How To Win A Stock Picking Contest

My father watches the Communism Channel (CNBC) all day. There was an MBA stock-picking contest. Approximately 700 teams entered. They were interviewing the winner on CNBC. My father said “Wow! That guy who won the stock-picking contest must be a super-genius!” Do you see the fallacy?

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Someone had to win the stock-picking contest. It is much more likely that the winner got lucky, rather than him being brilliant.

When I was in high school, a fellow student entered a stock-picking contest. He filled out the scantron form incorrectly, bought a different stock than the one he intended, and won.

To win a stock-picking contest, you have to take unreasonable risks. If you play it safe, diversify, and aim for a 20-30% annualized return, then you probably won’t win.

The stock-picking contest represents a call option. If you win, then you get the prize and then can put on your resume that you won, leading to better jobs. If you lose, there’s no penalty.

Therefore, if you enter a stock-picking contest, YOU SHOULD FOLLOW THE RISKIEST TRADING STRATEGY YOU CAN, taking risks you never would if you if you were investing your own money. To win a stock-picking contest, you should find the riskiest stocks you can (highest beta), pick one of them, and invest 100% in it. Based on the number of entrants, you should estimate how many standard deviations you need to beat the market by, in order to win. If the stock you picked goes up 10%+, then you should trade and invest 100% in another high-risk stock. Repeat until you achieve your target return (switch to cash) or the contest ends.

A stock picking contest is not like a running contest or other athletic contest. In a running contest, the best runner will almost always win. For a short time-period, a stock picking contest is much more like a luck contest, rather than a skill contest. It is almost guaranteed that the winner got lucky. A short-term stock-picking contest is more like a single hand of poker, where anyone can win, rather than a series of deep-stack no-limit tournaments, where the best player would have the most winnings.

A naive investor will pick a mutual fund or a hedge fund by looking at its 5 year track record. That is a bad idea. The top funds were more likely the beneficiary of luck, rather than having brilliant management. Having gotten lucky, the fund management will now advertise that to the hilt, and attract foolish investors while the fund has some mean-reversion. The winner of a stock-picking contest is much more likely to be the beneficiary of luck, rather than being skilled.

I certainly wouldn’t want someone managing my money with the same strategy he used to win a stock-picking contest. That means he’s taking unreasonable risks with my savings.

Unfortunately, that is the way to make money as a bankster. You gamble with other people’s money. If you are lucky, you keep the profits. If you are unlucky, then you declare bankruptcy and cheat your creditors (see MF Global), or get a bailout. In that sense, the stock picking contests are doing the right thing, rewarding people for taking unnecessarily big risks.

Yahoo Will Buy Tumblr And Ruin It

This story is interesting. Yahoo plans to buy tumblr for $1.1B, ALL CASH. Yahoo has a long tradition of buying out web businesses and ruining them, most notably delicious.

Amusingly, some tumblr users are organizing petitions against the buyout, knowing that Yahoo will ruin tumblr.


[In case the image link breaks, the text is: "Yahoo is about to buy tumblr! They also bought summly.com (and closed it), astrid.com (and closed it), delicious.com (and almost closed it), and flickr.com (and deserted it)."]

Why is this a boneheaded decision by Yahoo? First, tumblr has no “moat”. When Yahoo ruins tumblr, there’s nothing preventing people from going to another website. If tumblr users are already petitioning against the buyout, you can be pretty sure they aren’t sticking around once the deal closes.

Second, tumblr doesn’t have revenue. Even if you start putting ads on tumblr pages, that won’t be enough to offset the cost of running it. Plus, if Yahoo forces ads on users, they’re more likely to leave.

Why do such a stupid deal? It enables Yahoo’s management to seem brilliant. “Hooray for us! We paid $1B for tumblr, but it’s worth even more than that! Stock options and bonuses for all of us!”

Such purchases are indirectly financed by the State. Nominal interest rates are 0%, real interest rates are negative 10%-30% or less, and Yahoo is a large established corporation. As a large established corporation, Yahoo gets cheaper access to capital than other businesses, making it easier for them to exploit negative interest rates. With negative real interest rates, a stupid purchase can turn out to be profitable. For example, if Yahoo paid $1B for something that’s only worth $500M, a couple of years of financing at a -20% interest rate turns that into a profitable investment.

Javascript Still Sucks

I’ve been experimenting with Javascript. I wrote a “video poker practice” program. It deals a hand, asks you what you would draw, and figures out the correct play by checking all the possibilities.

I had already written a C++/MFC version of the program. For that version, the calculation was instantaneous, much less than a second.

For the Javascript version, the EXACT SAME ALGORITHM, it takes 5-10 seconds, an unacceptable delay. That’s why server-side Javascript is a stupid idea.

I also experimented with some objects. Consider the following code fragment:


obj.value = 5
obj.vaule = obj.value + 1

In C++, this leads to a compiler error, “vaule not a member of obj”.

In Javascript, it’ll add vaule as a new member of obj, without giving any error.

I’ve been using Firefox+Firebug to test my Javascript. I tried it in IE, and it didn’t work. That is annoying.

In terms of performance, C/C++ blows away all the other things I’ve tried, .NET, Java, PHP, Javascript. Surprisingly, almost nobody uses C++ anymore. These other languages aren’t 2x or 3x slower than C++. They can be 100x or more slower, especially for number-crunching.

Don’t Sign An NDA Before A Programming Job Interview

When looking for a job, there are a lot of people who are wasting time and not serious about hiring someone great. If someone has a psychopathic/parasitic personality type, they actually will be frustrated if they hire someone really talented, rather than appreciating their contributions. If someone is rude to you during the job interview process, that’s a dead giveaway that they will be rude once you work for them.

I already mentioned that programming interview tests and assignments are almost always a waste of time. If a programming assignment is too simple, then it isn’t a real test. If it’s too long, then it’s a huge time-sink just for an interview. Multiple-choice screening tests tend to have mistakes or they focus on obscure language trivia. There are too many times that I did the test or assignment, did well, and didn’t even get an interview. My favorite is when I take a defective multiple-choice test, get 90th percentile, and the headhunter says “The client doesn’t want someone who’s 90th percentile. He wants 99th percentile.” Even more offensive, sometimes the interviewer is trying to trick me into giving him free consulting with his assignment, taking some problems he couldn’t solve and turning them into an interview assignment. Now, I don’t bother.

What’s the point of having a CS degree from a top university and more than 10 years of experience if every hiring manager is going to treat me like a completely unqualified fool? That’s a sign that writing software is not a true professional career. If the hiring manager isn’t willing to talk to you for a few minutes to figure out if you’re intelligent or not, then he’s probably clueless.

I do give code samples. For the exact same code sample, I’ve had some people say “That’s a great code sample.” and others say “That’s not good enough.” Again, it reflects more on the cluelessness of the interviewer, more than me doing something wrong.

I’ve noticed another trend. Some flaky startups demand you sign a non-disclosure or even a non-compete as a prerequisite to an interview. I’ve reluctantly agreed a few times, and regretted it. When someone demands that you sign a non-disclosure agreement before an interview, their idea invariably is incredibly stupid and not worth stealing. For example, I’ve signed several NDAs for someone making “a real estate listing website”. There literally was nothing more to their idea than “I want to make a real estate listing website.”, their spec was a copy of Zillow, and they were demanding an NDA! Do they realize how many people are entering that area?

One person even demanded a non-compete before agreeing to an interview! Why is that a bad idea? If his idea is incredibly vague and ill-defined, a “non-compete” could be interpreted as almost any other programming job! How can I agree to not compete with an idea that hasn’t been disclosed to me?

Also, for a contract to be valid, there has to be consideration, an exchange of value. If I’m signing a NDA in exchange for an interview, that isn’t a valid contract. I have to receive some tangible benefit for it to be a valid contract. Even though it may not be an enforceable contract, I don’t want to deal with someone who’s going to sue me over something trivial, especially if I later find a job that could be interpreted as related to his stupid idea.

When someone demands a non-disclosure agreement before telling you their startup idea, that’s a dead giveaway that they know nothing about running a successful business. It isn’t enough to have an idea. You also need the ability to execute.

It’s also a type of egoism, on the part of a non-technical startup founder. The non-technical startup founder brings nothing to the table, other than his ability to raise money, contacts for potential customers, and his idea. Therefore, he treats his idea as if it’s something incredibly brilliant and valuable. The nontechnical founder has been thinking about nothing but this idea for months, causing him to have an exaggerated sense of its importance.

If you’re a startup founder with an idea but no competent technical co-founder, then your startup is doomed. Unless you have a technical cofounder that can develop version 1.0 by himself in a few months, your startup is worthless. (Version 1.0 is frequently called MVP or “minimum viable product”.) If you are not technical yourself, then you are almost guaranteed to hire a good liar instead of someone who is going to create a great product.

An NDA is insulting. It says, right away, that they assume that I’m going to cheat them, rather than someone sincerely looking for a job. Do I have nothing better to do than steal your stupid idea? An NDA is an implied threat to sue someone. I don’t like it when the first thing someone does after I meet them, is threaten to sue me.

Also, I went on a few startup interviews that DIDN’T require a NDA for an interview. They had good ideas or somewhat viable ideas with a legitimate chance of success. It’s only the true fruitcakes, who demand an NDA for an interview.

There is one exception. If you get an interview at Google or some other established business that demands an NDA for an interview, then you should sign it. My “no NDA” rule is primarily directed at startup interviews. Google isn’t going to tell you the details of their search engine algorithm on an interview; what do they think they’re accomplishing with the NDA, other than making themselves seem more important than they are?

Also, to avoid confusion, it is acceptable to sign an NDA or a limited non-compete at the offer stage. It’s insulting when someone demands that before an interview. My favorite clause in an employment contract is the “non-disparagement clause”, forbidding you to say anything negative about them. Most of the people with a “non-disparagement clause” in their employment contract did some shady things.

I’m adding a new jobsearch rule, “Don’t sign an NDA as a prerequisite to a startup interview.”, in addition to “Don’t take programming tests and assignments.” These rules exist to help me avoid wasting time and energy on clueless and evil people. My primary reason is that, by requiring an NDA, the startup founder is identifying himself as someone clueless. It’s a bad idea to work for someone clueless. Such an NDA probably isn’t enforceable anyway, because there’s no consideration to make it a valid contract. I don’t want to deal with someone who might sue me over something trivial, especially if I someday find a job that might be vaguely interpreted as related.

There is one problem. If I’m the only person who refuses programming tests and NDAs, then I look like “not a team player”. If a lot of people start refusing, then employers might start to get the message “This is an insulting thing for us to demand of applicants.” The economy is bad right now, making it hard to take a principled stand. I’m doing it anyway, to avoid wasting time dealing with clueless people. After an interview with someone abusive, I feel frustrated for several hours afterwards.

These rules have been learned the hard way, rather than a result of me being stubborn. I’ve done many programming tests and assignments, and it never led anywhere, and now I refuse. What was the point of doing all that work for a CS degree, if many employers demand a stupid screening test? I know that I’m a great programmer, based on my education, raw ability, and by comparing myself to coworkers. It’s hard to measure that in a flawed multiple-choice test or short assignment. I’ve signed several NDAs for startup interviews, listened to some incredibly stupid ideas, and now I don’t do that anymore.

Reader Mail – 05/12/2013 To 05/18/2013

commented on Do Disabled Veterans Deserve Respect?.
Brainwashed automoton.

Ben Ritchie commented on Only Idiots Use Java For High Frequency Trading.
Wow! Im trying to imagine a Java guy taking that much glee in flaming a C++ dude.. Im guessing your hard to collaborate with!

Early optimisation is the biggest problem Ive seen in HFT.. Using a managed language with no surprises makes sense for team work. Use the highest-level language you got for everything to start with - work out the hotspots then drop the abstractions layers (java->jni->C++->C->Assembly->Hardware) as necessary


Here's another interesting bit on Shire Silver. They will buy back their cards for 75% of the sale price.

Compare that with APMEX. They will buy back for 89-90% of the sale price (if you buy 1 1oz silver round) or 95%+ (if you buy 500 1oz silver rounds). So, silver rounds have a better bid/ask spread than Shire Silver. Even if you add in shipping costs, APMEX is still a better deal. Plus, you can sell your silver rounds to other people than APMEX, but I don't know of any other offers to trade Shire Silver cards for State money.


NareshCron commented on Prescription Change - Back To Seroquel.
I've personally done a bit of looking in to the research on psychiatric medication and I’ve found that despite the fact that psychiatry is probably running on paradigms that have the flaws and inefficiencies of the of the broken medical establishment AND incorporates the dogmatic delusional way people think about how other people and society work. But despite this there are some valid observations that can be made based on theoretical neurochemistry. You can make some decent educated guess as to why something works based on its biochemical profile in terms of things like receptor affinities and metabolites. The problem is that any further analysis than some basic facts about a drug like it’s duration and what type of systems it effects based on the current use of a chemical or it’s category is usually flawed based on the personal opinions about things like ‘’natural health”, “psychiatric drugs hobble the brain”, or even just the view they use about what a “healthy mind” is. One example of these beliefs is the psychiatric industry’s fixation on the medical model of fixing illness making all standard writing on the subject assume that drugs are best used to improve “problems” by restoring a mind to an ideal state of balanced or normal. Unfortunately no one from any perspective seems to try to be looking at the human brain as simply a complex system without prejudices and to which nearly any general rule will have exceptions.

All I can say is my personal experience with the drugs. Lithium, risperdal, geodon, abilify, and zoloft were HORRIBLE. As far as I can tell, Seroquel has no negative side-effects. It does knock me right out and put me to sleep. At 50mg/day, the "partially cures color blindness" side-effect is less strong than with 100mg/day. I feel a little tired during the day, but not that much.

(Actually, I have a slight fever now. I wonder if I'm partially allergic to Seroquel? Is it "neuroleptic malignant syndrome"? Is it withdrawal from the risperdal+zoloft?)

A psychiatrist would say "Everyone's body chemistry is different!", but I have a hard time imagining that lithium, risperdal, etc. help anyone.

However, nobody has had a good explanation for why I was fine for 30 years, and then got "sick" at age 30. I'm pretty sure it was the shock of discovering how really evil people operate, how they emotionally manipulate people to get what they want. Even though I'm aware of it, I'm still bothered when I deal with someone abusive.


Anonymous Coward commented on Offshorng Software Development Does Not Save Money.
A friend of mine once mused that there is something about software development that attracts thickos and nasty people into management.

I've worked in several places with competent software developers and had work compromised or wrecked by stupid management.

One thick manager can wreck the work of ten smart and dedicated software developers.

That exactly happened at one of my jobs. It was a team of almost all competent people. A strong psychopath got himself promoted to leader, and productivity went to zero. As one of the most intelligent people there, the psychopath directed almost all his hatred against me, making it a very stressful situation.

That's another common psychopath trick. Suck up to everyone else, while your top priority is eliminating your target.

Superficially, you might think "Software is an objective area of work. Either something works or it doesn't. Therefore, intelligent people should do well." However, you can only evaluate software work if you're good at writing software yourself. In almost every business, there will be a point where someone technical reports to someone non-technical. At that point, evil people thrive. Good liars will always outperform good workers, because nontechnical people have a hard time evaluating technical ability.


Anonymous Coward commented on IRS Targets Tax-Exempt Conservative Groups For Audits.
For some reason, David Cam-Moron is the Prime Minister in the United Kingdom.

As 40% of the population did not vote in the last general election, only 20% of the population actually voted for Cam-Moron.

His mate George Osborne is the Chancellor, who is ultimately in charge of the tax collecting arm of the UK government.

Cam-Moron's father had a business moving money offshore!

Osborne's family use trusts to minimize taxes.

Little people can't afford lawyers to draw up trusts to minimize taxes.


Laughingdog commented on I'm About To Get A New Cell Phone - Samsung Galaxy Stratosphere II or Samsung Galaxy S4?.
why the S4 instead of an S3? Everything I've read suggested that the S4 is a pretty minor upgrade from the S3, and the S3 is practically free on Amazon if you watch for a deal. I just upgraded a few weeks ago, and it cost me $10 for my S3. After 2 years with a droid 2, this thing is so much faster it feels like it's anticipating what I want to open. It's also just barely small enough to still do most basic functions with just one hand.

I'd have gotten an S3 months ago if the sales people at the Verizon store weren't idiots. They told me it didn't have a removable battery, so I avoided it. Turns out they were wrong.

The S3 has a 1.4GHz processor and the S4 has a 1.9GHz processor. That extra 0.5GHz matters for emulation and retrogaming, which will be one of my primary uses of the phone. I don't mind paying a little more for the phone. It's worth it, considering how much I use it.

I know that Verizon store sales reps are idiots. I'm sticking with Verizon anyway. Both have removable batteries. That's important if you're going to use it on a plane, so you can carry a spare battery. The removable battery matters when the phone crashes, so you can reset it by removing the battery.

I'm upgrading from a Droid 3, which is 3G and not 4G.

Saurabh commented on I'm About To Get A New Cell Phone - Samsung Galaxy Stratosphere II or Samsung Galaxy S4?.

If you are going to stuck with this phone for next 2 yrs better to choose S4.

I’m About To Get A New Cell Phone – Samsung Galaxy Stratosphere II or Samsung Galaxy S4?

I’m about to get a new cell phone. It’s time to renew my contract. I’ve already decided that I’m sticking with Verizon.

Actually, my contract expires in September but Verizon is giving me a cellphone upgrade in May. You can get an new phone 4 months before your contract expires. Starting next year, Verizon will make you wait 24 months instead of 20 months to get a phone upgrade, making the contract expiration coincide with the upgrade eligibility.

Annoyingly, I’m going to also have to upgrade to the “improved” (i.e. more expensive) family share plan. The good news it that the new plan lets you share data, and I only use 10%-20% of my data per month, so I can save by getting a lower data allocation. I’ll probably put my sister’s tablet on it also, which is a savings. (I couldn’t do that before the “share everything” plan. With the “share everything”, a tablet is only $10/month plus whatever data you use.)

I already decided against the Motorola Droid 4. When they didn’t make a removable battery, that was a pants-on-head retarded design decision. Why is that important? Once every few months, my Android phone crashes hard. Removing the battery is the only way I could reset it. I know that there’s a key combination to force a hard reset, but that didn’t work for me.

I’m down to two finalists for my cell phone purchase. It’s the Samsung Galaxy Stratosphere II or the Samsung Galaxy S4.

Why the Samsung Galaxy Stratosphere II? I like the physical keyboard, and it’s the only choice Verizon offers other than the Droid 4.

Why the Samsung Galaxy S4? The specs are SO MUCH BETTER than the Samsung Galaxy Stratosphere II. It has almost double the CPU power, which matters to me because I’m doing game emulation. The Dosbox Turbo/PSX/N64/nds4droid/PPSSPP emulators should work a *LOT* better on the S4 compared to the Stratosphere II. I’ll miss the physical keyboard, but it isn’t essential. Also, it’s a newly released phone and the Samsung Galaxy Stratosphere II is already 6 months old.

What do you think? I haven’t decided yet, but leaning towards the Samsung Galaxy S4.

IRS Targets Tax-Exempt Conservative Groups For Audits

This story is interesting. The IRS targeted “conservative” tax-exempt groups for stricter audits.

The IRS possesses a lot of power to spy on people, or just make your life miserable if they decide they don’t like you. If you say that taxes are too high, then you might face greater IRS scrutiny.

Of course, the correct answer is “All taxation is theft!” People are being outraged at IRS power being misdirected, rather than saying that power should not exist at all.

Reader Mail – 05/05/2013 To 05/11/2013

commented on Kitchen Nightmares Observations - Burger Kitchen Part 1.
I think you should use the word 'psychopath' again, I don't think you used it enough.

Anonymous Coward commented on Reader Mail - 04/28/2013 To 05/04/2013.
In the UK, we pay 20% income tax, 11% National Insurance, 11% hidden employers' payroll tax, 20% sales tax (fuel tax etc) and 1000 pounds council tax. In summation taxation is between 50 - 60%. If you are low paid, obviously the 1000 pounds council tax is a huge percentage of your earnings. The council tax is paid after all other taxes, making it even higher still.

My faith in the system broke down when I was injured at work. My General Practitioner (Doctor) couldn't be bothered. I worked for nasty, dishonest people that didn't want to do things properly. So I ended up living off my savings for a year while my body healed itself. Fortunately I recovered fully. Because my G.P. was a useless toss-pot, I didn't get sick pay from the government. I suppose I could have changed doctors and perhaps pushed the matter, but I just wanted to get better without the stress.

That was some time ago. Anyway recently - almost within days - a bit of my body decide to malfunction. It is quite a common thing as judged by the number of Internet articles on it. It is more an ailment than anything that stops you doing anything.

Anyway I went to see the doctor paid for by my taxes. He wasn't really interested. He didn't seem to know about the ailment. It was a complete waste of time seeing him.

So paying 60% of my income is taxes is completely pointless due to the services I get back!

I went on the Internet and found some products that promised to help. I ordered them and paid express delivery from abroad.

So what happened? The import tax people intercepted the item and held it up for a week. They then applied a tax to it. Worse they then applied a fee for applying the tax! I then got send a card asking me to pay the tax (and the fee for applying the tax!) by credit card. This held matters up further. About a month later I finally got the item. The tax (and the fee for applying the tax) doubled the price of the item!

The conclusion is that paying 50 - 60% tax (remember employers' payroll tax is a hidden tax and effectively comes out of your salary before you are given the figure) is pointless as I get no services back. When I try to fix the problem myself, government holds the process up and doubles the cost due to a tax and the cost of applying the tax.

High tax. No services. Getting in the way and stopping someone getting better.

My G.P. effectively told me he isn't interested in anything unless it gets infected. So he couldn't do anything for me. I decided to try to see another doctor. I looked up specialists at a nearby hospital. I noticed on their web pages, they had links to their private practices. So these doctors were trained at tax-payers' expense, work from taxpayer funded hospitals but are allowed to work on the side for direct cash payments. I contacted one of these doctors and was told they only see people on the National Health Service if referred by a G.P. The trouble is my G.P. won't help me unless I have an infection.

So I'm stuck. I pay 60% tax, am a UK citizen, but I can't get any help from the tax-payer funded National Health System.

The only way to get help is to pay a N.H.S. doctor cash under his private practise. But paying 60% tax means we don't have the money to pay extravagant costs per hour for a doctor.

What a complete and utter scam! I pay tax. Can't see a tax-payer funded doctor, unless I pay cash.


Anonymous Coward commented on Double Counting R&D In GDP.
Given one particular theme of your blog, what do you think the following video means?

http://www.heliofant.com/

If you want to cheat, the following video talks about an interpretation of it.

http://www.youtube.com/watch?v=C8eSdAlz2qU

That video looked like someone trying to make something with a deeper symbolic meaning, but it actually being pretty lame.

I should make some videos. I could do better.

Anonymous Coward commented on Double Counting R&D In GDP.

I personally liked the video.

At one level it is about the crumbling away of hierarchical, coercive society and man becoming enlightened and awakening to his true destiny.

At one point a shoe is on top of a coin, symbolizing control of the world's monetary systems.

One of the first scenes is about two presidents dancing and fooling about instead of doing a proper job and addressing the real problems. Notice the phallic symbol on the blackboard - fooling about instead of doing real work.

The video is about much more than that.

I think it is very well done.

All the symbols are there for a purpose. Look at the rabbit and the stag when you see the woman in white? What do they mean? What does the apple represent?

Why does President ODumber sweat when the woman drops the apple? Is he worried about the people become enlightened and realizing that both political parties are the same and never fix any problems?


thomas marti commented on Offshorng Software Development Does Not Save Money.
Man, I haven't seen an entry for the resource based economy by jacques fresco which is explained in zeitgeist addendum. I think you should update your knowledge and post a little bit more about that... thanks

I watched a little bit of Zeitgeist, and I thought it was a more beginner-oriented version of the stuff I write about.


anon commented on Mac Mouse No Scroll Wheel.
A real man would use FreeBSD.

I've never seen an all UNIX/Linux workplace. I've seen a surprising amount of Macs on my interviews.

I use Windows at home, because many games only have a Windows version.

Mac Mouse No Scroll Wheel

I had the displeasure of briefly using a Mac to look up something on the Internet. It has one of the worst UI features I’ve ever seen.

On a PC mouse, there’s usually a scroll wheel to control scrolling. On a Mac mouse, there’s no scroll wheel. Instead, you move your finger on the surface of the mouse, and that’s the scroll wheel.

Why is that bad? With the mouse wheel, it clicks each time you scroll once. That enables fine control. With the Mac mouse “scroll” feature, it was hard to control it. It’s a neat feature when you evaluate it by hype and “coolness”. It’s a feature that is worse than a standard scroll wheel.

I’ve gone on a lot of interviews, and I’m surprised how many people are using Macs. It’s usually a bad sign, when the interviewer has a Mac. I’ve noticed that people who own Windows PCs are more competent than those who own Macs.

Offshorng Software Development Does Not Save Money

I’ve interviewed for a few jobs where they had an offshore programming team. As part of the job, I would be working with the offshore team.

I’ve also interviewed for a few jobs where they said “We hired an outsourcing/offshore team to develop our product. We’re not satisfied with the results, and now we’re hiring people directly.”

If the boss is not computer literate, failure is guaranteed, whether you use an offshore team or hire locally. If you don’t manage your staff well, you might as well minimize the cost per hour by using an offshore team! If the boss is computer literate, it would be easier to identify, hire, and manage good people locally, rather than manage the offshore team.

With an offshore team, there’s a lot of potential problems. The offshore team will not have English as a first language, leading to communication problems. Due to the distance, everything must have a detailed specification, but writing a 100% detailed specification can be as much work as writing it yourself. There’s a time zone difference.

For a large corporation like Microsoft or IBM, an offshore team can be profitable. They can afford to build a large team of offshore workers. Large corporations have a lot of overhead and bureaucracy anyway. For a small business or a startup, the overhead of offshoring will usually outweigh the benefits.

Whenever I hear a startup say “We hired an outsourcing/offshore team to develop version 1.0 of our product!”, I mentally translate to “This startup is doomed!” A startup needs a technical cofounder who can develop version 1.0 of the product by himself. Many of these startups are trying to add a technical cofounder later, when they find out that VCs insist on a technical cofounder. I’m always amused by job ads that say a startup is looking for a technical cofounder, but they’ve already decided what language they’re going to use!

Offshoring works well for simple tasks like data entry or assembly line manufacturing. I don’t see the benefit for writing software or something creative.

In a really free market, there should be no long-term economic advantage to offshoring. There’s a simple arbitrage argument. If offshoring really is profitable, more people will do it. Salaries will rise in the offshore market and decrease locally. Over time, any advantage will disappear.

Whenever someone mentions an offshore development team in an interview, that’s a red flag. One tell is that they get offended, when I ask if the offshore team is really worth it. Whether you hire locally or offshore, you still have to manage your workers intelligently. Offshoring is attractive, because it minimizes the cost per hour. If you aren’t going to manage people well, you mgiht as well minimize the cost! It’s easier to manage people locally, especially when they have to meet with users to understand requirements.