Fama or French - Matters of Credit

The three factor model extends CAPM with two factors size (small vs big) and value (market price relative to book value) in addition to the market risk premium. Basically, that leaves you with three betas. You can read more about it elsewhere, but what's hilarious is the article from Tuck School of Business (Dartmouth) that uncovers the real relationship between Fama and French, especially the real dope on who did all the work! Follow the link Fama Factors out French to read the article.

MBA @ Wharton: Recap of Term 3

[Almost About to Finish Term 4, I figured I'd clear out my backlog on the recap of Term 3!]

If there is only one thing I could say about Term 3, that would be "Whew! Its done." With about 3.25 credits--that's 4 1/2 credit courses, one 1/4 credit course and a 1 credit course--it was a lot of awkward context switching. Add to the mix your day job that pays the bills and occasional family considerations ;-), it got real messy.

My classmate Chairman P has a few posts on Term 3. Here's a funny poem and one on how you age faster at Wharton, especially during Term 3.

My take on the courses this past term:

Corporate finance (the 1 credit course) was an absolute delight. Prof Percival was great at de-quantifying finance; in other words, a good deal of time was spent in class trying to use financial analysis to drive strategy, product mix, cost structure etc. In contrast were the exams, which were mostly quantitative. Calculating NPV's by hand sure seemed like a lot of drudgery... The case write-ups were lesser binary in approach - we had the opportunity to understand a business problem, take our time, use Excel to analyze the data and then finally present a nuanced view point - not just numbers.

Marketing Management was like an introduction to marketing - basic frameworks (5Cs - 4Ps, Segmentation Targeting Positioning - STP etc), basic marketing math - describing the economic value to the customer (EVC), using EVC to set prices, figuring out break-even volumes, sizing up markets (for both volume and profitability) etc. While many of the concepts were tribal knowledge for many of us in the industry, it helps to have frameworks and a strong quantitative bias (only to be expected at Wharton) towards marketing initiatives. I particularly enjoyed Prof Bell's classes and especially his liberal references to marketing literature during his lectures.

For a 0.5 credit course, Marketing Strategy was a ton of work. Most lectures were case based. In addition to preparing for the cases, we had to work out the marketing math (like ad budget, price, market sizes etc) and enter the data into an online system. We spent a great deal of time messing with a market simulation system (called Sabre), which had algorithms that simulated typical market dynamics. In the later part of this course we looked into life-cycle of markets/industries; I think that may be a nice segue into Competitive Strategy - something we'll be looking in Term 4.

I learned a great deal of new concepts in the other two 1/2 credit courses: Matching Supply with Demand, and Managerial (or Cost) Accounting. I have never worked in manufacturing; I enjoyed learning about the type of issues one needs to be aware of with inventory management, use of different supply chain topologies, distribution strategies etc. I would say the workload was medium. Managerial Accounting was the last 1/2 credit course and it whizzed past most of us! Excellent professor and very pertinent material on inventory valuation, internal performance measurement, assigning costs to products etc. Especially in this day and age of corporate cost cutting, managerial accounting certainly teaches you what to focus on when you are looking to cut costs, and the right questions to ask when someone claims s/he cut costs.

Finally, a quick word about the course on communication. The intent is to get you comfortable with various forms of corporate communication - addressing employees, the press, managing crises etc. If you are not a good speaker already, I guess the course could help. But I have to say that its certainly not a conducive environment to prepare and practice a speech, especially when your communications class starts at 630pm or 7pm and goes on till 9. It makes even lesser sense given that you probably had two or three deliverables on that very day and have been sitting in class since 9am!

Crash the Superbowl

When I recently read about Yahoo's acquisition of Jumpcut, I was starting to wonder exactly how these companies are going to make money.

Turns out Jumpcut is used as an enabler in the viral marketing/user-generated ad contest Doritos. It seems to have the effect of a viral buzz effect in online social networks while simultaneously getting some high quality ads for Doritos.

If you haven't already, take a look at the ads in Crash the Superbowl. What I couldn't help notice is that 3 out of the 5 ads seem to be using some type of accident for humor.

While we're on the topic of user created ad contests, check out some submissions for the Dove's user created ad contest (which was open only to women), supposed to air on Feb 25 during an Oscar commercial break.

If you are from my Wharton class, you may find this description of the JumpCut CEO at VentureBeat somewhat amusing: "He then enrolled into Stanford’s MBA program, where they teach you to start companies."

While we're thinking about monetizing social networking and user generated content, you may also find Prof Percival's comments on valuing social networking ventures quite interesting:

If MySpace becomes the model, social networking sites will be quite different from the classic dot-com bubble companies which tried to cash in big by going public while staying independent. The risks are not the same when an iffy venture is part of something bigger, says John R. Percival, adjunct professor of finance at Wharton. "This is kind of like the oil and gas business. The risk might not be as great as you think, and a high valuation might be justified."

A small, independent oil driller faces a huge risk in drilling a new hole, which may be dry, he says. Compared to that, risks from changing oil prices and demand are relatively small. But the situation is reversed when the driller is part of a bigger enterprise that drills many wells. A dry hole here and there doesn't matter, but changes in oil prices and demand do.

Social networking sites may be risky for their founders and the venture capital firms that fund them in the early years, but they don't appear to be pumping huge amounts of risk to the marketplace the way tech firms did in the late 1990s. "If you have a little bit of money invested in this and you're already invested in other things," says Percival, "frankly the risk is not as big as you think."

MBA @ Wharton: Comparing Wharton's MBA Program for Executives and the Fulltime MBA

We have had quite a few prospective students visit our class. One question that has consistently come up at least in my conversations is exactly how are you equivalent to the fulltime MBA and how are you different? In other words, for the marketing aficionados, what is the point-of-parity (POP) and the point-of-difference (POD)? :-)

I've spent a bit of time thinking, talking and probing the differences. Here's a short analysis. You may find it useful to contrast this with the official comparison.

First, let me make this crystal clear. The academic rigor of the MBA Exec program is unquestionable. Having applied to and having sat through classes (including an entire weekend) in several other schools, the quality of instruction and the rigor has very few parallels if any. The course content is not exactly the same but its very similar to and just as rigorous as the Wharton fulltime MBA coursework.

So its simply NOT a watered down MBA program for the working professional. You certainly want to keep that in mind before you apply. You will find yourself testing the limits of your ability to balance when you are in this program.

Here are some other parameters.

• Opportunity Cost: Taking a break from a fulltime job incurs a significant opportunity cost: two years of lost salary, experience and on-the-job networking. In addition, you're going to have to pay the regular tuition plus living expenses in Phili. The flip side is that in the MBA Exec you lack a sense of complete immersion. You have to evaluate the opportunity cost taking into account how far you have advanced in your current career path and what it is you want to do in the longer-term (post MBA) and how badly you want to do it.
  
• Cohort: You are generally looking at a slightly older crowd (very young in spirit, of course!) with families and such. I will also say just the numbers (800+ in the fulltime program versus 100 in the MBA Exec class) make the fulltime cohort much more diverse in terms of experience, goals etc. That said, remember that the MBA Exec cohort can give you a run for your grades.
• Career Support: You get access to career management services if you are not a sponsored student. If you are sponsored and want access to the MBA career management services, your management will have to write a letter allowing you to make use of career services. Remember that career management for more experienced candidates in the Exec program is a bit on the experimental side. The career management office is used to working with fulltime MBA candidates. Repurposing their services for the needs of an older, more experienced class is yet to happen.
  
• Networking: With your own cohort, there are plenty of opportunities to network both in and out of class. Your spare bandwidth is the only constraint. Outside of your cohort, its a bit more challenging. The fulltime MBA candidates have a) many invited speakers, b) student run conferences (Wharton Private Equity Conference, Wharton Technology Conference etc), and c) internship opportunities. They also have several clubs that help you with skills improvement, interviewing, resume building etc. Career treks organized by student run clubs are generally focused on internship opportunities for fulltime MBA candidates.
• Electives: Wharton boasts of the largest faculty among all business schools and perhaps as a result of that, I believe Wharton students have access to a very large and diverse set of electives to choose from. This continues to be true for Wharton MBA Exec students, when you compare some of the other Exec MBA programs. The specific set of electives offered are based on a voting process. Therefore, simply due to varied demand resulting from a larger and more diverse class, the fulltime candidates have access to more electives than the MBA Exec students do.
  

A few final points on this subject:

• I believe you can apply to both programs. If you get into both, you can perhaps postpone your decision a bit.
  
• While I can't comment about the official line on transfering from one program to another, I know of people who have done the following types of transfers. In general, it could be very challenging adjusting to a completely different cohort. In the case of a transfer to the fulltime program, you could get quite disoriented if you land up there in the second year. YMMV, but having done some asking around, I would not recommend that.
  
• MBA Exec West (SF) to MBA Exec East (Phili)
• MBA Exec West (SF) to MBA fulltime (Phili)
• MBA fulltime (Phili) to MBA Exec West (SF)

To sum up the decision making process, I'd say if you are trying to move into a career that is a marked departure from what you have been doing (i.e you are not looking to rely upon or strongly leverage your past experience), go for the fulltime program. For example, if you want to move from tech to i-banking, the simplest route is to join the big gang of 800 fulltime MBA students in Phili. But before you do that, make sure you familiarize yourself with the lifestyle of a typical post MBA i-banking job. Note also that career opportunities private equity are very hard to come by and the recruiting process may not help you much. That said, not having to balance family, a fulltime job and the courseload, does give you the time to network with the PE community.

MBA @ Wharton: Recap of Term 1 & Term 2

Doing an MBA at Wharton, while pursuing a fulltime job has been everything I expected to experience AND much more!

Chairman P has done an outstanding job of chronicling Wharton's MBAExec program; I hope to continue on Ron's tracks, add more color and additional insider perspectives on the whole experience.

To start with, I'll try to recap our Term 1 and Term 2. I'll focus on two distinct aspects: the hard skills and everything else.

Term 1

To me the first term/semester (started on May 22, 2006) was the hardest of all. We had a seriously steep ramp-up curve:

1. The first week added the lion's share to the steep slope... about 6-8 hours of classwork a day for five days, oscillating somewhat awkwardly between seemingly ultra-soft stuff ("Managing People At Work") to hard $$$ realities around running a firm ("Microeconomics") to understanding how firms mis/represent their performance ("Financial Accounting").
   
2. I suspect most folk have to maintain a delicate balance of being physically away from work, at the same time being somewhat tuned into what's going on there, while getting a ton of new concepts being pounded at you. The context switches are hard in general, but it could be a lot harder depending on one's particular situation and relationships at work. I for one had a particularly tough time being weaned away from work.
3. Thanks to friends who had just graduated from the program - I had a ton of insight about how the program worked before I started, perhaps a bit too much! The one thing I would emphasize for someone starting the program in 07 or later is to focus on preparing ahead of time. What you really get out of the class is largely a function of how much work you put in ahead of the class. Note that I do admit that this is easy to say but much harder to implement!
   
4. You're just starting to get to know people... and generally alcohol is involved when you meet new people! With hindsight, I would say temper it down to maybe two or three drinks, depending on your tolerance level. Its not exactly easy to transition from a 6-8 hr sleeping hour schedule to alcohol+4hr sleep+7 hours of classwork!

So, what the heck did I really learn in these three courses?

1. Microeconomics: Arguably the most important lesson I learned was in the very first class: the real value of a company (to its shareholders) is the present value of its future cashflows discounted at the opportunity cost. I am constantly reminded of this every time I evaluate buying a company's stock for my personal portfolio. In general the course reminded me of the importance of economic profit, and the importance of watching costs inside the firm and marginal cost per user gained. Ideas around expected utility and game theory were intellectually stimulating but I'm still working on developing a real world appreciation for those. We cogitated about common sense concepts of monopoly and cut-throat competition (commoditization) in a more rigorous and theoritical framework.
   
2. Financial Accounting: Having spent most of my career as a technologist, I had worried a lot about my real customers and what they really want. This course exposed to me what your obligations are to a new category of customers: the investors and analysts. In terms of sheer material, I probably learned the most in this course and a newfound appreciation for the difference between accounting profits and real/economic profits. In contrast with Microeconomics, the last day of class where we took apart the financial statements of a real company and looked for holes all over was my most memorable class.
   
3. Managing People At Work: Lesser said about this course the better! Basically, many of us already have a great deal of experience managing people at work... this course attempted to reify one's perspectives on people management. While I do agree working with and managing people is the most important aspect of running a firm, I'm ambivalent about the utility of being taught management frameworks in class! All that said, the Field Application Project (FAP) was a commendable component of the course: to complete the requirements of the FAP, you identify a 'management' type project in a company of your choice and you apply the frameworks and concepts you learned in class to a real life problem. This might sound very sexy in theory, but when you combine heavy workload in Accounting and Microecon with a real life (i.e work & family) and your first exposure to study group dynamics, you end up losing appetite to solve a real world problem fast... UNLESS you can combine it with something at your work place. One way to ensure you (and your group) does a good job in this course is to pick a project that you or someone in your study group is personally invested in.

Term 2

In my experience, Term 2 was much easier to manage in comparison to Term 1. I had a better sense of devising a best known method to optimize my performance at home, work and school. Term 2 should have been more work, with three 1/2 credit courses and two 1 credit courses.

While its hard to describe what I really learned from our Leadership class and how best I can apply what I learned in the the real world, I have to say Prof Mike Useem is probably the best person to teach the course. In particular, I enjoyed the corporate social responsibility slant of the course.

Macroeconomics was most fascinating to me. I have a new sense of awareness about the macroeconomic environment in which a) firms conduct business, b) I invest my own money :-), and c) the use of macroeconomic trends and numbers to evaluate the social impact of government policies. Hats off to Prof Andrew Abel for a great course! The YouTube video from Columbia sums up the type of things you learn in a Macroeconomics course, including their opinion on our textbook!!

Prof Waterman's Statistics was another great course - much of it was about statistical methods and inferences to real world problems. When I invest my own money and look through technical analysis, I have a much better sense for correlation, alpha, and beta among other things. The course also hones your skills to draw better inferences from pictorial descriptions of data such as histograms and graphs.

The trip to Philly was another highlight of Term 2.

At the end of these two terms, the one thing I feel certain about is the workload associated with any course at Wharton. It doesn't matter whether its a soft course or a quantitative one - you have to expect to put in an obscene amount of time to stay on top of what's being covered in class and do reasonably well in the evaluation components (exams, assignments, projects etc).


Beyond the Classroom

The Wharton experience is intense. The program doesn't sacrifice academic rigor: that includes the number of credits, the number of hours of instruction and tests. Basically the program cuts you no slack just because you are holding a fulltime job.

You quickly learn how to best optimize your effort - at work, with family and at school. You learn to not waste time and the art of prioritizing. When you are working upwards of 65 hours a week, you develop a unique combination of mental and physical stamina as well as the ability to context switch. I believe these are important qualities to have in an operating manager. You also learn to better appreciate leisure and downtime!

The flip side is that you end up attempting to absorb a TON of material in a compressed calendar schedule. (For instance, Abel & Bernanke's 600 page text book.) Add to this the pressure of grades, it ends up being a challenge to develop a real world appreciation for the concepts being taught.

The residency requirement (at Le Meridien) gets you socializing with your classmates (poker, fantasy football and parties), but when you are juggling several balls, you are pretty strapped for time and energy to network outside your class especially during the regular work week.