Why I’m Not Blogging

I’ve been at this since July 2006, doing my thing. Writing when I’ve
felt inspired, irked, righteously indignant, touched, happy and sad.
Blogging has become a significant and meaningful part of my life, one
where I am able to express myself on my terms, write about issues
rattling around in my head, and to connect with people across the world
and from different walks of life. Discovering blogging has truly been a
gift. It is hard to imagine living without my blog.

Then why am I
less interested in blogging than I’ve been in nearly three years? While
I’m certainly not the most prolific blogger, I’ve created a veritable
War and Peace of content during my blogging career. 2-4 times per week,
very consistently, with a few 2-week “vacations” and some jags where
I’ve written nearly ever day for weeks. But I can honestly say that
I’ve never felt less interested in writing than right now. I generally
keep a list of potential topics and I currently have stuff on that
list, but whenever I look at it I think, “That’s work.” Blogging has
never been work to me, so that kind of feeling is both unpleasant and
scary. Have I lost my inspiration? Has my well run dry? I have written
a lot about a wide array of topics, and my writing tends to be pretty
intense and detailed, not little pithy entries or linkfests, so maybe
I’m just spent. Or maybe…something else is going on.

I know my
feelings have to be anything but unique, but I am mainly interested in
the “why.” Has anything changed in my life over the past, say, three
months, when the frequency of my postings has notably declined? Well,
after passionate and enthusiastic writing about the economic crisis,
the Obama Administration, the Treasury, Paulson, Bernanke, etc. I just
got tired. Is it because of the “bear market bounce?” Maybe. Is it
because I don’t want to simply write derivative crap of the stuff I’ve
written previously? Possibly. Is it because I don’t feel anyone gives a
shit what I say? I’m sure that plays a part in it, too. I tried really
hard for a period to be heard by those in Washington, in positions of
power, but to no avail. There were plenty of voices to be heard, and
mine simply was not one of them.

But there has been some other
stuff that has been going on as well. I’ve never worked harder at my
investment business, IA Capital Partners. Between working on new
investments, my Board commitments (which I take very, very seriously),
some advisory work with some of my companies and considering taking
some outside capital, it has been pretty time consuming. Also, my
trading company, Kinetic Trading, has been taking lots of time. I’ve
been very focused on building this business, and it has been going very
well. Starting something from scratch is hard, and making the
transition from a “virtual” company to an organization with a home
base, employees, strategic partners and outside capital is very
exciting but a tremendous amount of work. Finally, I’ve been super
committed to my boys and their love of baseball. Coaching my older
son’s team and supporting my wife in her coaching of my younger son’s
team (and acting as their pitching coach) is a labor of love in the
Spring, but man, does it take time. No complaints, but I feel as if I
spend 50 hours a week on my feet. Oh, and then there is my Board work
for my kids’ school, Little Red School House/Elisabeth Irwin High
School (LREI). Again, a labor of love and something I deeply believe in
(progressive education, humanism, providing opportunities to children
across the socioeconomic continuum, etc.), but I chair the Finance
Committee (making me Treasurer), am a leader in fund-raising and other
stuff. In short, I’m in pretty deep.

So when all of this is
mushed around, I think my lack of interest in writing has less to do
with time (I’ve never had any, anyway; I’ve always just created time to
write somehow) and more to do with lack of mind share. My brain is
pretty stuffed with all my current interests and responsibilities, and
I simply don’t have the opportunity to contemplate my navel and think
deep thoughts right now. My thinking is much more task-focused, much
more project oriented. And since my blog isn’t a business for me, it is
a passion and an outlet, I’m simply not compelled to write. It’s sad,
but true. While this is my current state, I am hopeful that when things
calm down I’ll once again feel the inspiration and have the mental
capacity to get back to it. On a certain level I feel guilty about not
writing; I feel like I’m letting my readers down. But even more
importantly I simply miss it. I miss the feedback, the dialogue, the
back-and-forth, the spurring of new ideas that come from those who
comment on this blog. And if I don’t write, I completely miss this
dynamic.

In the immortal words of the Governor of California, I’ll be back. I just wish I knew when.

Tweet

Education and Responsibility

I’ve been accused by some of writing posts that are too long - but screw it. This is important. The topic today is education, specifically in the math and sciences. This is an issue that has really irked me for a long time on a personal level, and is something about which I feel very passionately but hadn’t really found my voice. Reading Thomas Friedman’s book The World Is Flat several months back stirred up a lot of feelings long buried under the years of applying advanced math in the financial markets. These feelings were further jarred loose when one of my best friends (himself a very successful hedge fund manager) told me of a new institute (called IDEA) being endowed at the University of Michigan specifically geared towards enhancing teaching and learning methods in math and science education for K-21 students. The goal is to get these people engaged, excited and interested in pursuing college and post-graduate work in these critical areas, and sharing their ideas and passion with K-12 students, who can then pursue advanced degrees in these fields and begin a virtuous cycle of education and advancement. Finally, I opened Saturday’s Wall Street Journal to discover an article on math camps, which I found both interesting and depressing at the same time. So this is the back-drop for this almost certainly too-long post. Abort here if necessary.

Why get so emotional about this issue? Well, I was the kid who always loved numbers, planets and stuff like that. I memorized the 1977 edition of the Guinness Book of World Records. It was fun and made for great party conversation (“HOW MUCH did that guy weigh?”). I always added up the check and figured out the tip when my family went out to dinner. I memorized the prices of every item in catalogs. I liked when they had sales so I could calculate the percentage discounts. I also loved astronomy and the physics of the universe. Planets were really cool, as were supernovas, quasars, and nebulae. I could go on but you get the point. Quite simply, my passion for math and science was evident from an early age.

And it was, without question, squashed to smithereens during my school years to the point where I absoutely hated it. Not the material, the classes. I was basically raised in nice upper-middle class suburbs and went to “top” public schools. I must tell you that in all my years of primary and secondary education I had precisely ONE teacher in either math or science who truly cared. Yes, one (and for those who are playing, he was my AP Chemistry teacher at New Trier High School named Mr. Koonz - also affectionately known as “Booby”).

Given my less-than-favorable math and science experience in school, the juxtaposition between a teacher and a great teacher was quite stark. It’s kind of like asking a senior software architect the difference between an engineer and a great engineer. They won’t say the great one is twice as good as the other - they’ll say they are 10 times or perhaps 100 times better. There is a non-linear nature to these problems, and it shows up in spades in teaching. I saw the great but mostly had a lot of the good and not-so-good - and it is clear that we must have great to compete. No discussion. Period. It wasn’t until I emerged after graduate school and entered the world of derivatives that my passion for math was re-kindled. I learned at the side of Rufus Cole, a fantastic mentor and derivatives professional at Citibank who essentially taught me the math of the markets. And once I got it, boy, did I love it. My hope is that others are able to discover and nuture their math passion about 20 years earlier than me.

Think what you may about Thomas Friedman, but he presents a raft of powerful statistics and puts forth several compelling arguments in his book concerning the dire state of primary and secondary school math and science education in the U.S. Rather than re-stating the statistics, I’d rather give you a snippet of his prose out of The World Is Flat that I wish I had written myself:

The sky is not falling today, but it might be in fifteen or twenty years if we don’t change our ways, and all signs are that we are not changing, especially in our public schools. Help is not on the way. The American education system from Kindergarten through twelfth grade is just not stimulating enough young people to want to go into math, science and engineering.

This is powerful stuff. And for those (like me) who have some experience dealing with the brains and depth of talent pool of top computer science and engineering resources in places like China and the Ukraine, you can feel the truth in his statements. Please note that my comment doesn’t even address the massive cost differential between on- and off-shore resources of like quality. And it was his words, coupled with my own personal experiences as an eager but frustrated student and later as an entrepreneur, that made me feel like I needed to do something about this problem. No sooner had this happened than I heard from my hedge fund buddy and fellow Michigan grad about the IDEA program. Let me post a few excerpts from a draft of a white paper the faculty chairs of IDEA have developed:

THE VISION
The IDEA Institute is a proposed collaboration between the School of Education and the College of Literature, Science and the Arts (LSA). It will enable the Math and Science factulty & students from LSA to collaborate with faculty & students working in Science and Math education from the School of Education (SOE) on the pressing problems of K-21 teaching and learning.

The Institute will focus on the following:

• Develop and expand training in science and science education for graduate and post-doctoral students that will build the constituency for the multi-generational learning communities that are needed to drive innovation (faculty, post-doctoral and graduate students both in the sciences and science education).

• Fund projects using these talents that will design, test, evaluate, and roll out innovation in science teaching for our own undergraduates in both LSA and SOE, particularly those who wish to pursue K-12 teaching and future faculty careers.

• Liaison and collaborate with the Science Learning Center, the Math Learning Center, and the Undergraduate Science Building to share their knowledge and connect their activities to new programs.

THE VALUE
The IDEA Institute is a single mechanism that will create a way for faculty to improve science education and simultaneously cultivate a new generation of faculty members and pre-college teachers who will be able to design and carry out instruction in unprecedented ways. In addition, this work will contribute to an education research base about college-level teaching and learning. After an initial pilot with its start-up departments, the scope of the IDEA Institute will span all of the departments of science, technology and mathematics, and cover the K-21 continuum.

Now this is what I am talking about, people crossing traditional barriers to address a problem to achieve a greater good. Cutting through bureaucracy and traditional mores is very hard in large organizations, and universities are certainly not exempt. However, even in light of these barriers, the IDEA program is becoming a reality. I am going to put money and time behind this because I believe deeply in its mission and its chances for success. Further, I do believe that we are facing a true economic crisis the proportions of which are hard to conceive of today, and that initiatives such as IDEA can work to address some of the root problems that impacted my (sub-par) math and science education and can help tap into and nurture the math and science potential in kids everywhere.

Finally, what of Saturday’s WSJ article? Here is an excerpt that highlights the key issue I see:

Math camps are multiplying in part because families are seeking an edge in competitive college admissions and worry about the quality of U.S. math instruction. Last summer, parents paid $280 million to send 120,000 children to academic summer camps, with math among the most popular subjects, according to Eduventures, a Boston research firm, which estimates enrollment is climbing 10% a year. Sylvan Learning Centers, the big tutoring company, says participation in summer math programs, including day camp, jumped 23% last year — twice the rate of other subjects.

Clearly a market has emerged to meet an unmet need, that of the exceptional or passionate math student, often between the ages of 10-14. But why is this? Presumably because either the math education in our schools stink or they simply don’t cater to the exceptional and/or passionate math students. I’m sorry, but this just shouldn’t be. It is my hope and belief the programs like IDEA can help to address this clear gap in the marketplace, and that it is our responsibility to take some ownership over this critical issue and do something before it’s too late.

Tweet

Colliding of Worlds - Blogs vs. Traditional Media

So it just came across CNN.com that Ana Marie Cox a/k/a Wonkette, is trading her sword for a pen and moving from Nick Denton’s edgy Gawker Media to the far more buttoned-down Time Warner-owned Time.com. Ms. Cox is assuming the new role of Washington editor, which seems pretty cool yet pretty mainstream to me. Congratulations to her. I do find it interesting, however, that someone of her status and success in the blogosphere (in terms of clicks, eyeballs - namely, her following) would be pursued for (and accept) such a seemingly conventional position with such an old-guard publication. Clearly those executives at Time Warner believe that her appeal and following as the ascerbic and witty Wonkette will translate into increased readership on their Time.com site. I wonder what the demographic profile of the Wonkette reader is relative to the Time.com reader? If these demographic profiles are materially different, will Ms. Cox be successful in drawing new readers to Time.com? And if, in fact, she writes in a more, shall we say, toned-down manner as necessitated by the editorial policies of her new employer, will some of her appeal be diluted? I have no idea and I am completely unqualified to answer such questions, but they intrigue me nonetheless.

But I am fascinated by the growing crossover between traditional and non-traditional media, and this is only the latest and highest-profile example of this phenomenon. Bottom line - Wonkette has interesting stuff to say and people eat it up. This is news. If she can bring a little of her joie de vivre (not to mention her rolodex) and character to Time.com I have no doubt she will be able to deliver terrific value for Time Warner’s investment. I am also confident that this move is only the beginning of an oscillation back-and-forth across the new media-traditional media divide that will ultimately lead to a single word to describe sites like Wonkette and Time.com - media.

Tweet

Et tu, India?

The blogosphere has been afire the past two days with the word that India’s Department of Telecommunications (DoT) has created a list of “offensive” websites and caused the major ISPs to block these sites. There was no advisory to this effect, no public communication as to the DoT’s intentions and rationale, nothing of the sort. This would have been bad enough. Interestingly, however, whether due to technical incompetence or intent, not only were single pages blocked but entire blogger platforms such as blogspot.com, TypePad.com and Geocities.com were shut down. Now the government had gone too far. And this in the wake of the positive role played by bloggers during the recent bombings in Mumbai. A furor instantly erupted both within and without India, and sites such as Blogging Without Censorship emerged to take a leadership role in helping native bloggers deal with the ban. We’ll see how long the DoT can hold out under relentless pressure from the angry, infantalized masses that don’t want to suffer the same fate as their peers in China and Pakistan.

An interesting implication of these draconian steps to control citizen journalism is that the material being published is either (a) impactful, (b) newsworthy or (c) both. India is a democratic nation, yet is clearly concerned about the free flow of ideas across the internet. China, for all its economic might, is deeply afraid of losing control of its transition from an isolated, socialist state to a leader in the global economy and a true diplomatic superpower. While the steps taken by these countries to control free speech and the free flow of ideas are deeply unfortunate, it is a powerful validation of the blogger as a vehicle for idea creation, dissemination and change. It is also amazing to witness how people within these countries adapt to restrictions unthinkable in the U.S., whether using offshore means to create and distribute content, understanding the way the censors operate and getting “borderline” content posted on bulletin boards like the Chinese BBS or starting a censorship blog with a “how to” list to work-around the ban in India.

Governments can try and use regulation to keep people and ideas down for a time, but inevitably fissures will form, cracks will emerge and people will be heard. Just like the unstoppable trend of more and better content being made available on the internet, people who want a voice will have a voice and, if others want to hear them, will be heard.

Tweet

Stock Options, Accounting and Monkey-Business - Pass the Tums

I have been sitting back and watching the fireworks around the options backdating “scandal” and feeling, quite frankly, pretty bored. What’s new here? We’ve got poorly-worded (read: vague) accounting rules, corporate boards who have not internalized the fiduciary duty owed to shareholders, weak (read: non-existent) financial disclosure, and not enough really juicy news to go around in summertime. Clearly Boards and Managements all across the U.S. were playing fast-and-loose with the rules, no question. This was certainly not a unique phenomenon in the 1999-2002 time period, and the stock option scandal is merely the latest in a rash of fiduciary and communications breakdowns that plagued U.S. corporations during this period. We know the problems. Those who knowingly played with shareholders’ money without telling them so will pay, some people may go to jail, earnings will be restated across corporate America, and we’ll move on.

But this is all in the past. What about the future? I have seen some press recently around the issue of option expensing, and how the volatility assumptions can be “adjusted” to reflect changes in market conditions. I personally find this topic much more interesting. For example, Intel recently lowered the volatility assumption in their option pricing model from 50% to 26%, lopping off $519 million in expenses to be reflected over the life of the options (according to an estimate by analyst David Zion of Credit Suisse). Certainly Intel’s implied volatility has dropped as it has gotten bigger - this is not an unusual phenomenon - but does today’s 26% represent a drop fueled by company-specific or market-driven factors? Should, maybe, 10-year trailing historical volatility be used in order to create an objective set of rules that can be consistently applied across corporate America, and heavily dilute the effects of overall market volatility on single-stock volatility? Does anyone see what’s going on here?

THIS IS THE PENSION INCOME RECOGNITION GAME ALL OVER AGAIN! Say the stock market has risen and your pension is (temporarily) overfunded. But operations haven’t been so good and you are going to whiff at your next earnings release. Simply goose the expected return on plan assets and let some of this non-cash income flow into the corporation’s financial statements! Makes the bottom line look good, that’s for sure. But is this sustainable? Of course not. It’s total BS. So what happens? Market returns revert to normal, the overfunding drops and maybe switches to underfunding, and all of a sudden instead of pension income gains we have actual (not just accounting) losses. Yet another example of manufacturing short-term results for fame and personal profit which does nothing to benefit the long-term investor.

Now let’s look at this with respect to our options example. Let’s say that stock market volatility falls and single stock volatilities reflect this drop. Ok, this is a point in time. But options are generally 10 years. Do implied volatilities (and the resulting historical) volatilities really remain at rock-bottom levels for 10 years? It hasn’t in my lifetime. So why re-price option expenses to historically low levels when, if you believe in mean-reversion, things will eventually snap back? I can think of only one answer - to make today’s results look artificially good. Now I don’t mean to be picking on Intel - they are playing by the rules (and, let me tell you, they know the rules and the math behind options pricing very, very well) - but this is a fundamental issue with accounting rule-making that simply has to be addressed.

This gets into the concept of rules-based versus concepts-based accounting regulation, and is not a topic I wish to delve into in this blog. But I think a little common sense is warranted here. If the companies themselves continue to fully avail themselves of the inherent weaknesses of the current accounting regime, then it is incumbent upon both analysts and investors to model economic reality - which often means not what we are getting from corporate America.

Tweet