The Killer App Still Dominates in Middle Age

One meme captures the importance of Excel:

Even that understates the spreadsheet’s significance, given the myriad ways in which it is used to keep track of things far beyond the financial world.

Pervasive in the industry

Within the investment industry, Excel is ubiquitous.  Anyone with “analyst” in their title has hundreds of spreadsheets of one kind or another — some featuring scores of tabs — and it would be tough to find an investment process that doesn’t rely on Excel at various points along the way.

The same goes for the back office.  Even though operations have gotten more automated over time and crucial systems have been built or bought or leased, there is always a flowering of new Excel documents to fill the gaps that exist or to act as a check on the big system.

Here are the results of a survey of institutional investors by the Milestone Group (a vendor of investment systems), regarding how investment and operational tasks related to asset allocation are accomplished:

Often the creator of a spreadsheet is the only one that really understands how it works and “the organization” may not even know it exists or how it fits.  Some of those Excel files can be quite impressive, but only a small percentage have any reasonable level of documentation — and very few have error-checking built into them.  By and large, spreadsheets aren’t vetted by others, at least until something goes wrong.

Errors

“People tend to forget that even the most elegantly crafted spreadsheet is a house of cards, ready to collapse at the first erroneous assumption,” wrote Steven Levy in 1984, just a handful of years after the introduction of VisiCalc, which started everything.

Over time, there have been plenty of errors big enough to make headlines.  The European Spreadsheet Risks Interest Group (EuSpRIG) has a list of “horror stories,” including ones that came out in the after-bloodbath report on the “London Whale” synthetic credit portfolio managed by the JPMorgan Chief Investment Office.  As recounted in a Financial Times article, bad calculations, erroneous default settings, and misapplied manual cut-and-paste operations in spreadsheets magnified the other human errors.

But that was more than a decade ago.  Surely that wouldn’t happen today, right?  Right?

Joachim Klement reminds us that the mess can sneak up on any of us, that “people who work as research analysts or portfolio managers know that we are mostly sitting in front of computers looking at huge spreadsheets that somebody developed ten years ago and that have since grown ‘organically’ to the point where we have no idea what is going on.”

Klement cites a EuSpRIG estimate that more than ninety percent of spreadsheets contain errors, and he links to a paper from the Institute of Chartered Accountants in England and Wales, “Twenty principles for good spreadsheet practice.”  Consider the first one:  “Determine what role spreadsheets play in your business, and plan your spreadsheet standards and processes accordingly.”  Not only do individuals not want to spend the time on documentation or error-checking routines, but organizations don’t even want to take that foundational step.

Spreadsheets are pervasive — and their creators are protective of them.  The risks and flubs in them never get addressed.

History

Often called “the first killer app,” the electronic spreadsheet was created by Dan Bricklin in 1979.  He told the story of VisiCalc in a TED talk.  It was soon be supplanted by Lotus 1-2-3, which was then overtaken by Microsoft’s Excel.  Packy McCormick provided a good history lesson about all of that in his posting, “Excel Never Dies.”

[In a 2008 essay on the research puzzle, your editor wrote about being a very early Lotus 1-2-3 user — and his encounter with the firm’s founder, Mitch Kapor, at a road show for its IPO.]

In its time, the spreadsheet has revolutionized the investment landscape and (remember that image at the top) in a very real sense has come to carry the financial world on its shoulders.

Wizardry

It’s hard to say where great Excel chops fall on the list of desirable attributes for an investment professional, since it depends on the specific role.  Unfortunately, those that lack the requisite skills might never get to the point where they can demonstrate other capabilities that are arguably more important.

You can head to Twitter to catch banter about Excel prowess among the financial crowd, including claims of being able to do anything worth doing just with keyboard shortcuts, in order to avoid the time-consuming back-and-forth to use a mouse.  Tips, tricks, confessions of bad habits, snark, etc.  The darn thing is woven into our lives and we can’t quit talking about it.

What’s the payoff for that expertise?  You know, in dollars.  No doubt there are wizards that attribute their success in the business to their ability to leverage those columns and rows and tabs to their greatest effect, but is that really it?  And, if they are so good, are they ready to compete for the world championship?

Yes, Excel is riding the esports wave.  While the competitions might not pack arenas like some popular game contests do, they have been covered in The Atlantic and shown on ESPN.  (A fun look at the competitions from some non-Excel gamers trying their hand at the problems involved can be found here.)

But the payoffs don’t measure up to the pay of an investment analyst, so why bother, other than for bragging rights?  Instead, you might as well go for the big money in Excel gurudom.

According to a posting from The Verge, Kat Norton is a full-time influencer who has “over a million followers on TikTok and Instagram, where she goes by the name Miss Excel, and she’s leveraged that into a software training business that is now generating up to six figures of revenue a day.”

Now that’s a killer app.