Finance, by Bill Janeway

Last week we had the pleasure of hearing Bill Janeway speak to our MBA class. Bill was formerly vice-chairman of Warburg Pincus (the Private Equity fund) and is still a Senior Advisor to the company. He sits on a number of boards, and is incredibly active at Cambridge. In fact, you may recognize him from my post on Tim O’Reilly; he hosted Tim in Cambridge that day. Of course, Bill also sits on the Board of O’Reilly Media! (I put a more complete bio at the bottom of the post.)

But Bill came and spoke to our class on Finance. Specifically he reviewed the recent failings of the financial markets and traced it back to modern finance principles trying to treat economics too much like physics. (Where models can be relied upon.)

This was quite an intensive talk; over 50 slides crammed with quotes, references, citations, and more. (In his defense, he told us that it was going to go pretty quickly and that slides would be available afterward.) I tried to take notes and largely failed; this was information by immersion. In the course of an hour he managed to touch on virtually all key aspects of what caused the credit crunch, and the principles of finance that led to the crisis.

While I have the slides, I don’t have specific permission to share them. He recently did an interview which covered a lot of the same material as this talk, which can be found here.

He ended the talk with a few notes that I did manage to catch. First, the bad news is that we’re essentially in the “1931” scenario right now. But he believes that the good news is that “1933” will not follow “1931.” (He is very encouraged by Obama’s election.) Perhaps more importantly for some people in our class, banking will not be like it was ($-wise) for at least a generation or two. For regulators and finance thinkers, Bill said that we to establish Financial Economics as a social science in order to frame future regulation of the industry.

Overall, it was a fantastic talk. Since I don’t have a deep finance background, there was quite a bit I didn’t managed to catch as it flew by. But it’s clear Bill Janeway is clearly a very deep thinker and actor in the modern financial marketplace, and it great to get his perspectives on how we got to where we are, and what we as a society need to do going forward.

If there is one single takeaway from his talk, it’s this: Finance is NOT a branch of Physics!

[Addendum:] If you want to read another really interesting perspective of the credit crisis (from the perspective of sub-prime loans, CDO’s, etc) that is actually readable and entertaining for a wider audience, check out “The End” by Michael Lewis in Portfolio. Very interesting, as well…

As promised, Bill Janeway’s full bio:

Bill’s experience encompasses over thirty years of practical finance in investment banking and venture capital in the US and Europe. On joining Warburg Pincus in 1988, he initiated and managed implementation of the investment strategy for Information Technology that established the firm as a global leader in the domain, including funding from start-up such prominent providers of infrastructure software as BEA Systems and VERITAS Software. Bill is a member of the Board of Directors of Fortent, O’Reilly Media Inc., Nuance, Inc., NYFIX, Inc., and Wall Street Systems, Inc.
Bill was a Marshall Scholar in 1965 through 1968, and in 1965 was valedictorian of Princeton University. He holds a BA from Princeton’s Woodrow Wilson School and a PhD in Economics from Cambridge University.
He is chairman of the board of trustees of Cambridge in America, University of Cambridge; founding manager of the Cambridge Endowment for Research in Finance, University of Cambridge; Honorary Fellow, Pembroke College, University of Cambridge; and director of the Social Science Research Council. Bill is co-Chair of the 800th Anniversary Campaign for Cambridge University and a Visitor at the University’s Centre for Financial Analysis and Policy.

Star Trek, suicide and Bush voters

I originally heard about StateStats from Fred Wilson, of A VC fame. It sounded interesting. To quote the site:

This tool shows you how popular a Google search query is in each U.S. state, giving a ranking like the one you see in the left column. It then compares this ranking with other ways of ranking states, like average income or population density, using Spearman’s rank correlation.

I first tried out things like different bands I like listening to, a comedian, and a couple of the site’s suggested searches (like yoga).

The most surprising search I made was, of all things, Star Trek. The popularity of searches in states for “star trek” correlates positively to the suicide rate of states!?! Not as strongly, it correlates to the order of states that Voted for Bush in the 2004 presidential election. See the screenshot below:

Even the search “depression” doesn’t correlate as strongly to suicide rates:

I would like to point out a key point the site makes about this data:

Be careful drawing conclusions from this data. For example, the fact that walmart shows a moderate correlation with “Obesity” does not imply that people who search for “walmart” are obese! It only means that states with a high obesity rate tend to have a high rate of users searching for walmart, and vice versa. You should not infer causality from this tool.

But enough of a morbid tone. As I mentioned above, you can see how the popularity of things like up-and-coming bands is concentrated geographically. Check out the chart for the band MGMT:

(This is where I plug that my better half, LondonAnnie, graduated from Wesleyan University. The home of MGMT, Bill Belichick of the Patriots and Eric Mangini of the Jets. For a couple of years LondonAnnie helped Eric put on his family foundation’s football camp for under-privledged kids; it’s been going on since 2002!)

Finally, perhaps it’s yoga that’s really splitting the country?

True Knowledge — A test

So Google essentially owns the current search market.

The thing is, Google searches based on key words and key phrases. It doesn’t necessarily provide a specific answer to a question.

A local, Cambridge-based company is trying to expand the idea of what a finding answers can and should look like. That company is True Knowledge.

QuizBot is the company’s latest creation. I highly encourage that you go and try it out, if only to see the opportunities of the future. Everything is explained on the page, and it’s pretty cool.

Meeting Michael van Swaaij, Chairman (and former CEO) of Skype

On Monday this week our MBA class had the opportunity to hear Michael van Swaaij speak to our class. He is the current Chairman of Skype, having previously served as CEO of Skype and Chief Strategy Officer (amongst other roles) at eBay.

First of all, I have to say that he was a fantastic speaker. I’m always impressed with speakers that don’t need the crutch of PowerPoint slides to make their point, and Michael was a very engaging speaker for 40+ minutes solid. (Before the Q&A.)

I want to quickly paraphrase a few of his top-level points:

  • If your first job isn’t great… don’t worry. Things will happen. To a group of MBA’s that will likely graduate during what will likely be an extended economic downturn, this was encouraging. While we may not be able to do exactly what we want to straight away, I did get the sense we’ll get there in the end. (And probably by a route we had never anticipated.)
  • Don’t focus on the press. Focus on the consumers. The press doesn’t reflect the reality that we need to live if we’re growing and innovating. The press is a lagging indicator of where industries are going. If you keep focused on consumers you’ll rarely go wrong.
  • Great products/services allow people to do something they’ve never been able to do before. Enough said there.
  • In growing a startup, you must hire well ahead of the curve. Companies and roles grow so quickly that the people you’ve got must be able to do the job above them, and likely the one above that. If they can’t they’ll hinder your growth. Unfortunately, few people want to have a job where they’re capable of doing so much more.
  • In high-growth startups, missing an opportunity is much worse than not taking full advantage of the opportunity. I’m not sure I 100% agree with every implication of this, but certainly do agree that you’ve got to grab every opportunity you can.
  • Leadership isn’t about you… it’s about the team. Enough said.

The Q&A portion was also enlightening and quite straightforward; unfortunately the most interesting bits were strictly off the record!

What’s this photo about? Well, about 15 students have the opportunity to have dinner with the “Leadership Series” speakers after their talk. I was very pleased to have the opportunity to continue discussions with Michael and the Director of Judge Business School, Arnoud De Meyer (also a Fellow at Jesus College) at a beautiful room in Queens’ College.

First of all, I have to say that Michael van Swaaij has to be one of the most down-to-earth senior business leaders I’ve ever met. He’s had a lot of important jobs and done a lot of interesting things, and has come out of it a very wise man.

But what I really feel like looking back on our talks (where I didn’t take any notes) is how inspirational (yet down-to-earth) he was. Whether or not it was what he was saying, I came away with a feeling that we’ll be well-prepared for life post-MBA, and not to be too worried about it. We need to work hard, keep our eyes out for good opportunities and take advantage of them.

[UPDATE]: The Judge Business School women have posted about this, too. Check it out here.

Rowing, couples, and an elegant Jesus College dinner

The big thing that I was trying to focus on this weekend was the Four’s Head of the River Race, on the River Thames in London.

Last year I rowed for Thames Rowing Club; this year I rowed for my Cambridge college crew (Jesus College Boat Club). The race went okay, but wasn’t spectacular. Our crew had little time to practice together, so the actual race was about our third outing as a boat. A couple of the guys had never experienced the “Tideway” conditions on the Thames, and they were fairly brutal yesterday. (Pouring rain in the last five minutes or so of a 20+ minute race doesn’t make for happy rowers.) But at least we finished without any disasters. It’s a good step toward the real goal of college crews: Lent and May bumps races on the River Cam.

In other rowing news, Cambridge did quite well against Oxford in the Fours Head, winning pennants in both the Elite 4+ and the Senior2 4+ categories. And I’m happy to say that the Thames women won the Women’s Senior2 4+ pennant!

There’s something else I’ve been meaning to mention for a while… it’s a bit of an oddity of our MBA class. In a class of 150 people, there are four couples! (Where both partners are enrolled in the MBA.) The Times did a bit of an article on them titled “Lessons in love for high-flyers.” Note that the Kate and Peter they discuss are not the same as this Katie and Peter.

I forgot to mention that about a week and a half ago Jesus College had a Matriculation Dinner for all of the new graduate students this year. It was quite an affair; black tie with gowns was the dress code. I grabbed a quick picture of the table and table settings. When I saw that each of us had five knives, four forks and a spoon and was a candlelight dinner, it was obvious this was certainly a special Cambridge type of event.

Thoughts on Obama and leadership

It was clear to me quite early on Election Night that Nate Silver’s reputation was well-deserved, and Barack Obama was going to be the next President of the United States. As blue states were called quickly for Obama and it took quite some time to call red states for McCain, the result was even more clear.

I’m incredibly happy and proud for the United States to have the new leadership that we will soon have. It’s going to be an incredibly challenging time, and the next four years will not be easy for Obama or the country. But I feel that we have a wise, capable and visionary leader.

But I wanted to take some time to reflect on some themes around Barack Obama and his campaign. Fred Wilson posted his list of what he believes the country can expect from an Obama administration:

  1. A world class management team
  2. Honesty
  3. A steady hand
  4. Diplomacy
  5. Fairness
  6. Leadership

There’s a reason that “A world class management team” is at the top of the list, and it’s closely tied to “Leadership.” It’s clear from articles like “Near-Flawless Run is Credited in Victory” that Obama built a solid team. Not only that, but he had the confidence to push out a tremendous amount of responsibility to his organization. From a military outlook, it was an excellent example of what is called “maneuver warfare.” But there’s a great example of his management and leadership styles colliding in this video of his talk to his Chicago campaign headquarters just after securing the Democratic nomination. I encourage you to take 10–15 minutes to observe what Barack Obama is like as a leader:

Obama is clearly a charismatic leader. Just take a look at this incredible collection of photographs from the Boston Globe. And because I think they’re both still so meaningful, check out his New Hampshire concession speech and the video that was made from it. Even in defeat he lifted people up and inspired them.

Finally, I’d like to remind everyone that elections matter. I recently created a prediction market on Hubdub for something that I think will become very critical quite soon: Supreme Court nominations. I encourage you to register on Hubdub and predict for yourself!

How many US Supreme Court Justices will retire by the end of 2009?