black money proliferation and curb the parallel economy?

Actually I searched around on the web and found this is not true. In 2012 - the ministry of finance had made a detailed study and made recommendations on tackling black money in India and abroad. For those really interested in reading more can get a copy of the pdf here: Link to ministry of finance study.

Why was this study not taken seriously is a question one needs to ask. Did Modi and his men know about this study which was done as recently as 2012 that strongly advocated against demonetization? I am actually asking the same question. Its scary to think that Modi has come up with the biggest monetary policy shift (taking out 86% of legal tender out of the system) sitting in his bungalow with rookie political analysts who over simplified the problem at hand and came to the conclusion - "any action is better than no action". I, for one - as an investor would be scared by the thought. Various newspaper articles since have come up to support this theory.

It also brings to question what the new RBI governor Urjit Patel really doing? Again - an indication of a toothless governor of RBI - given the fact that an elected prime minister does not feel comfortable taking opinion from him on monetary policy. Is this why Raghuram Rajan was brushed aside and not given a second term? This makes me wonder if this move was already thought of when pushing aside Rajan from the scene as a road-block.

Will this help India?

That is - I think; the most important question. What's done is done. But - will this help India? Atleast - will this a) fight counterfeit currency, stop cross border terrorism b) put fear in minds of people c) bring a tax windfall (equal to the original estimates of 3-4 lakh crores).

Among India's middle class, Modi's surgical on corruption and black money appears to be very popular (atleast among the media and in the cities it seems popular). I think this is also the "bitter medicine" theory - if the medicine tastes terrible - it must be good for you. If something tastes good (let's say - Ice cream), it must be bad for you. And - again its the "common suffering" theory. If something affects your neighbor and not you - you feel its singling you out and you rebel. But - what it affects everyone alike? Then you rationalize this as something you do for the "greater good" of the nation.

For an example of how we (or our far cousins - monkey's) dislike discrimination, see this -

Since enough Indian's are now suffering, we would like to believe that its for a greater cause. It's a moral project, not just an economic project. Stand-in-line (literally at ATM stations), you would be told - you honor our brave soldiers at the border.

a) fighting counterfeit currency:

Here's something to quote from Prof Arun Kumar -

"Not at all. In fact, our macro-economic indicators were reasonably good. But the real point is, what does this move achieve? According to the prime minister, there are two objectives. One is (curbing) terrorist financing and counterfeit currency—and the second is that the black economy has become very large and it is the source of poverty and all the problems in India so we need to get rid of the black economy.

The question is—does demonetization overcome these two problems. As far as counterfeit notes are concerned, they are only 400 per million, which is very tiny. And according to RBI, there is only Rs 400 crore worth of counterfeit currency.

Total currency in circulation is Rs 17.5 lakh crore. It’s not even “oont ke muh me zeera”, as they say in Hindi. It’s negligible.

Terrorists need financing. So they print these fake notes and circulate it. But once they have given the money to another person, it’s circulating within the economy. So they have to print more and more money. That is what you have to stop. And how do you stop that? Not by demonetization, because there are state actors involved in counterfeiting. They can counterfeit the new currency notes also."

b) put fear in minds of people:

I think this move will definitely help in this regard. However, I think this can affect the honest people as much and in most cases even more than the dishonest.

It may affect the honest citizen more than the convoluted hoarder who's built up huge wealth (that is mainly in real estate and gold).

There is a story that Abraham Lincoln narrates when he was fighting to end slavery -

"If I saw a venomous snake crawling in the road, any man would say I may seize the nearest stick and kill it. But if I found that snake in bed with my children that would be another question. I might hurt the children more than the snake, and it might bite them."

c) bring a tax windfall (equal to the original estimates of 3-4 lakh crores)

This is highly debatable. Out of the 15 Lakh Crore Rs (500 Rs and 100 Rs) in circulation which amounts to 86% of the currency in India by value - 12 - 13 Lakh Crore Rs. are already back in the banking system.

This seems to be a miscalculation of the highest order. It makes this move look childish in retrospect if less than 1 Lakh Crore Rs is brought back as tax windfall. The cost of taking an entire nation through this exercise would be more than the benefits this ensues. Even basic government run corporations would like to get a decent return on tangible capital before moving on a new product introduction.

Where is the black money? Is this the first step in a series of steps?

As per the last study of the finance ministry - 3/4th (or more) of the black money is in bullion / jewelry and real estate.

I will not go into details here - but as an illustration, India holds over 18,000 tonnes of above ground gold (represents roughly over 11% of the known gold reserves worldwide). This is nearly 2/3rd of India's current GDP.

Further - it beats reason why a 2 BR house in Bangalore should be almost equal to price of a house in most tier 1 cities of the USA whereas income levels are much lower. The worldwide historical indicator of home prices is an interesting ratio called: "home price to income".

The price-to-income ratio looks at the total cost/price of a home relative to median annual incomes. Historically, the typical, median home in the US cost 2.6 times as much as the median annual income (so if the median income in an area was $100,000, the median price of a home would typically be about $260,000: $100,000 * 2.6).

In comparison, if it takes 20 - 30 years of annual income to buy a home in any tier 1 city of India, what it clearly means is that the real estate companies have priced themselves out of the market or alternatively there is so much black money in the market that home prices have been highly inflated (artificially that is).

This brings me to the point to ponder - "what next". Gold / real-estate seems to be the next logical step. Now - lets see if the same patriotic fervor remains when the price of the home you own goes down by 1/3rd or 1/4th or even more. Can it happen? Looking at figures worldwide, home prices in India are somewhat 3x or 4x more than what they should be.

Can Modi do anything to touch this - without losing support of people - irrespective of the color of money they hold - black or white? If there is no next step - why make this move at all in isolation?

"Its the trust", stupid!

When you hold cash - you trust that the value of the money you hold is really what is written on it. "I promise to pay the bearer of this note Rs 500" would mean just that. Not more, not less. In the current situation there is an *conditions apply. The rural poor who lack infrastructure to setup accounts / have to walk miles to the nearest ATM are being thought a lesson fast forward in digitization. 

It is difficult to estimate the second and third order effects of something as complex as this. Indian's are by lot - highly resilient and adaptable. We do believe in the maxim - "this too shall pass".

But, it does bring to the fore- certain questions on creating over simplified solutions to bigger economic problems a country faces. It begs the question - what next?

And until its clear what the strategy is, I am not convinced if this is the right first step in executing the strategy. The lack of transparency and poor execution is not giving me a lot of hope.

Ciao till next time...Harsha

Sunday, December 04, 2016

The do-nothing strategy

"All of humanity's problems stem from man's inability to sit quietly in a room alone" - said the French Philosopher Pascal in his unfinished memoir Pensees (Thoughts). 

I think if we have to para-phrase this to the modern day - we are so used to action for action's sake - we forget that sometimes - all you need to do is give something the time it needs to do what it can. Action is not equal to progress.

The reason I am writing an article on something so mundane a topic is because I think we all need some positive reinforcement from time-time that maybe doing nothing is as good or even a superior strategy than doing something. Through the thanksgiving vacations - I have been analysing my stock loss making patterns / unable to maximise profits (in other terms selling out too soon or inability to sit tight when you already hold a stock with very good economic characteristics) in my holdings - and the quote from Pascal came to mind.

In today's world - we value a little too much of "Type-A" personalities. The reason is - we can quantify what they have achieved if and when they achieve something. Losses are harder to quantify - i.e., what I have lost due to my actions.

Sometimes, we feel that if you keep running around in circles - you are creating something of economic value. Example - generating reports on why something is where-it-is or looking too much into history and forecasting what something needs to be or looking into set of random data and creating patterns where none exist and creating complex models around them, etc etc are running around tree patterns. It is important for individuals to constantly ask a few simple questions:

1) Do I need to do something here or can I sit quietly and let something run on auto-pilot.
2) What are the second and third order effects of changing something in the system.
3) Why should I do X now (replace X with "reply to that email", "visit that customer who's only interest is price reduction", "increase / decrease price where you have X% MS% in hope of gaining", "introduce a more cost effective product and charge lower", "run that model for forecasting something 5 years out", etc, etc).
4) Am I adding value when I do X or substracting value or not generating any tangible value.

One of the things we need to do is what the 19th century mathematecian Carl Jacobi suggested:
Invert, always invert (“man muss immer umkehren”)

Jacobi believed that the solution for many difficult problems could be found if the problems were expressed in the inverse – by working backward. For example if you want to prove that all swans are white - you would do no good finding a million white swans, all you need to do is go searching for one black swan and you would have found your answer.

Coming back to my examples on stock markets - the conventional thinking says - high risk = high return (go big or go home). However, to get to someone like Buffett’s playing field, it takes lots of trial and error to go from “How much can I make?” to “How do I not lose money?” Same destination. Different road taken.

Coming to a business example - instead of looking at capital allocation decisions in the usual form of - "how much money will I make by creating this new product?"; it makes more sense to also ask the question - "will I lose something if I don't make this new product?". Again its important to ask - how can I go down from where I stand and do those things which will strengthen my position instead of always looking at systems as stable status-quo environments with infinite growth possibilities.

Anyway - Running around trees at speed of light will only make you f**k yourself in the backside. Its important to realize that sometimes doing nothing is better than doing something.

Ciao till next time...Harsha

Friday, November 18, 2016

Managing Expectations: Tata Sons vs Cyrus Mistry

The ongoing feud between Tata Sons and Cyrus Mistry (following the removal of Cyrus as the Chairman of the board) is interesting. If you and I think its important to "manage expectations" - both with bosses and teammates / reportees - this episode proves its even more important. Cyrus's abrupt removal from Tata Sons board (which manages group companies valued at >$100B) is as much an issue of "managing expectations" as anything else.

First things first:

The first Tata company was incorporated in 1868 and over the next 150 years it has grown to be a conglomerate - 29 listed companies, over 70 unlisted companies. The group companies are controlled mainly by the chief holding company "Tata Sons". Tata Sons is mainly controlled by the various Tata Trusts (which are in turn very interesting to explore - as to how they came into being; I'm not going to be writing about that here) with 66% stake. The largest Non-Tata stakeholder is Shapoorji Pallonji Mistry (Cyrus Mistry's father) and his group company. Now - its no secret that the Tata Trusts are the true puppet masters of Tata Sons and any illusion of "independent board" is delusional. The 100-odd group companies are mainly controlled by Tata Sons along with a series of cross holdings by different Tata companies. So he-who-reigns over Tata Sons - inturn reigns over the Tata empire.

Its interesting to note that all the men who became chairmen of the board of Tata Sons came from the "Tata family" and there were only 5 men at the helm before Cyrus Mistry (over teh past 150 years which is remarkable). Cyrus is actually "no outsider" - being the crown prince of the Shapoorji Pallonji group and also related to the Tata family through marriage.

How can Cyrus screw it up? Did he screw it up?

Now, having set the stage, being as-close to the family as possible - one would have expected the crown prince of Tata empire - Cyrus Mistry to be able to manage the group companies for the next 30 - 40 years or so (he was in his early 40's taking up the mantle)... It beats the "sense of natural justice" to see the guy go barely after 4 years at the helm.

How did he screw it up? The question is - why did he screw it up. Especially of interest is the question which comes to mind - what was his charter when he was put at helm; and did he "understand", "internalize" and "execute" to the charter.

Let's break this down a little.

Did the Tata group perform badly during his helm of roughly 4 years -

This is an interesting question. When you look at the group with 100-odd companies, as is the case - 80/20 rule kicks in. 80% of the revenues come from 3 group companies - Tata Consultancy Services (TCS), Tata Motors (thanks to Jaguar-Land Rover acquisition which gave them an entry into China) and Tata Steel. Tata Motors is the unlikely revenue flag barer for the group (thanks again to Jaguar Land Rover) bringing in 40% of revenues of the group.

Over 80% of the profits come in from just one company - TCS.

So, looking at TCS - in the past 3 years (2013 to 2016), revenues as well as profits have gone up by 72% and 75% respectively. Not bad you would say - but wait a minute, what's Cyrus got anything to do with the growth here? It was built by a guy called S Ramadorai (now - how many of us have heard about this guy..).

Tata Motors has in the similar time-period grown 46% in revenues and a slower 11% in profit. Tata Steel has been the Achilles-heel of the group going deeper into the red after the phenomenally disastrous Corus acquisition (made during Ratan Tata's tenure).

Anyway - for the sake of argument, you could say that he's not done badly. Mainly driven by TCS. But - the rein was too small to make any difference, so essentially "he could have been a good commander". His helm was too short to judge.

Debt challenges -

This is one area that has bogged down the group ever since the last financial crisis in 2008. The group had ~$20B debt when Mistry took over and it has steadily climbed to over $30B. Tata Steel (thanks to Corus) has accounted for >70% of the debt growth. Tata Power and Tata Teleservices account for the 10% of the debt growth each.

However (again thanks to phenomenal growth of TCS), the overall group debt came down from Debt/Equity of 0.86 to 0.73 in 3 years time.

What did Mistry do to piss-off Ratan Tata (the apparent flag bearer of family baton and the Chairman of the Tata Trusts) -

Inability to manage expectations

One clear rule which most of us do not understand is nicely articulated by this German proverb -

"Who's bread I eat; his song I sing"

Going back to the legacy that the Tata's have built - they are known to be "empire builders" - family that does not drop the ball when the going gets tough. I am not sure if Cyrus really understood this or internalized this rule. That's the family's fabric - and its been so for last 150 years - its no easy matter to change the "culture" of the group - no matter how toxic that can become sometimes.

Ratan Tata in his helm from early 1990's until 2012 - grew the group revenues by 50 times (mainly through acquisitions). Most acquisitions (I am not saying all - as Jaguar Land Rover is an exception) have been poorly executed. Especially as Buffett says - the only way you can win at an auction is by not going there.

Every major purchase of the Tata's have been through bidding or auction like pricing (essentially where there is little relation to value and price). Corus, Tetley, Telecom buys, etc.. Sometimes when you do buy many companies - you end up buying a good one - like Jaguar Land Rover.

Almost all the investments made by Ratan Tata - Airlines, Telecom, Nano have been disasters. The return on invested capital at the major group firms have been consistently below the cost of capital. Irrational exuberance has been rampant at the group for many decades now. I think Ratan Tata became a victim of "anchoring bias" in many cases. Ex - pegging Nano sale price at Rs 1 Lakh ($1,500) since he committed that initially (commitment and consistency bias).

So, when Cyrus comes in and says - that he's going to shut down Corus (the steel plants in Europe losing $1M/day) or Telecom businesses or power companies or discontinue Nano - whatever becomes of the Tata legacy?

This is a direct attack on Tata nerve. And when someone hits where it hurts - especially in such a short time (3 years) - it hurts bad. When it hurts - and when you have the power to hurt back - you hurt back. It's cause and effect.

This I think was the reason for his exit. It is scary that human psychology can cause us to react the way we do - even if its a $100B + enterprise. I think therein lies a lesson for us.

Alternate histories - how could Cyrus have saved the day?

I think it's important to understand how to implement changes which you want to bring in. This is something which is not taught at business schools / as it seems even on the boards of companies worth many billions of dollars.

Go-slow - especially when you know you have 30 - 40 years ahead of you; its better to go slow and not rub too many egos on the wrong side.

I think if he had taken 10 years to do the things he tried doing in 3 - things might have been different. A bad business will always magnify its "badness or worthlessness" and a good business will continue to flourish.. you always have the opportunity to prune things down.

Get executive buy-in - especially in this case from Ratan Tata; as the chairman of the Tata Trusts he was the man driving things from behind the scenes. You see - If Cyrus shuts something - he questions the legacy of his predecessor. But, if he through gentle posturing lets Ratan suggest (through Tata Trusts) that he shut shop / rescind certain bad business moves - that will be a different matter. You see - after-all, Ratan Tata is not getting any younger - I'm sure he would have mellowed down a lot and would have been happy to give him some advise!

Don't cut pay-offs- especially not to the owners! I think Cyrus cutting back on dividends of group companies hurt Tata Trusts the most. It hurt them where it should not have hurt. The anger one feels when cash flow perishes can have disastrous consequences. What he could have done is not increased dividends for the next 10 years! Which in itself is a roll-back mechanism of sorts with inflation eroding value.

Be careful who you hurt! - There is a story that Abraham Lincoln narrates when he was fighting to end slavery -

"If I saw a venomous snake crawling in the road, any man would say I may seize the nearest stick and kill it. But if I found that snake in bed with my children that would be another question. I might hurt the children more than the snake, and it might bite them."

One has to tread very carefully when dealing with family entanglements.

Anyway - it's an interesting learning on how to manage expectations. I hope we can benefit from this. I hope Cyrus can benefit from this too.

Ciao till next time...Harsha