Pertinent Observations

Normally I would welcome a move like the recent one by the Directorate General of Civil Aviation (DGCA) that allows airlines to decrease baggage limit and allows them to charge for seat allocation. While I’m a fan of checking in early and getting in a seat towards the front of the flight (I usually don’t carry much luggage on my business trips), under normal circumstances I wouldn’t mind the extra charge as I would believe it would be offset by a corresponding decrease in the base fare.

However, I have a problem. I don’t pay for most of my flights – I charge them to my client. And this is true of all business travelers – who charge it to either their own or to some other company. And when you want to charge your air fare to someone else, one nice bundled fare makes sense. For example (especially since I charge my flights to my client) I would be embarrassed to add line items in my invoice to ask for reimbursements of the Rs. 200 I paid for an aisle seat, or the Rs. 160 I paid for the sandwich. A nice bundled fare would spare me of all such embarrassment.

Which probably explains why most airlines that primarily depend on business travelers for their business don’t unbundle their fares – that their baggage allocations remain high, that they give free food on board and they don’t charge you extra for lounge access (instead using your loyalty tier to give that to you). Business travelers, as I explained above, don’t like unbundled fares.

Which makes it intriguing that Jet Airways, which prides itself as being a “full service carrier” has decided to cut baggage limits and charge for seat allocation (they continue to not charge for food, though). Perhaps they have recognized that a large number of business travelers have already migrated to the so-called low-cost Indigo (it’s impossible for Indigo to have a 30% market share if they don’t get any business travelers at all), because of which Indian business travelers may not actually mind the unbundling.

Currently, Indigo flights have a “corporate program”, where the price of your sandwich and drink is bundled into the price of the ticket. I normally book my tickets on Cleartrip, so have never been eligible for this, but I can see why this program is popular – it prevents corporates from adding petty line items such as sandwiches to their invoices. On a similar note, I predict that soon all airlines will have a “corporate program” where the price of the allocated seat and a certain amount of baggage (over and above the standard 15kg) will be  bundled into the base price of the ticket. Now that I charge my flights to a client, I hope this happens soon.

Professors who are insecure with respect to their ability and competence demand, rather than command respect. They institute complicated procedures which ensure that students need to suck up to them. Professors who know they are good don’t care. For example, the better professors who taught me at IIT never took attendance (everybody would be marked present), and would yet lecture to a full house most of the time. Lesser professors would get finicky about attendance. And other such trivial things. By forcing students to do things in a certain way, by “being strict”, they assumed, that students would respect them. It is a wonder that none of them thought this might be counterproductive.

In our third semester at IIT, we had this course called “Digital logic and VLSI Design Lab”. It was a decent and useful course. You would build digital circuits and test them out. No rocket science to it, but something that was useful in the long run. And because there was no rocket science to it, the faculty (one of the more insecure professors) had instituted a complicated process so that he gets some respect (or attention at least). Actually it wasn’t that complex. Before an experiment, we had to write up about the circuit and how we go about the experiment and get his signature on our write up. The lab assistant had been instructed that we should be issued components only after our report had been countersigned by the professor. Nothing too complicated, but a small step to ensure we suck up to him.

Things were mostly smooth, but one day the professor was late to arrive. Or maybe he was there and we didn’t see him – I don’t remember correctly. I don’t know how it happened but we managed to get the components from the lab assistant without our report having been countersigned by the professor. In a jiffy (after all we were three bright IIT boys) we had finished the experiment. And we called the professor to show him the results.

The experiment didn’t matter to him. He didn’t care one bit about the elegant circuit we had constructed. He only looked at our write up. His signature was missing. And he went wild. I won’t get into the details here but he went absolutely ballistic and threatened to annul our experiment, and possibly even fail the three of us in that course. “Such indiscipline is not to be tolerated”, he said.

“Sir, but this is not fair”, a teammate interjected. It only ensured that the professor went even more ballistic. “You guys must be reading the newspapers”, he thundered. “You see what is happening in South Africa? Is that fair? There is absolutely no fairness in this world, so you won’t get any brownie points by arguing that something is not fair” (the professor was a big cricket fan. The events in South Africa pertained to the one match suspension of Virender Sehwag and a suspended sentence to six other Indians, handed out by match referee Mike Denness).

“I don’t want my students to be this indisciplined”, he went on. “You never know where this will take you, if it is not nipped in the bud. One day you will do your experiment without taking my signature. When that is tolerated, you get encouraged to more indiscipline. And so it grows. And one day you will be bombing the WTC”. None of the three of us was able to react to this (this was in October 2001).

I don’t exactly remember how it ended. If I remember right, we had to dismantle our set up, take the professor’s signature on our write up, re-issue the components and re-do the experiment – but I’m not sure – maybe we were let off. But it was an important lesson for us – if indiscipline is not checked right up front, you could go on to be a terrorist it seems!

I don’t remember the name of the driver who drove me home that rainy night. I remember asking him, but it was almost three years back and I’ve forgotten. As was my usual practice then, I was sitting in the front seat of the cab, and chatted up the driver as we navigated the heavy Koramangala traffic. Our conversation would get interrupted by him getting calls asking him for money.

He had lost a considerable amount of money in chit funds, he explained. There was a chit fund in which he and his family members had invested. The fund gave them what he called “good returns” in the first cycle. The fund opened again for a second cycle, and once again he and his cousins all invested. This time, however, the fund manager had disappeared, taking with him his investors’ money.

While running a fund well for one cycle and disappearing with investors’ money the next is a classic fraud scheme in undocumented financial services, what intrigued me was that the driver and all of his cousins had invested in the same chit fund. The reason I was surprised is that in chit funds you bet against the misery of your co-investors. Let me explain how this works.

It is like a game played out by N investors over a period of N months (notice that the number of investors and the period of the cycle are equal). Each month, each investor contributes a fixed sum to the pot. And then the pot gets auctioned to the same set of investors, and goes to the investor who is willing to take the biggest “haircut”. Investors who are more desperately in need of money are likely to bid to take a larger haircut than those who need the money less. Once an investor has taken the discounted pot, he loses the right to bid for the pot in subsequent rounds (though he continues to contribute the fixed sum). Each round, the money left over after paying the “winning” investor is distributed as dividend among other investors (with the fund manager taking a portion as management fees).

Notice that this single instrument serves as both savings and loan instrument, with the catch being that it is all in-house. The “haircut” that investors are willing to take while they bid for the pot can be considered equivalent to the interest rate they are willing to pay on that loan (it is a loan – since they need to continue to pay the “premiums” for the full period of the fund). The assumption is that when you assemble a chit fund with a set of investors, each of them has different preferences in terms of when they need the money. Some see it as a savings instrument, and are liable to bid for the pot in later rounds. Others see it as a loan instrument, and bid for it in an early round. All the fund manager is doing is to facilitate this intra-group lending through a formal mechanism.

Also notice that the larger the haircut your co-investors are willing to take, the bigger is the profit that you stand to make. If nobody in the group is desperate for money at any point in time, the bids for the haircuts are going to be rather low. So if you invest in a chit fund and hope to make money off it, you must have reason to believe that there are other investors who are much more desperate for the money than others. So if I invest in a chit fund along with you, I’m betting that at some point in time you’ll need money so badly that you are willing to take a large haircut, so that I make a good dividend. So in effect, I’m betting against your misery!

So if a chit fund investor is actually betting against the misery of other investors in the same fund, there is no point in two people from the same family to invest in the same chit fund – they stand nothing to gain by betting against each other. It was a long drive home that day, and I explained it to the driver, and told him that it doesn’t make sense for him to invest along with his relatives in the same fund. He understood, he said, and added that he didn’t want to invest in the fund that he had lost money in (where the manager decamped), but his relatives accused him of being a “traitor” for not investing along with them, and so he complied! And they all went down together.

So the Karnataka polls are done and dusted. The Congress will form the next government here and hopefully they won’t mess up. This post, however, is not about that. This is to stake claim on some personal bragging rights.

1. Back in March, after the results of the Urban Local Body polls came out, I had predicted a victory for the Congress in the assembly elections.

2. Then, a couple of weeks back, I used the logic that people like to vote for the winner, and this winner-chasing will result in a self-fulfilling prophecy that will lead to a comfortable Congress victory.

These two predictions were on the “Resident Quant” blog that I run for the Takshashila Institution. It was a classic prediction strategy – put out your predictions in a slightly obscure place, so that you can quickly bury it in case it doesn’t turn out to be right, but showcase it in case you are indeed correct! After that, however, things went slightly wrong (or right?). Looking at my election coverage Mint asked me to start writing for them.

As it happened I didn’t venture to make further predictions till the elections, apart from building a DIY model where people could input swings in favour of or against parties, and get a seat projection. Watching the exit polls on Sunday, however, compelled me to plug in the exit poll numbers into my DIY model, and come up with my own prediction. I quickly wrote up a short piece.

3. As it happened, Mint decided to publish my predictions on its front page, and now I had nowhere to hide. I had taken a more extreme position compared to most other pollsters. While they had taken care to include some numbers that didn’t mean an absolute majority in the range the predicted for the Congress (so as to shield themselves in that eventuality), I found my model compelling enough to predict an outright victory for the Congress. “A comfortable majority of at least 125 seats”, I wrote.

I had a fairly stressful day today, as the counting took place. Initial times were good, as the early leads went according to my predictions. Even when the BJP had more leads than the Congress, I knew those were in seats that I had anyway tipped them to win, so I felt smug. Things started going bad, however, when the wins of the independents started coming out. The model I had used was unable to take care of them, so I had completely left them out of my analysis. And now I was staring at the possibility that the Congress may not even hit the magic figure of 113 (for an absolute majority), let alone reach my prediction of 125. I prepared myself to eat the humble pie.

Things started turning then, however. It turned out that counting had begun late in the hyderabad karnataka seats – a region that the Congress virtually swept. As I left my seat to get myself some lunch, the Congress number tipped past 113. And soon it was at 119. And then five minutes again back at 113. And so it continued to see-saw for a while, as I sat at the edge of my office chair which I had transplanted to in front of my television.

And then it ticked up again, and stayed at 119 for a while. And soon it was ticking past 120. All results have now been declared, with the Congress clocking up 121 seats. It falls short of the majority I had predicted, but it is a comfortable majority nevertheless. I know I got the BJP number horribly wrong, but so did most other pollsters, for nobody expected them to get only 20% of the popular vote. I also admit to have missed the surge in Independents and “Others”.

Nevertheless, I think I’ve consistently got the results of the elections broadly right, and so I can stake claim to some bragging rights. Do you think I’m being unreasonable?

Attention Deficit Hyperactivity Disorder (ADHD), a condition that I have, isn’t all bad. In fact, it was a recognition of the qualities of this “disorder” that led me to stop my medication for it. I figured that I prefer the with-ADHD me to the without-ADHD me. I found the latter too boring, not creative enough, and unable to connect seemingly unrelated things – something that I’ve always taken a lot of pride in.

Yet another positive of ADHD, I realized yesterday, is that it allows you to lead a “markovian” life. It allows you to easily get rid of historical baggage while taking decisions, and makes you look forward by taking a decision based on the present. Yes, it can sometimes be a bit troublesome, as it prevents you from following long-drawn-out plans, but mostly it’s a good thing.

It makes you disregard that you’d taken a decision for some reason in the past. It makes it easy for you to disconnect from your earlier decisions, and look forward. It doesn’t allow you to be swayed by emotions – on account of some decision you’d taken in the past, and instead makes you rely on rational reasons.

There’s this documentary called “ADD and loving it”. Maybe I should watch that. And maybe I’ll have something to add to that.

General consensus among pundits is that the Janata Dal (Secular) (JDS) is going to struggle to cross 50 seats in the forthcoming assembly elections. The general discourse is that they lack a presence outside of the Old Mysore region. However, you might remember that not so long ago, in 1994, the Janata Dal (which broke up in 1999, one of whose offshoots was the JDS) had an absolutely majority in the state assembly. So I thought it might be interesting to see where the JD was strong in 1994.

I decided to go back another decade, to the 1983 elections, and for all elections from 1983 to 2004 I’ve mapped out how each of the 3 principal parties in Karnataka performed. I’ve grouped all the Janata Parivar parties (Janata Party, Janata Dal, and their offshoots) and coloured them green. The Congress has been coloured blue while the BJP is saffron. Seats won by independents/others have been coloured in black.

Source: http://www.partyanalyst.com/

Notice:

1. Before the Janata Dal split in 1999, the JD had a significant presence even in Bombay Karnataka, where it is now supposed to have absolutely no presence.
2. The growth of the BJP has been outward from the Mangalore-Udupi area. One needs to remember that the Dakshina Kannada and Udupi districts are extremely diverse in terms of religion, so perhaps the Hindutva card works better there than elsewhere? Also, the coastal districts are where the RSS first set up its roots in Karnataka.
3. In 1999 and 2004, the BJP actually won some seats in the old Mysore region outside of Bangalore. In 2008, though, the BJP was decimated in this region. It is unlikely it will regain some base in this area in the coming election
4. The Congress won a whopping 178 seats in 1989. And what happened? Intense jockeying for the post of CM. Three CMs over the course of five years (Veerendra Patil, S Bangarappa and Veerappa Moily) followed by a humiliating loss in 1994 when the Congress came third!
5. The JD split in 1999 hit it badly. In most constituencies both the JD (U) and the JD(S) contested. That probably played into the hands of the Congress which won a simple majority. By 2004, the JD (U) was virtually non-existent in Karnataka, and the JD (S) managed to consolidate all the Janata votes and did well.
6. Even in 2004, you might notice that the BJP was virtually confined to the western half of Karnataka. In 2008, thanks to the efforts of the Reddy brothers, in addition to Western Karnataka they swept the regions in and around Bellary, which pushed them past the target. With the Reddys in jail and their right-hand-man B Sriramulu having formed his own party, the BJP won’t come close to a majority this time.

Unfortunately I haven’t been able to get my hands on the shapefiles of the delimited constituencies (2008 and later), so I’m unable to include the 2008 results in this chart. If any of you can supply me the shapefiles, or at least the constituency map of the new assembly constituencies, I’d be most grateful.

Based on the performance of teams in the English Premier League so far in the season, I’ve developed a model which predicts how each of the remaining matches in the league will go. While predictions on individual matches might be shaky and hence not very accurate, I want to publish my prediction on what the league table will look like at the end of the season. If my predictions turn out to be right, I can claim later on to be a master sports predictor and hope for some business to come my way because of this. Of course I’m taking the risk of putting my predictive reputation on the line by coming out with these predictions, but sometimes such risks need to be taken.

I last ran my model on April 1st, and this is my prediction of the final tally of the Premier League.

My prediction of what the EPL table will be like at the end of the season. As of 1st April 2013

Some notes

1. This is a purely statistical model based on goals scored so far in the season. For each time I’ve modeled how many goals they’ll score given the number of points their opponents have racked up in the league so far

2. I know this is wildly optimistic for Manchester United as the model thinks they will win each of their next 8 games. I don’t think this is going to happen. So disregard that prediction

3. Interestingly the top of the table according to my prediction is identical to the top of the table now.

Most of you might remember that in 2008 the BJP didn’t actually get an absolute majority in the assembly, and had to rely on independents to form the government. This led to the now infamous Operation Lotus where the BJP got opposition MLAs to resign their seats and contest again on a BJP ticket. Successive rebellions kept the government on tenterhooks, and some say it is indeed fortuitous that it lasted its full term, but it must not be forgotten that the BJP’s “victory” was an extremely narrow one to begin with.

While the BJP ended up as the single largest party with 110 seats (with the Congress second with 79), the Congress actually had a larger share of the popular vote compared to the BJP (34% versus 33% respectively). However, it can be said that the BJP “picked its battles” concentrating on its strongholds in North Karnataka, Bangalore and the coastal areas, and thus managed to surge ahead of the Congress in terms of seats.

However, analysis shows that even this surge in terms of seats was rather shaky. It was a result of coming together of a number of forces – a united BJP under Yeddyurappa’s leadership, the support of the Lingayat Mutts and Reddy brothers, and good candidate selection. Today, we will analyze how the 2008 Elections would have gone if Yeddyurappa’s KJP and B Sriramulu’s BSR congress had split from the BJP ahead of those elections.

The KJP and BSR Congress played key roles in the recent urban local body elections. Based on the local body elections, we project in each parliamentary constituency how much of what might have been the undivided BJP’s votes have gone to these breakaways. We assume that all the vote that the KJP or BSR congress got came from what the united BJP would have otherwise got. Next, we look at the 2008 Assembly election numbers and for each constituency, allocate the BJP’s votes among the BJP, KJP and BSR Congress proportional to their performance in the urban local body elections in that area.

The results, given below are rather surprising. While the KJP itself would have won not more than a handful of seats and the BSR Congress would have won nothing, our analysis shows that the BJP’s seats would have almost come down by half, with the Congress getting the lion’s share of what the BJP lost!

Red bars show actual performance in 2008. Blue bars show what the seat distribution might have been had the BJP been without the KJP and BSR Congress

It would be interesting to see where the BJP lost the seats. The following graph shows, by Parliamentary constituency the number of Assembly constituencies that the BJP lost thanks to the parting with the KJP and BSR Congress.

This graph shows the number of seats the BJP would have lost in each parliamentary constituency had it been separate from the KJP in 2008

So what are the implications? The big insight is that it is indeed bad tidings for the BJP. Even if the party were to have the same public sympathy that it did in 2008 (highly unlikely, given its government’s performance), it is going to struggle to get anywhere close to a majority. Currently the Congress is in as much of a mess as it was in in 2008, with rampant infighting and a battle between Parameshwar and Siddaramaiah for control of ticket distribution. Our analysis shows that even if the Congress does as well as it did in 2008 (remember that our ULB-based analysis showed it would do better), it stands to gain an absolute majority. There is no surprise why there is so much clamour for tickets within the Congress.

The growth of a new company usually consists of one short period of high growth preceded and followed by rather long periods of steady growth. Sometimes there might be more than one period of high growth, but for most companies, it is that one period when there is a point of inflexion and growth goes to a new trajectory.

Now, my point is that if you want to raise venture funding, you better do it when you think you are on the cusp of one such inflexion. Usually points of inflexion are associated with some increase in “leading” investment, and a small chance that the company will get on to a new trajectory, and a big chance that the company will go under.

This crude chart shows the typical trajectory of a young company. The beginning of the red zone is when you should raise venture money

If you look at the picture here, the beginning of the red region is the state where you need to get venture funding. The thing with the black regions is that irrespective of how you fund those, at best you can expect steady growth. Now, venture capital funds, the way they are structured, are not set out to fund steady growth. The way venture funds make money is when one out of a number of their investments makes shockingly great returns, while the rest go under. They are not in the business of funding steady returns.

Hence, when they fund your company they value you assuming that in case your company is successful there will be steep growth, which will enable them to recover their investment. And if your company is in steady growth phase, it is never going to be able to do that. And you will have a case of your investors pushing you to do more or something different from what you had planned doing. The problem here lies in the fact that you raised the wrong kind of funding!

In times like this or at the turn of the millennium, when venture capital is big, it can sometimes become the preferred mode of fundraising for a lot of companies. The problem, however, is that most of them don’t realize that venture funding is probably not the best form of funding for them at their size and scale, and then get weighed down by investors.

On a similar note, you should go public once you know that there are no really big points of inflexion coming up, and that your company is set on a path to steady growth. Again that follows from the fact that investors in the stock market (where they pick up tiny shares in each company) are usually in it for long-term steady growth. And if you happen to take undue risks and they don’t pay off, your stock will get hammered unnecessarily.

So we might have this weird situation in the forthcoming IPL where Sri Lankan players are not allowed to play in Chennai. While the merits of whether India should continue to have diplomatic relations with Sri Lanka in view of the alleged genocide is debatable (I personally think we should continue to have these relations), I think the “solution” of giving visa to Sri Lankan players and then not allowing them to play in a particular city shows India in bad light.

Regional leaders are entitled to, and should, have their opinions when it comes to foreign policy. However, these opinions should be discussed in Parliament or Cabinet or some similar forum, and as far as the outside world is concerned, India should have a single foreign policy. It might be in the Tamil Nadu politicians’ own political interests to take a hard stand on this Sri Lanka issue, but it is the job of the Union Government (and the Prime Minister) to hear these voices, debate them and make a decision which the regional leaders are bound to obey.

It is well known that Tamil Nadu politicians don’t want the Sri Lankans to participate in the IPL, and this might be a corollary of their stand that the Indian government should not engage with the current political establishment in Sri Lanka. Taking that into consideration, the Union Government should do one of two things – accept the stand of the TN politicians and deny work permits to the Sri Lankan cricketers, or allow the Sri Lankans to participate in the entire tournament, including in Chennai.

It is important that India presents a coherent face when it comes to foreign policy. We have already seen one international deal (on the Farakka barrage, with Bangladesh) being scuttled at the last minute because of last-minute reservations expressed by regional politicians. If we present a divided stance on this IPL issue, it could send out a signal that Indian foreign policy is hostage to regional leaders, and that it is difficult to do business with India (since that entails doing deals with regional leaders also).

At a time when doing business with other countries is paramount (given our energy security concerns) , it is important that we send a signal that we are easy to do business with. And for that, we need to signal that we have one foreign policy.

Tailpiece: I wonder whether under their current stance the TN politicians will allow Muthiah Muralitharan, a Tamil Sri Lankan who is married to a Madrasi, to play in Chennai.