The Trouble With Analyst Reports

The only time I watch CNBC is in the morning when I’m at the gym. For reasons not known to me, my floor in office lacks televisions (every other floor has them) and the last thing I want to do when I’m home is to watch TV, that too a business channel, hence the reservation for the gym. I don’t recollect what programme I was watching but there were some important looking people (they were in suits) talking and on the screen “Target 1200” flashed (TVs in my gym are muted).

Based on some past pattern recognition, I realized that the guy in the suit was peddling the said stock (he was a research analyst) and asking people to buy it. According to him, the stock price would reach 1200 (I have no clue what company this is and how much it trades for now). However, there were two important pieces of information he didn’t give me, because of which I’ll probably never take advice from him or someone else of his ilk.

Firstly, he doesn’t tell me when the stock price will reach 1200. For example, if it is 1150 today, and it is expected to reach 1200 in 12 years, I’d probably be better off putting my money in the bank, and watching it grow risk-free. Even if the current price were lower, I would want a date by which the stock is supposed to reach the target price. Good finance implies tenure matching, so I should invest accordingly. If the stock is expected to give good returns in a year, then I should put only that money into it which I would want to invest for around that much time. And so forth.

Then he doesn’t tell me how long it will stay at 1200. I’m not an active investor. I might check prices of stocks that I own maybe once in a week (I currently don’t own any stock). So it’s of no use to me if the price hits 1200 some time during some intraday trade. i would want the price to remain at 1200 or higher for a longer period so that I can get out.

Thirdly and most importantly, he doesn’t tell me anything about volatility. He doesn’t give me any statistics. He doesn’t tell me if 1200 is the expected value of the stock, or the median, or the maximum, or minimum, at whatever point of time (we’ve discussed this time bit before). He doesn’t tell me what are the chances that I’ll get that 1200 that he professes. He doesn’t tell me what I can expect out of the stock if things don’t go well. And as a quant, I refuse to touch anything that doesn’t come attached with a distribution.

Life in general becomes so much better when you realize and recognize volatility (maybe I’ll save that for another discourse). It helps you set your expectations accordingly; it helps you plan for situations you may not have thought of; most importantly it allows you to recognize the value of options (not talking about financial options here; talking of everyday life situations). And so forth.

So that is yet another reason I don’t generally watch business TV. I have absolutely no use for their stock prediction and tips. And I think you too need to take these tips and predictions with a bit of salt. And not spend a fortune buying expensive reports. Just use your head. Use common sense. Recognize volatility. And risk. And you’ll do well.

Relationships and IIT

So the basic premise of this post is that being in a romantic relationship is like studying at IIT.

Everyone wants to get into IIT. They do thipparlaaga to try and get in. They join expensive coaching classes. Some of them even move cities. They wait for several years giving multiple attempts. People work extremely hard. Still, success is not guaranteed. There is that luck factor. There is the day’s performance that matters. Some days are important than others. Cracking the JEE is a “discrete” job.

While preparing for JEE, everyone thinks that if they clear the exam, their life is made. They come under the impression that after JEE, life will become smooth. That they won’t need to put any fight for the rest of their lives. That all that matters for their future is their cracking the JEE. And so forth.

It’s only after people come to IIT that they realize that life is not the cakewalk they assumed it to be. It is only after they get there that they realize that life after JEE is quite hard. That it is necessary to work hard. That if they don’t work hard, they will do very badly, and might flunk. It is only when they get to IIT that it hits them. Some learn quickly but others get disillusioned and give up in life. Several people do badly. Some even drop out.

So it’s similar with a romantic relationship. Everyone wants to get into a romantic relationship. Everyone looks only about the “entrance examination”. Everyone believes (before they get in) that life ban jaayegi after they get into a relationship. And getting into a relationship is a “discrete” job. It’s about how you “perform” during those blading sessions. It takes that bit of luck. It takes those set of fateful events to happen together in that precise coincidence.

And it is only when you get into a relationship that you realize how hard it is (provided you haven’t been there before). It is like being in IIT all over again. You know that you will need to work really hard to keep it going (applies to both parties). It is a continuous job, and you need to continuously “perform”. The randomness is much smaller than it is during the “relationship acquisition” phase.  However, you necessarily need to work hard. There is no “stud way out”. Some people give up when they find this out and break up (drop out). Others understand and put in the requisite effort and sustain the relationship. And continue to work hard.

The thing with arranged marriages is that you are typically forced to commit as soon as you’re done with “evaluating” the other person. You don’t get to test the counterparty on their ability to work hard and keep things going. It is like offering someone a job as soon as he has cleared the JEE.

And I wonder if one can draw an analogy between marriage and (academic) tenure.

Yet Another QLC?

An article I was reading on Cricinfo a few minutes back had this line:

Taylor sat quietly beside his captain, no doubt trying to soak up the moment.

Thinking about it, I realize it’s been a long time since I’ve had such a moment. A moment which had a sense of achievement, where I just sat, quiet, trying to soak up the moment. It’s not that I haven’t felt this way before; it is just that this kind of thing hasn’t happened for a long time. And looking forward, there doesn’t seem to be much scope for this kind of a thing.

It seems like life has been reduced to short occasional moments of intellectual wankery, and nothing surronding them. Life seems to have become, to an extent, mechanical. It doesn’t seem like there is anything on the horizon which will give a sense of achievement. It seems like whatever good I will do will be slow and incremental; like an innings by Shivnarine Chanderpaul; rather than like a hostile spell of pace bowling by Jerome Taylor.

I’m only twenty six, and occasionally I have trouble convincing myself that I’m ONLY twenty six, and that twenty six isn’t that old, after all. When this brought up in conversations, most people like to comment that it is time for me to get married. I’m not sure if the tenure matching on that is right. Apart from perhaps one “achievement moment” when I finally end up successfully pataofying someone, I don’t see how that will solve the problem that I have described here.

Thinking about it yet again, I wonder if this “achievement model” is faulty and unsustainable, and if I should reorient myself to work towards incremental benefits. Kodhi (ok before I forget, I should credit him for the discussion that led to this post) said “Tendulkar of 98 is not the same as Tendulkar of 08”. It was a poignant comparison.

Maybe a time comes for everyone – when this time occurs is not a matter of importance, and varies across people – when ticking off achievements is not the priority, and priority is to just go on and do one’s duty (which, in Tendulkar’s case, is to play excellent cricket, and win matches for India). It is not exactly an encouraging thought, but is probably true. What do you think?

Tenure matching and jab we met

ok this is one of those lazy posts. Takes two earlier posts and finds a connection between them. This is the kind of stuff that bad professors do – take two old papers, find a link between them and publish a third paper. I do hope to become a prof one day, but I don’t hope to write such papers.

if you remember my review of Jab We Met (which I wrote about a month back), I had said that I hadn’t liked the ending. I had said that if I’d written the script, I’d’ve made Anshuman a stronger character, and made Geet marry him; and have Aditya walk away into the drizzle. I had said that this was because Aditya and Geet had added as much value as they could to each others’ lives.

So, now, if you look at it in terms of tenure matching, things will become clearer. Both of them had their own problems, which needed solutions. And neither of them had a problem for which the solution involved marriage. Ok wait. Geet did have a marriage problem. She wanted to marry Anshuman, and needed to find an efficient way of eloping with him and marrying him. So looking at it from the scope sense, all she needed was someone to guide her in her efforts to do the same.

Aditya’s problems, too, weren’t something for which marriage was an obvious solution. He had put extreme NED at work, and was on the verge of killing himself. All he needed was someone to guide him out of NED. Someone to show him that life can be beautiful, and happy, and that he shouldn’t take any extreme steps.

Looking at the movie from this context, it is clear that marriage between Geet and Aditya wasn’t warranted. Ok it might have been a “no-so-bad extension” but it wasn’t required. It wasn’t a solution that fit in any way with the problems that they were facing in their lives. Which is why the ending stuck out like a sore thumb (and that excess song-and-dance and loudness and all that contributed in no measure) .

Ok now I realize that I shouldn’t be analysing Bollywood movies from a logical standpoint. but still…

Tenure Matching

One of the fundamental concepts of finance is to match the tenure of assets and liabilities. That the tenure of source of funds (equity, debt, etc.) need to match the tenure of what they are used for. So, if you need money to tide over till your next payday, you need to take an extremely short-term loan. If you need to borrrow to fund a house – an application that has a long tenure – you need to take a longer-term loan. And so on.

In fact, a common refrain about banking crises is that they happen mainly due to the tenure mismatch – banks borrow by means of short-term deposits, and then invest these in long-term loans. Most theories regarding liquidity crises cite this as a common problem.

Now, my contention is that this banking/finance rule is just a special case of a much larger rule in life. Remember that funding, or raising money, can be looked at as a “problem”. By classifying it as a problem, I’m not necessarily saying it’s a very tough problem. All I’m saying is that it’s a problem. And when you do raise money, it is a solution to the problem. Thus, the generalized form of the rule

The tenure of the solution needs to match the tenure of the problem.

So before you look for a solution for any problem in life, you need to first figure out about the tenure of the problem. And then generate a list of possible solutions which have similar tenures, and then pick the best among them. And based on my limited anecdotal experience, most people don’t really appreciate this concept when they suggest, and sometimes even implement, certain solutions.

So on Monday I called up a friend and told her that I was going through a strong bout of NED and we should meet up. She started philosophising and said that this is a fundamental problem and that I should think of a fundamental solution. That I should get a new hobby, or learn a new instrument, or some such long-term thing. Of course, I know myself better than she does, and so I knew that my problem was short-term, and so all I needed was a nice evening out. A short term solution to a short term problem.

On the other hand, during my previous job, I used to go through prolonged periods of NED. A little analysis revealed that the fundamental reason for this NED was my job, and that until I got a new one, I wouldn’t be happy. It was a long-term problem that deserved a long-term solution – of finding another job. However, most of the advice I got for my NED was of the nature of “go get drunk, you will be fine”.

My mother also doesn’t seem to appreciate this tenure concept. Nowadays I’m afraid to crib to her about anything, because if I crib, she assumes it’s a long-term problem and suggests that I should get married and that she’ll intensify her efforts in the arranged-marriage market.

Yes – people not appreciating this tenure concept is a long-term problem. The solution to this should also, thus, be long-term. They need to be taught such a lesson regarding this, that they won’t forget this concept for the rest of their lives.