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Money and Science… Naturally Part 2

May 3rd, 2007 by under Uncategorized. No Comments.

From my last post I was mainly concerned with ties between the business world and the natural sciences. I started with the business world here and looked for a tie in the natural sciences between Accounting and Economics.

Accounting I feel is mainly concerned with classification. In accounting sums of money move and wind up in a place. You then as the accountant ask yourself two main questions:
1. How do we classify that movement?
2. How do we classify that money now?

You may argue that accounting deals with more than money in terms of its recognition of physical as well as intangible assets. However, valuation, which is required for all assets in order to record their monetary value on the financial statements, simply capitalizes these physical objects which essentially means they are simply money.

So my task then is to think about a science that is all about classification. I instantly thought of Chemistry. Chemistry looks at the world and tries to answer two questions:
1. I saw something. What just happened?
2. What is this made of?

The first question is mainly concerned with chemical reactions. Much like the way that when an acid and a base are combined a precipitate and water result – when there is a debit to cash and a credit to accounts receivable expected revenue is recognized.

The second question relates to chemical composition and this process is usually approached by a number of processes (distillation, gas chromatography, mass spectrometry to name a couple) which all are means of finding out the nature of the compound. Accounting has the same inductive process. A firm has a sum of money whether it is on its way in or on its way out and the firm must accurately reflect what this money is according to the Generally Accepted Accounting Principles, which set the limits much the same way that the Periodic Table outlines the available elements.

I may have gone a bit far with that last one, but hopefully you see the comparison. All that remains is economics. More later…

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Money and Science – Naturally…

April 20th, 2007 by under Uncategorized. No Comments.

Hi.

I thought I would take this opportunity to present one of the big ideas that I have thought of while in business school. What I spoke about earlier with ETFs and disruptive technology was along the same lines and I have one or two more, but basically these are ideas that have come to me while I should have been taking notes. I’ll be presented with a topic in class and I will think it through to some destination where it may or may not have been intended to go as part of the lecture. This is fine I’m sure, but has probably cost me an exam point or two.

The main one came about as a result of a discussion with a classmate of mine in Computational Finance. This is a class largely focused on the mechanics of financial modeling. Classes like equity analysis are focused mainly on an overall picture of what drives an asset’s value and these aspects are not only quantitative but qualitative as well. Things like looking at the feasability of a company’s business model are also involved here, but in Computational Finance we deal strictly in numbers presented in Excel with some elements of computer programming involved.

My classmate and I were talking about how a lot of financial models are developed from Physics. He and I are aware of the fact that a popular derivative pricing model equation has its roots in an equation for heat transfer. Also future asset prices are often estimated in an equation that has its roots from the observation of pollen movement in water. Despite my knowledge of both these facts he surprised me with the following statement, “Finance is nothing but the Physics of money.”

I thought about this and I think it rings true. Finance tracks money’s movement. Valuation is nothing more than a calculation of an asset’s impact. Not intirely different from calculating an object’s mass or position. Forecasting is similar to potential energy… my Physics knowledge is limited, but at first brush it seems to work.

I then wondered what other natural sciences had a corrollary in the business world.

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Mad or just disruptive? Part 2 – Say it three times

March 9th, 2007 by under Uncategorized. No Comments.

Hi. To continue on last week’s discussion of disruptive forces in markets and lead to the punchline that explains these at this point inexplicable titles I thought I’d start with a brief discussion of another market in the diverse and complex world of financial services. This is the world of personal asset management. Most commonly referred to as Private Wealth Management or PWM, this world is not only interesting, but interesting people are interested in it, which, well, interests me.

So, we’ll start in the past with the last and most powerful incarnation of old-world personal wealth management, the stockbroker of the 1980’s. Think Wall Street and Gordon Gecko, or Bud Fox even. You, the investor, have some money and you want to use it to make more. Or you’re just sitting at your desk at work and your phone rings, “Hello sir, my name is Bud Fox and I’d like to tell you about some stock.” This may ring somewhat familiar. However, Bud and his friends don’t exist in this capacity anymore because they were displaced by the greatest disruptive force of the 20th century, the internet.

Investors could trade online and therefore had no need for any particular individual to make their trades for them or convince them of the value of a particular stock. Sort of. After the internet the management of private wealth became more about “personal relationships” I put this in quotations because this marketing focus is the best banks and financial service providers can do in the face of a sharp spike in buyer power. Ok, so now they take you personally, but they’re still salesmen to their core. They sell you their management skills to work with your money, for a small fee.

Don’t be impatient, the punchline will be along soon. How would you imagine this market is segmented? Personal wealth of course. Who do you think the banks and financial advisors are most interested in? The people with the most money. Who do you think they are not interested in? Everybody else. If you’re in the middle market, you can talk to someone like Chuck (Charles Schwab), but they’re still missing everyone else. This is where the market asks the question that demonstrates divergence, “What does the average Joe do if he wants his money to work for him in a dynamic (read: risky) way?”

Well market, good question. He pays attention to the current disruptive force in asset management, Mad Money starring Jim Cramer. Here is asset management advice for the everyman presented in a dynamic way that meets a market need. Well done, Jim.

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Mad or Just Disruptive?

March 2nd, 2007 by under Uncategorized. No Comments.

Continuing along last week’s path I thought I’d share another general economic observation or two.

One of the key topics in my first few weeks of my Industry and Competitor Analysis class has been the idea of disruptive forces in markets. The idea is essentially that every so often a competitor will enter a market and provide a product or service that is so well responded to that it disrupts the market entirely.

The best example is napster. Music was going along fine as an industry until this college student in california launched peer-to-peer file sharing via napster. Now all of the music consumers used to have to buy by the album they could now own per song, by the second for free. This begs the question, given this new environment, why would anyone buy cds anymore? Or even more far-fetched, personify the market or simply the marginal consumer, it would have said for years, “Why can’t I just get the song I want and not the whole cd.”

That’s the idea, napster disrupted the music market by filling this need which had been present for years. As a business person you might ask, “Well how does one go about discovering the potential of disruptive market entrance and making it happen.” Good question. Well it turns out one of the best ways is to look at markets where there is quite a bit of demand at a lower price that cannot participate in the market because it is too expensive. This may seem overly simplistic, but the idea is not that they can seek some other similar good or service, it’s that they cannot be in the market at all despite their desire to be.

This conclusion led me to thinking of markets where this was the case. Markets that would ask questions like the music market did. Mutual funds came to mind immediately. Mutual funds have traditionally provided two major types of products: actively and passively traded funds.

Actively traded funds are more expensive products where you pay some person to choose your stocks, this person is super and they can do no wrong so that’s why they’re not cheap and you get a nice return. However, a lot of people came along in the mid-90’s who were a lot more super. And they ran Hedge Funds, so if you wanted super, you gave these guys a million or more and they gave you super.  

This brings me to the passively traded funds, which are not so super-unless you’re in the mutual fund industry. These funds simply give you a weighting of publlicly-traded securities that you hold like the S&P, which you pay fees to the mutual fund for buying and holding at a smaller fraction or a different weighting than if you purchased the securities individually. Wait a second, I think the market would like to chime in, “Why yes Mark I would. I want to know why this type of security isn’t traded on the exchanges along with stocks. Why can’t investors just buy the S&P in one security.” Great question market, why don’t you go into yahoo finance and search for SPY. Congratulations, you can buy that index on what’s called an Exchange Traded Fund or ETF. The market’s disruptive solution to non-sensical mutual fund fee structures.

Hedge funds took out all the high-end investors and the ones that were left didn’t want to pay the fees associated with passive funds, so the market’s response was to create Exchange Traded Funds that provided the same investment as the mutual funds, but with no fees. Works, right…

 More later…

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Comment talle-vous?

February 23rd, 2007 by under Uncategorized. No Comments.

As an aside I thought I’d give a slice of economic life in the digital economy with this post. If I get feedback about fascination with the details of my career search I will continue that commentary. If I don’t, well…, I’ll continue that commentary anyway.

Although not many comments show up on my page, I get about 10 per day. Am I deleting encouraging words from emerging business leaders, heavens no! I am deleting commment spam. What is comment spam and how did it come about you ask? Great question, for the answer, read on…

As the Smith School is well aware we are living in a digital economy. Which means… what exactly you might ask? Well, it means quite a few things, but one of the main things it means is that more people spend more time on the internet. And, they buy things there. Now let’s try a little scenario. You are a person and you want to buy something on the internet, but you don’t know how to find it. Where do you go? Google, correct.

Let’s try another scenario. You are a person and you want to sell something on the internet and you know where consumers will go to look for your product (see first scenario), but you’ve got a big problem. When they search for your product, they get your website and a bunch of other websites and (gasp!) you’re not first on the list. You’re probably not even on the first page! And here are two things you know about people who buy you’re product:

1. They don’t know you that well
2. They’re lazy

So… you have to get to the top of that list! How, you ask? Great question. Many tech firms are doing their best to answer it in a line of business called “internet search optimization,” read: “We help you get to the top of the Google list.”

These are great folks I’m sure, but they have a thoroughly unenviable task. Their job is to outsmart the guys at Google. If this doesn’t seem difficult I can just briefly demonstrate how talented these people are. They have invented a way to practically access the majority of available information on the internet. Think about that for a second. I made a webpage on college for an english course that I updated maybe twice. I found it easily using their search engine.

(I just took a break to delete another comment spam)

Google has an algorithm, we’ll think about it as an equation for the purposes of simplicity. Start with y=mx + b, the equation for a straight line, where

y=where your site shows up on their search engine
m=some constant
b=some constant
x=some variable relating to your website

However, in Google’s case their are many x’s related to the equation. So the “search optimization” people’s business is finding which x’s have the biggest m’s. Essentially which things about your site move you up their list the fastest. These firms discovered that one of the biggest things was that if your site is linked to by another site like this:

www.google.com

Then you (Google) move up towards the top of the list. So now that you have this knowledge put yourself in the shoes of the company looking to sell things. You now have a new question, “How do I get people to link to my page on their site?” Good question, here’s one way to do it. Send bloggers comment spam.

Advertisers have developed programs that crawl all the major blog sites and send them comments that make some arbitrary statement and then list a bunch of links to sites to buy their products. For every blitz these crawlers make they get a certain number of blogs that don’t have comment moderators or accept their comments and then they move up the Google ladder just a bit.

I may have just posted this for the sheer irony that will result when I get comment spam to the post, but I also find it an interesting economic development in the digital economy. More later…

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Follow- …oops

February 19th, 2007 by under Uncategorized. No Comments.

Hello again. Sorry for the hiatus, during which I did many a job-search related thing, but am still on the hunt. I have had some promising game, but the strength of the trail has varied widely during the process. I ended my last post with the statement that I would begin to talk about following up on interviews with my next Hiatus and update. So here you are…

Communication is prone to breaking down and not always in a straightforward, I am not listening to you Cool Hand Luke kind of way. And as it breaks down follow up letters can get increasingly forced and bizarre. However, this is only a select few. The majority of letters fall into three categories, which kind of ring like the first sentence of a postcard.

Remember me?
This letter is by far the most common. It is very straightforward. When I meet recruiters or representative employees from firms I attempt to do a lot of the things I talked about in my conference post, but after that my main aim is to focus on some deliverable, ideally my resume if they do not have it already, that I can send to them along with this letter, which basically reads as follows…

Dear Person,

I enjoyed meeting you at the place we met and discussing the things we talked about. I have provided the thing I said I was going to provide for your review.

Thanks,

The Person that wrote this letter (me)

See you soon?
This letter is for interview follow ups. It is also very straightforward and references the items of interest from the interview. Its form and purpose are quite consistent. I am thanking the individual for his or her time and providing them with a convienent means to reach out to me if they have any questions or would like to offer me career advice, glowing adoration or just a job.

Checkin’ in to see how you are…
These are a little bizarre. They are quite common, but can vary a little bit because of one essential, but nasty element, things outside of both of our fields of influence. The majority of the people that I send these letters to have not contacted me in at least a week and we are discussing a job that they, for one reason or another, are not in a position to offer. Usually the cannot offer me the position because they work in the group in which the position rests, but do not make hiring decisions.

The part that makes these letters strange is that the element that makes the job possible varies widely between positions. In some cases it is simply time, in others it is their boss. These two are the most common. Others that are a bit off the beaten path have been: vacation, another employee that is not their boss. For some reason the obscure ones are escaping me at the moment or never happened, anyway… some of the responses can be a bit labored because I attempt to frame the inconvenient external situation in some nice way, which usually leads to the use of wonderfully passive and detached imagery words like flow, develop and evolve.

These words bring to mind a budding flower, which is a much nicer image than someone in staffing coming over and saying, “Ok, interview these people now.” Anyway, if someone got a nice nature image while reading one of these emails, more the better.

 More later…

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One Step…

October 17th, 2006 by under Uncategorized. No Comments.

I did not have the priviledge of speaking with this recruiter in any of the interview rooms at the conference. Our conversation took place in the cafeteria upstairs and this normally would serve very well save for the fact that directly across the room there were rather large bay windows and the unfortunate part about this in my particular situation was that I had this interview in the mid-afternoon and the sun was right in my face. However I squinted my way through what I feel are the two first questions in virtually any interview, by no means specific to the MBA experience.

1. Walk me through your resume… (This is just a specific version of the caterpillar’s question I discussed earlier, “Who are you?”)

2. Why do you want this job? (This occurs in various ways, what do you know about us? and such…)

After these questions, as is usually the case, he took the chance to inform me about the group that he was hiring for. He then proceeded to the fun part, which instantly brought value to the time I spent reading the vault guide to finance interviews, (a book I strongly recommend for those interested in jobs in finance)

1. How do you value a company? (comparable firm multiples and discounted cash flow is the simple answer and probably the one they want, the complicated answer is the subject of much discussion…)

2. When working from financial statements, how do you get to free cash flow? ((EBIT-EBIT*Tc)+Dep.-CAPEX-Change in WC))

This is quite representative of other interviews I have had since and proceeded well, but that’s not much of an indication of actual success as any number of other factors that have little to do with the interview and everything to do with the firm I interview with. My follow up process follows in the next post…

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Matchmaker, match…

October 10th, 2006 by under Uncategorized. No Comments.

So I met what I think is my best match the first thing on the first day of the conference. I walked up and made my second attempt of the day at the ladder pitch. It went something like this. “Hellomyname is Mark … nice to meet you … iamasecondyearMBA.” You get the picture, I had too much coffee. I think that the person I spoke to may have heard about four of the words I said before informing me that the person I was looking for was getting coffee and that I should come back later. Got it.

 I heard the “come back later to talk to soandso” response easily 30 times the weekend of the conference. This is completely understandable. If I was soandso, and to some people I am, I would not want to stand there for too long either. My favorite come back later story involved a person I looked after five times before she was pointed out to me from across the room speaking to another MBA hopeful. I then returned and upon seeing her several feet away was informed that she again was not there. Now you may take from this that I was an intolerable pest and that they were trying to dismiss me with means slightly less forceful than a firehouse, however, what I believe was actually the case was a sad byproduct of globalization. The recruiters these firms sent were from all over the world and many could not pick out another from a photo array much less a crowded conference after six hours of speaking to soandso.

So I approached these firms and got some sleep after day one. I returned for day two, … tired. That actually turned out to be for the best, I approached my main match again with a much more conversational version of the same statement. After walking a recruiter through my resume at less than breakneck pace I heard two things:

1. “You should reflect more of your finance experience on your resume.”

2. “Do you have time for an interview?” Music to my ears… Why of course I do. More on the interview later…

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The Conference Dance

October 3rd, 2006 by under Uncategorized. No Comments.

A friend of mine went to a fancy school full of very smart people who often had a great deal of schoolwork to do. As a result, understandably, the students there had little time for fraternization or social activity. The administration or some student-related body, I don’t really know which, came up with a solution to this problem: The Last Chance Dance.

The premise is thus. You are a second-semester senior and you have had a crush on Joe or Jane for quite some time. Joe or Jane may or may not know that you exist, but the Last Chance Dance provides a medium for you to declare your interest in Joe or Jane in a very civil way that minimizes the potential for humiliation. You submit your three Joes or Janes online and other students interested in the dance do they same and if there’s a match the system tells both of you. If not, it doesn’t. This way you don’t have to mope around campus your last couple of weeks knowing that Jane knows you put her on your list and she turned you down.

This system may seem a bit odd or irrelevant, but it is very similar to the one employers use to select MBA candidates at large conferences. All candidates sumbit resumes online to particular positions, Janes and Johns of your own. Employers then use some system, more on this later, to match you to a position and contact you for an interview slot, or in my case… don’t. It would seem the resumes I sent went off to the resume book in the sky or wherever…

Such is life, I went undaunted and stag to the conference ready to at least value the experience. I had one main match in mind and my experience with this firm will follow in my next post…

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Lad-Er Pitch?

September 26th, 2006 by under Uncategorized. No Comments.

Hi. I am flying out tomorrow for my trip to the diversity conference in Atlanta and I thought this my be a nice time to discuss another bit of MBA life that may be of interest to you as a reader. The Ladder Pitch.

The issue is this You the MBA need to summarize your entire career to this point to a recruiter in roughly ten seconds in such a way that they will want to talk to you more or pass you along to someone in your field. The concept may seem like a stretch, but it is quite necessary because if you take too long or expect the recruiter to help you in this process you will be taking time from the happy hopefulls standing in line behind you at the conference.

At a conference on the scale this one this number could be anywhere from no one to close to 50 people depending on a number of factors which range from the banal (whether you made it to the employer’s booth early in the day or late) to the entertaining (how large and how colorful the tote bags the firm is giving away are).

It may seem impossible to summarize an entire career in roughly three sentences, but I think that may be the wrong perspective. Basically the recruiter is a captive audience and has the same simple question that they would have to anyone they meet for the first time. These conferences are also the recruiter’s stock and trade. You are in their house. Do not forget this, because if you do they will suggest you go elsewhere. Think of the recruiter as our friend the caterpillar from Alice in Wonderland. He had the same question they do, “Who R U?”

A Recruiter Cordially Asks...My answer is thus: “Hello. I’m Mark, I’m a second year MBA focusing in finance. Before business school I worked in finance at a small biotechnology firm in Maryland. I am interested in opportunities in financial planning and analysis with your firm. (Pause 3 seconds, if no response) Is their anyone here today that I can speak to about this type of opportunity?”

Each of these sentences has specific and intended meaning. Let’s discuss…

“Hello” – Despite the fact that both the recruiter and I are at this fair for a business purpose, courtesy is still quite important. It would be quite rude to simply approach the person and begin talking about myself. We have all experienced people who take this approach and they tend to be a bit boring at their most harmless. 

“I’m Mark, I’m a second year MBA focusing in finance.” – This both places me geographically and provides a face to the name on the resume that I will be handing over in sentence three…

“Before business school I worked in finance at a small biotechnology firm in Maryland.” – Let’s the employer know that I have experience in the industry where I am applying for employment. The biotechnology element does limit me in terms of industry, but I am mainly looking at firms in this realm where experience in biotech is a positive factor. 

I am interested in opportunities in financal planning and analysis with your firm. – And now… The punchline. Here I have given the generic example of financial planning and analysis, but for all the firms that I am interested in I have applied to the job I am interested in previous to the conference on the web. This way I don’t simply appear at the both and expect the recruiter to suggest positions to me. This is not their job.

(Pause 3 seconds, if no response) – This is hopefully where the recruiter recommends an individual in my desired field that I can speak to about the job. If not I ask… 

Is there anyone here today that I can speak to about this type of opportunity?” – This is about as pushy as I get. Others differ in their approach and I don’t disagree with more “hardsell” methods, but I am fairly confident these folks have seen it all and the hardsell, frankly, is not really me, nor is it really necessary for the majority of the positions I am pursuing. I won’t give the line here, “Just be yourself” but I instead approach it in the following manner. “Would I be content in a position where I acted unnaturally in order to obtain the position?” Probably not.

What I try to do the most with the ladder pitch is to avoid having a Lad-Er pitch. I am the lad in question and what I try not to do is Er. Not err, we all make mistakes. I mean actually use the word er, um or uh. Or, for you, whatever your conversational safety net is. This is the word we use when the pedaling of our speech is too forceful for the rotation of our thoughts and we slip for a second. Fear not, I think to Er is human, I’ll be back later. Hopefully with a word that begins with F and fits the context that could be divine…

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