It has been said that there are 4 ways to make a movie:

1. Man vs. Man
2. Man vs. Animal
3. Man vs. Nature
4. Man vs. Self

Within these categories, the zero-to-hero motif is very common. After viewing many of these type of movies, I have discovered the formula that the movie writers use to construct these movies.

The formula consists of 3 basic phases:

1. Inadequacy Phase
2. Training Phase
3. Accomplishment Phase

A graph depicting the protagonist’s dignity in each phase throughout the movie can be seen below:

The process flow diagram of the entire formula looks like this:

The graph and the process flow diagram pretty much summarizes over 90% of all the zero-to-hero movies, most notably sports movies.

I read an article a few years ago that in a small town somewhere in the South, a Wal-Mart store opened. A few years after it had opened, all the mom-and-pop stores that sold commodity items went out of business. Many local residents lost their jobs. Competition dried up and the town’s economy was destroyed. It is stories like these that give monopolies a bad reputation.

Monopolies are often associated with high price, a lack of innovation, a lack of options to choose from, too many restrictions, and poor quality. People generally accept the fact that the monopolies are always bad for the consumers. However, there are many times when monopolies are good for the consumer and even cultivate innovation (rather than stifle). People do not see it because they are inconspicuous.

Here are my two prime examples:

1. Microsoft

As of today, Microsoft Windows has a 90% market share, with Apple being a distant second and Linux a dismal third. While I do like competition, I feel that there should only be a single OS in the marketplace. Having a dominant OS is good for consumers because it creates a standardization. If someone has a computer problem, it is much easier to ask for help if everyone else used the same OS. Back when I was in college, there was a computer novice using XP who needed help in setting up a wireless router. He was able to get quick assistance from a fellow student who lived right down the hallway from him. Had he had used a Linux OS, he would have had a harder time in getting help. Every time the Mac students had computer problems, they had to contact the school’s Residential Computing Helpdesk, which was painful.

When a software maker decides to write a program, they would only need to write the program just once. This way, they can spend less time rewriting the same program on different OS and devote more time innovating and making their program better. Eliminating the need to rewrite the same program significantly cuts down on the development cycle time and makes their company more lean. After all, why reinvent the wheel more than once?

If the OS market had more competition and had 10 companies, each with an equal market share of 10%, then it would be very difficult for software programs to be available to everyone. Either software companies rewrite their code 10 times or not have their program be easily available to every single consumer. Even today, with only 3 major OS’s available on the market, it is still very difficult to find programs available on all 3 OS’s. As dominant as Microsoft Office is, you will not be able to find it on Linux, only on Windows and Apple. While there are alternatives to MS Office on Linux, there are many advance features on Office that are not compatible with the “alternatives” (e.g. conditional formatting in Excel).

Why this monopoly is good: Creates Standardization

2. Wal-Mart

While it is subjective that Wal-Mart “destroys” local communities, what isn’t subjective are their ultra-low prices. The reason why Wal-Mart is able to put many mom-and-pop stores out of business is because of their efficiency. Wal-Mart’s hyper-efficient supply chain is what enables them to supply the same commodity goods to the consumer at a lower price. Allowing Wal-Mart to wipe out competition is good because it enables them to crush inefficient businesses. As a consumer, if a company can offer me a can of Coke for $0.50, then I can care less about the number of companies who can offer it to me for $1. Keep in mind here that efficiency is defined by how cheaply a business can deliver a good to the consumer. I once had a discussion with someone who argued that Wal-Mart eliminating small business was bad because it reduced competition. Reduced competition is only bad if it is achieved by barriers to entry, such as economies of scale (e.g. the airline industry), intellectual property (e.g. Apple’s multi-touch technology), supplier agreements (e.g. cable and telecommunication), etc. However, if consumers prefer a particular company over others, then a reduction in competition is not a bad thing.

For example, if I am holding a basketball tournament to find the best basketball team (a consumer finding the lowest price), I would like as many teams to join into the tournament as possible (more competition is good). Preventing teams from joining would be bad (barriers to entry). However, as the tournament progresses, teams will be eliminated (consumers choosing not to shop at expensive businesses). Eventually, there may be a winner (e.g. Wal-Mart). In most industries, the tournament never ends and there is not a winner because many teams are often equally matched and/or new teams continually enter the tournament.

In the end, the consumers are the ones who choose who the winner is. And in this case, that winner is Wal-Mart.

Why this monopoly is good: Elimination of non-efficient businesses

I once overheard a coworker informing his friend that he was ecstatic that his entire 401K portfolio dropped by -15% in just over a few months. Hearing a reaction like that would have baffled any eaves dropper; I know I was. What investor on earth would love to hear that his lifelong investments had dropped by 15% in a matter of months? I certainly would not be pleased. However, the missing key detail to this story is that this happened in late 2008, when most people’s 401K dropped by about 30% when the house of cards at Wall Street started to crumble.

Over the past decade, many companies reaped recorded revenues and profits. However, things have drastically changed in the past couple of years. We are in one of the worst recessions in over 70 years and many companies are now struggling to survive. Many businesses have either faltered (e.g. AIG, Washington Mutual), went bankrupt (e.g. Lehman Brothers, Mervyns, Circuit City) or simply operating in the red. As such, I fail to see why some companies, who are actually making profit in this crumbling economy, feel as though their profits “must” grow at a certain percentage over the previous year.

I understand why companies should forecast increasing profits: to satisfy investors. However, growing profits at 10% each fiscal year should be an average target. In some years, companies should forecast growth rates above 10% while during other times they should forecast lower, depending on the market. If one agrees that companies should increase expectations if the market growth rates are high, then the opposite is true; companies should lower expectations when market growth rates decline. For example, if the consumer PC market is growing at 20% a year, then companies like HP should be targeting growth rates of at least 20%. However, if the PC market is declining at a rate of -10%, then HP should be content with growth rates of 0%. Through many business cycles, companies should be averaging growth rates at a particular rate, like 10%. Unfortunately, this is not the case. Many companies choose a certain growth rate percentage (like 10%) and stick to that number no matter what the market condition is. Companies view this “growth rate” like it is some magical number and going below that number spells doom. Much like how gas price fluctuates everyday according to supply and demand, yearly growth rates should always be changing with the market. Ralph Emerson said it best when he said:

“A foolish consistency is the hobgoblin of little minds”

When company growth rates do drop, then they often use the “we must please our stockholders” excuse to lay employees off, despite what is going in the rest of the market. As long as a company outperforms the market, investors are generally happy, much like the coworker whose 401k declined by -15% (he beat the market by 15%). I would love to meet a “shareholder” who expects their company to grow at 10% over last year’s record profit levels at a time when the Dow dropped 30% in value in less than 6 months (from Aug ‘08 to Feb ‘09). That is like expecting Michael Phelps to beat his all-time fastest 200m freestyle time in choppy waters.

What I do believe is that the companies who are outperforming the market use the “stockholder expectations” as a way to offset the responsibilities of downsizing off of the executive’s shoulders. I do not believe that downsizing should always be avoided, but decision makers should take responsibilities for their actions. It is another way to displace accountability to a scapegoat with no face. Why take the blame when you can point the finger at the one armed robber who got away?

Whether you favor Obama or not, today’s inauguration is history in the making. The road before President Obama will  be a long one. Although he has made many promises, I hope he is able to keep half of them. Good luck.

The above picture is my personal tribute to our President.

About two years ago when I was in Berkeley, I was sleeping in my bed when all of a sudden I woke up and felt like I was drowning; there was a constant flow of liquid going down my throat. I was forced to swallow the unknown substance. When I came to, I realized that I had a nose bleed and the flow of liquid was actually blood dripping down my throat. I got up and my pillow and bed sheets were all red. After 30 minutes, my nose bleed never coagulated and I began to panic. I called a friend and asked him if he could drive me to the local hospital. When I got to the ER at 3am in the morning, I was informed that I was “next in line” to see a doctor and that I should wait in the waiting room. When I entered the waiting room, I noticed a few homeless people sleeping but no other individuals who look like they were waiting for a doctor. I sat patiently in the room. When I was called upon, I looked at the clock and it was 8am. I walked out of the hospital in frustration; despite being “next in line”, it took me 5 hours to see a doctor at 3am in the morning on a weekday.

Although I have rarely ever been to the ER, my situation is far from anecdotal. We all have heard of many similar horror stories of long wait periods and ludicrous medical bills from the ER. America is the only wealthy, industrialized country without universal health care. Accordingly, the demand for health care is lower than what it could be. If demand for health care is relatively low, and if it takes me 5 hours to see a doctor at 3am in the morning on a weekday when I am “next in line”, then surely wait times would be excruciatingly longer if universal health care were to be implemented due to the increase in demand for doctors. As of 2007, 45.7 million Americans are uninsured. If universal health care is adopted, then the demand for doctors will increase by 45.7 million people. Since the supply of doctors will not be able to increase enough to offset the demand (have you ever heard of a medical school with a >10% acceptance rate?), there will be an even greater shortage of doctors in this country. While the current uninsured individuals benefit from having access to medical care, the 84.7% of Americans who currently are insured will be hurt by having less access.

Some might argue that the 45.7 million uninsured people are already receiving medical treatment (federal law ensures public access to emergency services regardless of ability to pay) so the demand for health care will not increase by that much more. While this is true, this argument ignores the increase in demands in other areas such as office visits, in- and out-patient services, etc.

While I am for the idea that everyone in this country should have access to health care, I do not agree that implementing universal health care right now is the solution because it will put too much strain on the health care infrastructure. It is like raising the minimum wage from $6.55/hour to $100/hour; this will devastate the economy because businesses are incapable of supporting the change so quickly. Fix the infrastructure first (which will take a very long time) then implement universal health care later.

Paying items by credit card is much better than cash. Here are my reasons:

• No Pennies: No need to cringe when the total comes out to being $10.01. Also, I hate carrying change in my pocket for several reasons: they’re heavy & dirty, they make too much noise, and they tend to fall out of my pocket when I sit down. If I use a credit card, I eliminate all the loose change in my car and underneath my sofa. Thus, my net worth is higher because I reduce the chances of losing money.
• Safer: By Federal law, I am only liable up to $50 per credit card for unauthorized transactions! This is safer than losing a wallet and all the cash inside of it.
• No ATM Fees: I do not have to worry about whether or not I have enough cash to go shopping at the local mall. In addition, I do not have to worry about the double transaction fees accompanied with using a third party ATM.
• Lean Wallet: I am not a fan of carrying a wallet that looks like it goes to the gym every other day. Nor am I a fan of having the illusion that I have a tumor in my upper thigh from carrying such a bulky object. Thus, the less cash I carry, the merrier. If a single credit card can replace lugging around nine one dollar bills, then I am all for it!
• Confidence: Want to return that “As Seen On TV” knife set because it does not cut through marble like a hot knife through butter? No problem, just dispute the charges! American Express makes this process very simple. This, along with high transaction fees, is the reason why many stores do not often take American Express. If you paid by cash, then you are at the mercy of the store that you purchased it from.

Take away point: Just as long as you use a credit card wisely, then using a credit card is much more efficient than using cash.

Often times, I get confused between some celebrities for other celebrities. And even after years of seeing some of them on television, I still cannot tell them apart! Here are some of the celebrities that I am talking about:

Tyson Beckford and Tyrese

Sean Faris and Tom Cruise

Reese Witherspoon and Christine Taylor

Patrick Swayze and Kurt Russell

Kirsten Dunst and Julie Stiles

Another pair of celebrities that I often get confused between are Kirsten Dunst and Julie Stiles, but most people disagree with me on this one.

Conventional wisdom tells us that athletic people have high metabolism while nonathletic people have low metabolism, right? After all, many of us can recount the times in which we ate the same amount of food and perform the same amount of activity as a friend throughout the day, yet you gain more weight than they have because they have a higher “metabolism” than you do. It then seems as if metabolism allows you to burn more calories. If this is the case, then this essentially means that nonathletic people have more efficient bodies, right?

Mathematical Example:

Let’s say that there are two people: you and Joe. You and Joe eat the same amount of food during lunch and hence, you both gain 1500 calories. You and Joe then play basketball together later that day and perform the same amount of work while playing. However, by the end of the day, you gain 0.15 pounds (there are 3500 calories/pound of fat) while Joe gains 0.1 pounds. Typical wisdom would tell you that Joe has a higher metabolism. However, let us look at this situation more closely. Knowing that unburned calories turns into fat, I will safely assume the following simple formula: [Calorie Intake] - [Calories Burn] = [Calorie Turned into Fat], where a higher metabolism will yield a lower [Calorie Turned into Fat]. Now, let’s organize this problem:
You

• [Calorie Intake]: 1500
• [Calorie Turned into Fat]: 500
• [Calorie Burned]: 1000 (1500 - 500)

Joe

• [Calorie Intake]: 1500
• [Calorie Turned into Fat]: 350
• [Calorie Burned]: 1150 (1500 - 350)

Now, because a more efficient body burns less calories per calorie intake, I will define efficiency as [Calories Burned]/[Calorie Intake], where a lower number means more efficiency. Thus, we get
You

• Efficiency: 0.7 (more efficient)

Joe

• Efficiency: 0.8 (less efficient)

From this, we can see that your body is actually more efficient than Joe’s!

Non-Mathematical Analogy

This idea can be seen intuitively. If you and another individual consume the same amount of food and perform the same amount of exercise, yet if you end up gaining more weight, then this means that you are burning less energy than the other person because you have more left over energy that is being stored into fat. Thus, you are burning less energy per given activity.

An analogy to this example is fuel efficiency in automobiles. Let us compare two automobiles: a car (e.g. you) and an SUV (e.g. someone with a higher “metabolism”). Let us assume that they both start off with the same amount of gas in the tank (similar to calorie intake from eating) and they both travel from one city to another (performing an activity like sports). By the end of the trip, the car will have more leftover gasoline in the tank (fat) than the SUV, due to a higher MPG. The amount of gas left over in the tank is analogous to the amount of fat that you have gained. It is clear to see that the car, not the SUV, is more efficient because it consumes less energy to perform the same activity.

Knowing that a higher metabolism leads to a more inefficient body, it would then mean that we would all prefer to have more inefficient bodies because it allows us to burn off more calories and gain less weight.

In Statistics class the other day, we were learning Baye’s Theorem and the concept of the theorem is heavily used in the medical field to find the probability of an individual having a disease after being tested positive. What was interesting to learn is the fact that a 99% “accurate” test can really be 90% wrong, which was very interesting to know. Conventional wisdom would tell you that a 99% accurate test would be 99% accurate and 1% wrong, right? Well let us explore that concept. Keep in mind that this is not limited to a disease test, but can be applied to other tests as well, such as a pregnancy test.

Let’s suppose you take a medical test with the following facts:

Facts:

• If you have the disease, the probability of the test being positive is 99%
• If you do not have the disease, then the probability of the test being positive is 10%
• 1% of the population has the disease

To solve this problem, I am going to look at the statistical analysis of it first, then look at it from a non-technical perspective for those of you who do not care about the math.

Statistical Analysis

Now, here is where statistics comes into play. Let us define the following random variables:

Random Variables:

• D=1 if person has a disease, D=0 if not
• T=1 if test is positive, T=0 if negative

Thus, the probabilities of the random variables will then be (caution: heavy statistics usage)

• P(T=1|D=1) = 0.99
• P(T=0|D=1) = 1- P(T=1|D=1) = 0.01
• P(T=1|D=0) = 0.10
• P(T=0|D=0) = 1 - P(T=1|D=0) = 0.90
• P(D=1) = 0.01
• P(D=0) = 1 - P(D=1) = 0.99

Finally, the probability of you actually having the disease given the test is positive is

Thus, the probability of you actually having the disease even though the test is positive is only 10%!

Afterthought

The biggest issue here is the definition of “accurate” as listed by a medical test. Most people would assume that if a test is listed as 99% accurate, then the test will always be 99% accurate. However, this is not generally the case. “Accurate ” typically means that if a person has a disease, the test will be positive 99% of the time and will be negative 1% of the time. However, this does not mean that if the person does not have the disease, then the test will be negative 99% of the time. Thus, the condition of whether the person has the disease or not greatly affects the probability of whether the test will be accurate!

Therefore, the probability of an individual not have the disease and testing positive greatly outweighs the probability of the individual having the disease and being tested positive. This concept leads “accurate” medical tests to being inaccurate most of the time.

So, the next time you test positive for a disease or for a pregnancy, then caution the accuracy of the test.

This quarter is probably by far my busiest. Between TAing a course (attending class, working out HW solutions, hosting discussion and office hours), taking two classes, auditing another, taking two seminars, doing research again (more meetings to attend to), studying for business cases, running everyday and still making it to Berkeley every weekend has really taken a toll on me.

However, I will always remember this quote that I read when I was young: “if you are going through Hell, keep going”.