Shoe Shopping

I went with the significant other last weekend while she bought shoes. And realized that the way girls buy shoes is completely different from boys’ decision process. Yeah, I know you’ll be thinking I’m just stating the obvious, and I might be doing that. And again, this post is based on two data points – myself and the significant other. I conveniently extrapolate.

Fundamental theorem of shoes: The number of pairs of shoes a boy owns is small compared to the number of pairs of shoes a girl of the similar age/socio-economic stratum owns.

I don’t think I need to give any explanation for that. The rest of this post is a corollary.

Corollary 1: The amount of time a boy spends in buying one pair of shoes is significantly larger than the corresponding amount of time a girl spends.

Yeah, this might sound counterintuitive, which is why I’m writing this post. So I think there are several reasons for this, but they all follow from the fundamental theorem of shoes
1. If you have one pair of shoes of a certain kind, you can’t afford to make a mistake buying them. You need to go through a careful decision process, evaluating various pros and cons, before deciding on your perfect shoe.
2. Boys’ shoes need to multitask. For example, you will wear the same pair of black leather shoes to office, and to that random wedding reception. The same sneakers you wear to play football might be worn for a casual evening out. So each pair of shoes needs to serve several different purposes, so the search space comes down accordingly
3. The cost of going wrong is too high – if you have a policy to own a limited number of shoes, and you buy an ill-fitting shoe, you have to live with that (or throw with extreme guilt) for a very long time. This happened with my earlier pair of sneakers, with the unintended consequence that I went to the gym much less often than I’d planned to
4. The amount of time a boy spends in a particular shoe is much more than the amount of time a girl spends in a particular shoe. So it is important for boys that each and every shoe is absolutely comfortable and fits perfectly. Again increases search time.

Recently when I had to buy a pair of formal shoes for my engagement I drove Priyanka mad with the amount of time I took to decide. I visited several shops, tried out lots of shoes, walked around, walked out, visited more shops and so forth. And all this after I had decided I wanted a pair of brown shoes without laces.

Corollary 2: The average cost of a boy’s shoe “wardrobe” is comparable to the average cost of a girl’s shoe “wardrobe”

Yeah, unintuitive again I guess. But backed up by data. My shoes, on average, cost well over a thousand rupees. Priyanka’s shoes, on average, cost well under that. It’s a vicious cycle, and I don’t know where it starts. I want my shoes to last longer, so I want to buy shoes of better quality, so I end up spending more on them. Or it could be like I wanted my shoes to last longer precisely because they are expensive. But I’ll stick my neck out and say that all this stems from the fundamental decision of not wanting to wear too many pairs of shoes.

For a girl, the cost of going wrong with a shoe purchase is low, given the frequency with which she wears a particular shoe. Also her shoes don’t multitask, so she can afford to have a few pairs which are not exactly perfect fits, as long as they serve the purpose. She has this urge to shop for shoes, and with her monthly budget in mind she is naturally conditioned to not splurge on them.

So I was kinda horrified (not exactly, since this had happened a couple of times before) last weekend when Priyanka walked into a shop, picked up a pair of chappals from the shelf, dropped them to the floor, stepped into them for a few seconds and decided to buy them. They didn’t cost too much, so I guess the cost of going wrong was small, but I would’ve never done something like that.

Medical Insurance Subsidy

Exactly a year back my mother was in hospital. She was there for three weeks before she died. The bill for the three weeks came to close to four hundred thousand rupees. She was covered under my corporate medical insurance so I passed on the cost to the insurer, who paid most of it. I didn’t really complain, the insurer was obliged to pay, and the hospital was more than happy to receive the fee.

The hospital follows an interesting business model. On one hand it dons the garb of a corporate hospital while on the other it is a charitable hospital. A large section of the patients are treated at extremely low cost, or even for free. The rest of the patients have insurance coverage. Those that have coverage are fleeced, and this money effectively cross-subsidizes the treatment of the poor. All works out well for the hospital. Except..

Do you realize that when you (or, in most cases, your employer) pay your premium for medical insurance you’re not insuring just yourself? That because of hospitals like I just mentioned, your insurance is also effectively paying for the treatment of a larger population? That the cost of treating some random patient in the hospital you were admitted to is paid for by you, as part of your medical insurance premium?

Changing tracks, I think the best thing about India’s healthcare industry is the diversity. You have government hospitals. There are university hospitals. There are large corporate hospitals you wouldn’t think of stepping into unless you had insurance. There are charitable hospitals which treat you for next to no cost. There are the neighbourhood nursing homes which essentially cater to the uninsured middle class. Reasonable facilities but not too expensive. And so forth.

There is no formal system of medical insurance in the country. There is no single large government system. If the current state of healthcare in the country is one of not having evolved much, I really wouldn’t mind it remaining this way. I hope we never get into the kind of equilibria that the US and the UK have gotten themselves into, which appear efficient but which ultimately prove expensive for people.

It is the diversity in the system that keeps the healthcare industry here competitive, and keeps costs low. And of course, you pay for other people too when you pay your medical insurance premium.

The Trouble With Analyst Reports

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

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

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

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

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

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

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

MGM Channel

Yesterday I upgraded my Tata Sky package to Annual Mega Pack (with the would-be-ladywife wanting all Kannada and Telugu channels, and all movie channles; and with me wanting all sports channels this was most economical). And got service to this channel called MGM which was earlier part of an add-on package I wasn’t sure I wanted (along with TCM, Lumiere and Warner Brothers).

So last evening I celebrated the upgradation of my Tata Sky package by watching this random (isn’t close to the same league as the dollars trilogy or once upon a time in the west) western called Hang ’em High. Decent movie, but what made it immensely watchable is that there were no ads.

Yes, you read that right. MGM doesn’t show any ads in the middle of movies. Not one. And given the Tata Sky pricing, I guess it charges a reasonable subscription fee to fund itself! The sad part is that they don’t advertise this enough and so probably they aren’t able to collect as much subscription fees as they could. Nevertheless, this is a beautiful model and I just hope they sustain (my assumption is that if they didn’t show ads during a Sunday evening movie, they won’t show ads at all).

Given the surfeit of advertising that plagues most of our movie channels, I knew something like this was going to happen sometime. A channel that subsists on user subscription rather than spoiling the viewing experience by flooding the movie with ads. And what has made this possible is direct to home television, where your choice of channels isn’t dictated by your neighbour’s. And one in which it is easy for the channel to monitor the number of subscribers without the distributor (in this case , Tata SKY) fudging the numbers.

We need to be thankful to DTH for enabling such beautiful concepts like no-ad-movies, and thank MGM for taking a bold step and starting a no ad channel. Now, can sports channels create “plus versions” of themselves where they’ll show uninterrupted sport rather than cutting the first and last ball of each over and showing the rest of the over in a smaller screen? I’m sure there are enough people who will be willing to pay a premium for it.

And I wish a similar model comes up for radio (Worldspace RIP but you didn’t offer radio in car). Again, too many ads.

Successful IPOs

Check out this article in the Wall Street Journal. Read the headline. Does this sound right to you?

MakeMyTrip Opens Up 57% Post-IPO; May Be Year’s Best Deal

It doesn’t, to me. How in the world is the IPO successful if it has opened 57% higher in the first hour (it ended the first day 90% higher than the IPO price)? To rephrase, from whose point of view has the IPO been the “best deal”?

What this headline tells me is that makemytrip has been well and truly shafted. If the stock has nearly doubled on the first day, all it means is that MMYT raised just about half the cash from the IPO as it could have raised. If not anything else, the IPO has been a spectacular failure from the company’s point of view.

The US has a screwed up system for IPOs. Unlike in India where there is a 100% book-building process where there is effectively an auction to determine the IPO price (though within a band) in the US it is all the responsibility of the bank in charge of the IPO to distribute stock (as far as I understand). Which is why working in Equity Capital Markets groups in investment banks is so much more work there than it is here – you need to go around to potential investors hawking the stock and convincing them to invest, etc.

Now, the bank usually gets paid a percentage of the total money raised in the IPO so it is in their incentive to set the price as high as they can (and the fact that they are underwriting means they can’t get too greedy and set a price no one will buy at). Or so it is designed.

The problem arises because the firm that is IPOing is not the only client of the bank. Potential investors in the IPO are most likely to be clients of other divisions of the bank (say, sales and trading). By giving these investors a “good price” on the IPO (i.e. by setting the IPO price too low), the bank hopes to make up for the commission it loses by way of business that the investors give to other divisions of the bank. If most of the IPO buyers are clients of the bank’s sales and trading division (it’s almost always the case) then what all these clients together gain by a low IPO price far outweighs the bank’s lost commission.

It is probably because of this nexus that Google decided to not raise money in a conventional way but instead go through an auction (it made big news back then, but then that’s how things always happen in India so we have a reason to be proud). Unfortunately they were able to do it only because they are google and other companies have failed to successfully raise money by that process.

The nexus between investment banks and investors in IPOs remains and unless there are enough companies that want to do a Google, it won’t be a profitable option to IPO in the US. Which makes it even more intriguing that MMYT chose to raise funds in the US and not here in India.

Independence and contribution at work

This is based on a discussion I had at work a few days ago. We were talking about people being able to do things out of their own initiative, come up with their own new ideas, inventing their own problems to work on (which would be useful for the firm on the whole) and stuff.

Now if you consider people’s abilities as a multi-dimensional vector (the number of dimensions will be large, since one’s abilities, capabilities, etc. can be along several dimensions), what we realized is that if someone just takes orders from other people and not work on their own ideas and intuition, then their contribution to their role is just the component of their vector along the vector of the person whose orders they are following.

And considering that the probability of their vector and the vector of the person who they’re taking orders from lying in exactly the same direction is close to zero, what this means is that by simply following someone else’s orders they are contributing an amount that is less than what they are capable of contributing (since the component of their ability orthogonal to the vector of the person whose orders they are taking isn’t on display at all).

Hence, it is important to have people in the team who are capable of independent thinking and intuition since that is the only way in which their full possible contribution can be harnessed. On a related note, in order to bring the best out of its employees, and to allow them to contribute to their full capacity, firms should allow the employee to take initiative and come up with their own ideas rather than simply taking orders, since in the latter case only the component of the abilities along the orders is contributed.

Barista Update

The Barista at Barton Center on MG Road has suddenly become so much more bearable, as they have turned down the volume of their music to a level such that you can actually have conversation without shouting. On a related note, it seems much easier to find tables there compared to earlier (yesterday we walked in around 6 and found several tables empty; earlier there would be a long wait at that time).

On yet another related note, they seem to have done something about the pricing. It’s friggin’ expensive now (70 bucks for a small cappuccino?) but I think they’ve gotten it right. There is obvious value in the restaurant as shown by the long waiting lines that used to be there earlier, and the restaurant is now simply monetizing that value rather than using artificial means (loud music) to chase people away.

As a former revenue management professional (damn; that sounds so corporate whoreish) I’m happy they are doing what a coffee shop like them is supposed to do – providing excellent environment for long conversations and chilled out afternoons, and actually charging for what it’s worth.

The earlier method was so cheap and country – they were clearly underpriced because of which there was overcrowding and they weren’t able to meet demand and had to use other measures such as playing loud godawful music to keep the crowd rotating.

Two thumbs up to Barista’s new pricing and music policy!

The City Lacks Bars

Yeah you might think I’m crazy to be cribbing like this about Bangalore, supposed to be India’s pub city and all that jazz. But I stick to my statements. Yeah we might have lots of good pubs and lounges but we don’t have lots of good bars.

I was on my way to dinner at Fava at UB City this evening when I noticed the City Bar, and it struck me as to how few such bars there are in the city. Like places where you just go to the bar, get yourself a drink and literally hang around (around random small darshini-style tables) talking to people. I was reminded of my trips abroad, of places like London or New York which are so full of places like this one – where one just goes, buys a drink and hangs around.

My hypothesis of the shortage of such bars got some weight on our way out of Fava when we noticed how full the city bar was. It was like BTS bus 201 in peak hour – there wasn’t even any standing room!

Which makes me wonder why the culture of mid-to-high end standing bars hasn’t taken off in the city, especially considering our glorious tradition of darshinis and of standing bars at the lower segments (I hope you’ve noticed this – every “wine shop” literally doubles up as a standing bar, where people get stuff from the shop in a dirty glass, stand around and quickly gulp down. I must confess I’ve never drank at this kind of a bar).

Is it because the notion of a quick drink isn’t very well defined at the higher segments of our society? Is it because a “quick drink” is associated with the lower end of the spectrum and so the richer people don’t want to indulge in it? Could it be because of the exorbitant price of liquor licenses that makes it uneconomical to serve liquor cheaply enough to get enough crowds to sustain a standing bar? (most shady standing bars don’t have a bar licence; they run on wine shop licenses)

I must admit I’m a bit of a novice at this one (in terms of total quantity of alcohol consumed during my lifetime) but this really intrigues me. Why hasn’t the concept of higher end standing bars taken off in Bangalore? Has it taken off anywhere else in India at least? Again shady bars don’t count.

Valuation of Parking Space

There’s a unique problem in my apartment building – the building has been built with provision for only seven parking slots in the basement but each of the nine houses here has been allotted a slot, which means there are two obstructing slots. Unfortunately, my slot is at a location where I get blocked by the car belonging to the guy upstairs and so I’m a directly affected party due to this problem.

Currently I’ve managed to get around this problem by parking my car in some corner of the basement but neighbours are cribbing saying it spoils the “look” of the building (as if the look of the basement matters! ).

Coming back to the problem, I was wondering if there exists a solution. Clearly, the shape and orientation of the basement means that not more than seven cars can be parked there in a non-obstructing manner. Now, since every houseowner here was allotted a slot when the building got built, they are entitled to a slot so it is not feasible to request/tell someone to rent their house to someone who doesn’t own a car (2 bedroom houses with parking slots cost some 2 kilorupees a month more than those without parking slots).

Thinking about it, the only solution I realized is by trading a parking slot among affected parties. For example, the slot of my house (B1) is obstructed by the slot belonging to the C2 house. Now, what if my owner tries to buy out C2’s parking space? He can either buy it out outright or he can pay the owner of C2 a monthly fee in exchange for C2 not letting out his house to someone with a car.

And he gets compensated for this by charging a higher rent from me (note that if my landlord buys out the c2 slot, I effectively get two slots, since both belong to me, there is no obstruction). The key to this, however, is the relative pricing of various parking slot combinations.

The key equation is this: if Pn is the monthly rent of a house in this building with 2 bedrooms and n parking slots, then there is a profitable trade between the owner of my house and the owner of C2 if and only if:

P0 + P2 >= 2 P1

If the above equation doesn’t hold, the amount by which my owner gets compensated (by me) for the second parking slot will not suffice to pay the owner of C2 to not let out his house to someone with a car, so the trade I described above cannot take place.

But then, according to Coase theorem, irrespective of initial allocations (here C2 has a parking slot that blocks B1’s slot) there exists a trade in which each party gets the desired outcome. Is there a contradiction with the equation I’ve written above?

Now, thinking about it, the value of both my house and C2 is not actually P1 but a number P1′ which is less than P1. P1′ takes into account the pain of having an obstructed parking slot (I get pained because I can’t take out my car when I want; C2 gets pained because I disturb him every time I want to take out my car), and so effectively both my house and C2 would be overvalued if we were paying a rent of P1.

And if we take P1′ into consideration rather than P1, I’m sure the following equation holds:

P0 + P2 >= P1′

The only other problem here is that when taking a flat on rent, you are unlikely to check for details such as if your parking space is blocked, so it is likely that the deal will take place at P1 rather than at P1′. However, once you move in, you figure out the pain and the owner of the apartment will feel the pinch when his tenants clear out at a rate faster than he would’ve expected which ends up reducing his long-term average rental income. And the deal I described above will take place if and only if he figures out why the fair value of this apartment is P1′ and not P1.

Kabaddi and Jesus Navas

I’ve always talked about the Kabaddi style of solving a problem. In Kabaddi, when you are defending, six out of the seven players in the team form a chain in order to encircle the attacker. The seventh defender, however, strikes it alone, in a different direction, trying to draw the attacker into a position where he can be effectively surrounded.

Now there is a footballing analogy to this – the Jesus Navas style. Those of you who watched either Spain’s game with Honduras or the second half of their loss to Switzerland would’ve noticed that Spain effectively followed two lines of attack. The first was the traditional way – attack down the middle in a series of slow passes and build-up. Five of Spain’s front six players would get involved in this attack down the centre, almost rendering their game one-dimensional. And then there was Navas.

I haven’t confirmed this stat but in the game and half that he has played Navas has completed more crosses than anyone else in the tournament. He would strike it on his own down the Spanish right flank, hug the touchline, beat the full back and put in crosses. Minute in and minute out. Sometimes with a little help from full back Sergio Ramos, but mostly alone. It was fantastic to watch.

What this ended up doing was to divert the attention of the opposing defenders to cover Navas. If everyone were to have been attacking down the centre, the defending team could’ve just parked their bus in front of their centre and prevented any scoring. Spain letting free this one guy to take a different route meant that the opposition needed to cover that also leading to insufficient cover in the centre (it is another matter that Spain failed to score against Switzerland. But they did get so many more chances after Navas came on).

I’ve always been fascinated by such strategies at work, in business. You have a bunch of guys who try to attack the problem front-on, in the conventional way, working together, passing to each other frequently. And then there is this one guy who has been left out of this clique who attacks the problem “from the flank”. In his own way, without fear of failure. He knows that he is only an auxiliary solver, that he has nothing to lose (Navas lost his place in the XI after the Honduras match but I don’t think he had expected to ever play at all), and he can just go for it. The option value of letting one guy in the team loose in order to search for alternate solutions while everyone else is building up down the middle is immense, I think.

This is similar to Nassim Taleb’s “barbell investment strategy”. Acccording to that, he parks some 90% of his assets in ultra-risk government securities. They don’t give spectacular returns but his money is safe. And the rest of the 10% he uses to punt by buying stuff like out-of-the-money options. If they expire worthlessly, he hasn’t lost much of his wealth. The optionality (here, literally) of that additional 10% is, however, immense, and there is potential for spectacular returns from this strategy. with losses being capped.