Newsletter!

So after much deliberation and procrastination, I’ve finally started a newsletter. I call it “the art of data science” and the title should be self-explanatory. It’s pure unbridled opinion (the kind of which usually goes on this blog), except that I only write about one topic there.

I intend to have three sections and then a “chart of the edition” (note how cleverly I’ve named this section to avoid giving much away on the frequency of the newsletter!). This edition, though, I ended up putting too much harikathe, so I restricted to two sections before the chart.

I intend to talk a bit each edition about some philosophical part of dealing with data (this section got a miss this time), a bit on data analysis methods (I went a bit meta on this this time) and a little bit on programming languages (which I used for bitching a bit).

And that I plan to put a “chart of the edition” means I need to read newspapers a lot more, since you are much more likely to find gems (in either direction) there than elsewhere. For the first edition, I picked off a good graph I’d seen on Twitter, and it’s about Hull City!

Anyway, enough of this meta-harikathe. You can read the first edition of the newsletter here. In case you want to get it in your inbox each week/fortnight/whenever I decide to write it, then subscribe here!

And put feedback (by email, not comments here) on what you think of the newsletter!

Matt Levine describes my business idea

When I was leaving the big bank I was working for (I keep forgetting whether this blog is anonymous or not, but considering that I’ve now mentioned it on my LinkedIn profile (and had people congratulate me “on the new job”), I suppose it’s not anonymous any more) in 2011, I didn’t bother looking for a new job.

I was going into business, I declared. The philosophy (that’s a word I’ve learnt to use in this context by talking to Venture Capitalists) was that while Quant in investment banking was already fairly saturated, there was virgin territory in other industries, and I’d use my bank-honed quant skills to improve the level of reasoning in these other industries.

Since then things have more or less gone well. I’ve worked in several sectors, and done a lot of interesting work. While a lot of it has been fairly challenging, very little of it has technically been of a level that would be considered challenging by an investment banking quant. And all this is by design.

I’ve long admired Matt Levine for the way in which he clearly explains fairly complicated finance stuff in his daily newsletter (that you can get delivered to your inbox for free),  and more or less talking about finance in an entertaining model. I’ve sometimes mentioned that I’ve wanted to grow up to be like him, to write like him, to analyse like him and all that.

And I find that in yesterday’s newsletter he clearly encapsulates the idea with which I started off when I quit banking in 2011. He writes:

A good trick is, find an industry where the words “Monte Carlo model” make you sound brilliant and mysterious, then go to town.

This is exactly what I set out to do in 2011, and have continued to do since then. And you’d be amazed to find the number of industries where “Monte Carlo model” makes you sound brilliant and mysterious.

Considering the difficulties I’ve occasionally had in communicating to people what exactly I do, I think I should adopt Levine’s line to describe my work. I clearly can’t go wrong that way.

 

What did Brendan in? Priors? The schedule? Or the cups?

So Brendan Rodgers has been sacked as Liverpool manager, after what seems like an indifferent start to the season. The club is in tenth position with 12 points after 8 games, with commentators noting that “at the same stage last season” the club had 13 points from 8 games.

Yet, the notion of “same stage last season” is wrong, as I’d explained in this post I’d written two years back (during Liverpool’s last title chase), since the fixture list changes year on year. As I’ve explained in that post, a better way to compare a club’s performance is to compare its performance this season to corresponding fixtures from last season.

Looking at this season from such a lens (and ignoring games against promoted teams Bournemouth and Norwich), this is what Liverpool’s season so far looks like:

Fixture This season Last season Difference
Stoke away Win Loss +3
Arsenal away Draw Loss +1
West Ham home Loss Win -3
Manchester United Away Loss Loss 0
Aston Villa home Win Loss +3
Everton away Draw Draw 0

In other words, compared to similar fixtures last season, Liverpool is on a +4 (winning two games and drawing one among last season’s losses, and losing one of last season’s wins). In fact, if we look at the fixture schedule, apart from the games against promoted sides (which Liverpool didn’t do wonderfully in, scraping through with an offside goal against Bournemouth and drawing with Norwich), Liverpool have had a pretty tough start to the season in terms of fixtures.

So the question is what led to Brendan Rodgers’ dismissal last night? Surely it can’t be the draw at Everton, for that has become a “standard result” of late? Maybe the fact that Liverpool didn’t win allowed the management to make the announcement last evening, but surely the decision had been made earlier?

The first possibility is that the priors had been stacked against Rodgers. Considering the indifferent performance last season in both the league (except for one brilliant spell) and the cups, and the sacking of Rodgers’ assistants, it’s likely that the benefit of the doubt before the season began was against Rodgers, and only a spectacular performance could have turned it around.

The other possibility is indifferent performances in the cups, with 1-1 home draws against FC Sion and Carlisle United being the absolute low points, in fixtures that one would have expected Liverpool to win easily (albeit with weakened sides). While Liverpool is yet to exit any cup, indifferent performances so far meant that there hasn’t been much improvement in the squad since last season.

Leaving aside a “bad prior” at the beginning of the season and cup performances (no pun intended), there’s no other reason to sack Rodgers. As my analysis above shows, his performance in the league hasn’t been particularly bad in terms of results, with only the defeat to West Ham and possibly the draw to Norwich being bad. If Fenway Sports Group (the owners of Liverpool FC) have indeed sacked Rodgers on his league performance, it simply means that they don’t fully get the “Moneyball” philosophy that they supposedly follow, and could do with some quant consulting.

And if they’re reading this, they should know who to approach for such consulting services!

Teaching at IIMB: Mid-term review

IIMB has a strange policy. They are not allowed to have classes tomorrow on account of it being a national holiday so they shifted tomorrow’s concept to today, indicating a complete lack of appreciation of the concept of the long weekend. Anyway, since I didn’t have any other plans for the day or the weekend I decided to not request for a slot change and went anyways. This was my eleventh class out of twenty.

I expected the attendance to be rather thin today, but the class surprised me with more than three-fourths of the registered students turning up (on par with most sessions so far). And despite the class being at 8 am in the morning, none of them slept (at least I didn’t notice anyone sleeping). That is again on par with the course so far – more than halfway though the course and I’m yet to catch a single person sleeping in class! Maybe I should take some credit for that.

The class before today’s was about ten days back (long gap due to mid-term exams), and that day I had a minor scare. I had formulated a case that involved solving the Newsboy Problem (now politically corrected to “Newsvendor model“) as a sub-step in the solution to the case. Having worked out the sketches of the case solution the previous night I went to sleep hoping to work out the full case before I went to class. And my brain froze.

So it was 6:30 on the morning of an 8am class and I wasn’t getting the head or tail of the newsboy problem despite having known it fairly well. Decided to have cereal at home rather than go to SN to give myself more time to read up and understand the model. And my brain refused to open up. Yet I made my way to class, hoping I could “wing it”.

I didn’t have to, for the class exceeded expectations and solved the case for me. One guy popped up with “newsvendor model”. Another guy said that we could consider a certain thing as a “spot price”, thus eliminating the need to make any assumptions on costs. Then we started working out the model on Excel (remember that this is a “spreadsheet modelling” course). And the time came to implement the newsvendor model. And my brain froze in anticipation. “How do we do this?”, I asked, trying to not give away my brain freeze.

“We calculate the critical ratio”, came the chorus (sometimes I dispense with the politeness and order of people raising their hands and speaking in order). “And what is that here?”, I asked. “B6/(B5+B6)” came back the chorus. And then when I asked them how to impute the ordering level based on this, the chorus had figured out the exact way in which we should use NormInv to determine this. The troubling bit of the newsvendor problem having been thus solved, I took control and went forward with the rest of the case. And my respect for the class went up significantly that day.

Later in the day I was relating the incident to the wife, who I might have mentioned is an MBA student at IESE Business School in Barcelona. “Oh my god, your class is so quant”, she exclaimed. This is a topic for another day but perhaps due to the nature of the admissions procedure, students at IIMs are definitely much much more quantitatively oriented than students at B-schools elsewhere. Yet, IIMs don’t seem to be doing much in terms of harnessing this quant potential which should be giving their students a global competitive advantage.

And coming back to my class, they’ll be sitting for placements starting the 9th of February. If my class is a representative sample (it is most likely not, since I’m teaching an elective and these people expressed interest in learning what I’m teaching, so there is a definite bias), this seems like a great batch at IIMB. So I encourage you to go and recruit!