For a while now I've been somewhat annoyed with the performance of ETFS Crude Oil (CRUD). With the Middle East Revolution Football league (sorry for stealing this) in play and the oil prices rocketing, CRUD has trailed by a fair bit. So what's the problem? Essentially the problem was that by buying it from Germany with a euro denomination, I ended up coupling the oil price to the EURUSD exchange rate. In retrospect my flaw was underestimating the correlation between the two: it appears that every time the oil peaks, people get jittery about the fact that the US is still heavily dependent on the stuff and thus USD dives and eats away at my position.
Having held onto the position for a while, I finally decided that enough is enough and took the small 20% profit and ran. The learnings? With oil, try to decouple the currency from the instrument so you have freedom to time the currency exchanges in the most beneficial way.
(As a side-note, there may as well be other factors in play. I guess I'll need to do some more reading as homework to check out if the phenomenon of contango is in play again with these derivative-based instruments...)
Monday, February 28, 2011
Sunday, February 27, 2011
Saturday, February 12, 2011
On politicians and companies
The parliamentary elections are upon us again, which certainly explains the amount of point gathering that is going on in the press again. Of especial interest to me are the comments that politicians are throwing around about the state of Finnish high-tech industries. They are certainly right: something needs to be done about it if we ever hope to become a world leader in the arena. Because we sure as hell aren't leaders, nor have we truly been leaders.
So, with the latest strategy change done by Nokia, which was widely publicized yesterday, many Finnish politicians are rushing in to say how they will mitigate the amount of unemployment that will arise from these changes, as it is obvious even when observed with your forehead that there are just too many people in the company doing the wrong things. Additionally the center party has been heard to say that they have "started investigating about how this type of structural change (or even crisis) in high-tech sectors can be turned around." Perhaps that's good, but the track record of politicians understanding what's going on and what needs to be done has been so appallingly bad, that I'm not entirely convinced that it's a good idea to have them anywhere near this situation.
What, then, should be done? The politicians seem to think that the software industry should be strengthened and that there will be an ample supply of engineers being freed up from Nokia which can create the software sector. But if we actually look at the situation, we will find that most of the problems that the company has faced over the past decade have been due to software. So I'm sorry if I sound a bit pessimistic, but pray-tell, what are the chances that this bunch is in any way actually competent with software.
The politicians aren't too worried about this. They have also figured out that education always helps, so they have thought up of a brilliant plan of devising new educational venues at which people can be trained in the skills of software. Ugh... I have a bit of a background in software development, even prior to receiving any formal education on it. I tend to agree that higher education in software will widen your thinking, but in actual software business, the best way to learn is by doing it. You don't need formal training for it. Instead, with software I believe that you absolutely need a passion for software: if you never felt like writing software on your spare time or just playing around with code, don't bother wasting precious resources on schooling yourself in software. 9-to-5 coders often end up making more problems than they are able to solve as they easily engineer themselves into a corner, introduce fatal flaws and bugs, and so on.
Then there is the slight problem regarding geographic region: the Finnish market is small and it is so far away from where things happen that it's not even funny. This means that any company wishing to actually grow will need to go abroad, and fast. For a startup this means packing your most extroverted guy in a plane and sending him to London with a suitcase and orders not to come back for the next couple of years. Oh, and the budget, as with startups typically, is shoestring. So it's not a picnic. Combine this with the hostile environment towards entrepreneurial activities in Finland: high taxation, tough labor laws, stigma associated with bankruptcy, difficulty with gaining access to capital (lack of angels and VCs), and the list goes on.
So yes, the politicians can do something, but it is more involved with changing laws and taxation to encourage entrepreneurial activities. The world is already so complex that you cannot merely say that "we will train more software developers!" and hope that the problem is solved. Instead you must carefully craft the boundaries of the system to encourage a certain type of behavior. Shoveling out government resources in the form of cheques to small businesses if they are able to navigate a maze of paperwork is also not good: it's not only one or two startups that I've heard about which have gotten fairly confused regarding who their customer is. In these cases the company has yet to sell anything real to a customer, but the government keeps subsidizing it and giving it more money. This isn't doing anyone a service: if the business plan isn't working out, it's in everyone's best interest to fail fast and move to the next idea. That's what entrepreneurship is about.
And as an interesting side-note, I'm actually starting a process of preparing a paper about these things during the Spring, so hopefully I'll be able to make a clearer argument about what I think the problems are and what should be done about them.
So, with the latest strategy change done by Nokia, which was widely publicized yesterday, many Finnish politicians are rushing in to say how they will mitigate the amount of unemployment that will arise from these changes, as it is obvious even when observed with your forehead that there are just too many people in the company doing the wrong things. Additionally the center party has been heard to say that they have "started investigating about how this type of structural change (or even crisis) in high-tech sectors can be turned around." Perhaps that's good, but the track record of politicians understanding what's going on and what needs to be done has been so appallingly bad, that I'm not entirely convinced that it's a good idea to have them anywhere near this situation.
What, then, should be done? The politicians seem to think that the software industry should be strengthened and that there will be an ample supply of engineers being freed up from Nokia which can create the software sector. But if we actually look at the situation, we will find that most of the problems that the company has faced over the past decade have been due to software. So I'm sorry if I sound a bit pessimistic, but pray-tell, what are the chances that this bunch is in any way actually competent with software.
The politicians aren't too worried about this. They have also figured out that education always helps, so they have thought up of a brilliant plan of devising new educational venues at which people can be trained in the skills of software. Ugh... I have a bit of a background in software development, even prior to receiving any formal education on it. I tend to agree that higher education in software will widen your thinking, but in actual software business, the best way to learn is by doing it. You don't need formal training for it. Instead, with software I believe that you absolutely need a passion for software: if you never felt like writing software on your spare time or just playing around with code, don't bother wasting precious resources on schooling yourself in software. 9-to-5 coders often end up making more problems than they are able to solve as they easily engineer themselves into a corner, introduce fatal flaws and bugs, and so on.
Then there is the slight problem regarding geographic region: the Finnish market is small and it is so far away from where things happen that it's not even funny. This means that any company wishing to actually grow will need to go abroad, and fast. For a startup this means packing your most extroverted guy in a plane and sending him to London with a suitcase and orders not to come back for the next couple of years. Oh, and the budget, as with startups typically, is shoestring. So it's not a picnic. Combine this with the hostile environment towards entrepreneurial activities in Finland: high taxation, tough labor laws, stigma associated with bankruptcy, difficulty with gaining access to capital (lack of angels and VCs), and the list goes on.
So yes, the politicians can do something, but it is more involved with changing laws and taxation to encourage entrepreneurial activities. The world is already so complex that you cannot merely say that "we will train more software developers!" and hope that the problem is solved. Instead you must carefully craft the boundaries of the system to encourage a certain type of behavior. Shoveling out government resources in the form of cheques to small businesses if they are able to navigate a maze of paperwork is also not good: it's not only one or two startups that I've heard about which have gotten fairly confused regarding who their customer is. In these cases the company has yet to sell anything real to a customer, but the government keeps subsidizing it and giving it more money. This isn't doing anyone a service: if the business plan isn't working out, it's in everyone's best interest to fail fast and move to the next idea. That's what entrepreneurship is about.
And as an interesting side-note, I'm actually starting a process of preparing a paper about these things during the Spring, so hopefully I'll be able to make a clearer argument about what I think the problems are and what should be done about them.
Sunday, February 06, 2011
Can you say... Bubble...
Amusingly enough it's been over three years since this video was made. But with the social buzzword still churning on strongly, can you say... bubble.
Thursday, February 03, 2011
Equality
With the elections just around the corner, the politicians and aspiring politicians are again at their favorite pastime: dividing and distributing other peoples' money. And one of the key themes again this time around is financial inequality, or how money should be moved from the top to the bottom. An interesting thing to think about here is what exactly the problem is and what do we want to solve. Gini coefficients have begun popping up in more international publications, but I can't really recall a single Finnish article mentioning them. Anyway, the basic idea is that a coefficient of 1 implies that 1 person gets all of the income and 0 means that every gets the same amount. With this metric, the inequality in certain regions has increased, but on a global level we've become more equal.
But which is more important: that we all earn the same amount or that the people worst off are supported enough that they are able to survive. I of course have my own strong biases and tend to feel that equal opportunities always beat equal outcomes, i.e. meritocracy is the way to go as long as everyone gets to jump from the same baseline. So in this regard I don't necessarily see high equality as something that is absolutely valuable, as long as everyone is kept in the same boat and not thrown out.
Related to this, another interesting aspect in this is that according to the Economist's recent article, in the US the inequality in the bottom 99% hasn't increased since 1993. This in essence means that what is happening is that the rich are getting richer, but at the same time the poor are also getting richer, although slightly slower. If we also think about the longer term trends, overall the world seems to be slowly becoming a fairer place, as a very significant portion of today's wealthy elite has in fact made their own fortune. And that, in my opinion, is a lot fairer than being wealthy because of the fact that you just happened to have been born into nobility or royalty. What more, the wealthiest people then tend to eventually give most of their money back to society in the form of charitable donations or in other cases by becoming angel investors and pouring their money into high-risk ventures which might otherwise not happen.
So, the name of the game isn't to optimize the Gini coefficient to 0. What more, there is even hardly any solid facts one way or another as to whether equality is that important. And as previously stated, I understand the welfare state as a system which inherently does not take a stance on anything else but ensuring the welfare of the citizens. But welfare shouldn't necessarily be defined to include everything and the kitchen sink, but instead enough to allow a person who has stumbled to still continue living, despite health issues or sudden changes in employment status, or similar situations.
But which is more important: that we all earn the same amount or that the people worst off are supported enough that they are able to survive. I of course have my own strong biases and tend to feel that equal opportunities always beat equal outcomes, i.e. meritocracy is the way to go as long as everyone gets to jump from the same baseline. So in this regard I don't necessarily see high equality as something that is absolutely valuable, as long as everyone is kept in the same boat and not thrown out.
Related to this, another interesting aspect in this is that according to the Economist's recent article, in the US the inequality in the bottom 99% hasn't increased since 1993. This in essence means that what is happening is that the rich are getting richer, but at the same time the poor are also getting richer, although slightly slower. If we also think about the longer term trends, overall the world seems to be slowly becoming a fairer place, as a very significant portion of today's wealthy elite has in fact made their own fortune. And that, in my opinion, is a lot fairer than being wealthy because of the fact that you just happened to have been born into nobility or royalty. What more, the wealthiest people then tend to eventually give most of their money back to society in the form of charitable donations or in other cases by becoming angel investors and pouring their money into high-risk ventures which might otherwise not happen.
So, the name of the game isn't to optimize the Gini coefficient to 0. What more, there is even hardly any solid facts one way or another as to whether equality is that important. And as previously stated, I understand the welfare state as a system which inherently does not take a stance on anything else but ensuring the welfare of the citizens. But welfare shouldn't necessarily be defined to include everything and the kitchen sink, but instead enough to allow a person who has stumbled to still continue living, despite health issues or sudden changes in employment status, or similar situations.
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