Unexpected defeat can shake a person or an organization so badly that hysterical and irrational reactions start appearing. These are expected to subside after a while. What do you say when it shows no sign of abating? Can the organization be said to be completely derailed with little hope of recovery?
The ruling party in India was complacent in 2004. It was so sure of a thunping win that it ordered elections a year ahead of schedule. The media, and its main opposition also seemed to agree. the end result was a shocker. They lost. Then followed a series of hysterical rabble rousing about a foreigner becoming the prime minister.
Over time the party kept shooting itself in the foot. The main leaders were pronounced as past their prime by the ideological backbone and for a while they went on the backfoot..........only to return as the prime ministerial candidates! While the world changed, nothing changed here, including the sulk. The confidence vote was another opportunity to get back into the forefront. This was lost, again very badly - first the centre of gravity shifted away to Mayawati and then the vote itself was lost. One expected more hysterics. But I doubt if anyone would have anticipated that senior people from the party would start linking the bomb blasts to the confidence vote.
Either they have completely lost it, or they believe that people are idiots and anything goes. I am inclined to think that it is the former.
Tuesday, July 29, 2008
Thursday, July 17, 2008
The Long Tail
A very interesting site on the theme of long tail theory
and a very interesting write up by seth godin
Chris Anderson is the man who has been propagating this interesting theory.
and the theory rocks.
An interesting counter theory is published at HBR by Anita Elberse, a Harvard Business School associate professor. It is an interesting article with a powerful conterview
and a very interesting write up by seth godin
Chris Anderson is the man who has been propagating this interesting theory.
and the theory rocks.
An interesting counter theory is published at HBR by Anita Elberse, a Harvard Business School associate professor. It is an interesting article with a powerful conterview
Tuesday, February 12, 2008
What farmers want
What would I want the most if I were a small farmer with 6-7 acres of land?
My main problem is that what I produce needs to be sold in a market which is some distance away. Having carried the produce, I am in no position to take it back (the costs) and therefore I am forced to sell at whatever price the trading cartel is giving me at that point in time.
What I would like is that I have a warehouse within 10-15 kms of my farm. I go there, get the produce graded and certified and it is then stored. I in turn get a warehouse receipt, which clearly specifies what I delivered. This WR is then tranferable, tradable and a fully negotiable instrument. This implies that I can hold the WR, sell it to someone or pledge it for loan to a bank.
This increases my stock holding capacity. No longer am I at the mercy of a local cartel. I can wait for the prices or cash out.
To enable a farmer to reach the stage described above, the government needs to either build (or incentivize others to build) these warehouses (maybe 25-30,000 across the country), create a system of accredition of produce (grading and storing), make WR negotiable and tranferable.
Apart from targeted investments, this means that companies interested in this sort of a supply chain ought to be encouraged (cash and carry wholesalers and large scale retailers). Markets for trading WR (physically or in demat forms) need to be created and these markets should replace the current practice of markets where the producer has to carry goods.
Can the budget itself do much towards achieving this? It can in terms of allocations for such programs and tax incentives encouraging investments in these areas. However, the budget alone is not enough. A clear policy and implementation over 3-5 years will be required. Do those in power have the will to carry this through?
My main problem is that what I produce needs to be sold in a market which is some distance away. Having carried the produce, I am in no position to take it back (the costs) and therefore I am forced to sell at whatever price the trading cartel is giving me at that point in time.
What I would like is that I have a warehouse within 10-15 kms of my farm. I go there, get the produce graded and certified and it is then stored. I in turn get a warehouse receipt, which clearly specifies what I delivered. This WR is then tranferable, tradable and a fully negotiable instrument. This implies that I can hold the WR, sell it to someone or pledge it for loan to a bank.
This increases my stock holding capacity. No longer am I at the mercy of a local cartel. I can wait for the prices or cash out.
To enable a farmer to reach the stage described above, the government needs to either build (or incentivize others to build) these warehouses (maybe 25-30,000 across the country), create a system of accredition of produce (grading and storing), make WR negotiable and tranferable.
Apart from targeted investments, this means that companies interested in this sort of a supply chain ought to be encouraged (cash and carry wholesalers and large scale retailers). Markets for trading WR (physically or in demat forms) need to be created and these markets should replace the current practice of markets where the producer has to carry goods.
Can the budget itself do much towards achieving this? It can in terms of allocations for such programs and tax incentives encouraging investments in these areas. However, the budget alone is not enough. A clear policy and implementation over 3-5 years will be required. Do those in power have the will to carry this through?
Thursday, January 24, 2008
The Crash of January ‘08
The headlines screamed “Melt down”. Was it really a melt down in India? The market came down from incredible bubble valuations to reasonable valuations. Is this a crash? It seems the media is a spokesperson for idle gamblers who view the markets as a perpetual money-printing machine. To call Monday “Black Monday” and Tuesday “Terrible Tuesday” is irresponsible journalism. And if ignorant adults called “small investors” lost, why should the rational world shed any tears? They were blinded by greed and made incredibly irresponsible punts in the first place.
Friday, November 2, 2007
The power of compounding – Time, Return, Amount
There is this story about the man who invented chess may years ago. It is said that the king of the land was so impressed that he summoned the inventor and asked him to take a gift from him. The inventor thought for a while and said that he wanted 1 grain of wheat for the first square, 2 grains for the 2nd square and 4 grains for the 3rd square, and 8 for the 4th square and so on – doubling the number of grains every square till he reached 64 squares. The king was offended at what he thought was a very small request and he ordered his staff to attend to it. Many hours later he was surprised to learn that his staff was still calculating. After many more hours he was told that the demand was such that whole planet would not be able to fulfill.
The monstrous number of grains required was 18,446,744,073,709,600,000 !!! That amounts to trillions of tons of wheat, which is more than what the world has produced in the history of the planet.
That is the magic of compounding. What looked like an innocuous 31 grains after 5 squares had built up to this monster figure by the time the 64th square was reached. The secret to making money also lies in using the power of compounding effectively.
Albert Einstein is supposed to have said that the most powerful force in the universe is compound interest. And it's true. Compound interest describes how investments can snowball over time. Just as a snowball gets bigger and bigger and rolls faster and faster as it tumbles down a mountain, the same can be true with your investments. Due to the power of compounding, the value of your portfolio can grow faster each year because you earn interest not only on what you invested, but also on the interest you earn. The money you make will depend on three factors:
How much money you invest
How much time it spends growing
Its rate of growth
To illustrate the above points, let’s look at a few examples. We look at three investment alternatives – Rs 10,000 per month, Rs 15,000 per month and Rs 20,000 per month. In terms of returns, we will look at three examples – 10% pa, 15% pa and 20% pa. In terms of time frame, we will look at 10 years.
What will be the final value of the investments? For starters, the simplest thing to calculate is the amount invested in each case, which will be Rs 12 lakh, 18 lakh and 24 lakh respectively. What will they amount to after 10 years? Take a look below –
· 10,000 per month at 10% pa return will amount to 20 lakh. At 15% pa it will amount to 26 lakh and at 20% pa it will amount to 34 lakh.
· 15,000 per month at 10% pa return will amount to 30 lakh. At 15% pa it will amount to 39 lakh and at 20% pa it will amount to 51 lakh.
· 20,000 per month at 10% pa return will amount to 40 lakh. At 15% pa it will amount to 52 lakh and at 20% pa it will amount to 68 lakh.
You would notice at once that the returns do not vary linearly. The difference between amount invested and returns for the best case (20,000 at 20% and 10,000 at 10%) is a huge 36 lakh. When you look at the other dimension time (just compute the above figures for 15, 20 and 25 year time horizons) the differences will compound even more.
Remember that not all growth rates are the same. If your bank is paying 6-8% interest on your savings, that's safe and guaranteed money. The stock market, however, is not a sure thing. Stock market returns fluctuate. There are good years, great years, and terrible years. Over long periods of time, though, the stock market tends to go up. Over many decades, in India, it has averaged an annual 20% return.
In general, the more certain the growth rate, the lower it will be. The more risky it is, the higher it will be.
The lesson here is that discipline in terms of amounts invested and the time invested s to be combined with risk in terms of returns to get great overall long term results. Risk alone will not do much and discipline alone will take you some way but not too far.
The monstrous number of grains required was 18,446,744,073,709,600,000 !!! That amounts to trillions of tons of wheat, which is more than what the world has produced in the history of the planet.
That is the magic of compounding. What looked like an innocuous 31 grains after 5 squares had built up to this monster figure by the time the 64th square was reached. The secret to making money also lies in using the power of compounding effectively.
Albert Einstein is supposed to have said that the most powerful force in the universe is compound interest. And it's true. Compound interest describes how investments can snowball over time. Just as a snowball gets bigger and bigger and rolls faster and faster as it tumbles down a mountain, the same can be true with your investments. Due to the power of compounding, the value of your portfolio can grow faster each year because you earn interest not only on what you invested, but also on the interest you earn. The money you make will depend on three factors:
How much money you invest
How much time it spends growing
Its rate of growth
To illustrate the above points, let’s look at a few examples. We look at three investment alternatives – Rs 10,000 per month, Rs 15,000 per month and Rs 20,000 per month. In terms of returns, we will look at three examples – 10% pa, 15% pa and 20% pa. In terms of time frame, we will look at 10 years.
What will be the final value of the investments? For starters, the simplest thing to calculate is the amount invested in each case, which will be Rs 12 lakh, 18 lakh and 24 lakh respectively. What will they amount to after 10 years? Take a look below –
· 10,000 per month at 10% pa return will amount to 20 lakh. At 15% pa it will amount to 26 lakh and at 20% pa it will amount to 34 lakh.
· 15,000 per month at 10% pa return will amount to 30 lakh. At 15% pa it will amount to 39 lakh and at 20% pa it will amount to 51 lakh.
· 20,000 per month at 10% pa return will amount to 40 lakh. At 15% pa it will amount to 52 lakh and at 20% pa it will amount to 68 lakh.
You would notice at once that the returns do not vary linearly. The difference between amount invested and returns for the best case (20,000 at 20% and 10,000 at 10%) is a huge 36 lakh. When you look at the other dimension time (just compute the above figures for 15, 20 and 25 year time horizons) the differences will compound even more.
Remember that not all growth rates are the same. If your bank is paying 6-8% interest on your savings, that's safe and guaranteed money. The stock market, however, is not a sure thing. Stock market returns fluctuate. There are good years, great years, and terrible years. Over long periods of time, though, the stock market tends to go up. Over many decades, in India, it has averaged an annual 20% return.
In general, the more certain the growth rate, the lower it will be. The more risky it is, the higher it will be.
The lesson here is that discipline in terms of amounts invested and the time invested s to be combined with risk in terms of returns to get great overall long term results. Risk alone will not do much and discipline alone will take you some way but not too far.
Wednesday, October 31, 2007
Nifty Volatility
Volatility is critical to risk measurement. Generally, volatility refers to standard deviation, which is a dispersion measure. Greater dispersion implies greater risk, which implies higher odds of a price erosion or portfolio loss - this is key information for any investor. We often estimate future volatility by looking at historical volatility.
The volatility of CNX Nifty is shown above.
The volatility of CNX Nifty is shown above.
The volatility presented above is for 30 days. It is computed using the following method
a) Ln (Closing Index value/ Closing Index value of previous day) is computed for every day = X
b) Volatility = Standard Deviation of 30 days values of X multiplied by square root of 250 (it assumed that there are 250 trading days in a year)
Just before the crash of May ’04, the volatility had soared to levels of 55-60% and it came down to levels of 20% by July. The Nifty corrected from a peak of 1833 to 1504. During the summer of 2006, the volatility again rose to 50% and above and a sharp correction followed as the Nifty went down from an intermediate peak of 3754 to 2633. The smaller fall in August this year was also preceded by higher volatility. The volatility is seen to be rising again and is pushing the 30% mark.
a) Ln (Closing Index value/ Closing Index value of previous day) is computed for every day = X
b) Volatility = Standard Deviation of 30 days values of X multiplied by square root of 250 (it assumed that there are 250 trading days in a year)
Just before the crash of May ’04, the volatility had soared to levels of 55-60% and it came down to levels of 20% by July. The Nifty corrected from a peak of 1833 to 1504. During the summer of 2006, the volatility again rose to 50% and above and a sharp correction followed as the Nifty went down from an intermediate peak of 3754 to 2633. The smaller fall in August this year was also preceded by higher volatility. The volatility is seen to be rising again and is pushing the 30% mark.
Subscribe to:
Posts (Atom)