September 23, 2008

 

Process and Results

What is more important - the process or the result? Pause for a while and make up your mind.

Good.

Did you just say the result matter a whole lot more than process? I offer you a counter-argument here. All the investment banks did the same thing from the start of this decade till they went bust. Apparently, they leveraged something like 30x of their net worth. Think of it this way. You have earnings of Rs 100 and you buy something worth Rs 3000 expecting it to go to Rs 3200. But if drops to Rs 2900 or lower, you lose your networth. These investment banks faced the same problem except that their networth went into negative zone.

So, while these companies were taking huge risks and making profits, they were praised for their aggression. The same amount of risk took them down. And now they are blamed for being reckless. It's the same action, but different results received different response.

This is not an argument about process being a better yardstick than result. This is just a thought that sometimes the results are not good indicators of the processes.

This is broadly the idea of the book "Fooled by Randomness," where Taleb tells us that good results might be just because a random event or what is referred colloquially as "plain dumb luck."

0
Comments: Post a Comment

<< Home

This page is powered by Blogger. Isn't yours?