Tuesday, August 24, 2010

Fooled By Randomness

Fooled by Randomness - Nissim Nicholas Taleb

       Once during my college days we had a brain storming session [
படிக்காம வெட்டி கதை அடிச்சதா தான் இப்படி managerial language la சொல்றேன் :) ]  on what could be the reason behind Dhirubhai Ambani's rags to richness history. One section attributed it to his enterprenerual skills and this is the widely accepted version.But few radical elements (including me) didnt like the argument that his business skills ( including unethical ones) where the only the factor and they claimed that apart from it , there was strong current of luck on his side.I dont remember what we concluded on this discussion. 

       This book provides a more scientific answer for above discussion topic.Its one of a refreshing read which stand alone from the heap of books trying to teach you How to win , How to be success in Business etc. It introduces a factor called Randomness. There is a bit of randomness in every aspect of life. Some of us view it as luck , some as s God's Grace , karma from previous birth , fate etc. Taleb proposes that hard work and skills bring in average success .But wild success can be attributed only to Randomness. His view is that anything can happen & we can only estimate the probability of such events."Nothing is impossible". Insurance is classical example .We hope to live(for ever) ,but we insure to make sure family is not destabilized by our sudden death.

       Human brains are not trained to understand this random behaviour and we try to infer some rules from the observation we see. Even Einstein was not spared from this . At an age of 27 amazed the world with the General Theory of General Relativity , which grew into Quantum Mechanics. But Einestein was not ready to accept the random nature of Quantum mechanics , he quoted "God does not throw dies". He tried unsuccesful till his death , to develop a unified theory which encompassees both General Relativity & Newton's Gravitational theory. Might be he was trying to find order in a place where there was complete randomness.[Disclaimer : This example is not provided in the book .Its based on my understanding on physics and Einstein .Comments are welcome  ]
     Being a option trader most of his illustration revolve around the stock market where this theory has more relevance than anywhere else.During my initial days of investing in stocks ,i used to feel the adrenalin rush when the stocks which i have bought soar to new heights and gets nervous when they fall down.I used to attribute success & failure to my stock selection ,but later understood that its more random than i believed it to be. Later i got solace when i saw many( or most) people (who are especially new to market) behave the same way . 

      Taleb claims that people who have made striking success such as Bill Gates , Warren Buffet need not to be THE BEST ONES in their field rather technically sounds ones in their own areas and its the survivourship bias which makes them great ones.

      Paul the octopus is another example. Many of us by now should have forgotten who won the golden boot , but we invariably remember paul .Its a classical example of survivourship bias .Paul became internationally famous for correctly "predicting" the winner of Germany's seven matches at the 2010 worldcup, as well as the final.

           Lets see what is the probability of this event . Each match  has 2 possible outcomes - win/loss [ he didnt guess draw].Probability of successfully guessing  is 1/2 . Probability of guessing in 8 continuous matches is  1/2 * 1/2 ... 8 times = 1/256 . Say if the same guessing game is played with 2560 street dogs of Bangalore ,at least 10 of them will end up guessing all matches correctly. Similarly there would 100s of people guessing the results all over the world and finally few end up guessing everything correct and we are surprised by their 7th sense ,failing to use our common sense.

Following lines written thousands of years back depict this

வானம் தண்துளி தலைஇ, ஆனாது
கல்பொருது இரங்கும் மல்லற் பேர்யாற்று
நீர்வழிப் படூஉம் புணைபோல, ஆருயிர்
முறைவழிப் படூஉம்' என்பது திறவோர்
காட்சியின் தெளிந்தனம் ஆகலின், மாட்சியின்
பெரியோரை வியத்தலும் இலமே;
சிறியோரை இகழ்தல் அதனினும் இலமே.

எட்டுத்தொகை நூல்களில் ஒன்றாகிய
புறநானூறு. 192 - பாடியவர்: கணியன் பூங்குன்றன்

Full poem and its translation can be read here

Since life goes like a wooden log in a water stream ,dont be surprised by people who have succeed . More importantly dont criticize people have who failed in their endeavors .

Classical words in a classical Language 

Wednesday, August 11, 2010

Incremental Visa costs - Nth dimensional inference

Normally Software Engineers luv work on technical assignments but not on boring jobs ( documentation , bug fix ,reporting,code revamp/review etc) even if they know that it has a substantial intangible benefits. But when it trickles from the top ( அதான் பா மேனேஜர் ) we do it with a grudge
( இவன் என்ன சொன்னாலும் பண்ணுவான் ரொம்ப நல்லவன் ).
From Prem's

Its more evident in service industry where the work is more routine.The same industry is now forcibly given yet another un ceremonious work to accomplish. Software Engineers reaching US from India are given a new assignment of high National Security recently by US lawmakers. Yes they are suppose to take care of notorious US-Mexican border.Interesting isnt it . A extra levy of $2000 for all L1 / H1B visas , proceeds of which will be directed to border security. I am sure that people still prefer this fees rather than some boresome work :).

Coming to the point , this news has triggered a lot of alarm bells in India . Everyone considers it as a unfair trade practice and a unethical one.External affairs ministry promises to object it in WTO if the bill passes through to become a law.

Let see in reality how much will this fees will affect Infosys ( the ideal role model of this industry) and the industry as a whole

AS per FY2010 financial reports of Infosys
Renvue 22,000 Crores
PBT 7,900 Crores

Assuming that Infosys will apply for around 5000 visas per year( actually last year it received less than 1500 ) at a extra cost of $2000 each, total incremental cost will be around 50 Crores.This will affect PBT by a margin of 0.63% or 63 basis points which is not so significant. On the large scale the entire levy is suppose to add $200 Million extra cost to the Indian re software industry has a revenue of $60 Billion.Here too the impact is paltry(0.33%) . If you keep a close tab on software sector you should be aware of the fact that even 15 paise depreciation of rupee against dollar can offset this.

Now it doesnt sound so bad compared to when you read it first on the news paper right ?

Even now if you are not convinced lets see what happens in other sectors. Recently India has slapped anti dumping duty on imports to tires from China/Thailand as high as $99 on a set of TTF (tyre/tube/flab) ,based on the fact that imports of cheap tyres are affecting Indian tire Industry.Doesn't a software engineer deem 20 times premium than a damn tire :)

Lets come top another side of the coin. Predominantly we have grown up hearing news of type that World Bank ,US etc providing aid to improvised south east Asian countries (including India) to help them eradicate poverty, epidemics, natural calamities , AIDS etc. Now the wind has started to blow in the other direction , albeit slowly. Now its the turn Big bother who wants our resources ( although forcefully) to solve his issues .US's position as single global superpower has been weakening slowly.Still its the single most powerful nation by any counts,no doubts. But it has reached its tipping point. Second World war (and dropping of Fat Man/Little Boy to be precise ) marked the start of an new era ( commonly called as cold war) during which superpower tag moved from Great Britan to USA. Might be the recent Financial crisis could be one of such once in millennium trigger to start an era for another leadership change.

From Prem's

Wednesday, August 4, 2010

BSNL's DownFall

Most of the bestseller in business category invariantly portray stories of a successful enterprise.Rarely we look into failures deeply to ascertain why it failed.In this blog i would go through my personal experience with BSNL and a comparison of financial performance BSNL & Airtel and checkout what lies in future for them.

I used to have a broadband connection with BSNL in home town ( Palayamkottai ) which i used for work from home and it used to work fairly well. Last month when i was there i faced a peculiar problem.Connection came up but it went down every 2 minutes and a new ip got negotiated and this process continued endlessly.There were no issues in making calls though. I called up customer care to fix the issue after giving detailed description of the issue .For the next two days they used to call up once in a day and check if the issue is solved.How the hell will it go off when no fix was done ? When i replied in negative ,on the 3rd day they sent a person to check for any line fault. If there is any line fault how could i could i make phone calls. That smart guy checked the line (made a call from my landline to his office ) and made a great discovery ie) the line was proper. Couldnt he done this sitting from his office itself ?. He left saying that a internet specialist(!?!?!) will attend my line. After waiting desperately for 2 more days i decided to get rid of the connection. All through this episode i was in a opinion that my connection alone was at fault and BSNL was not able to rectify it.But recently when i visited my native i had to access internet in my uncle's home and to my suprise i found that the same problem is there too.It means a vast no of connections were affected by this issue it was not solved for a month atleast.Tragic isnt it.

From Prem's

Having closed my landline broadband connection i was looking for wireless service with broadband speed and BSNL 3G was the only service which can be used both in my native and in Banglore.So i decided to take up a BSNL data card . இவ்வளோ அடி பட்டும் உனக்கு அறிவு வரலையான்னு நீங்க கேக்குறது புரியுது .When i checked that out, it was mentioned that they were out of stock and it would arrive soon !!! And this reply continued for 2 weeks ( what a consistancy).After heavy recomendation from insiders ( my aunt is working there) i was given a insider information that a small batch of cards( 30 nos) would arrive on a particular day.On that evenful day after waiting for 2 hours i could finally get it.I remember that this was the case with BSNL sim 4-5 years back. It was sold in black market
due to improper management of stock and now its pushed to 6th position in 2G segment. Probably the same is going to happen in 3G and broadband segment too.

This incident made me look into the financial performance of BSNL . Though i have read articles that its getting worser, since its not in listed space we couldnt get detailed info on that. I tried to compare the financial performance of BSNL & Airtel and difference in performance was quite startling. Between 2005 to 2010 BSNL's profit diminished from 10,000 Crs to -1,823 Crs ( ie loss ). Remember that this is the golden era for Indian telecom industry where we customer base increased from few crores to 50 Crores.In Contrast Airtel's profit grew from 3,832 Crs(2006) to 14,767 Crs(2010).No prizes for guessing the reason . BSNL is digging on its heels by arrogant customer care. This is inspite of paying their employes almost 10 times than Airtel.

What lies in the Future
Even though BSNL has started making loss , its cushioned by the huge cash reserves accumulated over the years before it had to compete with private telecom players. This reserves would help them to postpone but not avoid facing the chaos of bankrupty. BSNL was given 3G spectrum well ahead of others but it was not able to capitalize on this monopolistic opportunity too .3G penetration is dismal . Last year their best performace came from the broadband area and it was due to the monoploy it enjoys till now.But its honeymoon will end soon when private players start rolling out 3G and Broadband wireless plans later this year.Deep pocketed players such as Reliance entering BWA sector will put the final nail in their coffin if they fail to make a turnaround in their behavior. Lets hope something miracle happens so that BSNL doesnt turn into next AirIndia.