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We should probably re-calc those betas and update the capital structures before handing the final ATWACC to the client. Also, while an interest rate adder is non-standard for the CAPM, the yield curve is just too low to be believed by any regulatory commission.

It’s a non-trivial refactoring of dev which has the potential to spiderweb, which would then delay our push to staging. It might be better to just add simple affordances instead through a JQuery plugin.

The client is an interop providing level 3 access for click-to-call functionality. We should socialize this with X’s group to see if we might encounter any push back.

I’ve now worked at 3 different companies since college, each with it’s own language.  Each time I change jobs, I’m amazed by the disparate vernacular employed by each.

As many of you know, 2 months ago I quit my job to pursue a mini-retirement, and boy has it been busy! I never thought unemployment would keep me so active. I ceased nearly all online communications (ie. twitter and blogging) in order to re-assess my life’s direction, and now I’m finally getting back to the grind.

Here’s a brief recap of what I’ve been doing. I’ll go into more detail, however, on individual blog posts.

July 1 – Flew to Kansas City to surprise my brother for his birthday. I hung out with my brother almost exclusively for a few days, which was a blast. A few highlights of the birthday bash include convincing my brother’s law school friends that my name was Waltham and getting harassed by brother’s girlfriend for drinking and driving…under the influence of water (in her defense, she was slightly inebriated and thought I was walking around alcohol). July 4th was lame considering it got rained out, but such is life.

July 6th – 11th – Flew to Southern California to spend quality time with my parents. Quality time interspersed with hectic real estate craziness, as my parents are trying to find a nice home out there amidst the region’s financial ruin. What was amazing to me was seeing how many foreclosed properties had been destroyed by previous tenants as they rushed to rip out all appliances, faucets, toilets, etc before they got kicked out. Never have I seen so many nice houses that have been so tattered. I also played golf a few times at some of the resort courses out there (PGA West Palmer Private and Citrus) and managed to shoot an 86 and an 84, which is all the more impressive considering I hardly ever play golf any more.

July 12th – July 16th – Back in Kansas City to relax…except I didn’t relax…at all. Every morning by about 9:30, I was up with a cup of coffee analyzing the financial markets trying to investigate options mispricing and how to exploit this for financial gain. More about this in another blog update.  I literally didn’t see any friends during this period, regretfully, but I did spend some more good time with my parents.

July 17th  - July 18th – The Lake of the Ozarks! For those of you who don’t know, the lake is the largest man-made non-flood control lake in the US, and despite being very “country” is rather charming. We got to see our good family friends, the Naylors, and enjoyed tubing, sunbathing, swimming and jet skiing. This was my first time actually driving the jet ski (if driving is the correct verb).  I also managed to get hideously sun burned, which looked horrible given my already red complexion .

July 19th – While I was supposed to come back to Boston on this night, Southwest airlines felt differently. Southwest decided to strand me in Chicago, and informed me that any hotel expense would be “out of pocket”. Luckily, I have a good friend in Chicago named Ed who was happy to take in a homeless man for a night. He offered me a comfortable couch and some homemade beer, which, for a 26 year old kid, is all I really need.  The following evening I left to come back to Boston.

July 20th – August 5th – Back in Boston, back to market research, back to freaking out about my future but calmed by the fact that I still have another month to figure things out.

August 6th – Sept 1st – Europe! Specifically, I was travelling to Bulgaria to attend my girlfriend’s brother’s wedding. Bulgaria in and of itself deserves a HUGE blog post, so you’ll have to wait.

Now I am officially back Stateside and I’m trying to figure out what to do with my life. I’ve got a lot of options, but unfortunately, I’m struck with the paradox of choice! Do I get my MBA? Do I investigate hedge funds more? Do I stay with the startup path?

I’ll keep you posted as I figure things out.

As many of you know, one of my more prominent side projects of late has been HapiMoney, a financial planning site aimed at young professionals. For the last few months, I’ve been developing the site, mostly on my own, on nights and weekends whenever I can find free time. Development has been slow considering I’ve had to teach myself html, css, and php – and now, I’ve reached the limits of what I can reasonably do by myself.

For this reason, I’m looking to scale, and I’m looking for, well, for lack of better words, a “rockstar”. While the term “rockstar” has been incredibly overused over the last few years, it really describes who I want – someone so disgustingly good that it makes you want to be their groupie.

Who (or what) you should be

• Someone with demonstrable code – a site or side project that you’ve developed.
• An affinity for design – you’ll notice that HapiMoney isn’t great, and it needs to be improved!
• Expertise with html, css, mysql, and php for now. Ruby or Django would be a huge plus.
• Someone who takes pride in clean code and fast prototyping.
• You should have a brokerage account, and know the basics of personal finance.
• You should be genuinely interested in personal finance!

Time requirements are very flexible. This is not a full time gig (yet) so if you are looking to just get your feet wet, this might be perfect for you. We all know that selecting a co-founder is a delicate process, so let’s get together over a beer and talk.

If you are interested please email me at alex@hapimoney.com or find me on twitter @alexanderking.

If you know someone who might be interested, please forward this on!

This summer,  I will be traveling to Bulgaria for a few weeks to enjoy the Mediterranean with my girlfriend. We’ve been looking at ticket prices over the last few months, and they’ve been incredibly high. I’ve started looking into why this might be and have come across two reasons.

First, airlines are cutting back capacity; some voluntarily, while others due to strikes. The recession meant cutting back everywhere, and now that demand is jumping, airlines are just happy to have planes packed again. Increased demand with decreased supply equals price increases.

Secondly, airlines have enacted costly fees. In my opinion, these fees are a scam, and are actually hidden from the consumer and labeled as “taxes”. In many cases the fees are almost as much as the flight itself! Let’s have a look:

1. “Peak Travel Fees” – An extra $30 fee for tickets through Labor Day.
2. “Fuel Surcharges” – In some cases $100-200 extra per flight for the cost of fuel.

Wait a second, isn’t fuel included in the price of a ticket? I’m certainly not paying for the comfort of stuffing my 6’3″ body into a coach seat, and I would think that the cost of transportation is included in the cost of a ticket. In reality, a fuel “surcharge” should really only apply if you buy your ticket and then after you purchase the ticket the price of fuel skyrockets….in which case, why hasn’t the airline hedged this risk by buying oil futures/options? Or are airlines forgetting that fuel makes up 30% of their operating expense  (look at the 10-k for Southwest if you’re curious) and planning for cost variations is encouraged.

But lets assume that this is expected for a second and that this fuel surcharge includes the FULL price of fuel, how much would  a passenger flying to Sofia expect to pay?

According to TravelMath, the flight to Sofia is just over 4,500 miles.  How Stuff Works estimates that an international flight burns .01 gallons of fuel per mile per person. Lastly, the spot price of jet fuel from the IATA is $2.04 per gallon.

Multiply all of this together and you get $92.50.

Thus, when you take into account the 4 legs of my round trip flight, you get 4 x $30 (for the summer peak fee) and 2 x $92.50 for the fuel fees which equals $305. And indeed, thats about where most of the flights fees are. Granted, most of this is hidden from view, so it’s just an estimate…but it all feels very sneaky to me.

So why does this occur? Flyers are INCREDIBLY price sensitive. Airlines used to offer all sorts of perks from gourmet meals to legroom to juggling midgets for entertainment. But when it comes down to brass tacks, people buy based on price. Allowing these fees encourages airlines to lower ticket prices for advertising and marketing purposes (only $300 to get to Europe! <tiny font> just pay $900 in fees! </tiny font>). And indeed, when you look at the varying prices the “cheapest ticket” is $787 with $490 in fees and the most expensive ticket is $1,179 with $160 in fees.  All told, there’s only $60 difference between the two.

Alternatively, during the fuel scare a few years back many airlines bought long term hedges on oil that allowed them to lock in a certain price on fuel. A few, such as Southwest, were smart and made a killing. Many, such as United, lost millions upon millions of dollars when the price of oil dropped.  I haven’t looked into this in any depth, but its possible that the airlines are locked into these bad contracts and the surcharge just makes whole any difference between the spot price of oil and the exorbitantly high price of oil the airlines paid for it.

My last throwaway hypothesis, and my most diabolical thought, is that these fees allow airlines to collude on prices while still looking competitive. “My price is $787 and my competitors price is $1,179!!”  Both airlines have almost identical total costs while still arguing perfect competition.

What do you guys think? Will competition erode these excess fees?

Related articles by Zemanta

• Egencia Releases 2010 Corporate Travel Global Benchmarking Study and Travel Manager Research (newswire.ca)
• Airlines Add Fees for Summer Travel (abcnews.go.com)
• U.S. airlines impose peak travel fees on summer flights (seattletimes.nwsource.com)
• Lawsuit claims British Airways guilty of illegal, deliberately deceptive pricing (newswire.ca)
• U.S. Proposes Rules on Airline Tickets and Fees (nytimes.com)

One of my favorite slam poets is a guy who goes by Rives.  He’s thin and bald(ing), and has skin so white alabaster is the first word that comes to mind…but he can captivate an audience. He’s performed for Def Jam and even the TED conference a few times, and I thought I’d share a few of his videos here.

The first one is performed at TED and is based on the hypothetical that Rives controlled the internet. It’s a wild ride.

Favorite line:

Some days I’m as shallow as a baking pan, but I still spread for miles in all directions

The next video is about Rives teaching at a high school for the deaf (yes, he’s actually fluent in sign language as well as Greek and Latin).

Favorite line:

Last night, I dreamt that I was little again

and I could hear back then

but the silence

in my house

was deafening.

The last video I’ll show you is him detailing a love story – its hilarious and breathtaking at the same time.

Favorite line:

Maybe, I’m saying maybe, I put on your slippers which were as comfortable as bunnies – because they were bunnies!

Do you have a favorite poet? Poem?

I’m a big fan of meeting entrepreneurs for coffee. Now that I’m doing a lot more financial consulting, I find that it’s harder and harder to stay involved in the “scene”. People in this industry are mortally afraid of new technologies like twitter, blogging or web technologies, so sometimes I find myself straying from my startup roots.  Thats why I’m thankful for being able to work with AccelGolf, and that’s why I love to meet up with other startup guys.

Today, I had back to back meetings with some interesting guys at the Andala Cafe in central. First I met with Waldron Faulkner of GraphEdge who is working on his pivot and needed some marketing help and introductions. Waldron is a passionate guy who’s got a lot of work ahead of him, but isn’t afraid of it. Waldron inspires me because making those pivots is hard, and sometimes barreling ahead is the easiest thing to do, when in reality, it’s the worst thing you can do.

Next, I met with Dustin Dolginow of Atlas Ventures. Dustin’s a newbie to both Boston and the VC world, so he’s trying to get his feet under him. As coincidence might have it, he’s also a fellow Kansan – from my same town too! Startup guys please welcome him to Boston, and if you are interested in meeting a junior VC with the ear of some pretty powerful guys, let me know and I’ll put you in touch. Dustin inspires me because he’s in a whole new world and he’s attacking it with a vibrance and energy that we should all aspire to – and he’s a genuinely nice guy.

Ah coffee talk…

Several friends of mine work at a nice boutique consulting firm in the Boston area which typically promotes everyone once a year depending on their performance.  As such, they are also in the midst of review season whereby their bosses will critique their performance and they, in turn, will also evaluate their performance.

The self-review packet is eleven pages, consisting of mostly prose responses whereby the writer will elaborate on their different core competencies and skill sets, preferably using examples from their project work. Each question has three parts, asking the writer to elaborate on: their successes, their challenges, and their goals for the future.

The reviewer, too, has to write about the reviewee, grading each of these criterion and carefully deciding on why or why not this person deserves a promotion.

The full review packet, mind you, is incredibly thorough – a ton of thought was clearly put into this process – and the self review packet, with due respect to it’s creators (who obviously labored intensively over it’s creation), sucks.

Why, pray tell does this process stink?

1. There is a HUGE waste in productivity.  Each Self-Review packet takes on average over 5 hours to complete. And each review of this person takes another several hours (lets guesstimate 3), meaning that for each employee of the firm, 8 hours are spent on this. It’s a small firm, and only about 100 or so of the employees are reviewed, so that’s 800 man-hours of time. Each of these people also bill out at an hourly rate (for the most part), and I can tell you, those rates ain’t cheap. Starting employees are right around $200/hr, so let’s assume, conservatively, that the average rate is $250/hr for all employees. That means the firm will lose $200,000 from the process.
2. The questions ask, nay, BEG for bullshit responses. When, for example, in a section on Self-Management, when a question asks if you are mature, responsible, understanding of project needs, what rational person in their right mind isn’t going to BS this? And if every response is BS, what do you think the likelihood of a quality actionable self-evaluation is? Not very high.
3. Once you fill it out, nobody looks at it again. In fact, the only reason to keep old reviews is so that you can copy and paste entire sections from the last review into the new one! What’s the point of asking for goals for the next year, and then not comparing your results?
4. It measures the wrong things. This process rewards generic, BS responses, while harming individuals who recognize they need to improve in certain areas. You need to be good, but not cocky, just enough above average to get that promotion, but don’t remind anyone of any flaws that you might have.  The point of a self-review is so that your bosses can see if your views of yourself are in any way different than their views of yourself. Any areas where there is a huge disconnect should be explored in greater detail. ie. If I think my Excel skills are piping hot, but my boss thinks I’ve got the Excel acumen of a 3rd grader, then that begs for action.

So what’s a better process?

Listen up people in HR, because it’s going to blow your mind. Less is more!

Any self review must take into account the 4 criticisms above. It must be:

1. Short
2. Elicit Truth
3. Actionable
4. Measure the right qualities

So here’s the ideal review process, IMO:

The reviewee will get a form with upwards of 10 different qualities, each with its own sliding scale from 1 to 10. This can be things like “Excel Skills”, “Presentation Skills”, “Client Interaction”, “Managing Employees”, etc., and the user will rank themselves 1 to 10.  They also should be required to mark 2 or 3 skills that they would like to improve upon over the next year. Lastly, there should be ONE (and only one), comment box which would allow someone to list the projects they worked on since the last review, and any thoughts about that specific project that they might have.

The reviewer will also get a form, with the sliding scale from 1 to 10 for each of the qualities of the reviewee. They will not know how the reviewee reviewed themselves, on each of the categories but they will be able to see the comment box with the projects and thoughts the individual had. They will then rank the reviewee, write a brief comment about the employee (project based comments) and then submit their review.

The HR department will then sift through all of these reviews and only look for 2 things:

1. Quality: Is the reviewee below a certain threshold of quality (let’s say below a 5)?
2. Perceived Differences: Are there differences between what the reviewer and reviewee’s scored?

Any score differences will necessitate further elaboration from the employee. Any employee that passes the quality threshold and the perceived differences threshold will pass directly through the system, and will be eligible for a promotion.

Let see if it matches up to the criticisms:

1. It’s definitely short – a sliding scale, 3 check boxes, and a comment box…probably 45 minutes at most to fill out.
2. It elicits truth through a bidding-like mechanism – the reviewee only is eligible immediately for a promotion if their scores are in line with their reviewers.
3. It’s possibly actionable – by selecting 3 areas where you would like to improve, you can check your scores from last year to compare to this year.
4. Measures the right qualities – this is more up to the different categories that are chosen by HR, but I believe that a ranking scale is far superior to a prose review.

What do you guys think? Where can the self evaluation be improved?

Since leaving WebNotes a few months ago, I’ve been on the lookout for another fun startup to help out with. For months, I was a networking whore, meeting as many of the best and brightest as I could in the Boston startup community. During my search, I was lucky enough to encounter William Sulinski, CEO and founder of AccelGolf, a recent TechStars graduate company.

As luck would have it, AccelGolf is in need of some marketing assistance, and William was kind enough to offer me the gig.  Over the next few months, I’ll be helping out with some strategic planning, implementation and customer development work.

I’m still keeping the day job for now,  but I’m thrilled to be working with another startup, especially one as well positioned as AccelGolf.

For those of you who haven’t heard of it, check out this great golf tool. It’s a cellphone app that functions as part rangefinder (so you always know your yardage), part statistics machine, allowing you to understand your game at a whole new level.

I’ll keep you guys posted on how things go.

In other news, I had my first shopping experience at the Russian Baazar today – and might I say it was an amazing experience. One of the worst things about living in the Northeast compared to the Midwest is how terrible grocery store produce is. And typically to get good fresh fruits and vegetables, you have to go to a store like Trader Joes (or Harvest Co-op for me), which typically run 15-30% more expensive than a place like Star Market. But now, I’ve been introduced to the Baazzar which features produce similar to the high end grocery stores at prices half of what they are in Star Market. I don’t know how they do it, and it’s probably some sort of illegal front, but I love it and will continue to go back.

Brownian Motion

Image via Wikipedia

Every once in a while, my job affords me the opportunity to learn something really cool – granted in a very nerdy kind of way.  Recently, I learned one method for modeling stock prices and interest rates called Geometric Brownian Motion (first used in particle theory, but later used in financial instruments). This conversation might get a little technical, but I’ll start first with a conceptual description before moving into the math. For those who are uninterested in the nerdier parts of finance, feel free to skip this post

In theory, it is nearly impossible to predict what stock prices are going to be in the future – if someone knew, they would be very very very wealthy (or in jail for using illegal methods).  If you know of a legal way, let me know and we can quit our jobs and trade stocks for the rest of our lives! But just because stocks are unpredictable doesn’t mean there aren’t ways to try to figure out what these prices over time might look like, especially if you are trying hundreds or thousands of iterations to test for averages, highs, and lows. For instance, what are the odds that Microsoft’s stock price will hit 40, or the odds that it will hit 20? We do this by way of probability and statistics.

For instance, we can probably guess that a stock like General Electric will likely stay around the $15-$16 range that it’s been at for the last month.  Maybe there is a 50% chance that it rises a bit tomorrow, and maybe there is a 50% chance that it falls, but we can overwhelmingly say that it’s probably not going to drop to $1.

Image via Wikipedia

To demonstrate this, lets take that GE stock and try to figure out what one path of stock prices over the next week might look like. Take out a coin and flip it: if it comes out heads, add $0.25 to the price of GE’s shares, and if it comes out tails, subtract $0.25. Now repeat this process 10 times. You should have a series of prices that looks somewhat plausible – perhaps GE’s price will trend upwards, or perhaps it will trend downwards, but more likely, it will look like what financial engineers call a “random walk“, or a seemingly random series of prices – sometimes moving up, sometimes moving down.

So, to start to define this better, we know that tomorrow’s stock price will likely equal today’s stock price plus or minus some small but random amount. Note that random is the key word here. Now, that’s just using a coin to figure out our probability of stock increases and decreases with a 50% chance of rising by a quarter, and a 50% chance of falling by a quarter. These are certainly not the only rises and falls that could happen, and things are hardly ever assigned a 50% probability.  For instance, what happens if the US government black lists GE and refuses to ever buy any GE products again? The stock would tank! A low probability, for sure, but it could happen.

Thus, we need a more sophisticated way of doing this. Luckily, statistics has something called a “Normal Distribution” which will provide us with more granularity than just a binary flip of the coin to figure out how stock prices might change. This will also allow us to factor in those seemingly low probability events (like GE tanking). A normal distribution looks something like this:

What this graph says is that most of the frequency data for a particular sample will cluster around the mean in the center (the symbol that looks like µ). As you get further and further away from the center and head to the extremes, the frequency of certain values becomes less and less. For instance, take the average height of a man, which is about 5′ 10″ in the US. Most guys you meet will probably be about 5’10″. There are going to be several that are 5′ 11″ or 5′ 9″, but you will very rarely find someone who is 5’1″ or 6’6″ – those people are on the extremes.

So to end the conceptual part of this discussion before getting into the modeling, to figure out one possibility tomorrows price,  we simply take today’s price and then add some normally distributed (around a mean of zero) change (be it 0 or -.1 or +2), and then repeat for the day after and so on.

An Example using Excel:

You’ll have 3 input’s to this model:

1. the current stock price
2. the standard deviation of the stock price ( =stdev(stockprices))
3. the time units for which you want to make this prediction (days or 1/360, weeks or 1/52 , months or 1/12, etc) – make sure to stay consistent between the units of time for 2 and 3.

Now your formula should look like this:

P1 =  P0 + Stdev * Sqrt(time) * normsinv(rand() )

What does this mean? To directly translate: take the standard deviation of the stock, multiply by the square root of time, then multiply by a random normally distributed number (the function rand() generates a random number of uniform distribution between 0 and 1 and normsinv takes this as a probability and maps that to a normal distribution – thus, if rand() returns .60, normsinv says, given a probability of 60% where does that fall on a curve with mean zero and standard distribution of one), and finally add this amount to today’s stock price.

The one thing that threw me off at first was the multiplication by the square root of time, however this is basically due to the standard deviation’s units being in price/(square root of time), so to cancel units you have to multiply by the same factor.

I’ve attached a sample Excel spreadsheet which demonstrates this process. Just hit F9 to see how the price of GE’s stock changes over time. Brownian Motion.xls