Amateurs in the Stock Market

Here's a thought. Suppose Sachin Tendulkar or Michael Jordan wanted to be doctors. This was their long lost wish, that never got fulfilled not because they were bad in school, but because they chose a different profession to specialize in namely sports.

Now having retired, they have a lot of free time on their hands. With all the money and the free time, they decide to become surgeons. They read books on how to perform surgeries. They see youtube videos on it, they read blogs of famous surgeons, talk to their doctor friends. Heck they even attend 30 day classes that teach them how to safely cut open a body and remove the heart. They even get to practice this on a few dead frogs. After doing this for a few months, after reading every single book ever read by a surgeon, after watching countless surgery videos, after practicing hundreds of dissections on frogs, rats. They feel they are ready. They are ready to perform surgeries on humans. All they need now is a willing patient.

Now, would you get a surgery done by them?

The answer from any sane person would be no. Here's another story, one that's more real, one that happens with ordinary folk.

Adam is a 25 year old software engineer by profession. Zack is a 50 year old doctor. They are really good at what they do. Adam is a rising start in his company while Zack is a well respected doctor. After reading my blog on "The Power of Power(^)", they realize, their profession can make them linearly wealthy but now they want to be exponentially wealthy. They scratch their heads look around to see how they can achieve this. In the media, they see examples of entrepreneurs hitting it big, but that's a lot of hard work. They then come across examples of people dabbling in the stock market who have made millions for themselves. They read about Warren Buffet, Rakesh Jhunjhunwala, they hear stories of their friends who have bought and sold a stock at the right time and have made a lot of money.

"Hmm....Why don't we invest in the stock market?" they ask themselves. They go to a library, buy all the books on stocks. They buy every book written on Warren Buffet, subscribe to all the blogs on stock picking, watch youtube videos, watch the news, they even attend a 30 day crash course on the stock market. They go through all this information diligently, read everything two times over, like their life depended on it. They practice this new skill by opening a brokerage account. They start with small sums of money, buy a few stocks, sell them and make money. They get confident, read some more, buy few more stocks, make some more money.

This looks easy they think, if I am able to double $1000 in a month, imagine what I can do with my life savings. They decide to go for it.

Here's the question, would you trust your life savings with them or how many of you have tried to be an Adam or a Zack?

What I want you to understand is, picking stocks is a profession. It is not a hobby (unless you are okay with losing all your money). It is not like a game of golf that you try your hand at. It is like being a surgeon. You cannot just become a surgeon. You cannot practice a few dissections and start operating on a human. Anyone who says they can teach you to be excellent stock pickers in a few months or even years is lying, anyone who thinks they can be excellent stock pickers by reading a few reports, watching the news is fooling themselves.

Investing in the stock market is a serious business, it is definitely lucrative, and addictive. The thrill of easy money is what lures millions of people to gamble away their hard earned money.
The problem arises, because it is so easy to open a brokerage account (an account needed to trade stocks) and it has become very convenient to buy and sell stocks either through mobile applications or through a browser. Think about it, you need to attend classes and pass a test just to get your driver's license. You need none of these to open a trading account.

I remember, when I first opened an american trading account. The first thing I did was buy $1000 worth of paper gold. Paper gold is essentially like a stock that tracks the price of real gold. This stock cannot be exchanged for real gold when you sell it.  I saw the value of this purchase go up to $1300. Then I bought more, $2000 worth of it.

When I had to buy 20 grams of 24 karat physical gold which is about $700, I researched about the best Jewelry store in Dubai. I asked 3 different people about it, I checked 4 different locations of that store, I haggled with the sales person, I came back the next day after getting a second opinion and then bought it. I spent a week in trying to buy $700 worth of physical gold, while I would have spent a total of 30 seconds to buy $3000 of paper gold.

The online world is pretty dangerous, we don't have a sense for how much we are spending if done electronically. That's why trading stocks online is very dangerous. At the blink of an eye you can gamble away your savings on a stock.

The stock market is a playing field where the novice play against the experts. Amateurs who try to pick winners, trade for short term are essentially playing a basketball match with Michael Jordan or bowl against Sachin Tendulkar. Sure you might score a few points or bowl a few dot balls but at the end of the game, you will get creamed. (Note: if you are in the stock market for the fun of playing a match with the best and don't mind losing the game (money), I am all for it. But if your financial life depended on winning the game, then the stock market is not for you.)

Who are the Michael Jordan/Sachin Tendulkar's of the stock market you ask. These are investment professionals working on Wall Street, in hedge funds incorporated in tax havens, investing geniuses like Warren Buffet working from their home. These institutions spend thousands, hmm ... make that millions, actually make that billions of dollars to obtain information, technological advantages, to get the edge to beat other professionals and primarily amateurs like you.

Did you know that hedge funds hire journalists to snoop on companies, to get information about new products or failures before the general public knows about it? Did you know that satellite imaging is used to take photographs of Wal-Mart parking lots to see how their business is? Did you know that thousands of stock prices and news events are being analyzed by algorithms in nano-seconds and they make thousands of trades in milli-seconds? Hey amateur, you have no chance. Absolutely none.
If the stock market was an ocean, you are a blind, fin-less juicy fish floating among sharks.

Friends, you have specialized in a different field. You might be a doctor, an engineer, a pilot, a school teacher, a lawyer. If I told you, I could be better at your job than you in a month or year's time you will laugh at me. So don't try to do the reverse. Don't think that you can be an expert Stock picker (not that I am one), it won't happen. You might win a few games against other amateurs like you in the field. But sooner or later there will be a Michael Jordan whom you will play against and you know what will happen.

Am I telling you to avoid the Stock Market. Hell No, that's where the money is. That's where I hope to keep majority of my net worth. That's where the rich really create their wealth. There are safer ways to invest in the stock market than for amateurs to buy and sell stocks. (More on that in my next blog). That's my point.

The Power of (Power)^

Heres a fun quiz, Suppose there is a bacterium in a test tube. This bacterium splits itself in two, every second. So in 1 second there are two bacteria. In two seconds there are four and so on. Now it takes the bacteria 10,000 years to fill one fourth the test tube. How many seconds does it take to fill the entire test tube?

I know most of you have come across this question in some form or the other before, but for those who couldn't figure it out it is "2" seconds. The answer 2 seconds is true if the bacteria took 1 billion years or 1 year to fill one fourth the test tube.

This post is on one of my favorite topics, Exponential Growth. Exponential Growth is all around us. Let me give you a few examples

Population - There were approximately 1 billion people in the year 1750.  It took 175 years to add a billion people i.e. 1925 the population was 2 billion. It took 35 years after that for the next billion. 15 years after that for the next billion. 11 years for the next, and now every 10 years after that we are adding a billion people on Earth, much like the bacteria in the test tube. If we were to make a hypothetical extrapolation of this growth, given enough time there will be a stage when we will add a billion people every year, then every month, every day, every second.

Computing Power - This is one phenomenon we can relate to. Every year computer speeds/memory gets faster/bigger. The computing power of your cellphone today is greater than the computing power of all computers combined in 1950. I remember my first computer having a space of 200MB, now we have virtually Tera Bytes of storage space available on the cloud. It is not science fiction if I say 10 years down the line your phone will have a Tera Byte capacity or even more.

Inflation - The prices of basic goods grows on average at an exponential rate. We all heard stories from our grand parents where they were earning a fraction of what we do and food costs was fraction of what it is today.

I want you to get a feel for Exponential Growth, wrap your heads around that fact that 10,000 years of bacterial growth is replicated in a mere second, centuries of research in computing is made obsolete in a decade.

I want to now bring this concept of Exponential Growth to personal finance. Before I start, what differentiates a wealthy person from a poor one? In my opinion it is how their wealth was created. Was it through an exponential process or was it linear.

Typical middle class or poor families earn their income primarily from their salary. Salary by definition cannot have exponential growth. Think about it, on a company's financials you are just an entry in the income statement, under operating expenses. The primary goal of a company is to make profit which is done either by increasing revenue or decreasing expenses i.e. keeping you salary as tiny as possible without affecting the revenue aspect.

For your salary to have exponential growth you have to constantly perform in your job. You have to get promoted yearly, you have to take on bigger roles, manage larger groups of people, eventually maxing out your salary at the CEO level. I can bet there is no company in the world where if you perform exactly the same as you do now, every year for the rest of your career your salary will be increased exponentially. The reality is if you don't improve constantly either your salary stays the same, or worse you will be fired and replaced by a much younger and cheaper resource.

My friends, you will never be wealthy from your job, that's a fact. You might give me counter examples of sportsperson, bankers, CEO's who have made millions in their profession. I am not denying that, I am also not discouraging you from giving your best to your work. My whole argument is, a profession will never provide Exponential Growth to your income which really creates wealth. So what does?

Investments. Your investments give you Exponential Growth. A house, a fixed deposit, stocks, bonds, your company. These will make you wealthy, not your salary.

Here is an example to illustrate my point.

Once upon a time, there were two friends Adam and Zack. At the age of 25, both joined the same company with a starting salary of $60,000. Every two years, they got an increment of 10% in their salary. Both wanted to be wealthy and both worked till they were 60.

Adam thought the surest way to be rich is to save 100% of his income till he retires. So every year, he would receive his paycheck, he would then put this money in a safe, and not spend a single cent or earn a single cent on it.

Zack on the other hand was different. He wanted to be rich too but he knew the surest way to be rich is for his income to have Exponential Growth. Every year he would save 20% of his salary and spend the rest. He would burn through 80% of his salary carefree watching movies, buying cars, travelling, much to the envy of Adam. Zack would put his 20% saving in an investment that earned 10% annually.

10 years into their career, at the age of 35 Adam was worth $830,000 while Zack was worth $260,000. At the age of 45, Adam has $2 million in the safe while Zack's investments were worth $1 million. When both of them retired at 60, Adam saved $5.4 million while Zack's saved $5.8 million.

Adam is perplexed, how could this be. How could he have had 4 times the money at one point in his career as Zack did and end up having the same amount of money as him, even though Zack spent 80% of his money every year. But the story got worse, at 70 Adam was still worth $5.4 million, while Zack's investment was $15 million. 10 years later, on their death beds, Adam passed down $5.4 million to his family, while Zack's family inherited $39 million.

Lets pause for a moment. I want you to ignore the oversimplification of this example, to ignore the hypothetical returns of Zack's investment. I want the reader to get the essence of the story, just like the bacteria in the test tube, Zack's wealth took a long time to reach Adam's wealth. But once it did, thanks to the power of exponential growth, his wealth exploded. That is what it is, a nuclear explosion (Exponential Growth in energy). Zack's wealth blew past Adam's hard earned salary based wealth. The total investment Zack made was a measly $1 million, which given enough time grew to $39 million.

No matter how hard we try, we are genetically not wired to visualize Exponential Growth. Nature has very few examples that we can relate to. Here's a test, if Zack's grand daughter inherited the $39 million at the age of 25 and never touched it while the investment continued to earn 10% annually, how much do you think it was worth when she turned 80? Any guesses ? (answer at the end of the post)

In conclusion, I hope I have driven home the point that one should not depend on their salary to become wealthy but should save and more importantly invest and make it grow Exponentially.
The more you save, the more time you give, the bigger your investment. So lets stop thinking linearly and start thinking Exponentially.




Answer:  $ 7.3 Billion (yes that a billion with a "B" on an investment of $1 million)

My Google Interview Experience

I remember it like it was yesterday, end of the 5th semester after a long, strenuous , irksome and mentally grueling semester ( the adjectives are to give the effect) , I was back in my domicile in Hyderabad. Two days into the holidays, I get a call from the HR department of Google Hyderabad asking me whether I was interested in the internship program that I had applied for a few months back. Of course I was interested, then why would I apply ,I thought to myself before answering the receiver with the most innocuous of tones that I could muster, "Yes, yes I am very much interested in the program." , I said to the lady at the other end. "OK Anirudh , we will contact you soon and fix the date and time for the Interview , Bye." CLICK , End of conversation.

The next day the Google Lady (GL)( is kept anonymous and short for obvious reasons) confirms my interview two days from that day. It was supposed to be a telephonic interview but since I was in Hyderabad, instead it would be a personal interview. The initial plans of keeping Google handy when attending the telephone call to search for the answers to any difficult questions were annulled by the fact that it would be a personal interview, on the bright side I may get to see the office and hopefully some young, hardworking and "beautiful" female employees, so I wasn't that bothered about it.

Two days I slogged , mugging whatever I felt was closely related to Computer Science, crammed my brain with difficult algorithms either through understanding or by rote. Read the e-book on "101 Ways to crack an interview", "Interview Biggest Secrets Finally Revealed". Not knowing what the portion is for the test made things a lot more harder.

D-day. With the help of my friend, I reached the office , half an hour before the expected interview time. I saw the familiar Google Logo displayed on every piece of item in the Visitors Lounge, from the Desktops to small mugs, it was everywhere. Then the GL comes and introduces herself. Disappointment, she was old and probably married, something that her cherubic voice over the telephone belied. As I was toured around the office, I noticed that most of the workers were not in formals. I saw pets in the office, people getting bumps, people playing video games. There was not even an ounce of corporate culture in this office, not even an iota of corporate etiquette. It felt like it was just another university dormitory, man how I wish I could work in this office for the summer.
The interviewers come in and at first glance, being a prejudice, I judged them to be someone from a local college in Hyderabad who went through one of those computer language coaching centers and got through the interview, they probably know little and I thought I could work my way around the interview. BIG MISTAKE!!!! As I would find out.

The interview commenced not with the usual "Tell me about yourself" or "Why Google?" or "Why should we select you?", no Google was far too nerdy for those questions it was "What algorithm would you use to solve an anagram problem and how would you make it more efficient by reducing the complexity?". What! what is an anagram solver?, so much for the two page essay on the "Why Google" or the one page essay on "Tell me about yourself" that I so meticulously prepared. As I got down to understand the problem first and then probably look for a solution, I began to hear the continuous clicks of the keyboard, apparently they type each and every single thing that you do in the test and occasionally laugh to disconcert you, some type weird stress test. Something I can't do is that I cannot work when someone is scrutinizing me while I am working, I am fine with working alone, getting the solution and then being scrutinized. So it didn't help with the interviewers one foot away from you, boring with their eyes. Write an anagram solver , what the hell is that...finally I gave a solution , a brute force method, they told me thats not good enough, Can you optimize the solution?. I optimized it . Can you optimize the solution further??...I optimized it. Can you optimize the solution further???.. What ! thats as far as it is algorithmically possible to optimize it I told them, thinking that this was just one of those interview technique to see the candidates thought process. But as I was told later , such a solution existed and worse I fuzzily remember it being taught, thats what you get for sleeping in the class. One by one and one after the other they asked questions which had me confounded. Even the attempts of equivocating the answers to confuse the interviewers, were scotched. Lesson number one, never underestimate the interviewer, Google does not hire fools! Lesson learnt.

I had two rounds of interviews, one and half hours each, where I was thoroughly screwed. I could have given you an analogy to that but then there are sensitive audiences reading this. Finally when it was over, the interviewer says "Any questions you would like to ask?". Yeah ,"Why Me? ", I thought to myself. I asked him "How did I do?", and I could make out a restrained chuckle and then a condescending reply saying "The fact that you play basketball might help."

I hope so too.

Completely dejected by my poor performance in the very first interview of my life, I vented my anger on my bike, riding with such recklessness that I had several close calls, much to the horror of my friend sitting behind. Once I got back home, it wasn't that good either with people asking you "How was the interview?", "How did you do?", trying to make you remember the things that you are so desperately trying to efface. What was worse was the wait, it took them a whole week to send a email that read-

"Dear Anirudh,

We would like to thank you for taking the time to interview with us for an
Engineering Internship opportunity. After carefully reviewing your
experience and qualifications, we have determined that we do not have a
position available which is a strong match at this time.

Thanks again for considering Google. We wish you well in your endeavors
and hope you might consider us again in the future."

One whole week just to tell me that I am not selected, I was livid. But my anger was obliterated when I told my mom what the mail read, "they didn't have a position for my qualifications" and to that she goes,

"Does that mean you are over-qualified?"

Happy "Bumps" Day

Feb 11, 2007


The day started out pretty well. I got up at 10 in the morning with a slight head ace and a sore throat, I had been suffering from fever for the past few days. It was a Sunday and went on like any other Sunday , sleep in the afternoon and the game time in the evening was allocated for mugging and assignment completion (quizzes started the day after tomorrow).

Fast Forward, Time 11 pm .

My friend Tanker comes to my room when I just sat down to read for the Networks quiz on Tuesday. "Kamus birthday tomorrow" he says , " Bring him to Ganga at 11:50 . Tell him there is a cake waiting for him ." Realizing there will be a bumps fest awaiting Kamu and free cake , I was rearing to go. I took great pride in being given the responsibility of making sure he didn't know about it and that he didn't try to escape his impending doom. Little did I know that reality would be a whole lot different that what I pictured it to be.

11:55pm Feb 11

I took Kamu to the 6Th wing of Ganga Hostel where most of the "gult" Junta lived. Chanti comes out of his room welcoming "us" and calls all his wing mates. Apparently its Manjus birthday the same day too. About fifteen guys come out and Chanti says " Julie , You and Kamu READY". Ready ?? Why me? Its Kamus birthday right? Then everything became all too clear. I had gotten Internship in two companies and didn't tell the "Ganga guys" for the fear of getting bumps. Somehow the word got out and the "Ganga guys" who came to know about it were furious that I didn't tell them personally and for that they were going to give me bumps . The irony was, even if I had told them about it, I would have gotten bumps .

12:00 Feb 12

The bump fest started with Manju being lifted by Mechanic and Testis and ten of the other "Ganga guys" which didn't include Chanti "the Camera Guy" , Mechanic and Testis "The Lifters" , Kamu "I am Next" and Me "I wish I was dead" pounding away at "You Know What". The entire wing was filled with Manjus cries of agony and weird thoughts were running through my mind.
Should I run for my life now and risk being caught at a later point of time?? or Endure the pain for a few minutes and get it over with?? or Make a pact with them?.

Then comes Kamu's turn. This time the pounding seemed a little listless, and the cries a little shallow, may be they were tired. Option two it is , get it over with now when they are tired. But as I was later told they were actually saving there energy for me and weren't tired at all ( Bad choice).

12:10 Time Stops, My Turn.

My mind went blank, all thoughts were erased , I began pleading with them , tried to make truce but I was violating the number one rule of getting bumps . For those who are not aware of the rules here are the two and only rules of getting bumps.

First rule of getting bumps is You DO NOT make negotiations.
Second rule of getting bumps is You DO NOT make negotiations.

As expected they didn't heed to my pleas and before I knew it, my feet were off the ground. At 5'10'' , weighing 84 Kgs and possessing an behind that rivals Janet Jackson's, you think you a have pretty good chance of fighting off these guys or at least a good "cushion" for sustaining the pain. But let me tell you this the only advantage I got was there were less number of "active" participants as four people had to lift me. The pounding began , one after the other "the participants" took turns in positioning themselves , sometimes taking a run-up and began kicking away. It was like one of those informal competitions you had with your friends in school, Who can throw this ball the farthest? or something like that , but then it was, Who can kick the hardest ? or Who can inflict the maximum amount of pain? or Lets see who can make him cry?
When the first kick was placed , there was a searing pain through my bottom and I shouted at the top of my lungs. The kicks became harder and shouts louder. The thing that pissed me off was there were some innovative kicks. Kicking with both the legs simultaneously and jumping in the air and kicking were some of the things I could remember during those 5 min apart from the pain. Some of the kicks go off target and hit you in the back or in the thigh region further adding to your agony. To top it all, during birthdays they actually wish you "Happy Birthday" after giving bumps. Once it's over, the pain doesn't end there , your bottom becomes numb initially and then the blood rushes in , that's when the pain really kicks in. You cant walk for a few days and you cant sleep looking at the ceiling.
All in all, it was a good learning experience, lesson learnt -
"Never go to Ganga on your Birthday"

Meat or Wheat??

I was brought up as a vegetarian and coming from a conservative brahmin background I was told not to eat meat, that it was not in my custom and consuming it is a sin. Remember when we were little , when our parents told us not to play cricket or not to do something in the house, but we would still do it when they were not looking ,thats exactly happened to me in IIT, I was not under the observation of my parents , there was no one to stop me, to scrutinize my actions, no one to answer to , so I started tasting non-vegetarian food to the point that my stomach got upset with the sudden change in the diet and I was restricted to the bog for two days.

Then this video comes up in you-tube showing the grotesque killing (killing is never pleasant , except maybe in video game and its not you who's dying) of these animals for food. Victims in concentration camps had a better life than the animals that were raised in mass production for food. That affected me, it changed the way I looked at an egg completely, not as an omelette but as wasted life for what, for food.

But the next natural question cropped up, How is killing a plant different from killing an animal? Well most of the food from plants is obtained as a side product of a plants natural life cycle, trees grow fruits to make birds eat them and spread the seeds, we obtain rice at the final stage of the plants life cycle after which the plant dies, and there is no "pain factor" involved, basically we are not "killing" the plant at any stage to obtain food (removing a limb of a pig is definitely different from removing a branch of a tree).

My friends argued that it was in nature to kill for food, lions have to kill to survive, and so does man. Well they are right, I cant argue the fact that I used to enjoy the chase of a hunt in discovery channel, when a tiger crept up to its prey and lunged for its neck and killed it by suffocating it. But we as humans have a choice animals dont, we were given the gift to search for alternatives, to discover, to adapt, why not in the case of food. I agree people in Antarctica don't have a choice in their meals but most of us have access to vegetarian food which is equally tasty and nutritious if not more than non-vegetarian food. Why kill a poor defenseless animal, when you have an option to eat a vegetable.

To be a vegetarian or not is purely subjective and depends on how one sees the issue. As the great Dumbledore from Harry Potter says "Who we are is not about what we are doing , but its about the choices we make." So make your choice, become a vegetarian :) .