Ai copilarit in anii 90 daca..

Just found this on Facebook, reminded me of so many priceless memories from my childhood! I said I should save it down somewhere because it really feels like part of me, of my childhood, and I don't want to ever forget that. Sorry for the people that read this and don't speak Romanian - unfortunately it's very culture-specific anyways so it's pointless to translate it, you would only understand it if you had lived in Romania in the 90s.

So here it goes!


Ai copilarit in anii 90 daca..

...ai colectie de suprize de la guma Turbo
...te uitai zilnic la Captain Planet
...faceai robotei din pachete de tigari
...ascultai B.U.G. Mafia sau R.A.C.L.A. noaptea ca sa nu te auda parintii
...pierdeai noptile pe mIRC
...jucai elasticul si frunza in fata blocului
...ai fost fan Generatia PRO si Tip Top Minitop
...stiai toate versurile de la Genius pe de rost
...te uitai non-stop la Atomic TV
...te jucai Maroco cu vecina de deasupra
...mergeai cu parintii vara la Mamaia si stateati cate 10 zile cu bilete de la sindicat
...ai baut prima gura de vodca dintr-o sticla de plastic
...gestul maxim de rebeliune era sa fumezi in toaleta scolii
...te uitai cu parintii la Dallas si la RoBingo
...ii faceai mamei tale semne de carte din hartie glasata de 8 martie
...te jucai Tetris
...ai invatat engleza de la Cartoon Network
...te uitai la diapozitive cand nu erau desene animate ca lumea la televizor
...colectionai albume cu abtibilde cu fotbalisti
...ai avut Serbarea Abecedarului in clasa I
...ai tras cu cornete sau cu prastia cu invizoace dupa fete
...de Craciun iti doreai mereu Lego sau papusa Barbie
...cumparai casete video cu Frumoasa si Bestia sau Mica Sirena
...te jucai cu soldatei de plastic
...ai avut sau ti-ai dorit Nokia 5110 si i-ai invidiat pe altii care aveau Nokia 3310
...n-ai plans ca n-ai mers la concertul Michael Jackson decat dupa cativa ani
...stii ce este Center Shock si iti doresti sa mai gasesti
...ai baut sucuri in cutii de carton in forma de piramida
...mergeai cu parintii la teatrul de vara la spectacole cu Nae Lazarescu si Vasile Muraru
...iti aduci aminte ca, la inceput, Vacanta Mare avea 3 membri si erau chiar amuzanti
...nu exista petrecere la care sa nu se asculte Backstreet Boys
...inregistrai casete cu Spice Girls de la prieteni
...inca mai stii refrenurile de la melodiile Andre
...te uitai fascinat la KITT pe Tele 7 ABC
...scriai in oracolele colegilor de clasa
...tii minte cele 5 minute de desene animate dinainte de revolutie
...pronunti perfect "nu zaietz pagadi" desi nu stii o iota din limba aia
...te entuziasmezi daca o vezi pe strada pe Geanina Corondan
...aveai rigle chinezesti 3D si ascutitoare cu oglinda.

Steve Jobs' 2005 Stanford Commencement Address

"So you have to trust that the dots will somehow connect in your future. You have to trust in something — your gut, destiny, life, karma, whatever."

"You've got to find what you love. And that is as true for your work as it is for your lovers. If you haven't found it yet, keep looking. Don't settle."

"Your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma — which is living with the results of other people's thinking. Don't let the noise of others' opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary."

"Stay Hungry. Stay Foolish."

Full speech here:
http://www.youtube.com/watch?gl=US&feature=player_embedded&v=UF8uR6Z6KLc

The Fringe Benefits of Failure and the Importance of Imagination

JK Rowling's Commencement Address to the Harvard graduates of 2008.
I was skeptical at first but she really impressed me and her speech is actually so much more profound than it seems at first sight. I have a new found respect for this woman and the way she lived her life and I think there are really some valuable lessons to take from this speech. Below my favorite parts:

"So why do I talk about the benefits of failure? Simply because failure meant a stripping away of the inessential. I stopped pretending to myself that I was anything other than what I was, and began to direct all my energy into finishing the only work that mattered to me. Had I really succeeded at anything else, I might never have found the determination to succeed in the one arena I believed I truly belonged. I was set free, because my greatest fear had been realised, and I was still alive, and I still had a daughter whom I adored, and I had an old typewriter and a big idea. And so rock bottom became the solid foundation on which I rebuilt my life."

"So given a Time Turner, I would tell my 21-year-old self that personal happiness lies in knowing that life is not a check-list of acquisition or achievement. Your qualifications, your CV, are not your life, though you will meet many people of my age and older who confuse the two. Life is difficult, and complicated, and beyond anyone’s total control, and the humility to know that will enable you to survive its vicissitudes."

"Choosing to live in narrow spaces leads to a form of mental agoraphobia, and that brings its own terrors. I think the wilfully unimaginative see more monsters. They are often more afraid."

"What we achieve inwardly will change outer reality. " - Plutarch
"As is a tale, so is life: not how long it is, but how good it is, is what matters." - Seneca

If you want to see the full speech, it is here:
http://harvardmagazine.com/commencement/the-fringe-benefits-failure-the-importance-imagination

You know you're Romanian when....

You know those Facebook groups "You know you're this or you've done that when..." - well there is one for Romania as well! Here are, in my opinion, the "best of"s of that group (the wordings belong to the author, Adrian Popescu):

You know you're Romanian when...

...Everything you eat is savored in garlic and onions.
...You are standing next to the two largest suitcases at the airport.
...You talk for an hour at the front door when leaving someone's house.
...You can fit 10 people into a Dacia.
...Your mom tells you you're too skinny even though your 30 pounds overweight.
...Your dad ever butchered a pig or lamb. [or a chicken for that matter]
...Your mom ever chased you with a rolling pin or a broom telling you to stop so that she could hit you. [I couldnt say that's true for me but it's a funny one!]
...You don't use measuring cups when cooking.
...If you don't live at home, when your parents call, they ask if you've eaten, even if it's midnight.
...Your parents don't realize phone connections to foreign countries have improved in the last two decades, and still scream at the top of their lungs when making foreign calls.
...Your parents brew their own wine and ţuică
...You say "La Mulţi Ani" for every holiday.

Timing investments

I was just reading this article about timing strategic moves and i think this is the key question on every CEO's lips nowadays. As the stock markets start to recover and investors slowly regain confidence, many companies predict a growth in earnings for the following year and start venturing into long term planning and strategic investments again. These strategic investments might be big investment projects or acquisitions of rivals or of complementary businesses. Indeed, there is a lot of value in M&A deals at the moment, as companies that have overcome the financial crisis and have a stable cash position can look into acquiring businesses at a discount of over 30% compared to 2007. Similarly, according to McKinsey Quarterly, some investment projects might be considerably cheaper now than they were before, although I am not sure we can say this is the case for most industries (I am inclined to believe it is more an effect in a specific sector/company than a generalized trend). In any case, investing now is a good move to secure a better competitive position, as it can give the company a headstart compared to its rivals that are cutting growth plans and focusing on the short term. Innovation will be key to get out of the slump, and developing new R&D projects is costly and time consuming - therefore there is a clear benefit for the companies that invest now and will be able to ripe the benefits of innovation much earlier than their rivals. However, we are talking about sizable investments which, if undertaken, can expose the company to a significant risk and maybe even weaken it completely. Therefore timing of these moves becomes key: executives should wait long enough to have some visibility on where the market is going, but not too long, because otherwise they will lose the inherent value in buying these projects now. If they wait too long, everybody will see the interest of these deals and will be willing to invest, the prices will go up and thus will eat up the perceived value. So how can one determine the right timing for these investments?

McKinsey Quarterly proposes scenario analysis, which, I believe can indeed be a good tool. In their case, a certain strategy was clearly superior to the others in all scenarios considered (i.e. invest now rather than wait, because the benefits of waiting are too low compared to the possible losses in the value of the projects). However, what happens if there is no such clear cut strategy emerging? Scenario analysis can give us an idea of where the value of the investment evolves depending on the direction of all the uncertain variables, but it is not always a decisional tool, as it does not offer a combined value for that opportunity on which to decide. It's not like the NPV, where you can clearly state that investing in this project is worth that much, and if it's bigger than this number, we should always go for it. With scenario analysis, you know that if scenario X happens, then your project is worth this much... in order to get a global value of the investment you need to assign probabilities to each scenario which, in my opinion, is impossible to do in the current economic context where any attempt at previsions is mere guess.

What companies need is a tool that allows them to integrate uncertainty, avoid making previsions and still help them decide whether to invest or not, and, most importantly, when is the right time to invest. For corporate internal projects, this is exactly what the Real Options method does. Based on the financial options pricing framework, namely binomial pricing , the Real Options approach considers that management has the option (the right, but not the obligation) to purchase a certain investment project by investing the required amount. This model allows companies to express the full range of the uncertainty in a binomial present value tree, avoiding the need to make predictions and commit to numbers which are impossible to get right. Real Options valuation considers that the project is actually an American call option, and so using financial options pricing allows management to identify the best timing for its exercise (i.e for making the investment). It also discounts into one single number all the possible values of the project, be they negative or positive NPVs, thus taking things one step further than scenario analysis, because it becomes a decision tool. The decision criterion is: if adjusted NPV with RO value > 0 we should invest in the project. Thus, this framework is a bit more standardized and rigorous than scenario analysis for timing investment projects and their phases. However, I have been thinking if this could also be applied to value companies for M&A?... I am not sure yet..i'm afraid I will leave this open for discussion for now.

Funny Dilbert

A different view on strategy

For those who know me for a longer time, you know that I have always been interested in business strategy and management, and that I wasn't much of a finance person. In fact I didn't like finance at all. But an interesting turn of events made me pursue a master's in corporate finance and I am surprised to see, that at the end of this year, my perception has changed dramatically. I now realize I had been looking at the wrong kind of finance - or rather looking at it in the wrong way. Now it's become my favorite subject and I understand, after putting myself in investors' shoes for the whole of last year, that any strategy that doesn't take into account finance is shallow and empty like an old coffer: you expect to find treasure but instead there's nothing but dust.

I could start by giving all these arguments related to investor's motives for starting or financing a business, such as gaining a return higher than they would by putting their money into safe instruments like bonds or bank accounts...and how a company's strategy should be steered to achieve this goal and provide to investors (shareholders) the minimum rate of return that they expect. But there's nothing new here - we all understand this more or less intuitively. What I did not understand that well until this year is just how much corporate finance is a decision tool in setting and steering a company's strategy.

Although that might sound weird at first, by thinking that a company's strategy is in fact represented by its collection of investment projects it all starts to make more sense. Indeed, to see what a company's strategy is, look at its budget. Their investment decisions and the projects they pursue uncover the true direction in which they are heading. Of course, I am not trying to wipe out the entire strategic process - there is unquantifiable value added in setting the long term direction of the company, anticipating future trends in the industry and devising tactics for a better competitive positioning. But when it comes down to one step further towards the implementation of this long term vision, financial decision making is key. If strategy is a collection of investment projects, then project portfolio management and investment decisions are strategy's true drivers, so project valuation and considerations about profitability of investments are key tools used to set the strategy. A great vision about the future but with the bad investment decisions will definitely lead to catastrophic results.

In this context, an interesting question is the issue of cross-subsidizing, especially when we think about product portfolio management. Quite often, a company finds itself in the situation of evaluating a project which is of strategic importance but has a negative NPV so it is not profitable on its own (ex. keeping operations running in a certain country to maintain a position and avoid competitors taking over that market segment completely). Should the company pursue this project? If they believe that the loss they would make by not keeping these operations open is higher than what they lose by committing themselves to this project, then they probably should - based on the fact that the loss of this project will be subsidized by the earnings of another project. But what happens when there are more projects like this to consider? How many and up to what amounts should the company subsidize, to avoid eating down the profits from the other higher value added projects? This is an interesting question to look at in the context of strategy setting. (the Real Options method helps ease the decision making in this context but I will probably talk about that in more detail in a following post). So are mergers and acquisitions - essential growth possibilities for some companies, but which can lead to failure of the entire group if not performed correctly. And here the financial considerations are again extremely important, as there is a tendency to overpay the target thus eating out most or all possible synergies.

These are just a few examples and a few ideas that came to my mind now, but this master's degree has been full of such examples that drew my attention. It truly opened my eyes and gave me a new perspective. I think Porter is good. Porter is great! But if Porter is not backed by numbers, it is worthless, it cannot add value. And unfortunately as I look at the strategy consulting industry I see a lot of times (maybe more so in boutique companies?) that the recommendations are based on pure qualitative analysis, experience of the industry and market studies, but not enough on finance. What will the future look like? I'm curious to find out!

Market for innovation

I stumbled upon a very interesting concept today while researching something at work: www.fluidinnovation.com. I think this is an amazing idea: it is in reality the equivalent of a market for innovation, as any company that created any kind of improvement, innovation, process etc that is protected by a patent can sell it to other interested parties through this intermediary. It probably exists for a long time, and I am sure this is not the only company of its type, but I must admit I have never wondered how companies go about selling licenses of their patents and capture the associated profits. Seeing this it all dawned on me. Indeed, it is pretty straightforward for example for a software development company to produce and sell licenses for its software, because this is their core competency and their business model relies on marketing these licenses. Thus is makes sense to keep this process in house.

However, when a company like Boeing develops a new method for valuing investment projects using Real Options, it cannot really go about trying to market this innovation and sell it to other companies that might be interested. Why not? Because it is not their business. Their business is to make and sell airplanes, not investment decision software, and they would have no interest to allocate internal resources to diversify in that area. As a result, they would own a sleeping patent, one which could generate revenues but does not because a sustained, coordinated internal effort to market it would not make much economic sense given the company's business model.

Also, another benefit I see for this initiative is that it helps innovation to develop even more. New knowledge builds on the existing stock of knowledge, and a market for innovation only allows to broadcast the new discoveries to a wider public and especially to the interested parties. This should facilitate related innovations in these companies and create a synergy effect.

Shareholder value

Today’s ‘Strategy and Financial Policy’ class raised an interesting point regarding strategy and shareholder value creation. Over the 2000-2005 period while the world economy grew at about 3%, shareholders had set unrealistically high targets of, on average, 6% revenues growth and 12% earnings growth for their companies. Empirically, a study conducted by Bain & Co looking at 1,854 companies over the last 10 years finds that only 240 of them (13%!) actually managed to earn their cost of capital. Does this mean that the shareholders were over-demanding, or simply that the companies were bad?...

To answer this question, I would analyze the reasons that make us believe that shareholders might be asking too much of these companies. This issue is especially important nowadays, in a period of crisis, where shareholder demands put more pressure on companies to seek short-term, external growth through M&A rather than sustainable organic growth. At first glance, what strikes me is that shareholders set a target of 12% increase in earnings whereas they only demand a 6% increase in sales. This would mean that about half of the growth in profits should come from cost reductions and improved efficiency! This is obviously not sustainable over the longer term, especially if we look at the fact that the 6% growth target for sales is very ambitious as well (double that of the market).

However, this is not the main problem. The biggest question here is whether the shareholders are entitled to ask for a 12% return given the riskiness of the company’s activity or they are just setting an unrealistically high target. As we know, shareholders have the right to ask for the CAPM rate of return, which is basically the risk-free rate + the market risk premium adjusted for the riskiness of the company. Now, when we calculate the risk premium we basically look at the average return on the S&P over a very long period of time (ex 1926-2006) but in this way we dilute the impact of economic shocks, such as periods of crisis… whereas now we are precisely in such a period. Thus it becomes questionable whether the risk premium we should use during crisis should be the same, because when all markets collapse, demand falls and uncertainty rises we cannot expect the companies to earn the same returns as they did two or three years ago. If indeed the shareholders set their expectations according to the CAPM rate of return, then these might indeed be unrealistic and become a too high target for the company in the current conditions. It is very likely that this is what was also happening in the 2000/2001 crisis… and this is perhaps why many companies did not manage to meet their targets and earn the required return on equity capital after servicing their debt. This is in fact saying that the companies are not bad, but that, indeed, shareholders probably asked for a too high rate of return. How the shareholders should react is by adjusting their demands to more reasonable levels: seeing that only 13% of the companies were able to earn their cost of capital should send a clear signal to investors that they should lower their targets. All companies cannot be bad performers, and it is more likely that shareholder expectations lag behind new market developments.
I would say this situation is reinforced by the company’s managers as well. Even though it’s the shareholders, through their power to change the CEO, that decide on the revenue and earnings targets that the company should achieve, managers have an incentive to show a growth in earnings and profits as well. This is mainly because analysts and investors tend to look less at the company’s performance in that year in isolation or as compared to the competitors, than they do as a comparison to the previous years’ performance. Thus managers have a pressure to provide every year higher earnings (or at the very least, show no losses), be it through M&A or simply through questionable accounting practices such as earnings management.

However, what should be the appropriate return for the risk incurred in this case by the shareholders, and how the market risk premium should be assessed during a crisis period, remains an open question…

From "Kate and Leopold"

I saw this movie the other night, and although it's supposed to be a light, romantic comedy with not much substance in it, there were some quotes which I thought were particularly witty and that stuck with me... I decided to write them down here so that I can refer to them later on, as they set me thinking for maybe future posts on here :)

I will now leave you in their company.

Roebling: Time. Time, it has been proposed, is the fourth dimension. And yet, for mortal man, time has no dimension at all. We are like horses with blinders, seeing only what lies before us. Forever guessing the future and fabricating the past.

Stuart (about him finding a doorway to time travel): It is no more crazy than a dog finding a rainbow. Dogs are colourblind, Gretchen. They don't see colour. Just like we don't see time. We can feel it, we can feel it passing, but we can't see it. It's just like a blur. It's like we're riding in a supersonic train and the world is just blowing by, but imagine if we could stop that train, eh, Gretchen? Imagine if we could stop that train, get out, look around, and see time for what it really is? A universe, a world, a thing as unimaginable as colour to a dog, and as real, as tangible as that chair you're sitting in. Now if we could see it like that, really look at it, then maybe we could see the flaws as well as the form. And that's it; it's that simple. That's all I discovered. I'm just a... a guy who saw a crack in a chair that no one else could see. I'm that dog who saw a rainbow, only none of the other dogs believed me.

Leopold: The brave are simply those with the clearest vision of what is before them - glory and danger alike and notwithstanding, go out to meet it.

Leopold: What has happened to the world? You have every convenience and comfort, yet no time for integrity.

Kate: Maybe [...] that whole love thing is just a grown-up version of Santa Claus; just a myth we've been fed since childhood. So, we keep buying magazines, joining clubs, and doing therapy and watching movies with hit pop songs played over love montages all in a pathetic attempt to explain why our love Santa keeps getting caught in the chimney.

About more ethereal things

One of my favourite mythological stories is Oedip, because it speaks of the inescapability of destiny, and I think that seeing how somebody is doing everything he can to change its destiny, only to reinforce it even more makes for a good, though tragic story. Talking about this with a friend set me thinking... am I a predeterminist? I'd say not overall, though I am, up to an extent. More precisely, I think that the resources and the environment we are born in largely determine our capabilities afterwards, but I believe in those people that can challenge the odds and change their destiny. There is no "impossible" in my mind.. there is only "I don't want it hard enough". And I believe everyone can achieve whatever they set their mind to.

The only things I think are prederetmined in our lives are our family, out genetic inheritance from our parents, and the place and social environment we are born with. It has been proven that these factors affect the way our personality is shaped at a young age. At this early stage, they largely determine the opportunities which will be available to us in the future and our capability to seize these opportunities. A child born in Africa, in a family which lives with less than $1 per capita per day will clearly not have the same opportunities as a child born in a (even poor) family in Western Europe. Again, a child born with a physical handicap or a mental disability will enjoy fewer options than a healthy child. However, I think our true worth as human beings lies in being able to achieve more than our potentialities and overcoming our limits... achieving the things we really want even if everybody says they're impossible. This is what character is about: strong will, ambition, self-control, and a little bit of madness. Men should be visionaries and see ahead of others what they can do with the resources they've been endowed with, and do that better than most people would. It is a bit like management, and a bit like gambling.

But if we can carve our own destiny.. then how come some things can be predicted beforehand? Things which are, by no means, mere coincidences? I am pretty skeptical about this to be honest, but some things make me wonder. A few well-done TV shows on Discovery, some stories from people around me about premonition-like dreams, and recently, talking to a friend who actually saw some of the things predicted to him happen, with little chance of that being mere coincidence... To what extent can our lives, be predicted then, if our destiny is dynamic? We change it every second by the choices we make, and by choosing one path we completely forego so many others... And if it can be predicted, to what extent can it be changed?

I watched "If Only" about a week ago, which made me ponder more on this theme. It's a movie about a businessman who, after his girlfriend dies in an accident shortly after they had a fight, gets the chance to relive the day all over again, in the hope of changing the events that led up to her getting killed. (source Wikipedia) During the movie, everybody, even him, seems to believe the first day was more like a premonitory dream. But did he get this dream in order to change things, or was it more so that he'll do everything to fulfill what should, in fact, have happened from the very beginning? Did he manage to change anything, by the fact that she did not die, or did he only follow his destiny? Perhaps it was him who should have died from the very beginning... and this dream was sent to him only to help him tell her how much he loved her, before he left. I tend to interpret the movie more like this... but in this case, destiny would be a closed circle, we would live in a sphere and we could have different roads to get from one end to another, but the final destination would always be the same. And I do not want to believe that.

PS. For a beautiful story about harshly changing one's destiny, even if for a short while, read "Flowers for Algernon" :)