Career Progression

I’m close to two thirds my way into my “Project Thirty”. Parts of it aren’t going so well. I’ve hardly traveled, for one, save a bike trip across Rajasthan. My to-be-read pile is as tall as it used to be, and my DVR hard drive is almost full with movies that I’ve wanted to watch, but haven’t been able to watch. Despite this, at this stage I must say Project Thirty is heading to a success.

Soon enough, I should be signing my first really large consulting deal. That should keep me busy enough for the next six months, though I think I’ll have some time to do other interesting stuff. The interesting thing about this is that it all started off with an “incoming lead”. One of the senior managers at my prospective client reads this blog. So that can be considered as my blogging career’s second big achievement – this blog’s predecessor was instrumental in my getting acquainted with the woman I’m currently married to.

I’ve structured this consulting assignment in a way that I spend just over half my time on it, and I’ve decided to use the other half to do things that I find interesting, without really having a monetary objective. So I’ve built a new graphic for cricket, which I’m trying to hawk around. I’ve built a whole system to simulate cricket matches. I’ve taught myself R, and more R, and have now learnt to scrape data off the interwebs.

I’ve rediscovered my love for programming (through that cricket project), and have now started dabbling with some stock market data trying to figure out if I can come up with a statistical arbitrage based strategy (in which case I’ll try sell it to some hedge fund). I’m teaching a course for the Takshashila Institution and if things go well, I might be teaching more than that, and elsewhere. I’ve started doing corporate workshops. Later this week I’ll be attending a conference for networking purposes. I meet people over coffee, just to get to know them. And so forth.

Now the problem is sustainability. Being a lone wolf, trying to find six-monthly consulting projects that take half your time is not an easy task. You need to be careful about how much you commit, for you have no resources at hand if you are over-stressed, but then you need the pipeline to flow, if you need your life to flow. That tells me that the logical step is to recruit, and build a team. That way, I can spend my time doing more quality things, but that also means that I spend time doing employee-management, something I don’t particularly look forward to. I like my current life as a freelancer but sustainability issues mean that I might need to “settle down”.

Some of those over-a-cup-of-coffee meetings have been with old friends/bosses who are insanely brilliant people. These conversations have given me a real high, and I never seem to have had enough of them! The amount of positive information flow and idea flow that happens when I meet one of these people is phenomenal. Unfortunately I don’t get to meet them too often, given our respective busy-ness. However, it would be wonderful to find co-workers like that, who would keep me mentally stimulated all the time.

Another cup of coffee was downed last week with a couple of acquaintances who needed my help in analyzing a particular data set they were looking at. They are individually intelligent people (though neither belongs to the category I mentioned in the previous paragraph), but a little different from me in terms of world-views and backgrounds and expertise. It turned out to be another phenomenal conversation, though, as we exchanged notes on how to attack the data, with each of our views educating one another. We were different people, but we were comfortable working together, and there seemed to be a lot to learn.

Anyway, the point is that I’m looking for partners now, to run my consulting business. Of course, they need to be people who share my world-view in terms of quant and data analysis, but I do think there needs to be some diversity in terms of world-view and way of thinking. Again, they need to be self-motivated to pursue this field of quant consulting, and they need to remember that they won’t be drawing a salary – since they’ll be partners. The most important bit, though, is that I need to be able to work with them. I hope that over the course of the next few months I’m able to identify and convince one or two people who fit this description and who I would want to share revenues with.

I’m also looking for a mentor. I have a number of things I’m doing and I need to focus. I have a friend who has worked in consulting who is mentoring me with respect to the general stuff regarding my consulting assignment. However, I need someone who can guide me in a larger perspective. In terms of how I need to approach life, how I should go about building a partnership, building my business, building my team, etc.

I’m excited at this point in time, and I hope I can make things work in terms of my new-found career. I’ll keep you updated on this.

Offshored

Two of the four full-time jobs that I’ve done have been “offshored”. They’ve both involved working for the Bangalore office of American firms, with both jobs having been described as being “front end” and “high quality”, while in both cases it became clear in the course of time that it was anything but front end, and the quality of work depended on what the masters in the First World chose to throw at us.

In between these two jobs, I had done a “local” job, at an India-focused hedge fund based in India, which for the most part I quite liked until certain differences cropped up and grew. While doing that job, and while searching for a job while looking to exit it, one thing I was clear about was that I would never want to do an offhshored job again. Unfortunately, there came along an offer that I couldn’t resist, and so I ended up having not one but two experiences in offshored jobs.

Firstly (this was a bigger problem in the second job), I’m a morning person. I like to be in at work early in the morning, say at eight. And I like to be back home by the time the sun in down. In fact, for some reason I can’t fathom, I can’t work efficiently after the sun is down – irrespective of when I start, my productivity starts dipping quickly from 5 pm onwards. Huge problem. People say you can take calls from home and all that but that blurs the line between work and life, and ruins the latter. You are forced to stay in office even if you don’t have anything to do. Waste of time.

Then, there is the patronizing attitude of the “onshore” office. In both my offshored jobs, it turned out that an overwhelmingly large portion of the Bangalore offices actually consisted of employees who were there because even the stated reason for their existence in the firms was labour cost arbitrage. It was simple offshoring of not-particularly-skilled work to a cheaper location. I don’t know if this was a reason, but a lot of people in the “main” offices of both firms considered Bangalore to be a “back office”. And irrespective of the work people here had done, or their credentials, or record, there was always the possibility that the person in the foreign office assumed that the person in the Bangalore office existed solely because of labour cost arbitrage.

And then you would have visits by people from the onshore office. Every visitor who was marginally senior would be honoured by being asked to give a speech (without any particular topic) to the Bangalore office. In the first offshored company I worked for, people would actually be herded by the security guard to attend such speeches. The latter company was big enough to not force people to attend these talks, but these talks would be telecast big-brother style from television sets strategically placed all over the floors.

And these onshore office people would talk, quite patronisingly, about how Bangalore was great, and the people here were great, and they were doing great work. Very few of them would add actual value ┬áby means of their lectures (some did, I must mention, talk concrete stuff). Organizing this lecture was a way for the senior “leaders” in the Bangalore office (most of whom had been transplanted from the firms’ onshore offices) to etch their names in the good books of the visitors, we reasoned.

Then there was the actual work. Turn-around time for any questions that you would ask the head office was really high, unless of course you adapted and did night shifts (which I’m incapable of). In the earlier offshored firm, there would be times when I would do nothing for two or three days altogether because the guy in the onshore office hadn’t replied! Colossal waste of billable time! Also, if your boss sat abroad, there would be that much less direction in whatever you did. In my second offshored job, there were maybe two occasions when I was on two-hour phone calls with my boss (in the onshore office), where he patiently explained to me how certain things worked and how they should be done. Those were excellent sessions, and made me feel really good. But only two of them over a two year-plus period? Apart from which, most one-to-one interaction with the boss was with respect to “global” stuff. Yeah a local boss can get on your nerves by creeping behind your back every half hour, but at least you get work done there, and can learn from the boss!

Then there is training. Because of the cost-arbitrage concept on which most offshored employees are hired, the quality of training programs in the offshore offices are abysmal. During my second offshored stint, I happened to attend one training program in Hong Kong, in common with people from onshore offices in the rest of Asia. None of the numerous training programs that I attended in the Bangalore office attained even a tenth of the quality of that program in Hong Kong. The nature of employees in Bangalore meant all programs had to start at an extremely basic level, so there was little value added.

I can go on, there is a lot more. But I’ll stop here, and let you tell me about your stories of working in an offshored environment. And I certainly won’t make the same mistake third time round – of working for an offshored entity.

The problem with real estate taxation

I spent a year working in an India-focused high frequency trading hedge fund. I used to trade stocks and equity derivatives there. We were primarily an arbitrage hedge fund, and our aim was to make money by trading on assets that were mispriced, in order to make riskless profits. For example, if the price of a certain stock at a certain instant was Rs 100 on the BSE and Rs. 99 on the NSE, we would buy the stock at the NSE and sell it at the BSE, simultaneously, thus making riskless profits. Contrary to what some of the “99%ers” say, we saw social value in what we did. We were making prices fairer for the rest of the market, and removing anomalies.

There was one big problem though, this beast called “securities transaction tax”. Every transaction in securities in India attracts this tax. While it seems to be a fairly small number, when you are trading large volumes and looking to arbitrage out wafer-thin margins, it ends up being significant. This tax, we figured, was a big hindrance in true arbitrage-free pricing of securities in India. The tax meant that assets could be mis-priced up to a certain limit, because wiping out that mispricing through a trade was unprofitable thanks to this tax. This “flow tax”, thus, makes financial markets inefficient.

The problem is bigger when it comes to real estate. Historically, property taxes have been really low, but property transaction taxes have been high. There is a good reason for this. Back in the old days where record-keeping was inefficient and incomplete, it was impossible for the government to map out who owned which piece of land. Instead, they figured that they would have a record on all property transactions, and thus put a tax on that. This is a worldwide phenomenon.

It has led to two big problems in India. First is the market inefficiency that I spoke about with my equities example. High transaction taxes means that property markets are illiquid, and this prevents more people from entering and investing in the market. This also means that any price changes in the broad market are not reflected easily enough across a vast majority of property. Secondly, the high transaction taxes means there is massive under-reporting of the actual prices at which transactions take place. Both the buyer and the seller have an incentive to do so, and deprive the government of tax money. This leads to creation of massive amounts of black money in real estate. The problem is similar to the creation of all those Swiss bank accounts back in the days of 99% marginal tax rates.

There is a side-effect also, one that our socialist-minded government and the National Advisory Council (NAC) might be sympathetic to. Low reported prices of land transactions also implies lower realization for farmers and other villagers when land is forcibly acquired by the government. Though compensation might be declared as multiples of the “market value”, the true market value in most cases is so depressed that farmers usually get paid a pittance.

That aside, so what prevents us from dismantling these distortionary transaction taxes on property? Firstly, they are a massive source of income to state governments and local bodies, and if they are to be dismantled they need to be replaced with another equivalent tax. Economists usually advocate property holding taxes as a less distortionary and more stable means of funding local governments. Till recently, however, bad record-keeping meant those weren’t enforceable. You already have nominal property taxes that are collected, but reports in newspapers suggests that implementation is lax, and there is significant tax evasion there.

Even if all property records are formalized and computerized, there is another major hurdle in dismantling property transaction taxes and increasing property holding taxes. Higher property holding taxes means that the value of property will see a sudden drop (lower “free cash flow” each year, and all that). Markets might become more efficient and liquid, but real estate companies who have sunk in millions assuming a certain valuation of their properties will see a sudden erosion in that value, and see value in lobbying against this change taking place. In the long run, they will benefit, in terms of greater investment, greater liquidity and faster disposal of the properties they have built. But the initial “shock” in terms of reduced valuations will mean they will lobby against this change.

Thus, unless something drastic happens in terms of reforms, it is likely that we will be stuck in this inefficient regime of high property transaction tax.

Cross posted at The INI Broad Mind

The Necktie Index

I’m currently reading Roger Lowenstein’s When Genius Failed – about the rise and fall of the hedge fund LTCM. So when LTCM was in trouble, the employees there came up with a measure called the “necktie index”. I’m not able to find a good link to it, and unfortunately physical books don’t offer an efficient “Ctrl+F” option so I’ll have to paraphrase and put it here.

The necktie index states that the more senior officers of the company wear neckties, and the more the meetings they attend, the more trouble the company is in.

I think this concept is generally true, and applicable more widely and to all companies. The more the number of employees wear neckties (compared to normal business days), the more the trouble the company is in. The indexing to “normal business days” is important because different companies have different normal dress codes, so normalization is required.

On a related note, I read somewhere that sometime in the beginning of this decade, when most other investment banks had a business casual dress policy, Lehman Brothers insisted that all its employees wear suits and ties to office. And you know what happened to the firm.

Now UBS has released a 43 page dress code, insisting its employees wear ties, among other things. It probably gives you an indication of where the company is headed.

On a less related note, I used to work for a startup hedge fund whose first office was a room inside the office of a fairly large BPO/KPO company in Gurgaon. And every week, “inspirational quotes” from the founders of the BPO/KPO would go up on the walls, along with their photos. And this was fairly well correlated with the decline of the stock price of that company.