Valuation of Paul the Oracle Octopus

Oracle Paul has amazed me no end. So much so that the recent slowdown of my writing ideas got a sudden boost. No I am not amazed by its prediction power. Rather by the amount of interest it has generated among the football lovers, as well as the people who need a daily dose of the crystal ball in their life. I am amazed because while in lesser developed parts of India you do find people worshiping cows with two heads/five legs or asking the talking parrot to predict their future I did not expect the same from that "advanced" part of the world. And then this business idea came to my mind. I might become a millionaire if I am somehow able to buy Paul and bring him to India and start a prediction business. The amount interest popularity that he has generated means my advertising expenses would be minimal. I only would need to announce to the Indian people his arrival.
So how much would I be willing to pay to acquire Paul? Let me start this valuation exercise. Assuming Paul's current value is based on the revenue (Discounted Cash Flow) that  is generating/potentially can generate in Germany, I will start with a bid price that reflects this value. And his value to me would be the NPV  that I can generate out of him  in India taking into account the price that I will pay.
Paul's Value in India:(Ok My target market segment would be mid level SEC)
In month one of operation in India, I can safely assume that demand would far supersede supply. What I mean is I don't need to estimate demand in month one. Rather I need to see how many shifts Paul can work remaining healthy in a day. I am assuming 6 days of weekly work (26 days monthly) 10 hours a day which means 260 hours per month. Depending on Paul's mood I assume that he predicts once in 5 minutes (I don't have any historical data in this regard otherwise I would have been more sure, but 5 mins look reasonable). So he makes 3120 predictions a month. If I charge 50 rupees per prediction (Again my target class is mid level who would be willing to pay this much amount). I am earning 156000 per month. On the cost side I need to feed him. Assuming he eats 2 kg of chicken a day. It comes to 200 rupees a day. 6000 rupees a month. I would need a sales executive who would be paid 10000 per month. (Including his PF, etc). I would also like to rent a multiplex space. My budget would be 20 K per month including beautification and maintenance. So monthly I am making a net profit of 120000. Hey I am not stopping here. Paul is a celebrity, even to watch his prediction games, people need to pay. I charge them a ticket of 5 rs for half an hour. In a mall I expect 300 guests on weekdays and around 1000 in the weekends. Around 10000 guests in the month. Which means 50000 in revenue. I need one more guy for sales. Pay him 5000. . Another 5K goes in Prints. Net profit 40000. So my Cash Flow in the first month would be 160000. Not bad.  I hope this to continue for the first three months. Then the fad would die down. Assuming Paul has 50% chance of predicting correctly. I can hope 50% of my customers to come back again for service. Oh common Paul's success rate is 100% in the world cup, I hope he can do 75% for me. So for the next three months My revenue would be around 117000. By then I would fire my second sales executive and make viewership free of cost (which in turn would be a good marketing channel). So net cash flow is 101000. Next three months would 75% of these and so on. I would like to continue with my business for a year and a half and then sell it off, either to a dinner plate or to a museum/zoo. I won't charge for the sell of unit. (There should be a limit to making people fool).
Now about my WACC, I am really confused now. Frankly I don't see any risk in the project apart from that the government takes up my case and bits the hell out of me. However the only way to find Beta for the project is through similar ventures. Has there been any similar venture? I doubt. Still I want to go ahead and take WACC = 15%.
Now what do I offer the current owner? I need a professional in Germany who can value him for me. But then he would charge me a whopping amount of money. I stick to trial and error.10000 Euro. Reasonable? After the calculation I find that NPV of Paul in the Indian market is 605857 and IRR 17%. Not impressive but then this is a very simple business case where Paul is made to sit at a particular location. If he is allowed t make an Indian tour. He would be worth in billions. Someone willing to try that valuation exercise out???

Vegetarianism

Let me start this blog by stating:
- No Offense Meant - No Religious Sentiment Meant to be Hurt -
I am not inducing a fight between vegetarians and non-vegetarians. Just wondering why people crave for vegetarianism. So what are the benefits of being vegetarian. Health green food, high fiber, low calorie, green lifestyle, healthy lifestyle.......
Don't you get all these benefits of being a non-vegetarian. One might say, meat is one of the causes of high cholesterol & consequent heart disease. All points for vegetarianism and against non-vegetarians accepted. But let me give one example. In the animal kingdom, the king of the jungle is a non-vegetarian or should I say a pure non-vegetarian. Where does he get all his fibers, high value food?? Does he have high cholesterol, any heart disease? He never takes any green leafy vegetable. Last time I heard that a tiger can carry a dead cow by his mouth for miles without resting, without letting the animal touch the ground. Pure strength, Pure Muscle. And this strength is not obtained by being vegetarian. Can anyone challenge my argument for non-vegetarians giving a counter example to the above mentioned point? Then somebody might say Human beings are not animals, they don't stay in the jungle. Humm!!! Though provoking.
Historically human races that have lived on high protein diet mostly on meat are stronger, better built, one of the reasons of Indians being of shorter stature is because of the lesser amount of protein in the diet. Ok enough of going around let me put my point. "Poustik Swatik Ahar" is not going to build on your muscle, your power.
This just came to mind. Does vegetarianism help in building a stronger mind, more intelligent people. Newton, Einstein, were not vegetarians. The Royal Bengal Tiger is one of the most intelligent animal and he is a non-vegetarian. I think I am crossing the line now. I should stop this blog before the animal right activists pull out their "dandas" against me. I am not against animals. I am for non-vegetarianism.

Cost Reduction Strategies I

Perhaps I have missed the bus. Few months back when every damn company was going through cost reduction/cutting my post would have been more apt. Actually this post would be apt anytime because my cost reduction strategy is not about firing people, reducing travel cost, etc. The strategies are more macro level, reducing the bigger redundancy in technology. May be a little futuristic.
Let us take travel: Air Travel. What is the point of carrying something which is not adding to payload. Yes I am talking about the power plant. The power plant in an aircraft weighs around 30% of the entire structure of the aircraft. And thus when the airplane is flying, you are burning more fuel to carry something which does not really want to travel or to go to that destination. You might thinking....Hey What the heck!!! Are you mad?? How is the aircraft going to fly without those power plants. Exactly that is my point in this blog of cost reduction strategies.
Can some innovation be made so that the power plant remains at the airport. The airport keeps getting energy from the power plant while in flight and reaches the destination without carrying the power plant. This is the modern concept of wireless power transfer. Think about the massive infrastructure set up cost, the wires, the transmission lines, the distribution centers that need to be set up in order transmit electricity from the generating stations to the end users. You need to step up the voltage through transformers, and know not what else, suffer massive maintenance costs. Why do you need all this?? Cannot energy be transferred without wires & cables. Can we not have a source & a receiver something like two mobile phones, where one mobile phone is the generator and the other is the aircraft or the end user would be using the power. Thus electricity would be transmitting on its own through the air and reach the receiver.
In fact  such technology is upcoming & more on the development stage. MIT professors have developed a technology by which you can charge your mobile phones without connecting to the power source. You keep them on the table and they get automatically charged from the power sources in your home. Wireless Power Transfer. But certainly the amount of power required in charging a mobile phone is much less than what is required to run an aircraft. Moreover the distance by which this charging is to be done is way smaller in the mobile phone case, because the distance between the power source and the mobile is within your home. But in the case of an aircraft would be thousands of kilometers. Hence it would take some time before this technology is applied to air travel.
However there is prospect that an electricity driven car would directly drive in to a power station. Just park their for a minute and get charged without connecting to any wire. There is substantial cost/energy to be saved if this technology really develops.

One More period of Slumber

I am passing a period where there are so many things in my head. And yes some of them are causing aches. I want many things to change but frankly have not seen a single window through which I can shout yes I can see the end to the tunnel. There are a multitude of things and I know things will turn good soon, but when is that soon. Once more I want things to fall in place. And this time I want them to fall in the proper place not in the way it happened after my final placement in IIM Calcutta. And this itchy condition is not allowing me to think through, hence the hiatus in blogging.

Food For Thought: Incremental Understanding

I accept Saurabh that the ultimate effect of this valuing up of the rupee in totalitarian would be inflation and nothing else ,
I get back to my previous view that the effect on GDP would be short term & in the long run everything production level comes back to the previous value.

However I stand by my statement that there would be a kind of utilitarian effect in the form that some wealth would be redistributed from the rich to the poor. The explanation is provided by taking a look at the classical Long Run Aggregate Supply Curve (LRAS). Whatever is shown in the figure is nothing new. I am only going to take a little help from the graph in explaining the phenomenon.
Initially there is an equilibrium and natural level of production is being met. When the rupee is valued up, as I said before people in the short term would not mind spending a little more. (Explanations provided in the previous blogs). This would increase the income of certain people who in turn would demand more and thus Aggregate Demand (AD0 to ADf) Curve would go up. Wages being sticky Short Run Supply Curve comes into the picture: resulting Y (production level) increase to Y*. Hence increase in GDP. But soon wages increase due to increase in price to the intermediate level Pi and supply curve goes up to SRASf finally everything settles down and a higher price level is reached Pf while production comes back to the level Y. Thus ultimate effect is there is no increase in GDP. However inflation happens.
Though I still hold:
1) There would be a redistribution of wealth.
2) Short term recession, consumer sentiment can be overcome by this phenomenon.
Then again why should a government take this ultimate step when recessionary cycles have become so short term in nature.

Food For Thought: Question From Economics II

Remember the last food for thought that I provided. The one where I had tried to seek if there would be an indirect positive effect on the national economy: GDP if the local currency is valued up => Food for thought I.
It was argued and even I was of the belief that the effects whatever would be very short term in nature. If there is a positive effect on the GDP, it would be short term & over the years everything would normalize and move toward natural or long term output value i.e. in the long run there won't be any effect on the production/consumption of the country.
Now take this: Recently I thought that the effect can actually be long term. In fact such an effort can actually help in more equitable form of redistributing money in the economy. The thought came to my mind when I went to a place to get some of documents photocopied. That person charged me 0.50 cents for each page of photocopy. Pretty reasonable isn't it. Wait convert that to rupees!! 7 RS per page of xerox. This is exactly what would happen if the rupee is valued up. Small petty jobs which are valued low cannot be priced lower than a certain limit. And hence the cost of these jobs would increase. Well this cost is actually increasing the wealth of the people who perform such jobs. Their spending power increases & wealth is actually redistributed from the wealthier to these people.
Again budding/prospecting economists What is your take on this???

Just a few updates: And an informal invite.

Life has been a mixed bag for quite some time now. Looking back I have not made a single post in February. Naturally for those of you who are not in touch with me would wonder the reason for the slumber. Well the beginning of February was spent in planning one more trip to India. The middle of the month was spent in India & the last few days of the month recollecting the fond memories of the trip & also fighting a variety of virus that affected the entire value chain of my living system. I had cold, I had fever & I had an upset stomach (See I am talking like a consultant as well: Value Chain!!!). The reason I started the blog stating my life has been a mixed bag is because of the fact that right now I have no clue where my career at this moment is heading. Sometimes I feel that the entire MBA has been a waste just going by the fact that I hardly use the skills that I developed in my two years at IIM Calcutta. I feel sad sometimes hopeless that I am losing it: my skills in finance, statistics & economics. Would I be ever able to utilize those skills which I had always thought were among the best.
This hopeless situation is somehow made beautiful by the variable that came into my happiness function sometime back. The fond memories of the last India trip is centered around the time I spent with her. Previously I had written a blog on Childhood love. It is true that childhood loves are special but I am so happy that I had to spend such a long time to ultimately find her & find the best who could ever come to my life. I use the world of blog to publicly announce her arrival. Many of you who are in touch with me, already know, for the rest this is the official announcement. Previously I had thought I would take some more time before settling. But now I see that as pointless. Even our parents thought so. And so dear friends this is an informal invitation to the ceremony that is going to take place in August 6th tentatively. Please be there & wish us the best for the journey ahead.

PS: The date stands corrected and it is going to be 2nd August

On Bose & Basu-s

For those of you who get confused let me tell you that the Bose & the Basu-s in this world are the same. It is something like Banerjee/Bandhopadhyay, Roy/Ray, Pal/Paul & so on. This hotchpotch in the surname surprisingly is found only among the Bengalis. I have a possible explanation: This Quandary is created by the British, and in fact a direct fall out of the "Phirangs"- setting up their offices in Calcutta. The higher ranked officers (the British) twisted the names of the middle level Babus (the Bengali workers) to suit their tongues. This fact is corroborated by the fact that the quandary is found only among the upper caste Bengalis: The social class that found a sit below the "Phirangis".
No this blog of mine is not on etymology, nor it is on the history of British Rule in Bengal. Rather I am writing this blog as a reply to those peers of mine who want me to prove the intellectual, & emotional supremacy of the Bose & Basu-s. You see I am a Bose/Basu myself & no doubt would only look at the brighter side of things. I have been asked to provide names of the Bose & the Basus who have made it big in the world/India arena. I started and the bag is immediately full:
Netaji Subhas Chandra Bose (You Know him)
Rashbehari Bose (You Know him)
Jagadish Chandra Bose (You Know him)
Satyendranath Bose (You Know him)
Amar Bose (of the Bose Sound Systems Fame)
Mihir Bose (BBC head)
Khudiram Bose (Martyr)
It is something like you name it and I have it. Well my critics do not stop here. Next they would tell me I am a Basu & not Bose. Humm!!! I get "gagahoo". I need to prove that even Basus are great. (I mean Bose & Basus are same but those who have adopted the Basu in their certificates are no less mortals). But hey my search engine got severely loaded in finding the right Basu to my choice. I could remember only two immediate names. Jyoti Basu & Bipasha Basu. And I HATE both of them from the core of my heart. I was pressurized to the point that I change my name from Basu to Bose. Well however today morning I did some googling, a little research and I could sense even Basu-s have made it big. I leave it to you to do the googling:
Kaushik Basu (Cornell educated economist)
Debabrata Basu (Of the famed Basu-s Theorem)
Siddhartha Basu (Kaun Banega Crorepati)
Kunal Basu (Writer)
I have a bigger list. But I stop over here. So there you go critics, "you have it on your face", while on one side you have "Boson Particles" on the other hand you have "Basu's Theorem". Take that!!!!.
PS: Well I am not debating I am just proving a point. No Vindication. So I am ending with one negative point. Bose/Basu-s belong to the kin called Kulins in Hindu Caste System. It was said that a father who gets his daughter married to a Kulin guy would go to heaven after death. A fodder that helped the Bose/Basu's to marry in tens. Alas I am born in a different world ;).

To Jyoti Basu (Contd...)

Thanks that there are many Bengalis who think like me...and want to remember Jyoti Basu in the same light as me. I could not help posting a comment on my last blog. Sarcastic but nice read :).

He was a great leader no doubt, with all the aspects necessary to be termed as a great leader - things like a shrewd brain, criminal attitude and a very very thick skin. He lead WB through the most turbulent times, and with great success. He was the visionary who understood that education (and knowledge as a result of that) was the reason behind all social problems like people demanding their rights. Most importantly, education brought about the huge potential problem of rural people saying no to blindly following the "Raja r party". Having realized that, this visionary took legendary steps to ensure that a whole generation or two were made to go through a rotten educational curriculum that ensured their eternal struggle in life. They were not employable at national level, so the only option left for them was jobs (or whatever) created by the CPIM. We at B Schools, we must understand how great this strategy was, he created the pull factor by ensuring lack of emplyable
skills and supplied the push factor by actively recruiting for the famed party network - the famed Cadre Raj. It's a lesson, a great lesson in strategy/marketing/operational excellence. And yes, he created the financial backbone too - by making each and every industry pay for their well-being. Anyone who wanted to do business in WB, had to finance the great cadre network. Look here gentlemen, we are probably looking at the best possible system that was put in place to ensure long standing undisputed rule by a single party. When we reflect back at what Bengal is today, we must pay homage to this great visionary. It is a sad day today, specially as we come to terms with the fact that he could not get the best treatment possible. Look at what he had got, treated at AMRI hospital. That, after being treated throughout his life in the UK and other advanced countries (please ignore that these were the very countries he used to despise in his public speeches). It is extremely sad that he could not be taken to the best hospitals in the UK in his final years and we will probably never be able to forgive ourselves.

Too many emotions overflow my mind today, words are not enough to express them.

Just a final word -
Would have liked him to survive for a year or two more. He deserved to see the culmination of the downfall of CPIM - the demon he created as mean of looting the state. That would have been his ultimate prize. Sadly, he (just like his great follower - Mr. Chakrabarty) did not get the opportunity. I am sad today, sad from the core of my heart - for Mr. Basu and for the citizens of WB who also would have liked him to stay on till 2011.

Any such comment is further welcome.

To Jyoti Basu

The state goes berserk (or does it???). The media definitely does. I am astonished to see how an icon is created. Perhaps the next generation is going to celebrate a state holiday on Jyoti Basu's birthday. Should I give a name to that day?? Something catchy...similar to Children's Day for Jawaharlal Nehru? (I have never been able to fathom what special connection our first prime minister had with children).
Sorry Readers this blog is meant to hurt those who are followers/disciples of great sons of India/West Bengal with whom I could never associate any greatness.

In my lifetime I have seen only two CMs in West Bengal. The period in which Jyoti Basu was the chief minister I had not even crossed the hurdle of school. However I could sense the difference in the development in my state and the far neighbors. I used the term far because Bengalis as a community has got the tendency to compare Bengal with only two states Bihar & Orissa, benchmarking at its best I should say!!!! And today whenever my friends make a mockery of the state of West Bengal & the capital Kolkata, frankly I am left with no other option but to laugh at it or at best use the old weapon of our deep rooted culture.
So the media which is making every move to immortalize this "Great Son of the Soil"..Let me counter you:

1) Leader of the state :: So we need to idolize a person who led the state to a path of irreparable doom. So much to his leadership.
2) Leader of the mass the bourgeoisie :: The leader of the social people, social movement would live in a house with all the modern facilities. Would travel under the umbrella of highest category of security, would frequently travel international to get his medical check up. (Secret of his 95 year long life).

Now let me provide some data that lets me visualize the state before I was born and the plight of the state after Jyoti Basu left his throne.

1)Poverty level got worsened in terms of national ranking (overall poverty did decrease but that is a general growth trend)
2)Infrastructure Index: Form being among the top to one of the lowest ranked state.
3)Share of industrial output declined from 10% to 5%

This is also the period when such a strong cadre system of politics was developed in the state where in, the interiors of rural west bengal would see his party winning sits without opposition. The fate of those who dared is anybody's guess.
Sorry friends I cannot worship the person as an immortal whom I have hated since I started thinking logically. The person who has eroded the people called Bengalis. And when I see the same person being compared to such greats as Rabindranath Tagore & Satyajit Ray I feel ashamed. Wake up my fellow state mates, wake up media!!! Just think did you give the same amount of reverence to Mother Teresa, the nun who was born on the same year as Jyoti Basu who could not live long enough to treat the masses. And for the records "our great son of soil", "the leader of the mass" did not even attend the funeral of the Saint.
What are you talking?? What are you mourning??

Now on my happiness function

I could not stay away from mathematics in my last post. So this one I promise would have almost zero quant. Well ehh... this one might even be a page of some melodrama, of some cheesy "K"-series star plus mega serial. But this would be the easiest way to help you grasp on the happiness function. I will keep on using the terminologies from my last post while at the same time put inside braces the explanation of the term in connection to life. Let me begin:
Recently the variable 'k' (relate k from my last post) in my life took one step jump. This entrance of this variable was sudden and hence the Size() (the importance) of other variables in my life did not have time to readjust. Hence the only thing that could have happened is the total space of life increased. The variable entered with certain Size() (importance in my life). It had huge potential to grow bigger with time. But the beginning few days were ones of apprehension. However slowly over the last month I am getting to know that particular variable better. The Size() of it in my life is increasing no end. With all its nuisance, with all its use of un-choicest of words as adjective for me I am beginning to feel that this variable is mostly in my mind while other variables are in the nebula region.
Hence as the Size() gets bigger, the Concentration Factor for this variable increases. So when this variable is in my mind, my happiness gets totally dependent on this variable. And hence, at a time when there are thousands of other things affecting my life, the state of those thousand things have not changed in the past one month. I am mostly happy because that variable is mostly happy. Well I must say it is not happiness all-round for spring cannot be everlasting. But it is a swing between autumn and spring. When it is autumn for the variable it is autumn for me, and spring causes spring.
I hope this post is good enough to make you understand the happiness function. I will delve on Size() later.

Delving deeper into the happiness function: The Concentration Factor

Remember my Happiness function?? I am restating the equation over here:

state of mind = CF*function(Variable 'n') + (1 - CF)*function (Nebula 'n-1')

For a detailed explanation of the theory that I developed please click here

Today I thought of making an attempt to understand this concentration factor 'CF'. And try to explain my current out of the world state in my next blog based on this explanation.
Let me first write down the salient features of CF:
1) CF is not constant, it varies with time, for some it is controllable
2) CF as a variable is not exogenous, in fact it is endogenous and depends on the variable 'n'

Point 2 requires some explanation. There are certain things which while dominating your mind (i.e. being the nth variable and not being in the nebula) somehow demands getter attention. Hence the concentration factor for these variables would be close to one. May be decoupling concentration factor from each variable is a method which the "sanyasi" practices. The question that immediately comes is how is this CF dependent to the variable. From here on I will try to be less mathematical and more practical.
Lets say there are total 'k' variables that matters in your life. This 'k' includes the persons that matter in your life, the incidents that shape your life, your career, and an innumerable number of other things. More importantly this number 'k' is changing as new things start affecting in your life. I define a new variable 'Size(n)' as the amount by which the nth variable is "important in"/"affecting" your life.Can I say:

Life = SUMMATION(Size(n)) n = 1 to k

Hence I say:

Concentration factor CF = (Size(n)/Life)

Here I will amend the Happiness equation a little as follows:

state of mind = Magnification Factor*CF*function(Variable 'n') + (1 - CF)*function (Nebula 'n-1')

Where Magnification Factor is a new variable which is a constant for a specific person. This factor is introduced to stress the greater importance to the variable which is in the mind and not in the nebula. Perhaps with meditation one can increase this Magnification Factor.

Clearly the bigger the Size(n) for a variable 'n' more is the concentration factor. This equation is well in line with my previous argument that for a sanyasi who has acquired salvation his CF = 1. This is because he has only one variable affecting him and hence k=1. (Please check with the equation).

Alas the story of dissecting happiness just keeps on increasing. The moment I deciphered the code of one variable CF, another variable "Size(n)" comes into the picture. To make matter difficult this size function is a function of time as well. The importance of a particular thing in your life keeps on readjusting with time. Just think about the importance of that cricket bat in your childhood, and you will understand how Size(cricket bat) has kept on changing in your life.

On New Year Hopes & Waiting

On New Year Hopes:
Another new year has come. Back it was in 1988 when I for the first time observe/experience new year celebration in the TV. So many new year celebrations, so many wishes the cycle frankly does get repetitive. For me the year 2010 has got some unusual significance. I have the feeling that this is the year which is going to set my path for a long time to come.
On Waiting:
Do I believe in God. Perhaps I do. Not in the form that I am to worship Him in a temple everyday, but in the form that I try to be a good human being & thank Him after he grants me all my wishes. And strangely I have always been made to wait for my wishes but sure enough they have invariably been granted. The wish that I had, has been finally granted and the long wait is made sweeter by fulfilling the wish exactly the way I had crafted it. Frankly I did not expect more.
And so dear year 2010, after getting all the pieces together please let them fall in place. Just the way I have imagined.