If anything, it would make better sense to focus on those who struggle through lessons - the best students either are smart enough to understand their lessons and/or put sufficient effort to learn; its the strugglers who require attention. But invariably, most teachers direct their attention at the brightest. Why? I muse.
For one, it has to do with the skewed student-teacher ratios that most schools (at least in India) have. The skew causes undue effort on the teacher's attention span, so that they tend to focus their limited energies on those who are easiest to teach; it therefore, takes no leap of imagination to understand why the brightest rule - they are in sync with what is being taught most of the time, unlike the poor strugglers who gasp at the whizzing bouncers (ah! I still remember the feeling).
Another related reason, is that the best (perceived) students are invariably also the more competitive and aggressive of the lot. So in the babble of the class, the teacher's attention is more taken up by these, who end up asking the most questions and answering a bulk.
A third potential reason, is linked to how teachers get incentivized. Not every teacher is fundamentally motivated by an intent to change the world through pedagogy. For most, its a profession. A profession in which incentives are often linked to the output of the smartest student. Remember how teachers revel in pride when their student tops a school, a major examination or some day wins a Nobel! On the other hand, which teacher is ever felicitated for the poor struggler who barely managed to make it through?
To side with the teachers, one must admit the fact that teaching is a demanding occupation, requiring intense emotional (and physical) involvement and leadership skills that are no less than any other occupation. It is also amongst the most thankless. From the limited teaching I have done, I will attest as much.
So there is limited point in criticism of the teachers. But one must recognize that these behaviors do emerge, and as such might not result in the best of outcomes.
As a concluding afterthought - a personal recollection. I tend to have a quiet disposition and in most of my high-school classes, was often amongst the quietest in class. As a result, at the start of class sessions, I was hardly ever given attention by teachers, and used to struggle to catch their eye if I had a question.
Luckily for me, math and science were my strong points. After the first test or examination in these subjects, I could almost always sense a visible change in the amount of attention I received. The teacher's roving eye would sweep the class and rest on a bunch of us who had scored well.(There were even days, I thought I had perfected the art of predicting test scores in advance based on how the 'eye' swept the class!). Those days, it was often gratifying and embarassing - for along with it came the undue directional focus of questions from the teacher.
But now I look back and wonder - why, oh why, do most teachers focus their efforts on the their best students in class?
Tuesday, October 27, 2009
Monday, October 26, 2009
Value, a levered affair
A recent news coverage on PE returns is generating quite a buzz - Private equity’s love affair with leverage. The article cites research on 240 odd PE transactions in the European market to present some interesting findings:
“The analysis found that the value of a company typically rose by 2.71 times during the period it was owned by a private equity house, on average 3.5 years. Of this 0.88 resulted from the use of leverage. Of the remaining 1.83, 0.87 came from growth in earnings before interest, tax, depreciation and amortisation (Ebitda), some 80 per cent of this from sales growth and 20 per cent from improved margins.
Improvements in free cash flow accounted for 0.42 and the effect of a rising multiple (i.e a company being sold for a higher price/earnings multiple than it was bought for) was responsible for 0.51. However, the data suggest the importance of leverage has grown; while it accounted for 28 per cent of value creation between 1989 and 2000, this figure rose to 36 per cent between 2001 and 2006.”
The interesting point is the outcome that a private equity investor could increase a firm's value by a whopping 80 odd percent by merely increasing leverage of the firm.
Now, how does leverage create (so much) value? Valuation theory tells us that debt increases value because its exploits the available tax shield benefit. At a more deeper level, debt increases fiscal discipline in managers as they are forced to commit to a fixed claim on cash flows, preventing them from frittering around with excess cash.
The interesting question is - how could leverage have so much of an impact? And why couldn't firm managers not act on it in the pre-PE days?
One possible reason is that private equity investors have greater risk appetite than internal firm managers, causing them to be more amenable to extensive leverage. This is quite possible - not every manager is incentivized to lever his/her firm to the point where he needs to sweat the business to avoid bankruptcy risks (that arise out of high debt). It is often easier to avoid making those tough project financing decisions than to risk his/her job security from a potential bankruptcy. PE investors, on the other hand, are incentivized to do the opposite. (Note though, at a higher risk).
For another, it is likely that the PE investors went after those firms which had a poor capital structure in the first place, so they could add 'value' by levering the balance sheet. If true, it shows how poorly a number of firms manage their capital structure decisions.
The other interesting note in the article is the (last) point about PE firms being able to time their exit enough to raise exit valuations by ~50 percent! Imagine being able to time valuation cycles in a 3.5 year average time-frame - possibly the function of a rising market in the time-period of the research?
“The analysis found that the value of a company typically rose by 2.71 times during the period it was owned by a private equity house, on average 3.5 years. Of this 0.88 resulted from the use of leverage. Of the remaining 1.83, 0.87 came from growth in earnings before interest, tax, depreciation and amortisation (Ebitda), some 80 per cent of this from sales growth and 20 per cent from improved margins.
Improvements in free cash flow accounted for 0.42 and the effect of a rising multiple (i.e a company being sold for a higher price/earnings multiple than it was bought for) was responsible for 0.51. However, the data suggest the importance of leverage has grown; while it accounted for 28 per cent of value creation between 1989 and 2000, this figure rose to 36 per cent between 2001 and 2006.”
The interesting point is the outcome that a private equity investor could increase a firm's value by a whopping 80 odd percent by merely increasing leverage of the firm.
Now, how does leverage create (so much) value? Valuation theory tells us that debt increases value because its exploits the available tax shield benefit. At a more deeper level, debt increases fiscal discipline in managers as they are forced to commit to a fixed claim on cash flows, preventing them from frittering around with excess cash.
The interesting question is - how could leverage have so much of an impact? And why couldn't firm managers not act on it in the pre-PE days?
One possible reason is that private equity investors have greater risk appetite than internal firm managers, causing them to be more amenable to extensive leverage. This is quite possible - not every manager is incentivized to lever his/her firm to the point where he needs to sweat the business to avoid bankruptcy risks (that arise out of high debt). It is often easier to avoid making those tough project financing decisions than to risk his/her job security from a potential bankruptcy. PE investors, on the other hand, are incentivized to do the opposite. (Note though, at a higher risk).
For another, it is likely that the PE investors went after those firms which had a poor capital structure in the first place, so they could add 'value' by levering the balance sheet. If true, it shows how poorly a number of firms manage their capital structure decisions.
The other interesting note in the article is the (last) point about PE firms being able to time their exit enough to raise exit valuations by ~50 percent! Imagine being able to time valuation cycles in a 3.5 year average time-frame - possibly the function of a rising market in the time-period of the research?
Monday, October 19, 2009
De-attachment
Why do we get attached to things and people? Despite knowing the fact that practically everything in life is impermanent.
For one, we get attached when we 'invest' in something, emotionally and/or financially, over a period of time.
Long term financial investments result in this attachment, since there is an expectation of return, particularly as the investment often requires us to forego potential alternative consumption at the time. The anticipation of returns from foregone utility creates an attachment.
Emotional investments are a little more complex and subtle to fathom.
For example, we tend to emotionally invest in the things and people we cohabitate with over time. I don't fully understand why this happens, but I have begun to practically notice this behavior in me. I used to think of such things as hocus-pocus, but it is interesting when such things begin to take effect.
One potential (rational?) reason could be, that when we take 'care' of things or when we build relationships with people, we make some form of an emotional investment, and inherently anticipate a future benefit from it - which causes the attachment.
Another variation is attachment to work. Hindu philosophy (to the limited extent I know) propounds this concept called 'nishkarma karma' - to indicate an ideal state of detached 'desireless action'.
But, I am beginning to learn that doing exceptional work requires some measure of attachment. One can do good work, or even great work by remaining detached from the outcomes, but doing 'exceptional' work requires a certain level of passion and dedication - that a detached mind finds hard to muster. In early days in consulting, I was advised that the true hallmark of great consulting lies in emphathizing and taking responsibility for a client's issues like 'they are your own'. Now, how is a detached individual supposed to accomplish that?
Is 'detachment' just an unattainable idealistic conjecture to account for the impermanence of life - for the failures we encounter, for the individuals we must separate from, for the things we must let go - or is there truly a feasible state of detached living?
For one, we get attached when we 'invest' in something, emotionally and/or financially, over a period of time.
Long term financial investments result in this attachment, since there is an expectation of return, particularly as the investment often requires us to forego potential alternative consumption at the time. The anticipation of returns from foregone utility creates an attachment.
Emotional investments are a little more complex and subtle to fathom.
For example, we tend to emotionally invest in the things and people we cohabitate with over time. I don't fully understand why this happens, but I have begun to practically notice this behavior in me. I used to think of such things as hocus-pocus, but it is interesting when such things begin to take effect.
One potential (rational?) reason could be, that when we take 'care' of things or when we build relationships with people, we make some form of an emotional investment, and inherently anticipate a future benefit from it - which causes the attachment.
Another variation is attachment to work. Hindu philosophy (to the limited extent I know) propounds this concept called 'nishkarma karma' - to indicate an ideal state of detached 'desireless action'.
But, I am beginning to learn that doing exceptional work requires some measure of attachment. One can do good work, or even great work by remaining detached from the outcomes, but doing 'exceptional' work requires a certain level of passion and dedication - that a detached mind finds hard to muster. In early days in consulting, I was advised that the true hallmark of great consulting lies in emphathizing and taking responsibility for a client's issues like 'they are your own'. Now, how is a detached individual supposed to accomplish that?
Is 'detachment' just an unattainable idealistic conjecture to account for the impermanence of life - for the failures we encounter, for the individuals we must separate from, for the things we must let go - or is there truly a feasible state of detached living?
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