Values – Brooke Allen

Why business schools charge so much and pay their teachers so little

College diploma with rip-off seal

by Brooke Allen

You and I know why business schools charge so much for an MBA.

Because they can.

But why do they pay so little to everyone except their superstars?

It’s not just because they can. I think the real reason is much more sinister than that.

Once upon a time—before starting my MBA at NYU in the early 1980s—I thought that there was something wrong with extracting the most from someone while giving the least in return. That was back before my first finance professor said, “The sole objective of the professional manager is to maximize the net present value of the wealth of the owners.”

I had an ethics class where the explicit message was, “Crime doesn’t pay.” But the implicit message was, “It isn’t a crime if it is merely immoral and not strictly against the law.”

At no time during my MBA did I learn how to make a product—any product. But that was OK. I was already a pretty good programmer and I didn’t need NYU to teach me how to make things. However, I was only a part-time student and freelanced full time to pay for school. I needed to learn how to get clients. Continue reading “Why business schools charge so much and pay their teachers so little”

To save Wall Street, start with better parenting.

Boy in amazement holding money on white background
by Brooke Allen

This past February, I retired from finance. Although I intend to continue to study the markets and write about them, I have no intention of ever working in the securities industry again. This makes it easy for me to talk to you about what I think is going on and what needs to be done.

I worked at Merrill Lynch as a computer consultant in the mid-1980s, and from 1986 through 1992 I was an employee—first doing research and later creating and running trading desks in New York and Japan. After a brief stint at Credit Suisse First Boston in Tokyo, I returned to the US in 1993 to work as a consultant to a couple of large Wall Street firms. In 1995, I built and ran a statistical arbitragetrading desk for the US branch of a medium-sized Canadian securities firm.

This February, at the age of 61, I retired from that job of 18 years. I can honestly say my time at that Canadian firm was the best of my entire working career and unlike anything I experienced at any other Wall Street firm. At first I could not put my finger on the difference, but at a Christmas party an elderly co-worker from South America I’ll call Eduardo told me he’d been wondering about the same thing. “I have figured it out,” he said, “The word is ‘decent’ and my theory is that in Canada they raise their children to believe that it is more important to be decent than to be rich.”

Although I’m US born-and-bred, both of our sons went to college at McGill in Montreal. That gave me an opportunity to meet plenty of Canadian young people, and if I suggest Eduardo’s theory to their parents, a typical response would be, “Of course I want my children to be decent; who wouldn’t?”

Real engineers understand ethics in a way financial engineers do not

Andrew Lo was the keynote speaker at the 2010 annual meeting of the International Association of Financial Engineers. Lo heads the Laboratory for Financial Engineering at MIT and his talk was titled: “WARNING: Physics Envy May Be Hazardous to Your Wealth!” He explained that a mistaken belief that financial markets can be treated the way physicists treat the natural world leads economists and financial engineers to a false sense of precision that can have disastrous consequences. You used to be able to find a very watchable version of his talk here but it has been removed for some unknown reason. However the last time I searched for it, you will find his his 71-page paper here.

I came ready to ambush Lo, and after his talk I held up a slide rule and said, “Despite the fact that I brought my slide rule and my pocket full of pens, and that I’ve been using math in this industry for three decades, I know I’m not an engineer. And I know people who are engineers–some of my best friends are engineers–and I don’t think there are any engineers in the world of financial engineering.” I said the distinction between us and real engineers is that we don’t take responsibility for our actions and hold ourselves to the same ethical standards. I asked, “How come the other engineers don’t say, ‘What are you doing to our name?’?”

Continue reading “To save Wall Street, start with better parenting.”

How to give me a negative reference on LinkedIn

By: Brooke Allen (you will find my LinkedIn profile here.)

Be aware that on LinkedIn you cannot give me a negative reference unless I approve it.

This is bad news because if it is impossible for you to say something negative, then the positive things I might allow you to say must be taken with a grain of salt.

I want you to give me a fair and balanced reference so others can have an accurate picture of who I am, and I want you to let me know what I’m doing wrong and how I can improve.

But before you give me a negative reference let us establish a few ground rules. Let’s begin with:

Motivation – Why do you want to say what you do? Why do I want to hear it?

Familiarity – How well do you know me and my work?

Rationality – Are you basing your statements on facts and valid reasoning?

Let’s analyze each in more detail…

Continue reading “How to give me a negative reference on LinkedIn”

Want passion? Look for something that makes you angry.

WomanWithHair

Whenever I speak at colleges I begin by asking, “Why are you here?”

This catches the students off guard and after batting the question around for a bit someone says, “To find my passion.” The rest agree and they imagine they are done with the topic.

But I am not done with them.

I ask them to define “passion” because if you cannot say what a word means then you are shooting the shit rather than answering a question.

So they discuss that for a while longer and eventually settle on some variant of, “I don’t know what passion is but I’ll know when I have passion for my work because I won’t have to motivate myself to do it.”

“Really?” I say, “Where I come from we have a word for that, and it is ‘like’ as in ‘I like my job.’ But I know I am passionate when I do something even though I hate every second.”

“Why would anyone do a job they hate?” someone asks.

I want to say, “It might be because you have bills to pay and you don’t want to live off your parents or the state.”

But, instead I say, “I don’t know. Why did my dad lie about his age so he could enlist a year earlier than allowed by law to become a paratrooper and jump out of airplanes while the Japanese shot at him? That was something he hated to do, but he did it anyway, and he did it because of something called passion.”

At this point the class looks flummoxed but intrigued. Continue reading “Want passion? Look for something that makes you angry.”

You do not need permission to do the right thing. No one can give you permission to do the wrong thing.

I went to college in 1970. By 1974 I had a degree in mathematics and experience hitchhiking to every state of the union except for Alaska and Hawaii; perhaps 30,000 miles in all.

I learned more about how to live from those experiences than anything I learned in a school. Here is the story of what I learned from a man in the pick-up truck who took my girlfriend and me from central Minnesota to just west of Fargo, North Dakota.

Had I not learned this lesson my life would have been very different; not only would I have been much less inventive I would not have had the courage to stand up to some of the shenanigans I saw during the 30 years I was on Wall Street.

I’ll call him Jeb. I don’t remember his name, but during Prohibition he used to bootleg whisky, so Jeb sounds like a good bootlegger’s name, don’t you think?

He said the pay was good and it was exciting work because the cops were always chasing you, but it wasn’t very intellectual. The only creative thing he learned was the Bootlegger’s K-Turn. He left the Interstate for a side road to show us how it is done. I’ll draw it for you: Continue reading “You do not need permission to do the right thing. No one can give you permission to do the wrong thing.”

How my life was changed when I began caring about the people I did not hire.

Ask yourself this question, “What do employers owe the people they do not hire?” I asked myself that question more than a decade ago and it changed my life forever.

On Sunday, January 18, 2004, I ran a help-wanted ad in the New York Times that read in its entirety, “Programmer – Will train, enjoyment of mathematics a plus” followed by an email address. I was heading a statistical arbitrage trading desk and I needed help maintaining all the code I’d written.

I was surprised to get more than 300 resumes and because nobody had experience in the language we use (APL), and I could not gauge learning potential from a resume, I sent everyone a link to a 500-page manual (latest version available here), and I suggested applicants try their hand at a half-dozen puzzle questions they could easily answer in this language.

openhouse07 Thirty-eight people answered the questions so I invited them in for an open house. I had them sit on our trading floor for a bit where they played a game I’d written called BF Game that simulated an information market. We talked about the technology and the nature of our work and then I asked them what they thought I should do next.

Twenty-seven of the applicants suggested I teach them all first and then make a hiring decision, so I ordered tables and chairs that arrived the next day. And the day after that we built a classroom. Continue reading “How my life was changed when I began caring about the people I did not hire.”

Do Traders and B-School Grads Play Fair?

I am a securities trader with a business degree, and I wonder if we are like normal people.

Let’s find out.

Imagine $10 has to be split between two people who will never meet each other. The first person can propose how the money will be split and if the second person accepts the proposal then that is how it is distributed. But if the second person refuses then neither gets anything.

Although this should be enough to understand the question, you might enjoy reading this article in Quartz called Can You be Greedy Without Being Selfish.

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Karma – The only currency the IRS cannot tax and the FED cannot devalue.

by: Brooke Allen
brooke@brookeallen.com www.BrookeAllen.com

The InterContinental Hotel Group (NYSE Ticker: IHG) is the largest hotel group in the world with seven brands (Intercontinental Hotels, Crowne Plaza, Hotel Indigo, Holiday Inn, Holiday Inn Express, Staybridge, and Candlewood Suites). They claim more than 645,000 rooms in over 100 countries.

priorityclub If I take the time to join their “Priority Club Rewards” program, I get exclusive benefits like a free newspaper once a week. After I accumulate 20,000 points I get additional goodies such as Priority Check-In and a special phone number so I can wait less time on hold. Points are easy to accumulate because many of their rooms cost more for one night than I spent for an entire semester’s college tuition.

As a Club member, they would begin collecting information about me and my preferences so they can tailor an experience just for me. They promise not to release that information to anyone – not even me.

I never bothered joining. Unlike many, I can afford their rooms without going into debt to the credit card company. The issue is time, not money – my life is too short, and I don’t want to spend my time with them.

Instead, I belong to a different club, one with more space than InterContinental in more than twice as many countries. And my club is adding 14,000 members and 4,000 rooms a week.

And every one of those rooms is free.

My club is run by the Couch Surfing Collective. Although membership is free, four years ago I chose to donate about $20 and they verified that I was who I said I was, and I lived where I said I lived.

Couch Surfing members don’t have membership cards but rather online profiles that can be seen by all 1.8 million members. Other members write references, which can be positive, neutral, or negative – and all references appear on your profile, whether you like it or not.

Right now, I have over 70 positive references (and no neutral or negative ones), and therefore strangers all over the world will welcome me into their homes without any money changing hands. But if I stop Continue reading “Karma – The only currency the IRS cannot tax and the FED cannot devalue.”

Second Greatest Generation

by: Brooke Allen
brooke@brookeallen.com www.BrookeAllen.com

Paul Krugman wrote a piece in the New York Times in which he wonders if Congress will vote on a stimulus package to head off the Great Depression II.

Some believe that it was World War 2 that got us out of the depression because it was the greatest stimulus spending package of all.

I disagree. I believe it was my father’s generation, the Greatest Generation that fought the War and that got us out of the Great Depression.

People, not policies, got us out of our predicament.

The NY Times published my letter.

Recently, I reprinted the letter and illustrated it with stamps from my collection. The top contains U. S. stamps, and I notice they feature leaders and statesmen. The 3 cent stamp to the right commemorates the National Recovery Act of 1933, and it shows a woman, a businessman, a factory worker (with a hammer over his shoulder), and a farmer with a sickle, all walking side by side. There was no inflation during the depression (in fact, there was deflation.)

By way of contrast, Germany had rampant inflation. All the German stamps in my collection are un-cancelled. By the time a postage stamp made it to the post office it was worthless. The left-most stamp is for 10 marks, the rightmost 20 billion! Eventually it took a strong leader to get the economy under control… and we see who that was.

Persistence

Originally published in International FamilyMagazine

Republished in Folks Magazine on 11/7/09.

I was working as a computer programmer at Rutgers University when I saw the perfect job advertised by American Airlines. It had everything that I wanted: interesting work, decent pay, and free travel everywhere American flew.

I sent a letter outlining my skills, and offered to write a resume if they found me interesting. They did not request a resume, but they did call me in for an interview. I thought that it went very well.

A month later, a “thanks but no thanks” letter arrived.

This was disappointing. I called Walter, the hiring manager and asked what was wrong, and why I didn’t get the offer. He said it was just a matter of competition; there was someone better.

I asked what I could have done to be better than the competition. He said it wasn’t likely there was anything I could have done. The person they hired came from the software vendor who had been servicing their account for years. He already knew their needs better than anyone else could have.

“So, why did you interview me?”

“Because the Human Resources department requires that we run an ad and interview three people before we make an offer.”

That made sense.

At the university, I wrote a computer column for a monthly newsletter. Every few weeks I would put out a document about some programming technique or software package.

I put Walter on the distribution list for all my publications. Then I forgot all about him.

Six months later he called me.

“I have a job for you.”

“Great.”

“There is only one thing.”

“What’s that?”

“Get me off that damn mailing list.”

“No problem. I can start in two weeks.”

“We can’t move that fast. It will take six weeks minimum.”

“Why?”

“We have to run and ad and interview three people. But the job is yours.”

If you don’t get what you want, don’t forget to ask why.