Saturday, November 29, 2008
Rubin's shameless interview justifying being paid $115 million for being a director without control over operations, policy or risk.
In other news, Rubin protégés to head top economic posts in the new administration.
With the foxes guarding the hen house, is the financial crisis about to get much bigger/worse?
Sunday, September 28, 2008
Monday, June 09, 2008
I would rather that you spent your time in what you are good at rather than delude yourself that you are helping a charitable cause by volunteering for menial $8/hour labour. If you want to spend a day in the soup kitchen say that you are doing it for your own selfish reason, rather than bragging about volunteerism. You are contributing exactly $64 to the charity by 8 hours of minimal wage labour dispensing soup. Meanwhile, I'll be donating a day's worth of my pay and making a far greater difference to the charity. My sense of accomplishment will be 100x that of yours.
Similarly, running a marathon for a cause - I refuse to subsidise someone who wants me to pay for him to waste his time running - instead he could easily have worked the extra 10 hours a week for 25 weeks and donated the 250 hours of pay to a charity. This would FAR exceed what he might raise in a lifetime of "running for a cause".
Of course I am talking of highly paid professionals here. For a burger flipper at MacDonalds, it is probably a better use of their time running to raise money for cancer than to flip more burgers.
Friday, March 21, 2008
The problem with a lot of MBAs - they are often competent enough to be useful members of society, but instead prefer to not do anything with their abilities. The confidence projected by a typical McKinsey consultant stems from their arrogance at being in McKinsey, not from their knowledge. One such person I met even went so far as to admit "I did a Phd in Philosophy and had no career option except to be a Management Consultant."
Jim Simons who is probably the most successful and richest hedge fund manager has started publishing papers in topology once again, at the age of 60. On his deathbed his main concern will not be that he did not do an MBA.
Wednesday, March 19, 2008
The whole thing came about because I was thinking how exactly are people making money. I don't mean salaries, I mean the firms paying the salaries and bonuses, where is all that coming from?
My model is to divide the world into two groups -
Group (1) includes banks and equity research groups who design the structured and complicated products, and then use that model to get some one to buy some thing and another person to whom they can sell something that is very similar, so they are then perfectly hedged and need accurate pricing, but they don't need price forecasting models because they don't care which way the market goes. Say you have an ideal IB, then this IB buys a bunch of mortgages from BofA, charges BofA a commission for that, then makes some complex model and sells packaged parts of it to, say pension funds, takes fees from all of those as well for providing them with investment vehicles, and all the while it is also enjoying the spread between how much it bought the mortgages from BofA for and how much it sold the components to the pension funds. So really what this IB is selling to its customers is the promise that "we are removing your risk" which is true - BofA got a lumpsum and removed the risk it had that mortgages would be worthless. Similarly the 3 funds that bought the 3 tranches got investments at their selected risk levels, so they are happy to pay fees also for "removing undesirable risk". So the IB only needs to make sure that what it takes on left side it can sell on right side for approx same amount. Today it might take a 500k mortgage and sell it in 3 tranches for 510k, tomorrow if that market crashes then it buys the 300k mortgage and sells it to someone at 305k. A glorified e-trade so to speak. IB doesn't care for the market direction just that there should be enough players in it, so the focus here is on designing more and more complex products to attract more and more players to try them out but not necessarily to accurately forecast anything because money making does not depend on forecast.
Group (2) are the poor fools who are actually trying to make real returns via trading/investing and have directional exposure. This includes all the 401k investors including you and me, as well as Warren Buffett as well a bunch of investment funds, mutual funds etc. These people might try to reduce their exposure to the direction of the market, but in the end they have to take a real position if they want to make real returns. Exposure to market risk is what creates returns in the long run. So here hedging is not enough, you need to model the whole universe and everything that goes on in it. The promise of the players here is "we will work hard for you to increase your money". The work hard part consists of econometric analysis, sifting through 10s of years of price data, volume and volatility data etc. to find "opportunities", as well as studying fundamentals to put into the models etc.
(1) is a glorified casino selling newer and fancier kinds of chips, (2) are the bettors. (1) will always make money because the rules are in its favor, (ie fees, spreads will always earn it money) whereas (2) will have a few people that are very good/lucky/both who make all the money and most will go bust.
All said and done, it is better to be a casino operator than a bettor; it may be boring but you make guaranteed return as long as you have visitors.
Sunday, February 24, 2008
That is it - no more underlining, no more stupid popups on double clicking a word etc. on yahoo websites.
Remove banners on Yahoo Finance by adding this to the Element Hiding Rules:
"finance.yahoo.com#DIV(style=height: 90px; width: 728px;)"
Thursday, February 07, 2008
The difference according to Larry Lessig:
(1) Character - Bill and Hillary Clinton have shown in the past that principles are expendable. One minor example - she refused to endorse the call to make presidential debates free from copyright, fearing that it might hurt her fundraising efforts from big business.
(2) Integrity - Hillary Clinton blatantly lies about Barrack Obama.
(3) Ideals - Hillary is "good enough" to continue the current divisive politics that everyone hates, Obama inspires change and peace.
Ad Block Plus Element Hiding Helper
Ad Block Filterset.G Updater
Google Browser Sync
Yahoo! Mail Notifier ---> avoid crashes -- remove npYState.dll found in C:/Program Files/Yahoo!/Shared/
Customize Google, add http://meta.wikimedia.org/wiki/Mirror_filter and also -inurl:(kelkoo|bizrate|pixmania|dealtime|pricerunner|dooyoo|pricegrabber|pricewatch|resellerratings|ebay|shopbot|comparestoreprices|ciao|unbeatable|shopping|epinions|nextag|buy|bestwebbuys)
Here is how to block this stupid ad:
Run Adblock in mozilla.
Add this to adblock filters: *.nytimes.com/js/common/screen/altClickToSearch.js
Monday, February 04, 2008
Friday, January 25, 2008
If F is the cumulative distribution function of X, then F(X) is the Uniform Distribution on [0,1].
How to use this in practice? Well, NORMSINV(RAND()) can be used in Excel to pick a random value from a standard normal (Gaussian) distribution. Though accurate, this is very slow as it involves the inverse of an integral.