Expertise vs. Judgement

As I noted yesterday, the core development need of an investor is judgement, not technical expertise. As if to affirm this point, Nicholas Kristof wrote in the NY Times:

"There’s evidence that what matters in making a sound forecast or decision isn’t so much knowledge or experience as good judgment — or, to be more precise, the way a person’s mind works."

He then writes further:

The expert on experts is Philip Tetlock, a professor at the University of California, Berkeley. His 2005 book, “Expert Political Judgment,” is based on two decades of tracking some 82,000 predictions by 284 experts. The experts’ forecasts were tracked both on the subjects of their specialties and on subjects that they knew little about.

The result? The predictions of experts were, on average, only a tiny bit better than random guesses — the equivalent of a chimpanzee throwing darts at a board.

“It made virtually no difference whether participants had doctorates, whether they were economists, political scientists, journalists or historians, whether they had policy experience or access to classified information, or whether they had logged many or few years of experience,” Mr. Tetlock wrote.

Indeed, the only consistent predictor was fame — and it was an inverse relationship. The more famous experts did worse than unknown ones. That had to do with a fault in the media. Talent bookers for television shows and reporters tended to call up experts who provided strong, coherent points of view, who saw things in blacks and whites.

Other studies have confirmed the general sense that expertise is overrated. In one experiment, clinical psychologists did no better than their secretaries in their diagnoses. In another, a white rat in a maze repeatedly beat groups of Yale undergraduates in understanding the optimal way to get food dropped in the maze. The students overanalyzed and saw patterns that didn’t exist, so they were beaten by the rodent.

DCFs

For a short explanation of how DCF is being used to value toxic assets in the US, see these hedge fund investors point of view.

MBA--Change is Coming

There was an article in the NY Times about "Retraining the Business Schools". I know that many of you are seeking an MBA degree. Key highlights:

“It is so obvious that something big has failed,” said Ángel Cabrera, dean of the Thunderbird School of Global Management in Glendale, Ariz. “We can look the other way, but come on. The C.E.O.’s of those companies, those are people we used to brag about. We cannot say, ‘Well, it wasn’t our fault’ when there is such a systemic, widespread failure of leadership.”

Jay O. Light, the dean of Harvard Business School, argues that there have been imbalances both on campuses and in the economy. “We lived through an enormous extended period of financial good times, and people became less focused on risks and risk management and more focused on making money,” he said. “We need to move that focus back toward the center.”

BUSINESS SCHOOLS have looked inward before, and some of the current problems may have stemmed from their last major self-examination. In the late 1950s, reports that the Ford and Carnegie foundations commissioned found mediocre faculty, and curriculums narrowly focused on vocational skills.
One of their recommendations was for business schools to become much more analytical and rigorous in their approach. And, over the years, that happened almost everywhere. Doctoral programs are commonplace. Professors conduct independent research and publish often in scholarly journals. Students learn complex models for analyzing competitive strategy, valuing options and more.

But schools may have gone too far in this direction, according to Warren Bennis, a professor of management at the University of Southern California. The schools suffer from “an overemphasis on the rigor and an underemphasis on relevance,” he said. “Business schools have forgotten that they are a professional school.”

Henry Mintzberg, a professor of management studies at McGill University in Montreal, also argues that because students spend so much time developing quick responses to packaged versions of business problems, they do not learn enough about real-world experiences.

For all of the emphasis on analytical rigor in business schools today, another major recommendation of the foundations’ reports from the 1950s — that business become a true profession, with a code of conduct and an ideology about its role in society — got far less traction, said Rakesh Khurana, a professor at Harvard Business School and author of “From Higher Aims to Hired Hands,” a historical analysis of business education.

“A kind of market fundamentalism took hold in business education,” Professor Khurana said. “The new logic of shareholder primacy absolved management of any responsibility for anything other than financial results.”

A study of cheating among graduate students, published in 2006 in the journal Academy of Management Learning & Education, found that 56 percent of all M.B.A. students cheated regularly — more than in any other discipline. The authors attributed that to “perceived peer behavior” — in other words, students believed everyone else was doing it.

There is a need to broaden from the analytical focus of M.B.A. programs for more emphasis on skills and a sense of purpose and identity,” said David A. Garvin, a professor of business administration and one of the project’s authors

What do you think???????

Alan Yau is a Chinese born British businessman who has been one of the leading restaraunteurs in to the country. He recently spoke to the FT about his new venture, which is investing and building out a fast food chain in China. The business model he defined as follows (taken directly from the article:

Value Proposition: Convenience, breadth of product, unique

The "first generation" Chinese restaurant model is three things, Mr Yau explains, while staff in Yauatcha's open kitchen prepare for the weekday lunch crowd. First, avoid competition by moving yourself to the farthest location in the country in the hope that no one else will open a Chinese restaurant; have the biggest menu with everything under the sun; and open as late as possible.

Cyclicality: Subject to economic cycles; recession is a good time to invest.

He believes that with recession returning, his timing is perfect for another try at a Chinese fast-food venture. "It has got [me] back to the first project, which I was not able to get off the ground because I wasn't intuitive enough and at that point I didn't know how to come up with a workable proposition in relation to Chinese fast food," he says.

Factors of Production: must be scaleable across many units.

What I wanted to do was to have something that was much more sustainable as a business model but which would yield you a better margin. And to have a business proposition that was scalable. That's it," Mr Yau says.....Mr Yau admits he was naive when he started Wagamama (his prior restaurant which he sold), too focused on the creative side of the business and not enough on how to "make a product much more of a formula, to make it into a square box" to allow it to expand easily.

Mode of Sales: Not mentioned--what is the marketing strategy?

Global or Local? Partially both

But why China, and not Britain, where he is already working on a new boutique Milanese bakery restaurant, Princi, in Soho? Mr Yau answers that China offers far greater potential, given not just its size but the speed at which a restaurant business can be rolled out there. He points out that it took KFC, the US chicken chain, 10 years to open 2,000 outlets.
"On that basis, I don't need to go anywhere else. In terms of territorial expansion I can take it to the US as a 'secondary expansion'. From the financial point of view, by the time we get out of the current global downturn I think it would be a hugely exciting for us to be listed in Shanghai too," he says.

Masaru Tamamoto, Senior Fellow of the World Policy Institute, writes of Japan in the NY Times:

Since the middle of the 19th century, our economic success has relied on the availability of outside models from which to choose. Our model for social security took inspiration from Bismarck’s Germany, state planning from the Soviet Union, public works from the Tennessee Valley Authority, automobile assembly and manufacturing from Ford. Much of Japanese innovation has involved perfecting what others have created. Sony is famous for its Walkman, but it didn’t invent the tape recorder. Japan’s rise to economic greatness was basically a game of catch-up with the advanced West.

So what happened once we caught up? Over the past two decades, the answer has largely been paralysis. Japan’s ability to imitate outside models was mistaken for progress. But if progress is defined by pursuing a vision of a desirable future, then the Japanese never progressed. What we had was a concept of order and placement, which is essentially stasis


He concludes:

"We have run out of outside models to imitate. We must start from scratch, embracing an idea of progress that is based on innovation, ambition and dynamism. Doing so will take risk — and extraordinary leadership. But the alternative is to continue stumbling down a path of decline."

Globalization and Korean Food

The latest food fad in LA? One critic reviews it as follows:

"It's like this Korean Mexican fusion thing of crazy deliciousness."