dubious.biz(ness)

Yet again time for another bumps. Last year, the bumps was a huge deal. Lucky me I was thrust from a few Sunday row to a blades-winning crew. I don’t think that you can really prepare for experiences like that and it even takes a while to sink in. When it did there were a lot of lessons to be had from it. If for no other reason that the fact that you worked so very hard and achieved so much means imprints it more deeply.

This year is a much different situation. Rather than being the new guy on the team, happy to contribute the little bit that I could and feeling like I had to do everything I possibly could not to be the worst on the team, I am now the most senior in terms of Cambridge experience (with only two bumps of experience!) although there are three other rowers who are much more experienced than me elsewhere in the boat. After just a few outings, our stroke injured himself and suddenly I went from being in the back of the boat to the front, and being asked to row a crew of guys who were by all accounts fitter than me.

The refrain has always been “ergs don’t float” and “but you have good technique” which is another way of saying that I’m not very strong. Being small has something to do with it but to be honest I don’t punch my weight when compared with other small guys and I’m not a “born rower”. But rowing isn’t really a sport that your born into, at least not by being physically gifted. It’s an exclusive sport, even in the UK, that mostly private school boys start out in and it seems to carry that implication of privilege despite being essentially repetitive weight lifting.

I don’t take not being strong lightly (pun? intended) but at the same time I am aware that there is an upper limit to my abilities. Imagine my astonishment when I pulled an erg score of 7:45… horrendous. That was the same score I made on my first attempt last year. Only three months ago it was 7:15 and I was hoping it would break 7:22. So not only am I pretty weak, but I lose it really really quickly. So much for being a hard gainer and a hard loser. I will freely admit that I ended up coxing way more than rowing last term but it was still a sad situation.

Suddenly being put in front of a crew of brash and some what frustrated rowers who had just lost their stroke was not really my idea of a great time considering my fitness. Being stroke means that you lead the boat which means that you are rarely criticised because it’s nigh impossible to judge when it’s stroke’s fault and when it’s the rest of the boat’s fault. I have a few technical faults and combining that with the rest of the crews faults, my lack of strength, and the normal difficulties of being stroke mean that it’s not easy to be in the front seat.

To put matters bluntly: the bumps programme says this about Wolfson: “After rising in 11 of the last 12 years (taking them from the bottom of the Fourth Division to near the top of the Second) Wolfson are perenially at their highest ever position - this year however they are unlikely to progress through Girton and may have to content themselves with consolidation.” That’s essentially how I feel about our bumps chances with a lot more emphasis. We haven’t fallen for 12 years and we’ve moved up 11 of them That’s an amazing record considering that other grad colleges performances are between mediocre and pathetic and we are finally in the midst of good crews. Bumping is no longer easy, but still possible and we train extremely hard. The bumps programme always predicts failure for us as we have been an underdog nearly every year. I believe we have more than a chance at bumping up and I hate the idea of consolidation, i.e. rowing over.

But ultimately, our crew has to live with the reality that we may do just that, row over. We have guts, determination, and we’ve put in hard work and we may have a chance at going them over the course. Our start is blazingly fast but we’ve yet to see how we’ll do over the distance and we won’t know until we row it. What I am afraid of, perhaps because I am most succeptable to it, is that we will become complacent and consolidate, that we will relegate ourselves to just finishing the race half way through. Bumps isn’t like that, it’s a rat race: feast or be feasted upon.

If we do make it through the first half of the race with extra in our tanks we might actually take it home and win, but it’s a sure thing that no crew this high will give up easily, and I certainly don’t want to say the “B” word but I believe we have a chance at going up if we combine the determination with focus and concentration.


{
i parse with my eyes;
my mind mimics the machine;
at last i perceive;
}


Due to the reverse chronology of these posts it might seem confusing to read this one first so read the other corporate whore post first please. To put it mildly, I’m not very impressed with the investment banking sector any longer. I looked very hard over the industry and have found nothing so much as a drop of innovation. The funny thing is that for these guys, innovation is literally a neck snapping paradigm shift every time, and then, because the stakes are so godforsakingly high, everyone jumps on board.

I can give you several examples but let’s look at one that is perhaps a “double whammy” and one where I had a bit of personal experience: Macquarie Bank. I interviewed with them several times, going down to London on very little notice twice to go through their rings of fire. I actually find this interesting enough to warrant my time so I don’t particularly mind that aspect (other than the fact that I don’t do any work for a day), because it’s one of the best ways to interview them about how their company works.

I had selected Macquarie after a long process of being unimpressed by nearly every bank. To say they are bankers is saying it all really, they’re (proudly) cash whores who have very few original ideas and can keep track of every last cent. It’s turtles all the way down. I had hoped that Macquarie would be a bit different because, and mark me closely, they had an innovative idea, and not only that, their innovative idea is really a combination of two other really good ideas, hence the double whammy.

The first innovative idea was private equity, in other words buying private assets of a business nature and holding them, this is a huge trend in investment banks in general and to several ends. It is essentially a more learned version of leveraged buyouts of the late eighties. Ironically anyone involved in private equity insists it’s totally different despite it still being, literally, a “leveraged” (as in the hard assets of the company are used to as collateral to raise the cash needed to purchase it) “buyout” (usually taking a company from public to private all though in any case the firm buys a majority stake of the equity, making it a buyout). I don’t actually like private equity (PE) because I think that usually the goal is to lever a firm up, gut it, sell off its best (most liquid) assets, and then sell off the rest to someone else to lever it down and realize a profit.

But Macquarie was a bit different. Instead of buying up assets to try to sell them later to realize a profit, they bought assets for the long term which had stable, predictable cash flows that would mean long term revenues. Essentially they want something as secure as a bond but as profitable as stock. So they buy “infrastructure”, in other words water companies, toll roads, airports, and so on. The type of assets that are recession-resistant and natural monopolies. Why pursue this particular type of asset? Because the money they use to buy them comes from pension funds, which require the same time of cash flows: long-term, stable, and greater than bond rates (which would be the baseline for investment). Pretty smart, eh?

So with such a great idea, why do I claim that there is no innovation in investment banking? Maybe I’m splitting hairs here but even if I claim that this is a unique and good idea, which some may debate, having just one and then flogging it until it’s cold and limp doesn’t make you innovative. It makes you opportunistic perhaps but only when you can actually identify new ideas and develop them into profitable enterprises with some regularity to do pass from luck to innovation.

To be honest I really thought that Macquarie had something else up its sleeve. I hoped as much. From what I had seen from other investment banks there were two problems: the great ideas were few and big (such as private trading systems) or they were mundane (such as the sundry derivatives products on sale). I want an investment bank where it’s small enough and smart enough to tackle competition and win, and innovative enough to know that it won’t win a fair fight.

There are two problems with this model: first is that there is not likely to be such a bank because of nature of scale of the industry. Currently banks need a massive amount of capital to operate and this amount is skyrocketing by the day. There was a time, around my birth, when markets had driven all but the most bearish out of the business, paving the way for innovative companies like aggressive proprietary traders, junk bonds traders, leveraged buyout firms, and hedge funds. But as you might expect high returns brought in big investment from a number of fields, particularly when investment banks capitalized on asset categories that could be purchased to hedge corporate financial risks. So the amount of money in the markets has ballooned out of control, as has the staff housed in the top banks has in the past 30 years.

The massive capital base has erected a natural barrier to newcomers. This isn’t to say that there aren’t new hedge funds (there are), new private equity operations, or new services companies willing to take a few dimes out of the pockets of investment bankers themselves. But there aren’t any brilliant ideas, there are simply a lot of people working very hard to eek every last cent of profit out of the market.

Worse than this, perhaps, is that the nature of these large firms has created a natural barrier to even internal innovation. One of the main reasons that the businesses are unable to innovate is that they are so market-motivated, so trained to respond to the small changes in profit and success that they expect from their own investments that they become limited in the investments they are able to make in paradigm shifting innovation. To let it ride on a risky bet on the markets is one thing, because even on the riskiest bet there is a quantified downside, and usually it is managed very carefully. However paradigm shifts require you to abandon your current strategies, something that a company like Goldman Sachs is not likely to do as long as they are in the black.

In fact a careful look at history shows that it may be the firms in red that are the real sources of innovation, and very few stay on top for very long. This would indicate that companies like Macquarie who succeed in one strategy are destined to fail relatively quickly because they do not have a hedge against their own strategy. More diversified investment banks like Goldman, Lehman, and JPMorgan have only enjoyed success because a series of distinct divisions that internally competed enjoyed massive success. Currently the success at most banks is down to essentially proprietary trading. However only six years ago the success was due to M&A with proprietary trading still smarting from massive losses ten years prior.

So, as you might ascertain, I will not be working for Macquarie. And I’m quite happy about it. With the shine taken off it makes me realize that banks are not exactly great places to work if you’re keen on entrepreneurship. I am however really intrigued by the business still. I think that I will end up working somewhere in the industry in the future to gain enough of a foothold to understand what really underpins the business. The rather unfortunate fact is that it looks like precisely the sort of company that I was considering, a smaller up-and-coming bank with good ideas, is in fact the wrong market.

I can say, however, that the job search in a number of other areas seems to be going very well. That’s for another post.