Monday, October 26, 2009

What is Wall-Street all about?

OK, while I was fixing my toilet using my hands I began to tackle this equally difficult problem in my head. I frequently was asked on this topic and I usually had nothing much to say. Now the toilet is fixed and I think I got an answer for this one as well.

To me, Wall-Street is all about Key Words. It's a holy place where magical words are communicated freely and by doing so, total financial domination is ensured. These words include, but not limited to, Leverage, Conviction, Platform, Execution, Expertise, Vision, Cognizant, Globalization, Supply-Chain, Logistic, Market Niche, Positioning, Competitive Edge, Monetize, Dynamic, Liquidity, Utilization, CAGR, Proprietary, Synergy, Pipeline, Volatility, Risk-Neutral, Stochastic, Tail, and Monte Carlo Simulation.

Anyway, there will be a lot of words, so it is going to be hard to memorize all of them. That's why bankers/fund managers are paid big bucks. When we judge a banker or a fund manager, we look for KWF ratio (i.e., Key Word Frequency). In general, the frequency in a given paragraph should follow a nominal distribution, with mean of 3 and standard deviation of 1. Basically more Key Words you use, more convincing you sound.

Confused? OK, let me demonstrate a short conversation between a very well spoken smart-looking fund manager and a curious reporter.

Reporter: Hello, Sir. I was told you are one of the best fund managers out there. What’s your secret to success?
(Watch carefully here. The magic begins.)

Fund Manager: It’s about leveraging our proprietary platform given the dynamic of the market place. You gotta have capital and willing to put money to work. Yet you need to be nimble and be flexible. You need to be focused and always cognizant of maintaining your competitive edge. It's a big world out there and you can’t get lost in globalization. You know what I mean?
(No wonder the Fund Manager is a pro, he is good! 7 Key Words already!)

Reporter: Ugh.. Actually I don’t. Sorry, what exactly is your strategy again?

Fund Manager: (The manager will for sure laugh a bit here) It’s funny that you ask this. That’s a really good question. Our real expertise is about execution. Actually it’s all about execution. You can always stochastically model out things here and there, but to really monetize the fat tail, you need to stay liquid and be strategic. You know liquidity is always your best friend. (Laugh... the manager will definitely laugh here.) If you are able to achieve all these, I am sure you can also have a target CAGR north of 20%.
(Another 6 Key Words. Impressive indeed.)

Reporter: O….K…. I am still confused but anyway. So are you saying that your fund has achieved over 20% annual return even in this tough market?

Fund Manager: (The manager will for sure laugh even harder here) Haha… you gotta understand the meaning of volatility and be patient. Our fund may be up or may be down, but it’s not about numbers. It’s about you long term vision. Sometimes we are able to find a niche market, and build our pipeline. Sometimes we stay risk-neutral and be opportunistic. At the end of the day, everyone knows that short term success is easy to achieve, but a true vision is what really gets you far. (At this time, he will probably stare at the reports’ confused face and continue) Don’t worry about it and I know it’s a lot of information I am throwing at you. It takes time to digest, and you will get there. Trust me!
(The manager shakes the report’s hand, pats on his back gently and slowly walks away with a friendly smile on his face.)

See? That’s the way Big Shots roll. Bravo! I am in awe. This is what Wall-Street is all about, my friend.
(Please do not forward this message to any investment bankers. I will deny any association with this article in its absolute entirety. I didn’t fucking write this. Fuck-off. I don't want to burn any bridges.)