FRIDAY FLYER-Issue 144

Professor Joe Cherian

We were fortunate enough to be given the opportunity to be the moderators for a recent Epsom Live Talk with guest speaker Professor Joseph Cherian, a practice Professor of Finance at the Asia School of Business (in collaboration with MIT Sloan) and at the Samuel Curtis Johnson Graduate School of Management at the SC Johnson College of Business, Cornell University. 

Professor Joseph Cherian graduated from MIT with a Bachelor of Science in Electrical Engineering. He then went on to complete his Masters and PhD in Finance at Cornell University. Professor Joseph Cherian has vast experience in the financial industry, having worked in or advised institutions such as Bursa Malaysia, Credit Suisse, Xen Capital, Bank of America Capital Management, the Ministry of Manpower in Singapore and the United Nations Social Impact Fund.

At the beginning of the Live Talk, Prof. Joseph Cherian shared his learning experience at MIT with us. According to him, he was a high-riding, super-confident student who had won the National Math Olympiad when he was studying at a public school in Malaysia. However, when he went to study at MIT, he realised that he was studying with a group of extremely talented people who were much smarter than him. The challenging nature of the course nor the lack of good grades in his first year did not intimidate him. (Fortunately, it helped that MIT is completely Pass/Fail in one’s freshman year.) In fact, he would ask his dormmates for help if he faced any difficulties with his problem sets! This was a huge step forward for him as he learned to be humble. We think that it is important to share his story with you, to inspire you to always be humble during your learning journey.

In addition, Prof. Cherian mentioned to the audience that buying inflation-indexed bonds is a good way to hedge the risk of increasing inflation in the US. This is because it is secured by the US government, is indexed to the inflation rate, and its risk is extremely low. Surprisingly, he told us that a lot of Americans do not know about this investment bond. “Such a shame!” he said. Fortunately, the investment firms have more recently started to organise campaigns to educate the citizens about this product. Mr Brown, who joined the Live Talk and constantly asked challenging questions, advised the students to pay extra attention to these special tips. It was a privilege for our students at Epsom to receive advice from a professor at such an early age as this advice will be particularly useful for our future financial journey. 

When asked about investment into the stock market, Prof. Cherian encouraged all of us to start investing at an early age. He stated that if we could, we should all start investing now as inflation takes away the value of our money. However, investments do have their drawbacks as we can lose a lot of our money in the stock market. We should have a diversified portfolio, “Don’t put all your eggs in one basket. And if you are risk-averse, make low-risk investments”. 

Prof. Cherian also emphasised the importance of giving back to the community. As a person who was fortunate enough to receive a scholarship to pursue his tertiary education at MIT, he believes that giving back to the community is a very important attribute that everyone should have as we must never forget our roots. Prof. Cherian himself always tries to give back by giving financial advice to the younger generation, helping retirees manage their retirement funds and helping various educational and charitable institutions on the financial front. As he mentioned during the talk, “The person who gives back often feels happier than the person who receives”. This is another virtue we should learn from him.

Best wishes,

Shang Jing Year 12 Granville & Sharvvind Year 12 Granville (pictured below with Professor Joe Cherian)

Here are the questions that Shang Jing and Sharvvind, moderators of the Epsom Live Talk, asked to Professor Joe Cherian along with the responses:

1. According to your resume, you are currently a Practice Professor of Finance at Asia School of Business. I understand that it is a collaboration between Central Bank of Malaysia and MIT Sloan. I believe that a lot of our students are interested in knowing more about this school. Could you tell us more about this institution?

   I was not involved in the formation of ASB. But yes, it indeed is a collaboration between Bank Negara and MIT, which is my alma mater. It’s about building a world class business school with Asian values. Just like your EPSOM College in Malaysia. We like to say it is a Malaysian institution with an MIT DNA. It is something that someday will be the pride and joy of not only Bank Negara and MIT, but all those who are associated with it, including its alumni. We offer an MBA program, which is for those with an undergraduate degree and about 3 years’ experience, an Executive MBA for those with even more experience and seniority, and the only Masters in Central Banking in the world. We are moving to shorter programs with exciting enhancements. For example, our MBA program is going to be shorter in duration (1 year instead of 16 months), cheaper in cost, and – get this – you can get a 2nd Master’s degree from MIT Sloan or Yale School of Management in 9 months, plus, you will be able to work in America for 3 years upon graduation under a special work visa. It’s like you go to the local Kopitiam and order a drink, the chap not only gives you a kopi tarik, but a cappuccino with it for a total price less than buying each drink individually. Plus you get a job as a barista! We are also introducing MIT’s MicroMasters program at ASB in 2024, so you can obtain professional and academic credentials in small bite sizes and quickly from anywhere in the world (online), and then you combine that with short residence weeks at ASB or MIT, and wallah, you obtain a proper Master’s degree. This is the future of education. Hybrid model: online mostly and some in-person.

2. From 2014 to 2016, you served at the Ministry of Manpower in Singapore as a member of the Central Provident Fund Advisory Panel. You also wrote a lot of articles about CPF.  In your opinion, how effective is it in helping the members to meet their retirement and healthcare needs? Is it sustainable?

   At the end of the day, we all want to possess values like “empathy, compassion, kindness, and selflessness”, especially in the community in which we reside. Where did I get all these smarts from? Your Headmaster on your EPSOM website. So, every time I get a call from the Singapore government to serve on one of their advisory or technical panels, I never say no. Same with the CPF. It is the single most important social security savings system in Singapore, like the EPF in Malaysia, the MPF in HK, and so on; to provide for your retirement & healthcare needs.  The CPF is extremely efficient on the savings part and then converting that to a government-guaranteed lifelong income stream to pay for your retirement and healthcare expenses – what we call a Life Annuity. However, the problem is many retirement schemes, including Singapore’s, allow you to dip into your savings before you retire: to pay for housing, exigencies, etc. That’s when they become unsustainable. As suddenly, at the age 65, the Singaporean realises he/she is cash poor (in his CPF) and asset rich (in his home)! OK, you are all now members of the CPF Advisory Panel. What would you do or advise them to do?

3. In Malaysia, we have something similar called the Employees Provident Fund (EPF). During the Covid-19 pandemic, the government allowed the special withdrawal of EPF contributions to meet the urgent cash flow needs of the members. What is your opinion on this matter?

   It is the government’s job to provide for its people during times of extreme exigency, for example floods, droughts, pandemics, etc. Singapore and HK did that during COVID-19, whereas Malaysia, Australia, India, and the US did the exact opposite. So, we were in very good (but stupid) company. I wrote about this many times — as the pandemic started and even after it subsided. To conclude, don’t force people to dig into their retirement pot for anything but retirement; rather the government should be providing for this exigency. The articles are all on my website.

4. Warren Buffett believes that derivatives are financial weapons of mass destruction. I am curious to know about your opinions on financial derivatives. Do you think its pros outweigh the cons or vice versa?

   Warren Buffet is one of the most brilliant investment managers in the world, ever! I literally worship the ground he walks on. But he is also a good BS artist. Do you know Buffet runs one of the biggest derivatives businesses in the world? Through his insurance companies?

   Derivatives’ pros outweigh their cons.  They are the most brilliant risk management tool ever created. However, they are also leveraged securities. So, you should not only be well-intentioned but well-trained when you trade, risk manage or invest using derivatives. Do you know who taught me the phrase: “Many on Wall Street are perhaps well-intentioned, but they are poorly-trained!”

5. I have organised a Real Life Economics CCA in our school. During our first session, I made a presentation on “Should we use a mathematical method or a historical method in analysing economics?”. We watched a video of the debate between professors at LSE entitled “Too much maths, too little history: The problem of Economics.” Do you think there is too much maths in finance? How important is maths in finance?

   You know there is another saying, “A little knowledge is dangerous?” Well, too much knowledge is lethal. There was a time in the 90s when Wall Street was filled with rocket scientists. These were PhDs and academics in Mathematics, Physics, etc., going to Wall Street and making loads of money they never could have imagined making in Physics or Mathematics, but sadly doing damage to financial markets along the way. While mathematical models are important to price, hedge and trade securities, one should have a balanced approach. You need mathematical models, qualitative judgement, good market experience, and extreme historical episodes (including drawdowns) for financial economic models to work well in practice. In the industry they call it a blended approach. Others refer to it as quantimental. Believe me, I did that for a living.

6. What is the most important quality for someone who is interested in working in the finance and banking industry?
   • You must have the highest integrity, highest ethical standards, and take your fiduciary responsibility towards your clients seriously. And don’t do harm. There’s a lot of money you are managing or moving around. I managed US$67 billion of other people’s money while in New York.

     By the way, do you know who my role models are? It’s not Michael Milken – who by the way was convicted of felony charges for violating U.S. securities laws – Larry Fink of BlackRock or Klaus whatever his name is of the World Economic Forum. It certainly isn’t politicians. Here are 2 people who were way ahead of their times and beliefs and serve as my role models:

   • Samuel Langhorne Clemens a.k.a. Mark Twain, who said that humanism and any religion’s preaching of love are incompatible with the conduct of war. Also, when Mark Twain read that Americans (mainly soldiers & missionaries) were looting Beijing after the Boxer Rebellion, this was in the 1890’s, he wrote a scathing attack entitled, “The Reverend bandits of the American Board”
     
   • It’s also Henry David Thoreau, who practised the ESGs and SDGs in the 19th century, well before the UN did. He was an environmentalist who lived in a small hut using recycled materials – the first Earth Day was only celebrated in the US on 22 April 1970. His condemnation of the Mexican–American War of the 1840’s did not stem from any adherence to pacifism, but rather because he considered Mexico “unjustly overrun and conquered by a foreign army – mainly the US – as a means to expand the slave territory!” Yes, he was a staunch abolitionist, and regularly hosted anti-slavery fairs. Recall, the US Civil Rights Act was only enacted in 1964. 
   • These are people well ahead of their time, who took up their place in the world and made a difference..
   • But who are the role models we are producing these days? Kim Jong-Un, Vladimir Putin, Donald Trump, Boris Johnson…
7. You have been working in many government agencies and private firms. What is the biggest challenge that you faced and how did you overcome it?
   
   People who don’t believe that change is good nor can happen, that each of us can make a difference. I mean just because many politicians are corrupt, it doesn’t mean we cannot hope to be more like Singapore, where corruption remains firmly under control. Just because some people are jerks, it doesn’t mean we have to be.
8. Do you have any advice for our students?

   Take your headmaster’s website advice to you to possess values like “empathy, compassion, kindness, and selflessness” seriously. That’s how my wife and I live our lives.

Sharvvind’ questions to Professor Cherian:

1. MIT is one of, if not the top university in the world and I’m sure it is a dream for many of the students in this room right now to pursue their education in MIT. Could you please tell us about your experience studying at MIT?

   MIT was a transformational learning experience for me. We had the smartest engineering professors in the world, yet after every theoretical class or lecture, we would have to go to the lab to design circuits or robots. Very experiential learning in the 1980s itself. All educators use that term loosely now. Whereas I experienced that at MIT as part of the natural education process.

2. In 1986 you gained your B.Sc. in Electrical Engineering in MIT. However, in 1992 and 1993, you completed your M.S. and Phd in Finance. May I ask why the change in interest?

   Well, the honest answer was I worked as an engineer for 3 years. After a while, I didn’t like getting my hands dirty every day. And I minored in Economics while at MIT and took some finance classes. These courses were taught in a very engineering-like fashion at MIT with lots of mathematical models. So, the change in interest was convenient. How do I say? Wrong reasons, but the right outcomes!

3. As a former Independent Non-Executive Director of Bursa Malaysia, can you tell us about the importance of Bursa Malaysia to the investment community of Malaysia.

   A good, well-regulated, and efficient capital market is essential to any country’s economic development. We have a fairly decent capital market. The good news is we have Islamic Finance: we are the world’s biggest and most advanced issuer and financial market in Sukuk. The bad news, our conventional markets are sluggish. What we need is a StockConnect and BondConnect between Singapore, Malaysia and Thailand (and maybe even fast-growing Indonesia) – the way HK and China have hooked up their capital markets, both on the backend and frontend. We will be a powerhouse ASEAN capital market with such a tie-up.

4. While at Credit Suisse, you were Managing Director, Global Head, and Chief Investment Officer, Quantitative Strategies Group. You had direct responsibility for over US$67 billion in client assets managed by a quantitative discipline. How do you manage your clients’ assets and assess the risk factors?

   We used a very systematic academic approach to generating alpha (positive returns) and managing the risks. So those who say financial academics don’t know what they are talking about, think again. We made money for our clients using our proprietary academic models — proprietary means our own models. Managing your risk is key. And, by the way, please also don’t listen to the academics who say practitioners don’t know what they are talking about.

5. Last year you wrote an article about crypto currency being an institutional asset class, can you tell us about your thoughts on crypto currency? Will it be a stable asset that one should invest in or is it a scam?

   In the early days, I used to think cryptocurrencies were a scam. My views have upgraded since. I view them mostly as fraud now. That said, I think security tokens or utility tokens make eminent sense, as do Central Bank Digital Currencies (CBDCs). I.e., collateralized digital assets, which are digital assets backed by fiat money or quality assets as collateral, and properly audited for that like any Bursa- or NYSE-listed company would.  Such digital assets make eminent sense.

6. I have gone through some of the articles you wrote, you have worked on an article about China’s credit bond market and you have mentioned China’s growing market as examples in a few other articles of your own. Why do you think China is able to undergo such rapid growth while other countries are unable to do the same? Do you think this growth is sustainable?

   China has achieved a lot, more than any other country in the history of our planet. They brought 800 million people out of poverty, and I have ridden their Shinkansen bullet train from Shanghai to Beijing. Simply amazing. One party rule and its transformative leaders had certainly helped its growth, just like in Singapore’s case. But once you mix religion with your politics and development, it’s history. So, I’ve lost interest in China for now… until there is regime change and more sensible Chinese are brought back to power.

7. I believe a lot of people here with us today are interested in the stock market, some of us have even invested large amounts of money into it. What advice would you give to someone who wants to start investing into the stock market?

   Don’t think you can beat the market just by reading the Wall Street Journal or some investment reports. It’s not an easy investing arena. It takes a lot of training and skill. If you did well, please check how much better you did than the market before bragging. And if you still did well, make sure it’s not luck. Ask if your strategy is repeatable?  I hence recommend you stay as diversified as you can within your investment portfolio and then go get an MBA from ASB when you can. In fact, pls take my fund management course when at ASB.

8. Could you tell us about an experience in your working career that changed your life?

   When I saw my first bonus check. I was shocked and said I am not worthy. My wife was also in the industry, and we have no children. So what we did was to give back. She and I set up a family charitable foundation in NY. It has since sent many young kids to MIT and Cornell through our scholarships. Part of the reason was my wife and I went to the top universities in America via scholarships, too.  I.e., via other people’s generosity, including Mr Robert Kuok’s Foundation here in Malaysia (me) and Mr Ray Kroc’s Foundation (my wife) in the US. So, if you are a big shot or have made so much money through the large amounts of money invested in the stock market, please remember to give back… and do no harm!