Trouble with Microsoft

I joined Microsoft in the year 2000 as a software developer in Visual Studio group and left it in the year 2005 to join another hi-tech company in the Seattle area. When I left Microsoft it was not the same company that I joined and certainly not the same company that Bill Gates started or probably hoped to have created.

Y2K was the turning point for Microsoft. Bill Gates relinquished the CEO post in favor of Steve Ballmer. In those 5 years Microsoft changed drastically. It got Ballmarized. Steve Ballmer despite all his persistence, hard work and selling skills was hardly the technical visionary that Microsoft needed. Microsoft of Bill Gates was a place where software developer had a lot of say in the product. In Ballmer's Microsoft that task was delegated to program managers and business managers. This led to an explosion of the number of program managers that the company hired. In a bit to diversify in any and every way possible the company size ballooned. Microsoft was hit by what they were most afraid of - "The invasion of bozos". Microsoft was now a run of the mill American corporation run by the MBA types with their power point slides showing synergies, six sigmas and five Ps.

One of the most important discipline in software development at Microsoft is Software testing. It is also the weakest link in Microsoft product development cycle. Most good testers end up moving in to the development discipline leaving the mediocre to be at the top of the stack. Now the people would rise to the top in the test discipline will be from this collection of mediocre engineers. There is a saying - "A hires A but B hires C". So these mediocre engineers who are now mediocre or poor managers hire even worse engineers leading to a sustained quality degradation. I remember working with such bright testers when I had just joined the company but lately the only testers I meet are the spouses of Microsoft developers or the people who could not get a job as a software developer.

So many tasks of the software development have been taken away from the software developers and been given to the PMs and testers that testers and PMs have become developer's burden. A software development engineers now has to first help a PM write functional spec and then write his design document. The developer then has to help the tester write the test plan. He also needs to do the actual work of writing the software all the while teaching program managers and testers how to do their jobs(not because PMs and testers are incapable but because they need a lot of context from the developers). And these tasks are not really what determine her performance. her performance is determined by her "visibility". Visibility at Microsoft is determined by how well the people higher up know you. So really you can get by without doing much of your work if you have good visibility. This incentive system has led to an explosion of conversational developers. A conversational developer is the one who hasn't developed code in a long time but he can compose long emails. Really if you can do by just writing emails then why write code? In the mean time, software code sill needs to be written and tested. To do that you will need to hire more people. College hires are great for this purpose. They are sharp, quick and love to code. But after staying in the system for a few year they realize what really is needed to move up. So every year more and more developers graduate into conversational developers and the company needs to hire more and more engineers to do the work.

In the year 2000 when I joined Microsoft there were 20,000 employees. When I quit Microsoft it had about 45000. Today they have more than 90,000 employees. Microsoft executives will say, we have grown our profits at the same speed but what they will not tell you that more than 100% profits are still coming from the same products as they were 10 years ago.

The world around Microsoft is changing at a rapid pace but Microsoft is so slow in adapting to change that it is not even considered relevant today, even by the EU commission. Microsoft's condition can best be described by their own advertisement of Office 2003 where a bunch of dinosaurs were roaming around clueless. It has become so bad that they spent 300 million $ on advertising that their latest Windows product ain't "that bad".

In the history of corporate American there has never been a more profitable company but today with technical innovation all around them they are at the verge of losing one of the most complete monopoly in the history. There is only one way to save Microsoft and there is only one person who can do it. It is Steve Ballmer by resigning from the CEO post. Microsoft needs to be deBallmarized.

Its business as usual at big banks.

Today I read two news items about Citibank. First is that Citibank is paying off the TARP money to the US taxpayers. A smart move just in time to remove restriction on the executive Christmas bonus. Citibank is still the mess it was a year ago so what about the capital ratio of the Citibank especially after they have such a huge tax liability. Here comes the second news item in pictures. IRS has decided to give Citi a massive tax break so that Citi's capital ratio does not dwindle.

So lets put these two things together and try to see what just happened. Citibank is returning the money it borrowed from the US taxpayers so that it can award obscene bonuses to its executive but it still needs money so it gets a tax break from IRS which is effectively a bailout from the tax payers. So tax payers remain where they were but Citibank got rid of a liability and now they have no restriction on the compensation.


Another headline caught my attention. Citibank has blasted Abu Dhabi sovereign fund for not investing money in it as promised. So banks like Citibank and Goldman Sachs are willing to give much higher return on capital to sovereign funds and investors like Warren Buffet rather than accept the TARP money because the TARP money puts restriction on the compensation. Folks if this is not conflict of interest, I don't know what is. This behavior makes investing in these banks highly risky too.

In the end it seems that the only way to make money for an common person is to become a trader at one of these banks.

Why we still haven't hit the bottom?

There is a good article on gurufocus explaining the point of view why the market hasn't hit the bottom yet and the recent advances in stock market are a short lived phenomenon. It is quite interesting read and I agree with most of these reasons. Although I haven't said it earlier but stocks don't look cheap to me. Most of the valuation tools have hit the singularity. I am still trying to get my cash out or hedge my positions. It is a continual process, a slow and painful too. Considering that VIX is down a lot recently, now may be a good time to buy SPY puts or a levereged short etf.
Coming back to the valuation, here is the article

The arrival of spring

The cold hard winter is gone. Market participants are celebrating the arrival of spring by raising DOW over 10% in a week. As for me I remain pessimist about the state of the economy and the market should really just be a reflection of that in long term if not in short. Furthermore, there is too much sentiments on the wall street leading to irrational happenings. I don't understand it
For this reason I am continuing my efforts to take my money out of market. Considering the fact that I started investing in the greatest bull market, I have been able to go from 5% cash position to about 60% cash without realizing any net loss. This does not mean that my belief in value investing is shaken but the billion dollar question is when to re-enter the market?

Depression?

We may or may not be in depression but it sure feels like it :)

Low hanging fruit

Its been a long time since I have written on this blog. A lot has happened since I wrote the last time. These times have shaken the nerves of the most resolute investors. Losing 50% of your life savings in a matter of days is not easy to stomach. Most of the people I know have even stopped looking at their portfolios because its just too painful.

During this time, I shifted gear and traded actively. In this post I will not get in to details of how and what I have been trading but I will only say that I have been plucking some low hanging fruits. You see in past few months I lost a large part of my life savings because of stupidity of others so it was only fair that I got back at them and made up for my losses at their expense.

Talking about low hanging fruits, I must share with you the farewell letter of Andrew Lahde. Andrew was a hedge fund manager who dissolved his fund in September after betting against subprime and earning 1000% on his investment. His farewell letter is a very interesting read.
Andrew Lahde Farewell letter

I will quote the following word from his letter. These may be his words but the feelings are mine

"I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life."

Recession is here

The love and respect I have for my job has increased 10 fold. If this is not recession, I don't know what is.