Slavery in the 21st Century, through the eyes of Django Unchained

This post is partly inspired by the video 'CON: Django Uncomplained' which talks about the brilliant depiction of slavery in the movie Django Unchained.  Also, this is definitely going to be a serious topic and thus warrants a tone of writing that is less exciting and more concise. I do not have strong opinions on most things I write below- these are merely observations. There is no underlying theme of criticism of slavery that I wish to have, since it would impede an objective understanding of the phenomenon. That probably sounds a bit cruel but hey- people have done worse things than write unbiased blog posts on slavery.

Slavery is an interesting phenomenon. Well, for most part WAS an interesting phenomenon since slavery in the traditional sense is nearly non-existent now. But the spirit of slavery lives on in many things that we do on a day-to-day basis. The fact that many of us do (fairly monotonous) things on a 'day-to-day' basis to earn our living is itself one of the stronger manifestations of slavery in the modern day. We are slaves to routine, to consumer culture, to our friends and family, to our jobs. But how is that possible you ask? The definition of slavery can be broadened to include such things by defining it thus: 'Acting on the will of others to make a living for yourself'. Now, this definition does not talk about whether the slave gets wages/not or whether he enjoys being a slave. However, these are details which I believe depend on the situations. You might be naturally obediant/submissive person who listens to your parents/husband/wife/friends or you may not be. But if you act in such ways as to please other people and place other people's interests consistently above your own, you are a slave.

Traditionally, slaves were required to perform mundane tasks at a very large scale and generate disproportionate profits to the owners. They were unpaid and were not guaranteed any sort of human rights. I'm not as interested in the economics of slavery (valuing a him as a series of possible future cash-flows discounted for the behavioural and health risks that society believes slaves to have- risks which would impact the capacity and willingness of a slave to work) as much as the social aspects of slavery. They were expected to be quiet, hard-working and efficient at doing the tasks they were expected to do. But these aspects would characterise a large number of slaves and thus it would be difficult to stand out consistently for a slave who had only these characteristics. For, these are all attributes which can be sacrificed by an owner with deep enough pockets. A magic ingredient is the self-belief that a slave possesses that he is inferior to his owner and thus incapable of doing things that his owner can do and as a consequence, undeserving of all the pleasures that the owner enjoys. A homogenous belief in servitude is still not enough though to keep the slaves under them since there would always be questions raised against such an obviously manipulative practice and I'll come to the details shortly. Now, the fact that most of the slaves believed in the fairness of the system is not new information by any means. What I want to talk about is the mechanism through which this belief was spread and maintained by the owners and some of the slaves themselves, for their selfish benefits.

Django Unchained is a work of art. It is a work of art, because of how it sends messages to the viewer without being too explicit about it. The message is a bit vague, yet clear enough to the intelligent audience and it is coherent enough - unlike the case with certain abstract works of 'modern art'. Django (Jamie Foxx) is a slave to be sold to Di Caprio (don't remember his character's name). While travelling to Di Caprio's residence with other slaves, Django is unapologetically brazen and acts with a level of boldness which is not seen in typical slaves, in order to attract Di Caprio's interest. Di Caprio sees huge potential in Django particularly because of this: He potentially acts as an example of a black who is too 'free' for his own good and will re-inforce a sense of servitude among the other slaves. Django is expected in the future to make mistakes (according to the rules the slaves believe in/what Di Caprio has set) and these mistakes will be severely punished by Di Caprio, who will thus have justified his ill-treatment of slaves through the 'misbehaviour' of Django. In an ideal scenario, Django will slowly lose his enthusiasm and energy to be a rebel and eventually become a fully willing slave. The kindness that Di Caprio initially shows towards Django represents a fair chance that he gets before he is given the full-blown slave experience. If Django were an obedient slave who did everything as he was told to, Di Caprio would not have had even a bit of the interest that he was able to generate in himself through such behaviour. Another interesting slave is the guy who heads the slaves, played by Samuel L Jackson. This guy (let's just call him guy for now) is pretty old and clearly receives a treatment which is almost at par with the non-slaves, in terms of material benefits. However certain scenes show us the degree to which he feels 'owned' by Di Caprio. This guy serves several purposes (1) The fact that he is old and has been a slave for several decades shows that in order to earn respect, you need a large number of years of slave experience where you performed your duties without complaining or causing trouble (sounds eerily like the corporate system here) and (2) He fully believes in slavery and the inferiority of blacks himself and thus sets an example for the other slaves (3) By being a slave with the above desirable qualities, he is someone who gets a disproportionate amount of kindness from Di Caprio (even though he is still treated like shit). He thus represents a hope- a kind of role model for all the slaves to aspire for, while working hard for several years and being treated like animals while being given no pay.

Now, there are probably no scenarios exactly like the ones Django and the guy (and the rest of the nameless slaves) face, in the present day. Human rights violations are far lesser these days compared to a couple of hundred years ago. But while some things change more, some others don't change at all. We are humans after all and certain things like corruption and slavery cannot be erased from human beings very easily (it has to happen as a part of several hundred years of evolution, and it is something which I believe is still happening). In my opinion, sacrificing personal freedom to get substantial benefits that you otherwise would not is natural to how human beings react in a free-market economy. It isn't the happiest choice for us, but it is the one which will make us richest. It is lazy, but efficient in terms of a cost-benefit analysis. This isn't to say that slaves were completely willing, but to an extent I do believe that a large majority of people don't mind being slaves if it meant that they had a living. Managers (especially in jobs where the work is mundane, the quality of the output is not very relevant and thus employees are easily expendable) will function in similar ways as slavers. Average or below-average performing employees are tolerated as long as they accept the hierarchy in the firm and do not question the leadership's actions. High performers who think too independently are not thought of very highly and treated worse than the mediocre guy who passionately sucks up to the management, since these high performers represent a threat to the managers and to the status quo in general. In such a system, people who have the ability to do things independently yet make numerous mistakes and have the potential to be a willing slave, will be most valued by the manager. This is the Django of the team and will be punished and rewarded severely, with the severity depending on the supply of Djangos in the team as well as in the general job market. This Django may eithet be at the early stage(this is what Jamie Foxx tries to portray), middle stage (where he learns to go with the flow and take punishments and rewards as they come) or the fully developed stage (where he is more careful in his actions, believes blindly in the system and has probably become the guy!). The ideal team has a diverse mix of Djangos, one or two guy like slave leaders and a large number of below average performers who believe in the hierarchy- a belief which is reinforced by the Djangos and the guys. And in case you wish to point of that managers are different from owners, almost all managers in a firm in turn have managers and thus reflect the thoughts of the owners through lines of hierarchy, on the basis of the tone at the top.

A large number of office jobs qualify the conditions for the slavery comparison to be made. Also, I'm not entirely neutral on this topic. I do believe that a system where individuals are given full freedom will result in better economic benefits. Such a system would encourage original thought and creativity to a much larger extent than is considered acceptable in most places, presently. But there are pros and cons to everything including freedom and the slavers have a fair point when they disagree with me on the topic of allowing freedom. To borrow a bit of theory from modern Corporate Finance, 'shareholder value' is widely considered to be the best indicator of managers' and employees' performance and increasing shareholder value is seen as the purpose of all corporations (there are certain exceptions and nuances to this which I don't want to cover here). This is of course, equivalent to doing whatever it takes to make sure that the people who own your company get more money, in order to be a good employee. Sounds a bit inhuman but that's how it is. And, if you feel that you're not comfortable with this kind of a setup, there are four main options for you (1) Start a company which makes money/adds value without the slavery set-up (2) Work independently as a consultant/teacher/artist/architect or in fields where you can be hired to complete projects or tasks as an individual (3)  Get into a job where the nature of the job demands that individuals have to have skills which make them relatively non-expendable (4) Start a company which mass produces goods/services and become the slaver yourself. If material benefits are the sole purpose to your life, option 4 is the no-brainer. But if you want a world which is happier and in the long-term, richer - you will look towards other options, closer to the first one.

Getting good at DotA and at other things

I’ve been playing a LOT of dota recently (around 72 hours in 2 weeeks, including watching a few pro-games) and as usual I’ll try and draw a few generalisations. The thing about Dota (I’ve written previously about what Dota is- a quick google will explain in detail if you require) is that it’s difficult to remain competent if you don’t play continuously. And, the easiest way to increase the MMR (Match Making Ranking- the Elo type rating system implemented in game which indicates how good you are) is to play a lot during short periods than to play a game per 2 days or so. In fact, playing after a week can often give you a rusty feeling and actions that would otherwise come to you naturally in-game have to be thought out and put into action with great effort. It kind of reminds me of how driving a car is. You can be the greatest driver in the world, but if you don’t continuously practise driving, you can quickly become rusty. The wisdom and knowledge about driving will remain but mechanical reactions will not be as quick, and at the end of the day- you won’t be nearly fast enough. My knowledge of Dota mechanics might be far superior to that of certain others who are at a higher MMR than I am, but the fact that I’m not used to playing so much with so many heroes and facing different situations in the recent past means that I am often a few seconds late in making decisions (and at times, making the wrong decisions as well) and this often costs the game.

Your performance seems to be affected by 2 main things- the amount of practice you have and the amount of talent you have. Now what exactly is talent? There are several Dota players who have played thousands of hours more than professionals but are not nearly as good- due to lack of talent. Talent can in turn be divided into several other things- it’s how quickly your brain processes information while playing, helping in split second decisions; it’s how quickly you learn new concepts in the game and can change and adapt to how the game changes (the developers keep making changes to make adjustments for balance) and it’s how you network with the best players in the world, among other things. 

This isn’t the case just in Dota. In most professions, practice is something of a hygiene factor- the same amount of experience may yield different results in differently capable individuals. However, there is no mistaking the fact the practice improves efficiency irrespective of skill level. And in addition to this, practice can be measured (in the corporate world, as experience or as certifications which require preparation) a lot easier than skill (IQ tests, interviews and so on). One could say that intelligence is a measure of how quickly a person learns from practice or experience, and in a lot of cases- imagination of experiences. Now, while intelligence is mostly a gift (it might be partly attributed to experiences in the past- the way one has been brought up etc.) practice is not and thus, practice requires motivation. It is here that even the most skilled do not make it big. Lack of motivation causing lack of practice and thus lacking the basic working knowledge of many things. After all, one can't be a poet without knowing the alphabet.

The best way to learn

From the roughly two years of working experience and roughly four months of teaching experience (along with the several years of 'learning' in school and college) I've formed the opinion that the easiest way to learn something is to practise repeatedly. And also, that irrespective of how unintelligent you are, you can be a master of practically anything- given that you practise enough. If you're not smart enough, you might have to repeat for that IIT-JEE of CFA level 2 a couple of times or even more, while the smart guy might crack it the first time without preparing much. In the real world, there is practically nothing which i believe is beyond the reach of hard work- given a fair share of time. Now, this would open several avenues of opportunity for the intelligent kids much earlier in their life and so, they would on average reach much higher positions compared to their 'dumber' peers (factoring in other things such as emotional intelligence, motivation etc.)

Not only is practising the best best way to learn, it is also the most natural. Human beings are far more comfortable doing things and interacting with people and learning by repeatedly failing/succeeding rather than sitting with books and imagining scenarios and theories. Of course, there are certain fields of science which cannot be put into practice more than a certain extent, but for all fields where this is possible, the former holds true. So the question arises- what kind of field do you want to be in, professionally? Do you want an abstract field where you sit at home and imagine scenarios or do you want a practical field where you can fail repeatedly in the real world and learn from your mistakes? The problem with practical fields is that most people would want to get into them (since it is human nature to want to learn in such a way) and so it would be difficult for you to differentiate yourself from others and thus earn more money. Theoretical fields are more boring but possibly higher paying if you factor in individual hard work (hard work here considers the socialisation requried in the practical field as well, which may not be required in the theoretical one)/motivation required. A mixture of both would be interesting and is something I am particularly interested in. Working in finance is something I thought would be a good mixture and theory and practice, but my experience in consulting and in finance has taught me that the only kind of useful learning that happens at the work place is the learning you get from your teammates, as well as what you learn on the job- rather than concepts from outside. Even the concepts from outside which are sometimes useful are often things which you've seen in a previous organisation. Experience is trusted much more than theory at the workplace.

Gaming is a very interesting profession- one would think that sitting at home by yourself and playing all day would be enough to succeed (given you have the required high skill level cap )but that is far from the truth. To keep abreast with latest ideas and to continuously be motivated, gamers have to socialise extensively on a regular basis or else they are shunned by the gaming community- gamers and followers alike and will likely be financial and professional failures in spite of being skilled individuals. Nonetheless, gaming requires a reasonable mixture of theory and practice- all top professionals stay at the top by regularly playing against each other.

Teaching is another interesting choice which intersects both world nicely. You can be fairly good as a teacher by just being individually brilliant and hard working, but it is difficult to stay motivated without connecting with other teachers and top students continuously. Networking in the academic world is important nevertheless and co-authoring papers with top academicians can get you a long way in terms of knowledge and in terms of recognition by others.

To come to a quick conclusion- So what does it all mean? If practising is the better way to learn in general (except in a few fields)? It means that motivation (to actually try and do things and to fail and learn from them) is the biggest indicator of success in most fields - the ones which require practise i.e.and intelligence/skill does not contribute as much. In certain others though, intelligence is more prominent. But as an individual it's good practice to be good at both -practice and theory.

Happy, proud and BROKE

If there's one thing that unites all the people who are broke, it would be happiness. And if there were two things, the second thing would be pride- in either their identity, or the work that they do, or the work that they have done. I'm not talking about ALL those who are broke- some of them have never had a chance to make it big (or even reasonably alright). But if you are middle-class or above and have consistently underachieved in life, these two are the main reasons. I do realise that making money is not the purpose of life and hence if a person is happy with being happy and proud and broke, I'm perfectly alright with that BUT if you (kind of like me) wonder at times why you tend to just fall short of making it big the idea deserves some thought.

The underlying reasons for being happy (with yourself, and your surroundings) may vary- you might be too lazy or not have the motivation to accept facts and become sad about the shit that keeps on happening to you. Or you do not know enough to be sad about your unfortunate situation. To a large extent, I've tried to not be too happy with myself at any stage of my life because of this- though it probably has occurred more due to a subconscious effort more than anything else and I realise it in retrospect. The second reason- pride is however something that has plagued me pretty much throughout my life. From getting accolades throughout childhood (they weren't much but they were enough for making me 'overconfident') to naturally being afraid to show weakness or to fail, and in general having a slightly superior intellect-cum-IQ(see what I mean?) pride has definitely made me underachieve compared to others with similar skills.

In all models of economy which are not market-based, pride and happiness play a really important part. I've stressed in a few of my previous posts how maximising money isn't the sole aim of man and that there are non-monetary benefits that people look for. Now, if you're the kind of person who isn't too excited by your identity (for example you aren't too proud of being an Indian or a Hindu or a young bloke or being attractive or whatever is it) then there's not much motivation for you to go after the non-monetary benefits of doing things which would not pay much but make you happy/proud. While a religious person might spend a day at a temple say every week, you could save on that time and read up The Economist. It's well known that Roman emperors used to conduct games and plays so that people would not think too much about their poverty and revolt. While the normal lower middle class to poor person enjoys going to a play everyday and eating roadside food and the small things in life (mainly because his parents and their parents realised that these are the only things they can have) the prince knows that being rich and famous is the key to being really really happy. Thus, people cultivate different utility functions and everyone is happy being themselves and would not want to be anyone else in this world.

In environments where merit isn't rewarded with money or where , pride comes in again. This happens in PSUs, crappy companies, communist societies and in jails. Pride in small communities and happiness with otherwise pointless things crowd out the search for success and money(which are beyond a person's reach in these cases).

So, if you feel that you're not achieving as much as you should- think about your present situation deeply and consider how miserable it really is. Thinking about the billions of people who cannot even have food three times a day will make you satisfied (a kind of happiness) with what you have. Be sad, miserable and thus do something productive in life.

Mediocre companies and mediocre human beings

In corporate finance you come across theories saying that if you're not as good as your competitor you might be destroying value in certain sectors. This is the case in most natural monopolies (like electricity, water) and certain other sectors where scale is large (like say, cereals). I've asked the question to myself- if a company knows that it's not going to be the best at something why try at all? Why not join these huge corporations and help reduce costs by increasing their scale? If you're worried that these corporations are evil you can either join one of the regulators (which regulate competition/financial markets/whichever area you think they're too evil in) - given that you feel these people add enough value and compensate fairly for your work. No company can systematically do evil things and still be hugely successful anyway. The numerous cases that we here of are companies which do certain things like exploiting poorer economies' labour instead of hiring local people, underpaying wages etc. - but these are just normal decisions making economic sense- which hurt some people but benefit others. One could however argue that big investment banks are truly evil(funding terrorist related activities/helping with money laundering etc. ) but this is probably the only sector (perhaps along with law firms) where even the most successful firms can do truly evil things.

Coming back to the point- although I've thought of why mediocre companies try and compete with established ones for eg. Parle competing with Coke and Pepsi or Tata competing with Ford and BMW(in sectors where acquisition is common, it makes sense to have a local competitor- since the strongest competitors are usually taken over- examples of such sectors include technology, telecom etc. ), I have never asked the same question about human beings. But what do companies and human beings have in common? Well, everything  really. Countries and companies are considered as individual human entities in media, when doing political/corporate analysis and even by law. While it might seem absurd to compare a country of millions of people, industries and companies to an individual person who is just composed of himself, it really is not that big a deal. In the top down approach, it makes sense because after all human beings are made up of billions of cells and hundreds of muscles and dozens of liquids- yet we do not analyse these things when talking about a person.   

The guy who comes 8th in class(who wants to get into academics) is not asked to kill himself. And the coder who came 3rd in the computer coding event isn't asked to either. We have a hundred reasons to give these people in their moments of truth to tell them that they are special and unique and how they contribute their own bit to the world just by being themselves. Just think about it- if people in the stone age(or whenever) were happy with eating raw food and no one questioned it we would still not have invented cooking. And small things like this make your existence worthwhile. If you're a person who gets angry quickly it reminds the calm people to get angry once a while as well to get things done. And it reminds them perhaps how great other calm people are and makes them love these others a bit more. There is no good without evil and no progress without questioning the status quo. It doesn't matter in what way you're different from others- you are still adding something to the world (as long as you're not in ISIS and killings hundreds by the day). The advice goes something along these lines. The same applies to companies as well I believe.

Another comparison between companies and people is with respect to margins/capabilities of a person. We all hear a lot about the lazy guy/girl who doesn't work hard enough. (While this comparison does not have any underlying causative similarity- it is something that can be empirically observed.)   Success for a person is  a mixture of capabilities (which may be intelligence, talent in some field etc.) and hard work. The hard work and the capabilities might come for certain other things such as motivation by parents or training or natural DNA etc. but this is the bottomline. And the bottomline for companies is the ROA/ROE. ROA depends on asset turnover and margins. Margins show the capability of the company to charge high and sustain demand, and turnover shows the amount of work they out in- high asset turnover means that the company works hard to push a large number of products on to the customers. (ROE is closely dependent on ROA- applying leverage on ROA gives ROE). Of course success can be defined as being helpful to others in the case of human beings and contributing to the society in case of corporations,  but I'm talking about financial success.

Too Cool For Work

Well before I got into my first job, I remember teachers talking about how a casual attitude and a 'cool' approach to life affected your career prospects. I never took it seriously at that point of course. I remember a math teacher as far back as 11th and 12th grade talking about this. I don't remember it being mentioned by any of the engineering professors, but come MBA again senior HRs tended to value a serious attitude a lot more than a laid back attitude. I've had interviewers knowingly act over-casual in order to elicit a casual response from me. Something like 'I know you didn't perform that well during Sem 2- It's not a big deal though.. I mean you did top the class in the other Sems and getting low marks once isn't a problem.. you can fail once a while right?' digs a pit in front of you, and he awaits you to jump into the pit by agreeing with him. Having mainly worked on technical fields until the start of the MBA, I had become to a large extent not-so-serious. Now this is not a conscious effort I put in to try and have a chilled out attitude- it is just something that comes naturally. And it had nothing to do with how good I was at whichever thing I worked on. And in technical fields, to a large extent it doesn't matter how chilled out a person is. There are highly eccentric scientists and programmers who have even higher levels of success. Being weird or unsocial does not affect their career prospects too much as long as they are excellent when it comes to subject knowledge. Of course if they end up in managerial positions in the company, it can be more of a problem- even if the field is technical.

However when it comes to working in non technical fields, a casual attitude is a huge issue. And to be honest, after having a few months of work experience I can see why. There is an incredibly huge correlation between casual attitude and not doing your work properly. At this point I think I should clarify what I mean by casual attitude , so that the previous statement doesn't seem too obvious. Someone who plays Ludo in office irrespective of whether his manager sees him has a casual attitude even if he is the most hardworking guy and does his job way better than a pretentious guy who acts as if  he's working while browsing through facebook. Now that we have that clear, let me go through the reasons.

Firstly, it is relatively more difficult for non-technical fields to quantify how good a person is at his job. Thus we are forced to look at things like seriousness, attitude, language, dressing and so on- whereas a programmer might be hired just for his coding skills(which can easily be measured). And to be fair to HRs, fields such as sales and in fact any field which involves direct interaction with the client DOES require people to be well groomed, serious and all of that in order to be successful. Secondly, since people know that having a casual attitude is not looked upon favourably, it results in naturally less self-conscious people also acting serious. Thus, only those who really don't care about their career prospects end up with the casual attitude, along with a few hard working people who still haven't figured out the importance of acting serious.

And because of these two reasons (and possibly more), I do find that casualness is an amazing measure of a person's seriousness towards work. There seems to be a very strong empirical link. And So, I will try to be as serious as possible during my next interview which is up soon.  

Value addition by finance professionals

For certain jobs and those particularly in finance, the value addition that a person can do doing a job can seem very minimal. In some professions such as, say front-end investment banking, I do not find much value at all. Their job is essentially to sell their clients large deals to ego-hungry acquirers who have too much cash, and to sugarcoat these deals with the word 'synergy'. Now, you (and everyone else) are allowed to disagree with this, but my opinion is based on studies which prove my point of view. It has to be said however that there ought to be studies which prove the exact opposite point of view as well. Investment banking jobs are the cream of the crop of course in the world of finance and are sought after by a pretty large majority, mainly because of the enormous pay and to a smaller extent the lifestyle. Do investment bankers add value individually that can amount to hundreds of thousands of dollars per year (or millions in some cases)by 'valuing' a few companies and doing a bit of math? Highly questionable, and even those who disagreed with me on the earlier point- at least some of them may agree with me here. The huge salaries paid to them are a mixture of the success of the firm as a whole (investment banking is an oligopoly and dominated by a few banks which can bend the rules and at some places even create the rules by lobbying). It comes down to the fact that there is demand for investment banking services and someone has to do it. In spite of all the hatred for investment bankers (kind of), I would myself consider say a Goldman Sachs to be the strongest contender to do a deal if I had to raise an IPO for my company, instead of doing it with some academics. It's a matter of experience in dealing with the lawmakers, the brand appeal that they have etc. and the technical expertise while important is not the most important thing. If investment banking is so lucrative(and pays big- seemingly irrespective of the number of people in the industry), what prevents everyone from being an investment banker and earning big? It's not really a technical field in any case (at least at the front end). Firstly, we know that these banks have so much demand that they can afford to pick the highest IQ people and those with the best backgrounds. This automatically makes them the best people to take up the job in the first place. But all intelligent people do not end up in these institutions. The amount of pressure- from peers as well as clients is so high that not everyone can survive. This ensures that the demand for such jobs never increases disproportionately and if it does, fellow bankers will become still more competitive to retain their jobs in case the low performers are kicked out. In summary, although the value added by investment bankers is low (and generally negative), there will be a continuous need for deal-making and thanks to their oligopoly and vast experience, investment banks will continue to add some kind of value in some way.

There are other jobs such as in technical analysis which are essentially useless. Technical analysis, as any academic with any sense will tell u- is a bit like homeopathy. It might seem to work for those who believe in it, but it has absolutely no scientific background. In such a case, a technical analyst adds zero value in general (negative if you pay them something for their research). Unlike in investment bankers' case where they got paid partially because of the oligopoly, partially because of their experience (which in turn is arguably because of the oligopoly), and partially because of just the demand- technical analysts earn money ONLY because of the demand for such research. And this demand comes from ill-informed clients who are unaware of the pointlessness of technical analysis. I would like to mention that I'm not a big fan of fundamental analysis (or any kind of analysis) since it is difficult to come up with accurate estimates of price- the basic methods of discounted cash flow or gordon growth are very simple (and using trading/transaction multiples for pricing is simpler) and can be used by any 10th standard student. There are no advanced formulae that have been proved to work consistently, but at least there is some sort of theory backing the analysis of fundamentals. If the reader is unfamiliar with academic finance, I would like to mention here that I'm not talking gospel- Efficient Market Hypothesis is one of the strongest theories in finance and was suggested by the Nobel Prize winning Eugene Fama- and it essentially says the same thing. One may also refer to the bankruptcy of LTCM, which had the biggest geniuses of finance managing a the hedge fund.

Many people are under the impression that finance is a technical field where you need to know formulae and theories and numbers and be extremely intelligent. This is false to a reasonable extent. Unlike the founder-CEO of a software firm - who would know the inside out of most of the technical details related to programming, the CEO of a big bank would have little idea about the technical details of risk management within the bank. He would obviously know a whole lot of things relevant to him, but even the CRO (Chief Risk Officer) of a bank may not know how to, say, apply extreme value theory to calculate the losses beyond a certain limit. What he will be good at is dealing with people, knowing the mood of the market, being a good managers and in general- having good intuition and ability to convert empirical evidence into sound decision (something I mentioned in my immediately previous post). To be honest, there are no formulae in finance that help you make money by applying them- it is definitely more of an art and less of a science. Even in the most technical risk management practices, (which I went through in FRM part 2) risk managers end up using empirical formulae for the best results. While, say a Black-Scholes can be assumed to be a near-perfect model (some assumptions regarding the distribution of a share price etc. are not 100% accurate), it cannot be used to make money in any way since the whole world knows about it. It is worth mentioning that the earliest traders who adopted the Black-Scholes formula DID make a lot of money but in a few months, everyone became aware of it. A CAPM formula or a Gordon-Growth formula are, needless to mention- useless in adding value to anything by themselves. But when in the hands of someone with experience working in an monopolistic kind of firm; when the guy understands how things are shaping up in the market and can make sound judgements based on his experiences- the formulae and the guy become more than a sum of their parts, and value is created and money is made.

I would argue that fund managers of mutual funds add zero value as well. In this case, the majority of studies point to the fact that the market as a whole tends to beat the top global fund managers well more than 50% of the time. However it must be noted that although an individual fund manager adds little value when you put your money with him, if fund managers were suddenly wiped out from this world, the markets would suddenly lose a major portion of their efficiency in pricing products and providing liquidity and so on. While individual fund managers do not add much value, fund managers as a whole are an integral part of the global markets. Similarly in the case of those who speculate with say derivatives on behalf of clients (like a derivatives trader or a hedge fund managers) also add value in a similar way. Although these people do not build physical assets such as a house or a car, or even a software- they do add enormously to the world of financial markets and thus to the world. The contribution of the financial markets to our well-being is of course beyond the scope of this writing!

Risk-return profiles, IT and passion

I've wondered at times why so many Indians go along the path of engineering and medicine (and may be a law or commerce as well these days- exceptions to these are almost entirely people who aren't capable of doing well in these fields), at least relative to the developed countries. Now it's not just India to be fair. Most developing countries see a large number of people focusing on things like school and college education while disregarding arts, sports and so on. Isn't it strange that we have highly intellectual and skilled people (though the ratio to overall population is a bit sad) capable of making movies or playing football or just painting stuff yet they don't do it? Developing countries are miles behind developed ones in terms of science and infrastructure but light years behind in terms of art. There isn't even an effort. One easy explanation would be that poorer people cannot afford to play music or play football or whatever. The real reason could be a mixture of complicated things including our tradition. For instance, countries in South America do in fact give a lot more attention to music and football and a lot of cultural stuff and we Indians have our sole cricket- which among chess and ISRO are among the few things that gives the nation pride (along with times when Indians are recognised by the western media- latest being Satya Nadella). Careers in arts (lets' club all non-conventional careers into this word for convenience) are significantly riskier than the conventional ones and Indians seem to be far more risk averse than say a Brazil or a South Africa.

First thing for me is the influence of parents and the Indian social fabric. We are surrounded by relatives, friends, relatives of friends and so on who generously bestow upon us their endless wisdom. Only that this wisdom has a problem. The advice consists not just of things that they did and wished to do but also things they've seen others do. It's generally a bunch of nonsense that no human being can ever do. Except friends advice which is generally way to far on the other side and tells you- don't work, play, party, booze etc! Now, older people naturally tend to be more risk averse and they would've seen the risk-return profile of several career paths. When I'm talking about the risk of a career path, I'm talking about the risk of getting educated (formally and informally) in a subject, intending to work in a related field. For example, doing a B.Tech in IT. And for the uninitiated, a risk-return profile is a set of values for risk and return and in this case, time and effort are the main resources being invested. For example, a person spending a lot of time learning the guitar would undoubtedly be good at it but then he may not be creative enough to earn a living out of it. It's a high risk-high return investment compared to getting an engineering degree and it may not give you the same average returns as an engineering graduate (this is just an example and I think that a guitarist would actually get on an average lesser returns than an engineering graduate in India. Film or politics might be better suited as high risk- high return investments) . Now it's difficult to objectively say which investment is better than the other even if we know the risk and return of both investments exactly. This is because different people have different utility functions. For example, an individual might prefer stock A which gives 20% average returns with 10% risk (risk here is standard deviation of returns) over stock B which gives 18% returns with only 8% risk. Close calls can go either way and it's all up to individual preference. But bring in a stock C which gives 25% returns at 5% risk and all (sane) individuals would pick C over the other two. On an average, I think engineering jobs and especially those in IT give the best risk adjusted returns since the risk is very low- you'll almost surely get hired and returns are good compared to traditional engineering fields; at par and possibly superior to them. Thus if all individuals wanted to maximise their money, in my opinion they've to get IT jobs. But we know that not everyone does it and that is indeed partly why IT remains so attractive. This could be because (A) people have different perspectives and some may agree and also some may disagree with me and even if I were right, it may not even be possible to measure the risk and returns of any career path  OR a far more interesting (B) people do not want to maximise their money in the long run.

Option (B) seems right by intuition and should be a common case. Individuals do not think long-term and often are happy with short-term rewards. Watching a movie or playing a game gives instant pleasure compared to reading a book which (for me) is not as rewarding.  But this only covers what we call laziness. It doesn't talk about a Sachin who didn't study much and decided to play cricket or an A.R.Rahman who decided to compose music. They were not lazy- they just put their efforts into something they liked. Something they were passionate about. Passion is the most sensible answer to the question -why don't people want to earn maximum money. Sachin and Rahman are obviously rich as well but I'm sure that they were not looking for money in the first place, when they initially invested their time. Passion can make your utility function invalid and force you to take up careers which may be high risk and low return. Now passion could cover hobbies or even laziness. One could be passionate about sitting on beaches or travelling. Or just sitting idle. Theres a great amount of happiness and pleasure to be derived from a whole lot of activities and IT covers a miniscule part of the pie. I believe that each individual has a utility function which is unique and only he can know what makes him happy. This means that he would have to try out many things to find what he likes. Including doing nothing. This doesn't mean however that you should take no advice. In fact I'm a huge fan of taking advice. Once you've figured what to do, you can take advice from people on how to do it. Or if you've not figured out what to do yet, you can ask people for their experiences doing different things and choose for yourself what you want. There is however a problem here. As people grow up, their needs change. And almost always, egos become bigger as people grow older. I don't mean this in a bad way and feel that it is probably required for good parenting as well. To satisfy those egos, you've to be good at something. Really good. Or you can shrink your ego to make up for it but that's not a very natural thing to do as self-respect is a basic human need (though you can decide how much of it you want) like food or shelter. So when adults tell you to read and get a hig paying job, it's what they wish they'd done or what they did but it's from an ego-hungry point of view. Adult's needs are very different I feel and money and self esteem and a big family are most important.

So when you go behind your non-mainstream passion , make sure you do a decent job of it if you want to be an average adult with self-esteem and all and more importantly make sure that it falls within your required risk return profile. If you cant take failure don't try to be a movie star- unless of course you're that passionate about it. And a small tip when you don't know what to do- go for what's mainstream i.e. accepted by the public. If you're not sure between investment banking and wealth management go for wealth management because people say it's better and if you're confused between core jobs and IT jobs as a mechanical engineer, go for the core job- so long as you've no strong biases towards either. Do a degree in engineering even if you're interested in making games because the market is just not there. Again, unless you're that passionate about gaming in which case you derive enough pleasure from a low-paying low-profile job (you could be the exception and make it big but you would've taken a sufficiently high risk already-  which would be because of your passion for it in the first place). Something I've not considered in the entire analysis is talent and if you're really talented at say chess, it doesnt matter what anyone says, you can take it up and succeed (like say Magnus Carlsen) ; I'm just talking about the average human. I'm sure I would've left out many more things so you're always free to add new ones or criticise these in comments.

P.S: If you're not comfortable with risk and return, these are major things and almost always the only things that matter in assessing an investment. Let's assume that a share of ITC on an average (geometric mean, from the time it got listed) has given 20% returns annually with say 10% risk (stdev). While Kingfisher Airlines let us assume has given -50% returns with 25% risk. Here ITC is undoubtedly the better investment. Assuming of course that past values are indicative of future values which is in fact what we assume when choosing career paths- that we would get similar pay as our seniors or dad or whatever. It doesn't matter if someone who picked up journalism became really famous because he is just an exception. It doesn't matter if Kingfisher rose 100% in a month because that was an exception and on an average Kingfisher sucks compared to ITC. And similarly journalism would probably suck on average, in monetary terms (if an analysis is done considering all the people who tried to make it big in journalism) compared to an engineering job even though some exceptions are there.