Tuesday, September 9, 2014

Damian Handzy: Physicist and Co-founder of Investor Analytics, Part II

"I am thrilled that I studied physics, absolutely thrilled. Thinking statistically, thinking about how systems work, thinking about interactions, figuring out what is actually meaningful and what’s not, what questions are worth asking, that’s awesome." -- Damian Handzy

Damian not only loves all that thinking and figuring things out, he is very much a "people person." This may explain why someone once said of him, "I don’t know of anyone who gets so excited about helping someone else have an ‘aha!’ moment." It also helps to explain his eagerness to provide advice, advice from the accumulated wisdom of his transition to Wall Street from physics, and his twenty years of experience on "the Street." Given Damian's interest in people, and his tendency toward analysis, that wisdom is considerable. He approaches life in a very conscious manner, eager to figure out what there is to learn from his experiences and from other people. To capture more of what Damian has learned I interviewed him a second time.

DH:  In my first interview I gave a lot of info about how Wall Street works, what my personal experiences were, things like that, but what I didn’t do was convey any advice that I’ve collected over the last twenty years. I think there’s quite a bit of positive stuff, but there is negative stuff as well. I just wanted to share some of those thoughts. If I were in grad school or an undergrad today, knowing what I know now, what would I tell my younger self?

There are a variety of things that pull in anyone who’s attracted to studying physics. Typically, we’re good at math, we like challenging problems, maybe we don’t know what else to do. I think it’s applicable to anyone who goes into engineering, chemistry, biology, physics, math, any of those fields. There’s a bunch of stuff that pulls us into that and, while we’re educated, there’s a culture within the sciences that is unique to the sciences. It’s a very good culture for the sciences, but leaving that culture and moving to any other business or endeavor is a little bit of a culture shock because there are things that we’re simply not taught, either as undergrads or as grad students, that really matter when you’re not in physics or the sciences.

I talked a little bit about how I was almost fired a couple of times my first year at Deloitte. Part of that was the culture. The culture in the sciences is if you find something that’s wrong, you’re not only willing to challenge it, you’re encouraged to challenge it, even if it’s presented by someone twice your age or someone who’s renowned in the science community. Because everyone makes mistakes, we all recognize that and talk about that openly. That’s part of the culture of physics. And that almost got me fired on Wall Street, because you just don’t do that. Physics gives us a lot of very good training in some aspects, but it doesn’t train us at all on other things. And those, I think, if you’re going to leave physics, whether after undergrad or grad school, you need to start thinking about.

One of those things is learning the lingo of the field that you’re thinking about going into so you can be more conversant. It has to do with being more diplomatic than what passes for diplomacy in physics. Learn how to speak to non-physicists. The more time you spend with physicists, the more comfortable you get in that type of mode. Part of that is physicists like to be challenged. We like that little bit of confrontation because we’re going to learn something from it. The rest of the world doesn’t like learning from their own mistakes, and they really hate their mistakes being pointed out to them. Think about how you felt before you started studying physics when you were a sophomore or junior in high school and someone pointed out a flaw that you had. You know, your first reaction was, I might belt the person. On Wall Street, you really need to be careful about how you say what you say to whom.

My first year out of grad school, there was a paper that was published on a growth curve of some business, the revenue over time or something. The speaker was presenting this is in a room of about thirty people, and I’m the junior person in the room. The speaker said, “As we can see, this is exponential growth. It’s extremely important to invest in this because this is going to grow like crazy,” and it looks like a logarithmic curve to me. I just say, “I’m sorry, that’s actually slowing down. That’s a logarithmic curve. That’s not exponential.” That’s one of those places where I almost got fired.

That kind of mistake was a painful lesson. Outside of math and physics, the word exponential does not mean what physicists think it means. The word exponential means “growing fast.” I use it correctly, but I don’t correct people when they use it incorrectly, because that would be arrogance. Now, I might take them aside and explain, “Hey look, that curve is slowing down its growth.” In economic speak, that’s marginal contribution to return, or marginal improvement. The margin is getting smaller and smaller. That’s how they convey that concept. But if you come out and say, “You don’t know what the hell you’re talking about, that’s clearly logarithmic-like not exponential-like,” that’s how you get fired.

And there are a lot of examples like that, where they make incorrect conclusions when analyzing data, or they make assumptions without data that some business process is true. They’re going to pursue some strategy to grow the company, and when you ask for data, you’re challenging their authority and their knowledge of the industry. Experience passes for correctness on Wall Street. Someone who’s been on the street for twenty, thirty years is revered whether or not they have data to back up their claims. That’s a real challenge. More and more so, that is decreasing in its prevalence, but it still is how the street works. The street respects people who made an awful lot of money. Now, whether they did that through skill or through luck is not a question that is ever asked. And when you do a serious statistical analysis of Wall Street traders and who is lucky and who is skillful, you find that 98% of the returns are generated through luck, through random process. And the Wall Street Journal does this typical thing where they take darts and they throw it at the journal’s stock pages, and they compare it to what mutual fund managers did, and 98% of mutual fund managers are within the tolerance of error of statistical sampling. So, it’s luck. If you can generate higher than average returns for five, six years in a row, you’re revered, even if you’re well within the statistical error bars of the expected number of funds or managers who would have that type of return. They don’t do that analysis, and they don’t get that. You got to tolerate that if you want to play this game.

It’s somewhat eye opening, and I want to go back to some of these points of advice.

One of the things I loved about my progress in physics was that I was less and less frequently the smartest person in the room. When I was in high school, quite often I was the smartest person in the room, including the teacher. When I got to college, sometimes that was true, but quite often it wasn’t. Well, if the professor was in the room, clearly I wasn’t, but if it was just the other students, sometimes I was and sometimes I wasn’t. And, in grad school, it was almost never the case. I enjoyed that. I enjoyed being in a room where I’m midway through the intelligence spectrum. I’m going to learn from half the room, and I can teach half the room, if you will. So I like that. 

On Wall Street, I will be perfectly blunt and I will say 95% of the time I know I’m the smartest person in the room and I only behave that way 5% of the time, because it is incredibly important not to project the image that you’re the smartest person in the room. Let them figure that out, but be humble about it so they respect you rather than be pissed off at you. Physicists have a knack for pissing people off just because of that culture that we carry with us. Like I said, it works in physics, and it helps physics get better at its own game. But that game is not how the rest of the world plays its game.

Another part of this is respecting other types of knowledge. Physicists certainly have a type of knowledge which I have a lot of respect for, and a lot of people have a lot of respect for. That doesn’t mean it’s the only type of knowledge. There is expertise in, for example, management. Managing people is a skill that you can learn, the same way that physics is a skill that you can learn. Not everybody can be a physicist, and not everybody can be a manager. And it’s not just that you’re smart enough to be a manager. Emotional intelligence is a real thing. Understanding how to coach and manage other smart people is hard, and it’s something that, at least when I was in grad school, was poo-pooed as some kind of soft-skilled management skill, as if they don’t know what they’re talking about. Well, they do. And they get results, and you can measure those results. Some people are better at it, and some people aren’t as good at it. Respecting a manager’s skill set, which is different from your, the physicist’s skill set, is important when you leave physics. That arrogance? It can bite you in a couple of ways, and one of those is dismissing other types of knowledge and other skill sets.

I started talking about being the smartest person in the room, and that goes along with the other types of knowledge. As I’ve progressed in my career, I have lost skill sets that I had earlier in my career. I can’t type a LaTeX document today. I haven’t done it in a long, long time. I actually can’t pick up MATLAB and use it all that quickly. I haven’t done it in ten or twelve years. But I’ve also picked up other skill sets along the way that allow me to respect other people who are running companies who have also lost their skill sets because they can’t do the thing that they started out doing anymore. But you pick up other stuff, and that’s important to recognize. There’s a wealth of other types of skills that you need to pick up as your career goes through, unless you want to stay doing exactly the same thing. 

I’m not a computer scientist, and I learned how to program the way most physicists did in the 80s. That is, my professor threw a Fortran book at me and said, “Hey, any monkey can learn this.” That’s bullshit. That is not true. Computer science is a science, and good programming is, too. You got to work at it. I now hire people with computer science degrees to do the programming because I know I’m not good at that. They’re better at it. Now, if they want to progress in their careers, they have to obviously demonstrate skill at that function, But as they progress, they have to demonstrate communication skills, managerial skills, presentation skills.

That brings me to one of the most important things that physicists really, really need to improve, and that’s communication skills. Whether that’s written or verbal, whether that’s a handshake in the corridor, that communication is so much more important than I was led to believe in grad school. It’s the one thing that I really regret not teaching myself more of when I was in grad school. There’s the typical thing of the elevator pitch: taking a complex subject and simplifying it down, not simpler than it should be, but simple enough that you can convey the executive summary to the person. You’ve got thirty seconds, what are you going to convey? You should practice that in advance. You should know the two or three most important points in seven words or less, what those are, how do you get someone’s attention, how do you get someone to want to poke one level deeper. And that’s a learned skill set. I think grad students in particular, but undergrads as well, would do well for themselves to learn it.  

LK: That’s a recurring theme from our alumni. And even staying in academic physics, it’s an extraordinarily valuable skill. That doesn’t come naturally.

I’m going to say it comes naturally to a lot of people, but it’s an anti-filter among physicists. Math comes naturally to many physicists. Statistics comes naturally to no human being on the planet. That’s a learned skill, and it’s hard. We misinterpret things all the time. But I really do think that communication and math, based on what I’ve read about different types of learning and different types of thinking, is that those two are largely uncorrelated. Physicists have a natural tendency to dismiss the topic and not think about it or work on it. Physics, even if you’re working in a group, is still a solo achievement type field. You’re not going to get promoted, your career’s not going to advance if the group wins but you’ve only kept pace. You have to sell yourself. And that’s part of the benefit. In physics, to have a real career, you’ve got to be damn good. And that means that the field is always advancing.

So, it’s the right think for physics. But for the Wall Street team, if the team makes money, everybody gets rewarded. They filter out the bad, the people who don’t deserve to be there, but not nearly as stringently as physics does. The approach that physics has is if I achieve my results – and I’m using I, not we – I increase my probability of getting tenure, accolades and other things. It’s more of a solo endeavor, and therefore communication isn’t as critical for success. I mean, on Wall Street I have to convince clients to use my services, I have to convince partners to partner with me, I am honing my communication skills constantly.

I’ll give you an example. Yesterday I met with someone who reports to the CEO of one of the largest banks in the world. In the same room was his direct report, who runs a division of the bank, and his direct report, who runs a project within the division of the bank, and his two direct reports, who are analysts on the project. We’re trying to work on something all together, and we are strategizing how to present to the most senior person’s boss, who runs the bank; we’re thinking about partnering with his bank. How do you communicate with them all at the same time, all different levels? How detailed do you get, how sundry do you get, how much respect do you show? It was a fascinating question. The senior-most person asked me, because we’re a little less formal than a large bank, “Describe the culture of your firm. We’re all in suits and ties today. Do your people know how to tie a tie?”

That’s important. He can’t take my people into meetings if they can’t behave appropriately in the meeting. A lot of the people, they probably don’t know how to tie a tie, because I don’t need them to know how. But my senior people all know how to put on ties because we do it pretty frequently. Not making fun of that is just step one: recognizing that what you wear and how you conduct yourself is part of your communication. It’s not to be dismissed. And that’s something that physics just doesn’t convey.

Other advice that I think is just as relevant today is if someone’s going to leave physics, recognize that your network of connections in the business world and whatever industry you’re looking for is much, much wider than you think it is. What do I mean? The informational interview is a time-honored technique. It is nonthreatening; you’re not asking for a job, you’re asking for ten minutes of someone’s time for them to talk about their career or their advice to you about what you might want to do to get into their industry. I remember very clearly talking to a friend of a friend of a friend of a – it was six levels of connection – and I’m talking to this guy who had a career on Wall Street. Every time you have one of these conversations, you want to ask the person to introduce you to two more people, right? And your network is exponentially growing, literally exponentially, and when I went through this route, I was spending an hour a day on the phone with people I didn’t know, but who were introduced to me by people I didn’t know who were introduced to me by people, dot dot dot, I knew. And in this conversation, the guy says, “You know, were you a camp counselor back in ’84 at such and such camp? My son was there and he remembered you.” That’s what I’m talking about. You have no idea how big your network is and how widespread that net is. Your alumni network from your undergraduate institution, your parents’ friends, teachers from high school and college who also have families and friends that they know. So, one of the best ways to get a job outside of the field you’re in is let everyone you know know that you’re looking for a job in such-and-such a field. And they will know someone who knows someone who knows someone who will talk to you and maybe pass on your resume or make an introduction.

LK: That’s another recurring theme, about networking and encouraging students to actually engage in that way. It’s one of these things that I think can be surprising to undergraduates or graduates coming from the culture of physics.

My single biggest piece of advice is the following: every human being you interact with is going to teach you something, either positive or negative. They may teach you many positive things or many negative things. Do more of the things that result in success that you observe in others every day, and do less of the things that you see resulting in failure every day. If I learn from these interactions and adopt behaviors that I see in the most successful people and drop behaviors that I can recognize in myself that are harmful to a career or to relationships or to what have you, and do less and less of those, I’m bound to increase my performance in whatever it is I’m trying to do.

Concrete example: I looked at professors who I saw were successful despite themselves. Intelligence matters, and skill matters, and in physics, that will trump rudeness and interaction. So I saw that as a quality that I obviously want to improve in myself: my ability and my technical skills. But, I also saw that the most successful professors were the ones who could interact with the dean, or the provost, or with members of Congress when they came to examine the lab, or with the Nuclear Regulatory Commission, or what have you. I looked for how they conduct themselves. When I got to Wall Street, I was with Deloitte and Touche, which is a partnership, so there were various levels. Senior-most is partner, meaning they share in the profits of the business. Now, of course, there was a distribution among partners. I saw the more successful partners and the less successful partners. The most successful partners spent two minutes talking to each group that they were at when they walked into a room. They’d say, “Hello, I’m Ken Horner, how are you? Oh, you’re new? I haven’t met you yet. And you’re John, nice to see you again. Guys, great chatting with you, I’ll see you later on,” and went to the next group. And this guy made sure, every time he was in a room, that he said hello to every single person in the room. He was a butterfly. And when he did that with clients, he made sure he then put clients in touch with other clients, people in touch with other people, making those human connections. It was one of his ways of success because he was valued as a facilitator of people’s networks. That took chutzpah, that took communication skills. He’s a very intelligent guy, an MIT engineer by training, and he would always compliment people, but he’d also introduce some new piece of information into the conversation. I was like, “Wow. That works. Okay, let me try doing some of that.” It was terrifying to go up to a group of people I didn’t know, say “Hey, I’m Damian Handzy, let me introduce myself.” It took a year or two for me to get comfortable with that, but that’s really important to be able to do. Observe traits that have causal relationship to success or to failure and do more of the first and less of the second.

LK: It was really fun knowing you twenty-five years ago in our U program. I remember you as full of enthusiasm for science, but you were enjoying the social aspect of it and the interactions as well. I see you as somebody who’s keenly aware of other people. I’m not surprised now to hear about you actively studying people and learning from them. It’s kind of fun to see how valuable that’s been for you. I’m sure it’s valuable for everybody, too.

Others have accused me of having studied physics despite the fact that I’m a people person. I’ve always been a people person. That was one of the hardest things in grad school: not being able to exercise a lot of that because I like non-physicists as well as physicists. I’ll be perfectly frank. I’ve got friends who are dumb as a doorknob, but I still hang out with them because we have a shared history and we’ve done stuff together. I don’t have really meaningful conversations with them, but I do enjoy people, and there’s a lot you can learn from other people, both pro and kind of con.

You also mentioned I was excited about science. I have not dropped that. Two years ago, we were going to do a partnership with a large firm, and the senior person from the other firm was describing me as a science and risk evangelist, that I’m trying to help people understand how this stuff works. They said, “I don’t know of anyone who gets so excited about helping someone else have an ‘aha!’ moment.” That, I think, is what ultimately pulled me into physics. For the record, I’ll say unequivocally, I am thrilled that I studied physics, absolutely thrilled. I cannot imagine not thinking like a physicist. Thinking statistically, thinking about how systems work, thinking about interactions, figuring out what is actually meaningful and what’s not, what questions are worth asking. That’s awesome. I wouldn’t have had that if I had studied medicine or any other field. 

All that said, there’s an enthusiasm that I think I’ve brought to a lot of stuff I’ve worked on or studied, whether that’s humans or systems or interactions. That has also played a part in my ability to transition from one field to another. That’s a personality trait, not necessarily a learned trait that my physics training taught me.

LK: Thanks for taking the time to share all that with us. It’s been a real pleasure talking with you again.