Human body

Few years back scientists ran some numbers to find out the 'price' of a human body. Guess what the 'price' was? If you just take up the chemicals that make human body and calculate the value, it was around 8-10 dollars in 70s.

First of all, major portion of human body is hollow. It is space. That's it. Any chemicals that make up are water, carbon and other organic chemicals which are very inexpensive.

But, the  value of our body  'priceless'. 'Sound mind in sound body.' Although the chemical value of our body is only few dollars, we can not get a new body or do fundamental changes to our body with whatever sums of money. Millions, billions, trillions do not matter. This should be an eye opener why it is important to take care of our physical bodies and make it last as long as it has to. If we believe that 'God uses us as his instrument in his works', how can we give him a useless instrument? Are we not embarrassed to go and tell God - 'God, you gave me a good body to begin with. Now I have screwed it up. Use it as your instrument.' What do you think God would say -'I would rather give you a new body. Come home, my son.' And, that is the END of that particular life. But, the END may be quite painful because although our body is being replaced we are still hanging on to all unfulfilled desires and it is hard for our soul to give up the body and this duel causes too much pain and grief at the end. At least, this his how some schools of philosophy explain body, its significance, its importance and so on.

Another very encouraging thing about our bodies is its power to rejuvenate itself as soon as you help it by taking good care of it. Scientists  have found so many amazing cases when they thought certain organ was damaged beyond repair in an accident or due to abuse, regenerated itself. It's certainly divinity that God has instilled in us. If not, how can we believe that a smoker who has smoked for decades starts regaining most of his lost lung capacity in less than  3 months (or so) after quitting smoking. Liver is one organ I am told does not regenerate fully. So, that needs extra care.

However, let's not take undue advantage body's healing power. It's like a rubber band. We do not know when it will snap and tear up. So, let's not stretch it too far. Let's  bring ourselves back on right track to take care of our bodies even if it is worth only few dollars. For chemicals there is master card but the body we have  is priceless.

Cheers!

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EVA - Economic Value Added

If you invest in a business and if the net income (bottom line) is positive, do you think your investment in this business is a good idea?

It depends. What would the same investment have earned elsewhere? If you earned 100,000 on 1,000,000 in this business then you earned 10% profit. If investing elsewhere would have gotten you 130,000 that is 13% interest then this business did not really earn you any profit, instead you lost money due to missed opportunity cost.

So, a new measure was required to determine if the business is doing justice to the capital invested. What makes up capital? 1) Paid in capital when shares were issued 2) Retained earnings  3) Debt. 1 and 2 can be combined treated as capital invested by owners and capital invested by debtors.

Debtors always have a rate of return regardless of how business does. The interest rate they charge is what is their rate of return. But what about the owners or investors. What rate they should  expect? One way to come up with appropriate rate of return is to match it up with the risk of the investment. We can use beta of a stock and use CAPM to come up with a appropriate rate of return. Expected return = risk free rate + beta (market return - risk free rate).

Then, the capital structure of any company  consists of debt and equity in different portions. So, we can take the weighted average of debt capital and equity capital and determine WACC (Weighted average cost of capital). We use this to find out new measure economic value added.

We start with NOPAT (net operating profit after taxes). This is done to unmask the tax impact of interest you are paying on the debt. We want to remove the tax benefits first. NOPAT = Operating income * (1- tax rate).

Now calculate EVA  as EVA - NOPAT - (Capital * cost of capital).

EVA helps you compare any investment with respect to other investment opportunities. Many companies such as Coca Cola, TCS adopted EVA with zeal to make it a point to show to their shareholders that investing in their companies is the best or one of the best investing opportunities they can find amongst many such opportunities. Way to go.

Check out www.investopedia.com for nice articles, tutorials on EVA. But, it is not very easy to calculate EVA for every company that interests you unless you can come up with a pluggable spreadsheet or find ready-made calculator. But, you can develop a rule of thumb. That is to subtract a percentage of market value from the net income an see how it fairs. Market value is the worth of your investment. You can dump it at this time, collect that much money and move one. So, market value is the theoretical money you have. On that you want to earn say 13%. So, if the market value of your company is 1 million dollars then you have to earn at least 100,000 per year. Is your company earning that much?

Cheers!

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Stock picking

After dabbling a bit in stocks, I think following set of criteria has worked to pick and choose some investment grade securities. I stress 'investment grade' and not 'speculative'. These rules also have helped to decide when to sell and when to buy. This basically comes down to 'buy low, sell high'. It has been very difficult to put this rule in practice because not much attention has been paid regarding what to use to determine low and high and low and high of WHAT. It certainly is not the price but VALUE. Price is what market has priced it to be. Value is what fundamentals indicate.

Buying:

1) Always make sure that the price you are paying is not outrageous. If you buy something at an outrageous price, you are most likely to incur loss because greater fool theory does not work. Look at Price to Earnings ratio for trailing twelve months (ttm). Cap P/E (ttm) ideally at 15 and no more than 20. If stocks do not meet this criteria, do not even go further. However attractive these stocks may be, they are priced too high if P/E is above 20. Market will provide sufficient opportunities in the future to buy these stocks at right prices when euphoria dies down and stock's trading price is in line with P/E (ttm) less than 20.


2) You want to make sure the company has little or no debt.

3) Cash is king. You want to make sure that company is generating plosive cash flow from 'operating activities'. I stress 'operating' because you want the company's operations generating cash flow and not investing and financing.


4) Increasing revenue and net income. At least not erratic.


5) Preferably dividend paying. Cash in handed over today is uncertain market appreciation in the future.


Selling.

1) There is only one rule. Sell when P/E (ttm) exceeds 25. Don't hold back thinking it will keep going up. At least have a plan to sell some number of shares when you have locked in 15, 30, 50 % profits.

2) Why it makes sense to sell stocks that P/E (ttm) 25 or more. For the very reason you do not buy those stocks. They have been priced for more than they are earning for you. However much you like the stock, sell it and buy it back again when the price falls if and only if fundamentals are strong. If fundamentals are strong and if the stock is priced reasonably, you can buy it regardless of what market has priced it to be. For fundamentals - refer to 2,3,4 and 5


This is nothing but time tested principles of value investing. I had to prove it to myself with some trades of my own.


Great buy opportunities - TM (Toyota), TXN (Texas Instruments). Great companies trading at unbelievable P/E of 15 and 11 respectively.


Sell if you have in portfolio - HDB (HDFC bank), WIT (Wipro) trading at too high P/E.

Watch and sell some portion - MSFT (Microsoft) has nicely appreciated over last few months. P/E has moved to 22.

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Management

"You can not manage people. You can manage inventory, you can manage cash etc. But, you can not manage people."


Ross Perot said it. Some others may have alluded to the same concept.


All those things that we associate 'management' with are not really manageable. Time management - can you manage time? We can only manage ourselves relative to time. I think this is what we actually mean when we say time management but it is said as though we are capable of managing time.


With people management, some things change a bit. You can not manage people. That can be taken as God's world. You do manage yourself with respect to people. That has some meaning in it. But, the most important  about people management is to realize that we can and must manage our agreements with people. That's what leads to effective people management.


As adults, managing  professional people can mean only one thing. As adults, we get together, discuss responsibilities, hash around what each person can do, what resources are required, what is a reasonable deadline, how do we communicate, how do measure completion, how do we hold each other accountable. Once these things are agreed upon, people management is all about managing this crucial agreement and making changes as needed. If the person we are trying to manage says that he needs additional resources, we ask for facts, if we are convinced, we will amend the agreement by either giving him more resources or letting him take more time. Agreement is base lined again and performance is tracked against the new baseline.


Looking at managing people as managing agreements between two adults help reduce so much stress, confusion and ambiguity associated with managing people. With this concept in mind, we can easily ignore idiosyncrasies which sometimes bother us more than actual people themselves. We can discount all that and focus on nailing down the agreement and then managing the agreement and ignore whether we like the people or not (vice versa), whether he works enough hours or not, if he dresses well or not, all these fall aside. Where possible, along with managing agreements, we also try to build, nurture and enhance relationships. With most individuals, it only  helps make formality around "agreement management" less and less as we develop more trust. Some people do not like friendly gestures, we need to respect that too and focus on the agreement and move on.


This framework should also be handy in all human relationships not just human relationships at work. Although, may require some changes to the framework to put it in practice in family situations.


Cheers!

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Sword

"Those who live by sword die by sword."


Let' say you are someone who make a living by sword. I mean use sword (or axe or whatever) to cut trees to make lumber. If we have to modify the above quote for someone like wood cutter it may look like - "Those who live by sword must take time to sharpen the blade from time to time."


I think the concept of sharpening the saw is one of the corner stones of Stephen Covey's books. I think it is a very important concept. By taking time to sharpen the saw, we can cut more trees in less time. But, many people who get sucked into today's rat race totally forget about sharpening the saw, work like crazy with a saw that is losing its sharpness everyday and one fine day the blade is damaged beyond repair meaning they burn out and quit for good.


Little better are those who get the concept of sharpening but sharpen the blade in a totally wrong way or worse sharpen the wrong side of the saw. Examples - super busy technical professionals who ignore the fact that sharpening saw means keeping up-to-date with developments in their field. They waste small amount of time they have on things like learning belly dancing or basket weaving. Not to mean that no one should pursue those hobbies but only after you have sharpened your professional saw. Example of people sharpening the wrong side saw include those who focus on personality development when they need professional development. You can come up with many examples.


What we get in school, college, university is instruction. What formal education teaches, at best, is how to learn new things effectively. If it has done its job, it has taught you the basics of learning new things. If it has imparted that knowledge to you and you have learnt the art of learning effectively and have developed an insatiable urge to keep bettering your knowledge, then your formal education is worth it. Now, it is time to build on it.


Once we realize this and register it well in our minds, means and ways to sharpen the saw start appearing naturally. Take courses, attend seminars, get certifications, get back to school, write articles, speak in professional forums. Choices are innumerable. Possibilities range from free to ivy league education. Choice is yours. Just make sure that you understand that sharpening the saw is an ongoing activity and not something that you spend 6 months once in 10 years.


Easiest thing to start is the advice I got from my mentor long time back. That is to read, at least, one book per month. If you do it on daily basis, it takes no more than 30 mins even for big book. But, unless you commit to it, it just becomes so hard. The few hours left are spent watching TV or browsing net or some other meaningless activity and no time left for reading. Reading before bed time is also a great idea but I personally discourage that unless you are reading something that is spiritual. Professional reading is better carried out separately. The ideas, you go to sleep with, reverberate all thru your sleep. If that is the case, I would rather have ideas from Bhagvadgita or the discourse of Sri Ramkrishna reverberate than new ideas of project management or some new stuff such as "ruby on rails" (like the name). But, going to sleep reading is one of the best ways ease into sound sleep.


So, take good care of yourself and invest in yourself. Once you do that then you can spend all your time using the saw to your heart's content or helping others with their saws. Whatever you like. Never ever get into a situation when your saw is on the brink of failure. God forbid that happen before you end your journey here and consequences can be very dire.


Cheers!



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Queuing theory

How about revisiting queuing theory for a while? You must be thinking - queuing theory?learnt in undergrad and never wanted to go back there.


But, some of the insights from queuing theory make far more sense when you have to manage resource effectively. What is a good way to manage resources, say a web servers? Run one web server at 100% utilization or  run at around  80% but add additional sever as required. For example, run 2 servers at 100% or run 3 at say 70%?


No right or wrong answer here? Both work equally well because 2 servers working 100% is almost same as 3 servers working 70%? Numerically yes but the difference is on system performance. Only time 2 servers working at 100% is better than 3 servers working at 70% is when the jobs arrive exactly at the same rate and every job takes exactly the same time. Test it on a simple scenario - consider a bank where every task takes 5 mins and customers arrive at the rate of one customer per 5 mins. So, the teller runs at 100% utilization. He finishes the task of one customer and the next one is just-in-time. Let's say the teller fumbles one task and it takes 1 minute longer. So, the customer now has to wait for 1 min and so is the next customer. If the rate of customer increases then wait gets worse. System gradually degrades. Only if the rate of job decreases and system gets to catch up. Moreover, no where there is so much certainty about how long does the job take and how is the rate. We need to approximate both and determine how many full time resource we need and then use variability to add some slack such as instead of 2 full time resource, using 3 resources at 70%.


The the impact of wait as seen in the above example becomes worse if there are down stream activities. More the number of steps in the process, worse it gets and the whole system becomes less effective.


This is why no resources such as web servers, db servers are run no more than 80% average utilization.


If we see the sense in this then why do we many times insist that people should be 100% busy at work. Your developers can not be and should not be 100% busy. Managers trying to achieve that are simply not reasonable. If you require 2 full time resources, plan to have 3 with 70% utilization. If the work load varies, you have a good mechanism to prevent negative impact from queuing. Let your people have some down time which they can use to do whatever. That downtime helps them put more hours when required.


Effect queuing theory is nicely described in the book 'Lean development'.


Lean Software Development: An Agile Toolkit for Software Development Managers (Paperback)
by Mary Poppendieck, Tom Poppendieck

Cheers!

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No & Yes

"Don't take no from someone who can't say yes."


This is one of the best quotes I have heard. It is so powerful. I think I heard it in audio book "Rainmaker Secrets" which is a book on effective selling.


Regardless of our work, we are all selling one thing or the other all the time. Most importantly we sell our ideas when employed and ourselves, our skills, our experience, education when we are looking for employment. We all are  the brand managers of most important brand that is "I". So, we need to master sales techniques.


Rejection is part of selling. Answers you get when you try to sell something are - Yes, No or May be. So, "No" is probably what you will be told at least 1 for every 3 sales attempts. "May be" has large band width and can lean more towards "Yes" or "No". So, "No" becomes even more probable. So, having to hear "No" half the time is normal and to be taken that way.


But, rejection is very hard. People many times avoid trying - more because they can not face rejection than they fear failure. Rejection hurts and lasts for quite some time. But, we have to pick ourselves up, dust ourselves and move on.


This is where the above quote provide a lot of motivation and encouragement. First we have to ask ourselves if the person who is rejecting us is really capable of accepting. In any sales cycle, we have to go thru many layers. Some times people at  lower levels who really do not have the power to say 'yes' are overly eager to say 'no'. May be because it gives them   a false sense of authority or helps them compensate their inferiority complex which may triggered by your towering personality or  worthiness of what you are trying to sell. It is really unfortunate if these people who can say no but can not say yes are hard gate keepers. If that's indeed the case screw that potential customer because they have insulated themselves from all creative selling. In a way you do not want them as your customers because they are going to become extinct because they have most incompetent people who can say no but can not say yes. Move on.


But, you also run into situations where you get to hear a lot of No's but you still have a shot to make your case to higher people. Just keep plugging on. You can try to win over nay sayers, wine them, dine them, become friends, do everything that is legal to smoothen your way to the top while working aggressively on perfecting selling techniques to people who can say Yes.


So, say YES and get to work!

Cheers!

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Music

What do you think about  doing serious work while listening to music in the background?

Do you think music helps or hurts?Researchers at Cornell University were intrigued enough to investigate this. There are people who vouch that without music they can not get work done. Others just find it too distracting. Majority falls somewhere in between. Majority of us can work without serious issues with soft instrumental music in the background but anything loud with a lot of variation becomes distracting.


The experiment that was done at Cornell was very simple. They divided a group of computer majors into two groups. Each group was carefully selected to make sure that one group did not have any sort of advantage over the others such a lot of high IQ, high GPA people in one group.


They asked both groups to develop a program in Fortran for a problem specified in adequate detail. One group was asked to work in a room with the background music and other was housed in a room with no music.


The observation was very interesting. There was no visible difference in the performance of two groups. The number of correct entries, number of defects, time taken etc. varied very little. However, there was one thing that stood out. The problem was something which could be solved by following a sequence of steps or if someone identified a pattern then it could be solved in smaller number of steps using that pattern. The group in the room with music solved the problem sequentially. There was none in that group which could identify quicker and more intuitive way to solve the problem. Majority of the group in the quiet room had honed in on the intelligent way of solving the problem.


When they tried to analyze this peculiar observation, they found that it was in line with how the brain operates. The left half brain is what does most of analytical activities. Right side does most of the creative activities such as music, fine arts, emotions , creativity etc. The right side of the brain of people in the room with music was occupied listening to the music and could not exercise the creativity to solve the problem creatively. The right side  of brain of people in the quiet room was able to use right side to maximum and came up with the creative solution.


This is an interesting observation. However, caution should be exercised when it comes to the matter of brain because very little about brain is understood clearly. The understanding of brain and its working increases every year.

This came from Tom Demacro's 'Peopleware' book.

Cheers!

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Tough choices - a memoir by Carly Fiorina

Carly Fiorina, the ex-CEO of HP, finally ends her silence and comes up with this book. For anyone who remembers how she was ousted in early 2005, it's been a book that we have waited to read.


Fiorina was hired in 1999 to turn around HP which was losing its glory. Fiorina was responsible for many changes in 6 years of her tenure at HP. She changed the organization and acquired Compaq. She had many tough moments. Especially when a portion of board led by Bill Hewlett challenged Compaq acquisition. She won the nasty proxy battle that followed and completed the acquisition.


Good portion of the book is devoted to Fiorina's early career and how she rose up to become an EVP at Lucent before becoming CEO of HP. Fiorina spent 20+ years at AT&T, Lucent among other plethora of avatars of Big Bell. She rapidly advanced in  sales line and in the late 80s considered to be one of the most powerful women in the business. Time, Fortune etc. ran cover stories on her.


Fiorina was always mentioned for her marketing blitz, media savvy, general attractiveness and strategy. She was never recognized for her operational excellence which was not her forte any way. In this book she stresses operation excellence so much so that it's hard to believe people let her go because she wouldn't hire a COO to manage day to day operations letting her focus on strategy.

A faction in HP board which was extremely technical also could not get along with her well. They were suggesting acquiring several companies and Fiorina would not do that. One thing lead to another and in 2005, she was fired without right protocol or respect.

She departed with 50+ million dollars in severance.

Nice book.

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Insecurity

Do you suffer from a sense of insecurity that lingers all the time? Do you listen to a lot of loud music? Do you try to overload your senses doing multiple things such as eating, watching TV, talking and using computer  all at the same time?


It's very much possible that the sense of insecurity is coming from these. Loud music is found to be one of the reasons for insecurity. I can not cite any evidence other than self-experience and what Sri Easwaran said in one of his books. Overloading sense objects with multiple sense activities at the same time can also result in insecurity. Another empirical proof comes from the fact that Buddhist tradition recommends a lot of Zen music as  an accompaniment for spiritual process. That music is mellow, smooth and soothing. If such music induces calmness, I won't be surprised if loud music induces insecurity and stress.

One occasion that we may allow ourselves some amount of leeway is when we are exercising. Fast music makes exercising  more fun at times. If you can exercises without fast music or do not need music at all, then do not get into listening to fast music. This is for those who need fast music to reduce the monotony of exercise.

Zen music, solo performance of instruments, classical music with focus on voice rather than instruments, these are all great music to relax.

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Gift

"What you are is God's gift to you. What you make of yourself is your gift to God."


What a beautiful quote?


God has given us the raw material. That itself is a great gift. Even if the God has not given all the raw materials that we would have liked, rest assured, in the grand design of God, you have all the raw material in the exact proportion to deliver what is expected of you. It's a matter of looking inward and finding what you have to make of yourself. Work on that diligently and before raw materials are finished, make something out of ourselves that we are proud of and our master is proud of.


This quote is from the book "Tough choices" by Carly Fiorina, ex-CEO of HP.

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Become a venture capitalist using www.kiva.org

Many times we would like to finance worthwhile causes but the amount of money required in millions. So, we look and others who already have money are financing start up companies to make more money. Many times our interest to finance it also to finance some meaningful enterprises but what we get to finance, even when we get rich, are once again commercial interests whose aim is to make more money and nothing else.

How do you feel about lending (I say lending not donating) small amount of money to someone who wants start a small business? We probably are interested. But, is there a way to systematically do it? Now, yes there is.

www.kiva.org is provided a neat platform to micro finance. Micro finance should be familiar term with Dr. Khan of Bangladesh winning this year's Nobel prize in economics for his landmark and pioneering work in micro finance which revolutionized the lives many small time vendors in Bangladesh.

For more information, visit www.kiva.org. There you would find many simple business plans of several needy people who can put your $25 to good use to setup small businesses. www.kiva.org has done a great job of providing systematic channel to take your small contribution, pooling it up with contributions from similar minded people and then channeling the money to one or more business people via it's tie up with local financial institutions. These amounts are lent as loans and you can track how money is put to use, what is happening to the business, how far the business has returned the money and so on. Like any venture, some of the businesses you finance may fumble. That's ok as all that you lose may be $25 for a business and not more. But, on the positive side, the satisfaction you may get is something that can not be put in words. It is helping someone start making a honest living and if business does well, it may change their lives and the lives of their children for far better. You are making a difference.

This idea appealed to me tremendously. I have been big supporter of charities and donate a small amount to my favorite charities such as children international. But, what is important to many of us is to be able to see some tangible and precise way of how it is making any difference if any. Children international lets you sponsor one or more children for a monthly contribution. But, it is hard to say that your money really made a difference as the money is pooled with many big time donors and distributed to needy children. But, with kiva, you are lending money and not donating. If the person does well and returns your money, you can recycle it and lend it to some other needy person.

Hope that micro finance develops really well especially in developing countries. Small business owners there can take even a small amount such as $500 and make it really big at least for themselves.

So, what is stopping you from becoming a venture capitalist or angel investor? You can say in parties that you too are a venture capitalist :) and seriously providing capital to some meaningful venture. Is there any more meaningful venture than to help someone get a foot hold in life?

Btw, lending money is breeze with their seamless integration with PayPal. PayPal has to be commended for waiving transaction fees. So, all your money goes to the business person.

Cheers!

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