Worth Reading

The emergent theme: mastery of craft and practitioner awareness as vehicles to engage constructively with inter-group, stochastic processes.

· Nu Testaments: James Parker posits that the high-profile religious conversions of Korn‘s Brian ‘Head’ Welch and Reginald ‘Fieldy’ Arvizu are the flipside of drug abuse and nu-metal touring. Will they appear on Celebrity Rehab with Dr. Drew? Will they join the 25th anniversary tour of Christian heavy metal band Stryper?

· Newsted on Metallica: ‘I never looked back’: Good advice from the ex-Metallica bassist on how to handle life after leaving a super-team: make an independent course, don’t live in the shadows of past successes, and keep the door open for future one-off collaborations. Update: Metallica.com’s 3am message and Blabbermouth’s coverage of Metallica’s Rock And Roll Hall of Fame induction.

· Inside a Hedge Fund Meltdown: Hedge fund trader Victor Niederhoffer gives his side of the story about the Refco transaction that led to his ‘blow up’ during the 1997 Asian currency crisis. What a difference a few hours could have made . . .

· Impossible Frontiers: Andrew Lo‘s research sits at the nexus of quantitative finance and practical experience in running a hedge fund, AlphaSimplex. This paper (abstract) co-written with Thomas J. Brennan suggests limitations in the Capital Asset Pricing Model, which determines an appropriate mix of risk and return for a diversified market portfolio, and has implications for funds which rely on short-selling to generate alpha, or investment returns above the market benchmark and vetted for risks.

· Credit Suisse Asian Investment Conference 2009: view the keynote panels and read the conference guide.

· Double Standard? CEOs who want a bailout often adopt the rhetoric of Gary Hamel and C.K. Prahalad‘s book Competing for the Future (1994): government money is necessary for industry survival. James Surowiecki’s ‘paired study’ of the US auto and banking industries shows why the Obama administration’s private equity advisers are pulling the plug: years of firm mismanagement, no profit margins, variable future cash flows, poor liquidity, and international competitiveness.

· Why Your Boss Is Overpaid: Tim Harford’s article was an ‘aha!’ moment on how individual incentives, status hierarchies and infra-group rivalry can sabotage teams. The second ‘aha!’ moment was to grasp how the Australian Government’s recent changes to performance measures in the academic research game are likely informed by tournament theory.

· Henry Rollins’ diary entry 29th March 2008: Some very useful advice on patience and the writing craft: ‘I know a year and a half sounds like a long time and it is but not when it comes to a book. Trying to write has taught me about patience. I remember many years ago, I was living in NYC and working on Get In The Van. I had come back from practice and went back to work. My chair was a bed and my desk was a steamer trunk with a box on top of it. I was transcribing writing out of a notebook and it hit me that in a year, I would still be working on this same book. There is yet another book project that I will start preparing for second draft raking soon if I can get clear on other projects.’

· Xeper as an Operative Secret: Don Webb‘s short essay reveals the Temple of Set‘s initiatory raison d’etre: individual, self-willed becoming. He omits, but has mentioned elsewhere, one powerful psychological framework to achieve this life-orientation (Mihaly Csikzentmihalyi‘s research on creativity, flow and positive psychology) and a very good fictional example of the method and its potential results (Gully Foyle’s transformation in Alfred Bester‘s The Stars, My Destination).

· Event Arbitrage (HBS 9-208-090, 2007): Outlines a two-day M&A simulation and provides details on the market microstructure, merger announcements and transactions. Also explains how to value a ‘negative stub’ alternative investment strategy.

· Managing Learning and Knowledge at NASA and the Jet Propulsion Laboratory (JPL) (9-603-062, 2002): Summarises the lessons learnt from the Apollo moon missions, the Space Shuttle program, and the high-profile failure of several satellite missions in the mid-to-late 1990s. NASA’s KM and organisational challenges included shifting from a heavyweight, waterfall style of project management to the Faster, Better, Cheaper program; the looming retirement of senior staff with organisational memory, and technology solutions which failed because culture, team, and knowledge transfer issues were not addressed. Details a project management office solution which included a budget line item, intranet/portal development, a debriefing process for decision trees and project failures, and a leadership development program. A major outcome is NASA’s Lessons Learned Information System which parallels the US Army’s Center for Lesso
ns Learned
.

Efficiency Perils in Global Food Markets

The New Yorker‘s James Surowiecki provides an overview of volatility in the global food market.  Three insights emerge for me:

(1) Differences between policymakers and food security experts at the problem diagnosis stage may have complicated the implementation of structural adjustment programs.  Food security poses solutions that are potentially counterintuitive to policymakers: the former will value food stocks to ensure stability in sovereign nation-state the international political economy whereas the latter may prioritise food flows for international trade, to hedge commodities and currency risks.  Surowiecki explores a contemporary scenario of potential market failure due to demand-supply, pricing and other distortions with the allocation mechanisms.

(2) David Ricardo‘s theory of comparative advantage – in which each nation specialises in the efficient production of goods and services to trade with others for maximum payoff – may not be scalable in its simple form to a complex, interconnected and global system.  Surowiecki’s analysis suggests tha the over-reliance on a few countries for specific foods will undermine the global system’s resilience and capacity to cope with exogenous shocks and volatility.

(3) Paramaters for investor and market models of the global food market using Vensim simulation software: production supply, demand volatility, pricing, subsidies/tariffs, stocks and flows, and leverage points.  Undertake different short- and long-run simulations noting the role of capacities, dynamics and thresholds, and the impacts of exogenous shocks and volatility.

Decision Sciences For The Masses

Malcolm Gladwell‘s new book Outliers: The Science of Success (New York: Little, Brown & Co., 2008) appears to be the publishing event of the week.

Gladwell (The Tipping Point, Blink) spearheads a group of writers who are masterful at using anecdotes about insights from statistics, system dynamics and the decision sciences that will interest a broad readership.  This group also in  Chris Anderson (The Long Tail), James Surowiecki (The Wisdom of Crowds), Nassim Nicholas Taleb (Fooled by Randomness, The Black Swan), Tim Harford (The Undercover Economist), Steven Levitt and Stephen Dubner (Freakonomics), and Michael Lewis (Liar’s Poker, The New New ThingMoneyball) also belong to this group.  Apart from outliers and tipping points these books explore intuitive decisions, long tail distributions, the Law of the Many, chance, low probabilty high-impact events, martingales, and data-driven decisions.  Each author has a different background: Taleb is an epistemologist and former trader, Anderson is a technology pundit, and Lewis, Gladwell and Surowiecki are essayists and journalists.

For me, six observations emerge from these authors.  First, they have a writing style that appeals to a broad audience.  Second , they provide an introduction to quantitative elements of decision-making and judgments.  Third, their publishers have created a niche market in airport reading and popular science paperbacks.  Fourth, they differ in their approach to theory building: Anderson, Gladwell and Surowiecki take an insight, interview people, and promote it; Taleb, Harford and Lewis draw on their domain experience; and Levitt and Dunbar illustrate how a subject matter expert can collaborate with a journalist to reach a broader audience.  Fifth, their books have seeded a range of Web 2.0 strategies, which vary in rigour, validity, generalisability and applicability to real-world analysis.

Finally, their publishers have used their marketing appeal to build an audience during turnarounds and post-acquisition integrations: Gladwell and Surowiecki helped revive The New Yorker, Levitt and Dunbar’s blog gained The New York Times an Internet readership, and Anderson revamped Wired after Conde Nast‘s acquisition.