October 10, 2009

When Hope and Vision Won the Nobel

The Nobel Peace Prize Committee says here that President Obama's extraordinary efforts to strengthen international diplomacy and cooperation between peoples has won him the Nobel for Peace in 2009 . The Committee has attached special importance to Obama's vision of and work for a world without nuclear weapons.

Further, 'Only very rarely has a person to the same extent as Obama captured the world's attention and given its people hope for a better future. His diplomacy is founded in the concept that those who are to lead the world must do so on the basis of values and attitudes that are shared by the majority of the world's population.' ... 'The vision of a world free from nuclear arms has powerfully stimulated disarmament and arms control negotiations.' ...

All this to a man who is Head of State of a nation involved in two wars, where the defence spend is much larger than some nations. While the US has not got out of Iraq it has ordered more troops into Afghanistan. By that yardstick, an Indian Head of State should have won, since everytime India has suffered a terrorist attack, our leaders have restricted the use of our nuclear weapons. Heck, we constructively restrict our anger to newspapers, cricket matches (at neutral venues, if you wish), pleading before the UN, etc and go about our business. If only we knew that pounding bombs on suspected nations coupled with good oration would have 'captured the imagination' of the Nominations Committee, we would have done that.

The least you guys at the Nobel's could have done was wait for the end of Obama's term to see if his wonderful oration, hope and vision actually translated into world peace.

October 1, 2009


"The sad truth is that incentives have diluted the importance of investment philosophy. While well intentioned and hard working, corporate executives and money managers too frequently prioritise growing the business over delivering superior results for shareholders. Increasingly, hired managers get paid to play and not to win."

- From Micheal Mauboussin's 'More Than You Know'

August 19, 2009

Miracles Do Happen

The taxi I was in was nearing the Kalanagar signal in Bandra East. Three street urchins, boys possibly 7 to 8 years old, on crutches were trying their luck at the vehicles that were waiting for the light to turn green. One would feel sad for these kids, maimed from birth or early in life, thinking of how the world would treat them differently compared to normal kids. Being the rainy season, it started to drizzle.

The boys on crutches continued to knock on closed cars windows while the drizzle became more forceful ...

What happened next was interesting. If you have visited a playschool or watched a play or event put up by kids you will begin to appreciate what I saw. Kids follow the normal course of activity as long as there is nothing that distracts them. If there is something more interesting going on, kids will immediately get distracted and will start to go their own way, following the distraction causing element or staring at it. Something similar happened here.

As the drizzle transitioned to light rain, the boys stopped knocking on windows. One of them shouted something to the other two. To which one of the addressees, balanced himself on his crutches and, with what I thought was his better leg, kicked a puddle which was just getting formed, in the direction of the first guy. To which the first guy replied by using his crutches as a lever to haul himself into another puddle so as to splash water on both the other guys.

The signal turned green. As I waited for my taxi to pull away, the boys were fully engrossed in their newly founded sport. They were now standing on both feet, the cripple that caused them to use crutches visibly gone, playing in the rain. I smiled. They were kids after all, stuck in the Big Bombay Begging Syndicate.

PS: I have always hated to give money to beggars. Have you ever thought of what happens with the change you give beggars? I hear that it makes its way to shady markets where shopkeepers in need of change buy Rs.90-95 worth of change by paying Rs.100. A 5-10% brokerage fee for the Begging Syndicate. The worker-bee-like kids get a vada pav a day and 60ml of tea. So next time you see a begging kid. As him if he is hungry. If he indeed is, buy him some food or give him that spare biscuit pack you have.

June 25, 2009

The 1/4 life Crisis

Does any of this sound familiar …

1. Feeling "not good enough" because one can't find a job that is at one's academic/intellectual level
2. Frustration with relationships, the working world, and finding a suitable job or career
3. Confusion of identity
4. Insecurity regarding the near future
5. Insecurity concerning long-term plans, life goals
6. Insecurity regarding present accomplishments
7. Re-evaluation of close interpersonal relationships
8. Disappointment with one's job
9. Nostalgia for university, college, high school or elementary school life 10.
10. Tendency to hold stronger opinions
11. Boredom with social interactions
12. Loss of closeness to high school and college friends
13. Financially-rooted stress (overwhelming college loans, unanticipated high cost of living, etc.)
14. Loneliness
15. Desire to have children
16. A sense that everyone is, somehow, doing better than you

An author somewhere has called this phenomenon (of experiencing the above symptoms) the Quarterlife Crisis and has authored a book about the challenges of living in your twenties.

Though I haven't given most of these much thought, at some point or another some of the above symptoms have clouded my thinking. I could count 13 out of 16 - some more intense than the others … which makes the hit rate 81%. (FYI, I left out 1, 15, 16 - before I get mail asking me about my desire to have children ;))

Damn this! Kiddish before 12, teenager issues till 20, quarterlife crisis till mid 30s, midlife crisis in the 40s, prostrate issues after 50 … when is a brother supposed to be enjoying himself? :)

June 23, 2009

Development is the bane of our existence

Some thoughts as I return from a trip where I had a taste of rural life ...

The capitalist system we work in encourages us to do things faster and better with each passing year. Corporates are incentivised to grow faster than the previous year. Profits must be larger than the previous year. Costs must be lower than the previous year. These invariably get passed on to us which makes us humans enter a race, trying to do things faster than what evolution permits ...

… With each passing year, one works harder, runs faster to move ahead because if you do not others will take your place. You try to do things at 30 - that which you are meant to do when 35, achieve things at 40 - that which you were supposed to achieve at 50 … Why? … what do you plan to do in those additional 5-10 years you may possibly gain? (if you don’t kill yourself in the process)

… it all leads to stress and stress related problems … we then spend billions developing drugs that make us live longer with these illnesses …

The race to scale also incentivises man to standardise … agriculture is also standardised ... killing bio-diversity in nature …

Development is the bane of our existence … the more we invent, innovate, develop - the more we substitute our natural instincts and abilities for artificial ones … all to achieve more - the race to beat evolution, which hastens our doom.

June 14, 2009

Women reservations: Another policy waiting to be misused

The Government of India seeks to pass the Womens Reservation Bill which will result in 33% reservation of the Parliament seats in the Lok Sabha for women. While I am all for the upliftment of women who have traditionally played second fiddle to men in India (I'm talking of the larger Indian society here), I am not sure reservation is the right way to get there. I say that because reservations in the past have been misused. Deserving persons miss out. I say that from personal experiences, where I have seen people take advantage of their caste status to get benefits. Some of these are people I know well.

One of my friends mentions that this move will only benefit upper class women in urban areas who can contest elections on their own individual credentials. Those for whom this policy is meant - the sparky rural woman who has leadership potential but looses out due to male chauvinism - will find it difficult to get a seat. In all probability, political parties will ration this quota among women who already got elected to Parliament leaving less seats for the ones that need upliftment.

Reservations is curing the symptoms of gender inequality. The malaise is much deeper. Today the average rural woman is mostly dependent on her husband due to economic and social reasons. The only way this can change is if women come together in small communities to work, educate themselves, and have their own support system which can incentivise them to be independent. Empowerment is a long journey. The flipside of the current system is that this will lead to more reservations, where women will ask for representation within the current womens quota for backward castes. It will lead us nowhere

June 8, 2009

Update: Know they pension plan

Some time ago, I posted about having adequate knowledge of where investment managers put your money to work. As an update, I managed to get a cash flow plan of the scheme. Imagine my shock when I present valued the 'capital' and the 'fees' (Present valuing means discounting all future cash outgoes to present terms to know what it would mean if everything were to be evaluated on todays terms). The fees were a crazy 18%!!! ... which means that if I invested all monies today, 18% would go to this institution as fees for managing the capital. To give you an idea as to why that is crazy, mutual funds take around 1% (0.5% when one buys and 0.5% when one sells), alternative asset managers take close to 1.5% - 3% to manage wealth. The next time you are sold a plan, inquire about the fees

June 7, 2009

Heaven and Hell

Received this interesting one in the mail from Venkatron ... :)

June 1, 2009

Wall Street Fables: The secret of the Bonus

Following is a crude con-job. A far away analogy would be the way Wall Street quants (A term used to describe people with more than their share of quantitative skills ... typically guys who can do spreadsheets in their head) have financially engineered returns on dead assets ...

A city boy, Raj, moved to the village and bought a donkey from an oldfarmer for Rs.1000. Thefarmer agreed to deliver the donkey the next day.The next day the farmer drove up and said,

"Sorry Raj, but I have some bad news, the donkey died while I was bringing him here."

"Well then, just give me my money back", replied Raj.

The farmer said, "Can't do that. I wentand spent it already."

To which raj replied, "OK then, just unload the donkey."

The farmer was inquisitive. "What you are going to do with him?"

"I'm going to raffle him off." replied Raj

"You can't raffle off a dead donkey!" exclaimed the farmer.

"Sure I can. Watch me. I just won't tell anybody he's dead." There was a twinkle in Raj's eye.

A month later the farmer met up with Raj and asked, "What happened with that dead donkey?

"I raffled him off", said Raj with a casual look, "I sold 500 tickets at Rs. 10 each and made a profit of Rs 4990 with the donkey worth Rs. 1000 as the prize."

"Didn't anyone complain?", the farmer asked with a look of astonishment.

"Just the guy who won .... So I gave him back his Rs. 10."

And that my friends is a fable on how investment bankers across the world made their hefty bonus'.

March 30, 2009

Know thy pension plan

I was the audience. A pitch was being made to buy into a pension plan. The salesperson gave the keeping aside for old age spiel. In short the dynamics were like this - I was to put in a fixed amount for the first five years, say INR x per annum. From thereon, till I was fifty, this cash would grow and after I turned fifty I would get a monthly income from this kitty till my passing into the next world.

She was doing her job well until the point where I asked at what rate my cash would grow between the last installment and me turning fifty.
“15%”, came the reply.
“Will you guarantee that?”
“Well we don’t guarantee it but if you invest the money in an aggressive mutual fund you will see those returns”
“Which mutual fund? I thought this was a pension plan”
She unfolded the literature for the plan. It showed options of allocating my annual contributions towards various asset classes – the most aggressive of which (also took on the most risk) and would, assuming the world didn’t fall apart in the intervening years, assuming that Indian equity markets delivered, assuming the fund manager wasn’t a rogue, assuming the companies in which my pension money was invested didn’t blow up due to fraud, bad management, business cycles or otherwise and assuming a million other risks which my tiny brain couldn’t fathom or whose impact I couldn’t ascertain, would potentially deliver 15%! … It was getting clear now …

“So your literature says 15% return annually if I invest in this scheme and allocate my pension to this asset class (Fancy term 1: ‘asset class’ is money that is exposed to similar risks – bonds, shares, etc are examples of asset classes)
“Well on the letterhead we can mention a maximum of 10%. But you can get 15% if …”
“Why 10%? You just said 15%!”
“Well sir, on the letterhead …”
“OK. No issues, So if your letter mentions 10% I assume my cash grows at 10% in the intervening period.” … PS: whatever you may hear from stock brokers, cash growing 10% assured annually for a long time is a pretty good investment, especially for pension plans
“No sir that again would depend …”
“Then why mention 10% on the letter?”
(Uncomfortable babble) … “Sir you can choose our as your asset class. The current NAV (Fancy Term 2: NAV means Net Asset Value – the price of a mutual fund at any given point in time) is INR 4. The NAV will surely rise (?) and your pension money will grow faster than 15%”
(I smile) … “What was the offering NAV?”
“INR 10 sir”
“Don’t you think it’s a concern that it has fallen from INR 10 to INR 4?”
“It’s a five star scheme sir and they invest in AAA+ corporates” … she doodled AAA+ on the literature, possibly to drive home the point
“Is there a possibility the NAV can drop further?”
(again that uncomfortable silence)
“Never mind … I’ll take this literature and get back to you”

As I was leaving I felt a little sorry for grilling her after I came to know about the asset classes logic. I understood the plan fundamentally then but was exploring the possibility that the pension plan scheme actually had a fixed rate of return. There was none. Instead there was a hell lot of market risk. (It actually seemed a clever way to seek contributions to the company’s mutual fund schemes) It called for taking a call on the capital markets for the next 23 years. (I’m around 27, and it would be 23 years till I turn 50). Ideally I would like my pension money to be risk-free. A large portion, say 95% of it, should grow at a fixed rate and the rest in equity shares of AAA+ corporates and pension funds should see to it that the float (Fancy term 3: Float is the premium on insurance / pension contributions collected by such companies in this business) is managed in a similar way. Unfortunately the fees component from selling these products has become huge income drivers for banks. A cross-sell like this gets fees form the pension plan as well as the mutual fund. Obviously bank executives will not want to sell the safer plans which gets fees for just the pension fund.

Just to give you one example of the impact a decision like this will have, assume someone invests in this scheme (most people will eventually). Their money grows in this mutual fund based pension plan till they are 49. Just before they turn 50, we see a recession the likes of today, there is mayhem in the markets and they are left with the capital they started off with, maybe less, which over 23 years has lost its value due to inflation. Assume that this was their only safety net. Isn’t their retirement royally screwed? Where has all the hard work to support old age gone? What if there was someone with a terminal illness at home? As usual the only beneficiary is the bank manager who collected bonuses every year for growing the capital (maybe completely due to luck) till our friend grew 49 and then who gave up his bonus when the fund went under.

Unfortunately, most people are unaware of what they sign up for in such schemes. One old-timer I know very happily told me that he invested most of his savings in a fixed rate investment which is market determined (?). My attempts to explain that there is no instrument that can pay a fixed rate and at the same time be market-determined was met with a “Do you think the managers at the insurance Co are fools?” Well they were not fools, they met their annual targets and scooted off into the sunset.

Financial innovation may have got people access to investment options they never would have, which is a good thing if they understood it. But financial innovation coupled with ignorance could well be disastrous. Know thy investments!

February 15, 2009

Machiavellian Infomation Overloads

I have stopped reading newspapers. Unless of course it’s a lazy afternoon and the options to spend my time in other pursuits are non-existent.

There was a time when I used to read every bit of news that came along. As a student, I read the Economic Times (even though at the time I could not appreciate the significance of most of the news), The Times of India and the Bombay Times (for funsakes). I was told that the middle pages of the newspaper are the ones where the juice is. The Editorials and comments by wise men of industry and society were on these pages. As a young mind, one was supposed to assimilate the oracle-like opinion (no matter that it could be released verbatim later in front of a group of stunned teenagers … man this guy has god-level insights!) All this until one day some few months ago, I saw one of my friends draft a press release. And no my friend is no journalist; we’ll come back to him a bit later.

Noam Chomsky is a Professor of linguistics at Massachusetts Institute of Technology and given his background in studying languages and their structures ends up learning a fair bit about society. He says that as part of a democratic setup, people have access to a lot more information than those making decisions for that society would be comfortable with. Making policy and implementing decisions thus becomes a challenging process to the extent that ones reputation hangs on its success; and this is true across the spectrum from industry to state. Hence the need to control, filter, jazz up, seduce. In other words: shape public opinion.

One look at Indian media today and you will know what I mean. Apart from just information dissemination, there is entire other world where the significance of the news is forced down my throat. I as a receiver of communication am not allowed to think. The broadcast of any news in any medium is accompanied by ‘expert opinion’ where there is a well known celebrity-like media friendly character who sagely comments on what has transpired and how it will affect our life.

Who is our ‘expert’? What are his credentials? How has he performed in his line of expertise? – Are questions which immediately come to mind. Now to some slightly uncomfortable questions - Who selects him? Why is he on the show? Does he have vested interests? Who does he represent? More importantly, why is he predicting events? What is his track record in predicting events? These may never be answered.

Coming back to my press release drafting friend – Why was an employee drafting a press release? Isn’t that a job for a journalist? Does this rob the journalist the opportunity to ask important questions? Maybe if he asked, the merit of the release would lose significance. Maybe it would be relegated to the obscure parts of the newspapers which are used for personal packing of dirty linen during a long trip. How much more is there in this release that does not meet the eye? Are journos reduced to selecting what news goes where? Do they get incentivized for selecting what news goes where? Who decides these incentives? Why all this cloak and dagger style?

Don’t get me wrong. I have nothing with the withholding of information. In a competitive world, it is necessary. One can’t publish confidential data in the name of the free press. My issue is more with the unholy nexus of journalists and publicists. News has moved on from reporting to generation and sensationalism. Grand quotes from people who have given up something valuable to be on the front page. Which means we are being misinformed. Which means reading newspapers is a waste of time.

You may ask what does one do to be upto speed with the happenings around you? Scan the headlines of a respectable media org. Mostly it is possible to jazz that up to. But given that you see it for a split second, the ability to be influenced is much less.

There is another non-Machiavellian reason that I have stopped reading. There is just too much information. I once tried to list down the central theme of the previous days news stories. I couldn’t. Rarely did I come across an article I remembered. That too because I relayed it several times in my head and told others – it was interesting. Otherwise, for most of the time it was just too much noise. Filtering the noise to come to matters that concern my work / me is painful. I’d rather scan the headlines of a publication that focuses on it; or wait for somebody who finds it interesting to tell me about it. Either way I am not missing much.