Thursday, March 17, 2011


Risk is often thought to be a four letter word in the figurative sense. I have begun to realize lately that I do not understand its meaning at all.

To some, taking a risk means trying out a new cuisine, or buying an unknown brand of computer. To others, risk taking means investing in equity markets or taking a large loan. To some, it means trying out an alternate career path, like entrepreneurship or a job in a start up. To yet others, risk means the possibility of losing your life or that of your loved ones to illness, accidents or acts of God.

I always think of risk as a probability - what is the likelihood of a certain (unfavourable) event happening? Being a numerical person, I boil everything down to numbers. However, this does not work too often. This is because I can never choose between (as an example) 2 risks - a very small chance of a very big loss or a somewhat probably chance of a medium sized loss. In other words, a walking person could fall into a very narrow but very deep well, or he could fall into a bigger diameter hole that is not too deep. How does one choose between the two?

Whenever I think of risk I automatically think of money and career. But if I ask myself honestly, how important are these? Education, a growing economy, a simple lifestyle and a belief in the dignity of labour really should minimize typical risks on this front. On the other hand, risks of illness, life or limb are the ones that one should worry about. I think we are wired in certain ways - we cannot do much about un-influence-able events like cancer or earthquakes, so we do not worry about those risks. However, we can influence individual career / money decisions to a large extent, and so worry all the time about these, even though they may be really low priority in the larger scheme of things.

I watched with morbid fascination videos of the tsunami engulfing towns in Japan last week. I was thinking of the guy driving his car, trying to outrun the irresistible water. What if the guy had got a bad appraisal from his boss last week and was worried about his job? What if he had a loan coming due shortly with no funds to pay it off? Did it really matter?

I understand that events like this are one offs and not commonplace. But the bigger question still remains - does one spend more time trying to minimize the very small risk of loss of life, or the medium probability risk of not being extremely wealthy?

I still haven't figured out the answer!

Wednesday, March 16, 2011

Extreme capitalism... the good professor has a point!

Came across this interesting article today: Professor Jeffrey Sachs of Columbia University comes out all guns blazing against the businessman-politician cosy club in the US.

...Sachs says the "real story" is much bigger than Wisconsin: It's about stagnant wages of public and private sector workers alike, and the increasing and increasingly pernicious role of big money in politics.
The following statistics speak to Sachs' first point:

  • Since 1973, the median take home pay of full-time workers is virtually unchanged on an inflation-adjusted basis.
  • The top 11,000 households in America have more income than the bottom 25 million.
  • Since 1976, 58% of real income growth has gone to the top 1% of Americans.

"We've reached the greatest income [and] wealth inequality in history," Sachs says. "This is a new ‘Robber Baron' era, of course."

And just like the titans of industry in 19th century America, "the people at the top buy the politicians," he laments. "All of them - all parties. Everyone is in the hands of the super wealthy."

Decrying a "shocking game that got out of hand," Sachs notes President Obama is seeking to raise $1 billion for his presumed reelection bid. "He's not going to get it from poor people, he's going to get it from rich people," Sachs says. "So when push comes to shove and rich people say ‘we want our taxes cut', that's what happened."

Which probably goes to further the point that most places in the world, be it India, Libya or the US, the rich and the powerful screw the poor and the weak. All the teeming millions need is the 'soma' of Ayn Rand's Anthem (or was it Aldous Huxley's Brave New World? I forget!) to forget their plight. The US worker gets it from a standard of living better than anyone else in the world (but not a fraction of the US elites'), the Indian daily wage earner gets it from the Naxal speeches of his misled brethren, and the Kuwaiti sheik gets it in the form of 1,000 dinars in his bank account.

Long live revolution!!

Monday, March 14, 2011

World Cup India? Not on current form...

I'm betting that India will not survive the semi finals of this World Cup, if they get through the quarter finals. So far, India have beaten Ireland, Bangladesh and Netherlands. They have tied with England and lost to South Africa. There has been a consistent failure to defend any kind of total on the bowlers' part, consistent wrong captaincy decisions at critical points and no fielding prowess to speak of. There has been no spark of creativity to charge up the team.

It is not too late, however. In 2003 in South Africa, India pulled up their socks after the first 2-3 games and won everything to get to the finals. However, that effort was led by some aggressive captaincy and great bowling by the quicks. On these placid subcontinent pitches, Afridi is able to consistently take 5 wickets, and Piyush Chawla is able to consistently get hit for sixes.

Tendulkar will probably end his career as the most deserving World Cup winner to have never won. Sad, but what can one guy do in a 11 person team game?

But the rudest thing will be that India's lost Cup will be soon forgotten and all attention will turn to who is dating who during IPL 4.

Thursday, March 10, 2011

Who's buying?

Inspired by my own doomsday article, I decided to check out prices of apartments that I could think of buying in Gurgaon. What I saw stunned me!!

Reasonably good apartments sell for 10-11k per square foot. For a mid size (2000 sq ft) apartment, this translates into a total buy price of approx. 2.5 crores!! The new constructions, due for possession 3-4 years out, are priced at 7-9k per sqft. This too translates into a total price of 2 cr. Assuming today's interest rates, this would imply an outgo of approx 2 lacs per month as EMI!!

The question that popped into my mind is - who is buying all these apartments that are getting launched at these prices? Are there really that many people who can pony up 2 lacs per month on their home loans?

Beats me!!

Wednesday, March 09, 2011

Scary thought

I was chatting with a close buddy yesterday, and we came to the topic of how tough it is to buy a home these days. I then had a really scary thought.

Take a guy in 1970. Let's say this guy is very well educated, works in the best career of the times, is an ideal saver, is not extravagant and has a disciplined financial plan. Let's say this guy keeps a bulk of his money in safe fixed deposits or bonds. This guy, upon retirement circa 2000, would not have enough savings to last him even 10 years at today's expense levels. And as for ability to buy a home, the very notion is laughable! Inflation and the cost of living has exploded so much in the last decade that I fear for my future. What if this hypothetical guy of the 1970s is me, 40 years out? Will I live in penury in my sunset years?

What is the solution to this conundrum? I can think of 2 ways -
1) Hock yourself to the max in debt and buy a house as soon as you can. Keep slaving and paying back this debt over 20-30 years. If real estate today seems expensive, it will seem very cheap tomorrow.
2) Allocate substantially large amounts of savings to equity. This is risky in the short term, but very safe in the long term. In fact, this is the only protection against inflation - on 2 counts. One is that purchasing power is maintained and secondly, there is lower taxation on capital gains.

Net net, the solution is to harness the power of compounding, live frugally today and ever after! This, to me, is a depressing thought. Just when you think life will get easier, you realize that it is uphill for some more distance!

Thursday, March 03, 2011

Just a passing fad?

At one point in time 3-4 years ago, I counted more than 25 friends, colleagues and classmates who blogged frequently. It used to be fun reading varied expressions of humour, philosophy, cussedness or general points of view. Not anymore.

Perhaps I need to find newer blogs, but the regular contributors to blogs seem to have dropped dramatically. And the ones that still remain are much less prolific than before. While the easiest hypothesis (one endorsed robustly by the wife) explaining this phenomenon could be that blogging was a fad which is passing its baton to newer fads like twitter or facebook, there could be other reasons for this too. A few listed here:
  1. Perhaps blogging is an outlet for the inability to express your innermost thoughts to a very close friend. 3-4 years out of business school, disillusioned with corporate life, not yet married - a perfect time and age to blog. Now, the same cohort is mostly reconciled with their jobs, has a spouse to communicate with, or is generally plain busy with kids, career or grocery shopping. Therefore lesser blogging.
  2. Freshly minted bloggers harboured secret dreams of world conquest via the next masterpiece novel (I know I certainly did! Fame, riches, fawning women - I would be the toast of the town). However, after the first few pioneers in this field did just that to mediocre success at best (think Amit Varma's My Friend Sancho or Great Bong's random book or Meenakshi Madhavan's You Are Here; though perhaps Sidin Vadukut's Dork was the exception), the dream faded and consequently blogging became less attractive.
  3. Mind control through the popularization of blogging was a secret CIA plot for world domination which was foiled by an intrepid US President working under the alias of Dubyaman.
I must confess that the 3rd reason is just because a list of 2 seems too short! Anyhow, the fact remains that following blogs aint what it used to be.