I saw Ray Kurzweil live today!

So, a friend of mine, Chris Luna, told me today that he had an extra ticket to go see Ray Kurzweil live at Coolidge Corner, Boston. Kurzweil was going to give a sneak peek of his new and upcoming film, The Transcended Man, and also discuss a movie he is producing, The Singularity Is Near, based of his best-seller book with the same name. I grabbed this opportunity in a heartbeat! I have been a fan since I read The Singularity is Near back in high school. At the event, in addition to learning about his movie productions, I learned about several of his theories regarding what the future holds for mankind. His predictions for the future exponential trend of all information-based technologies and what kinds of amazing avenues these trends can lead to can seem farfetched at first. But if you actually look at his models, his track-record, it all surprisingly fits. His presentation is uploaded on the web at his website, KurzweilAI.net. I didn't get a chance to note down the exact URL though I wish that I did in retrospect. It was an amazing evening - the future is going to be very very exciting.

When is the last time I read a book, out of pleasure?

I was thinking today as I went to bed... I have been at MIT for just about a year now, and I cannot recall the last time I read a book for the sheer pleasure of learning something that caught my eye. I mean I often surf the web and absorb the latest technology and business news, but a book is a whole other medium through which, a different type of knowledge and information is conveyed. It is hard to describe. I just know that I miss that experience, which I enjoyed in high school. That being said, I think I am going to pay a visit to the library and check out some some titles which I have been hearing a lot about but never gotten to reading: Outliers by Malcolm Gladwell, The Art of War by Sun Tzu, maybe some biographies, anything that makes me curious. The next time I go to bed, I'll make sure I have something next to me to read for 20-30 mins (or even longer, depending on my interest versus sleep deprivation).

SUMA Venture Capitalist Roundtable

I am on the board of the Sloan Undergradute Management Association (SUMA) at MIT. I am organizing an event, the SUMA Venture Capitalist Roundtable, taking place on April 27th, at 7:00PM in Room 3-442 @ MIT. The goal of the event is to invite five venture capitalists from diverse industries and backgrounds to educate MIT students on the inner-workings of VC firms. Namely, this will involve educating MIT students on how a VC firm works, what are the different roles played by individuals in a VC firm, how firms value start-up opportunities, etc... The Roundtable discussion will also be followed by a brief networking session. For the entrepreneurs in the crowd, this is a great opportunity to network and ask for advice on taking your idea to the next level! The industries being represented at the Roundtable include IT, Energy, Cleantech, and Biotechnology. For the finance gurus, this is a fantastic opportunity to explore what it is like to work for a VC firm and potentially secure a job for the summer!

I would like to thank the following individuals for volunteering their time to come to MIT and educate MIT students about venture capitalism:

- Frank Andrasco, Partner, Egan Capital
- Graham Brooks, Senior Associate, 406 Ventures
- Gautam Gupta, Associate, General Catalyst
- Jhanavi Pathak, Business Associate, Romulus Capital
- Praveen Sahay, Managing Director, WAVE Equity Partners

I am eagerly looking forward to this event and encourage other students in the Cambridge area to come join us in room 3-442 @ MIT on April 27th, 7:00PM!

Swing trading on biotech

A friend of mine introduced me to something called momentum trading (also called swing trading) today and it is a pretty interesting concept. So for a quick background, there are two types of trading: swing and trend. Trend is when you are hoping that a stock would go in one direction, either up or down, over a period of time. Swing is when you are hoping the stock will just oscillate in both directions and not really go anywhere. Hence, in bear and bull market extremes, it is wiser to use a trend strategy since the stocks will tend to follow a directional trend. The key challenge with swing trading is to accurately define the market when it is going “nowhere.” This is tough.

However, an industry that came to my mind immediately after hearing this was biotechnology. I have noticed that several biotech company stocks either oscillate continuously or stay near the baseline, going “nowhere.” The reason being that many biotech companies are in the clinical trials and research phase for 5-10 years before releasing their drug. That being said, I wonder if the swing trading approach would work more often than not for the biotech industry…

From basketball to random walk theory

I was watching the 76ers game the other day and heard something in the background commentary that caught my attention. Something along the lines of… the probability of an NBA player of making a shot does not depend on whether he made the shot before that. That claim basically said the “hot hand” was irrelevant when betting on whether a player would make their next shot. To me, that claim seemed like total crap. Apparently, upon researching this a little further after the game, I learned that there was a study done on the 76ers regarding this issue which concluded that there was no correlation between past shots’ influence on future shots.

I realized that this theory was also related to the random walk theory, originally proposed Burton Malkiel in 1973 to explain stock price fluctuation in financial markets. This really got me interested. I’m not going to go into much detail but basically what this theory suggested (based on a coin flipping experiment conducted by Malkiel) is that the fluctuation in stock prices are completely random due to the efficiency of the market.

Though some economists continue to believe in this theory to this day, I feel that there are three things fundamentally wrong with this claim:

1. Efficiency of market – there is a subtle claim in Malkiel’s theory which is that stock prices fluctuate randomly “due to the efficiency of the market.” But is the market completely efficient? I don’t believe so. You have government intervention bailing out the banks, time-lags, and significant human involvement (though many things are now becoming algorithmic driven), all three of which contribute to inefficiencies. Thus, Malkiel’s theory has some holes in its assumptions.
2. Market vs. Individual stocks – this is akin to the difference between the entire NBA vs. an individual player on the court. From what I understand, Malkiel’s theory applies to the NBA (the market), and so does the shot percentages research conducted with no correlation. But Statistics 101 says averaging data, and drawing more and more general correlations masks individualized data, which might give a whole new story. Perhaps random walk theory can suggest predicting market movement is impossible as it is random, but it cannot say predicting an individual stock’s movement is random. Similarly, the research on basketball shots combined data from the NBA and hence can apply to the NBA but not the Kobe Bryant’s or Michael Jordan’s of the world.
3. Present Day Wall Street – present day Wall Street makes the money on the individual stock, the individual player. And the trillions of dollars to be made in the financial industry clearly shed light on the fact that trades are not random. Otherwise, people would not be in this industry. There is clearly intelligence involved in using the large amounts of data, sorting out the relevant bits, and drawing conclusions – betting on IPOs, arbitrage trading, momentum trading are relevant examples. Though there is always an element of uncertainty and luck, it doesn’t govern the process but instead just plays a role.
   

The 76ers won that game 98-92.

Taking advantage of over-hyped IPOs

So I was reading about startup IPOs – when a company first offers company stock to the public – the other day. This process has some interesting points: first, I’ve noticed that many of these companies try to create massive amounts of hype prior to their IPO to attract many buyers, making the stock price increase rapidly in the initial phases. But when I looked at the data of many of the stock prices six months later, most of them decreased back down do an equilibrium point with market forces kicking in.

There are several reasons why this could have occurred: once the company declares itself public, it is mandated to share its future vision, finances, and all other sorts of data, making the company vulnerable to all types of financial calculations and estimates from traders globally. This naturally allows the market to dictate the price, rather than external influences that over-hype the stock initially. Another reason, which is less subtle, is that the management team, investors, and founders usually agree to a clause which prevents them from selling any of their equity for six months after the IPO. This prevents any startup founder or high stake holder to sell their entire stock, giving the company a horrible image in the market. But after six months, more often than not, several founders and high-stake holders invariably sell part of their stock, liquidating some of their assets, allowing them to gain more financial security. Since any stake-holder selling their stock after an IPO is a bad signal, the trend mentioned above may potentially help lower market estimates of the stock’s worth.

But now, the key question is: despite the above trends, why do buyers continue to purchase stock in the very beginning of the IPO, when the stock is severely over-hyped? Wouldn’t it be wiser to short sell the stock in the initial week and make money off the equilibration phase that takes place over the next few months? And THEN, if the company shows promise, buy the stock after the equilibration price is attained?

Would love to hear your thoughts.

Wall Street and MIT

One in every three people I meet at MIT are into finance in some way or the other. Some are in market research and investment banking and others are in sales and trading... seems like making big bucks on Wall Street is the central goal for many MIT undergrads. And working at JP Morgan, Goldman, and hedge funds seem like the "hot" things to do over the summer.

I come from a background of high-tech and am fascinated by next-generation web technologies, nanotechnology, AI, and the fusion of neuroscience and computers. Frankly, I have never really considered finance as potential career path. I did write some business plans and financial statements back in high school and also participated in virtual stock market games, but didn't seem to find enough time to devote to learning the ins and outs of the financial industry at that time.

Regardless of my background, however, I feel that I should make best use of this opportunity and culture and learn more about finance and how engineering can be applied to this industry. Who knows, I might get really into this stuff? And worst case, these concepts are essential to know anyways, no matter what industry I go into.