Reason for Complexity

Reason for Complexity

I read this in a very long article. This portion is worth sharing:

Finance has transformed the art of the simple into the perplexing into an industry. Nowhere (at least outside of acadmia) is overly complex structure and elegant (though not robust) mathematics so beloved.

The reason for such obsession with needless complexity is clear: It is far easier to charge higher fees for things that sound complex.

Obviously, no comments are warranted!

Regards,

N

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Root causes of Problems faced by USA

Root causes of Problems faced by USA

Root cause of problems faced by many so-called developed countries, especially USA

1. Extreme welfare orientation - "All my citizens should have a great standard of living" - Result: Extremely high salary levels (both in absolute terms and in comparison to other countries)
2. Free imports at low import duties - "All my citizens should be able to buy the least cost products from around the world. If a product from some corner of the world is better in terms of quality and price vis-a-vis local competitors' products, my citizens should be able to import the same freely" - Result: Low cost products from other countries with really low cost-structures ended up being dumped in huge quanitities.
3. Culture of "All play & no work" - "My kids deserve the best - they should automatically get all the very best in life" - Kids are often pampered. Emphasis on education as a great tool to ensure sustainable success in life (that formed the very basis of the original success of the USA) is almost gone. By the time kids grow up into adulthood, they want to have and enjoy all the benefits that their grandparents and/or parents derived through high quality education, hard work and total dedication. Unfortunately, they do not like to go through the process of high quality education, hard work and total dedication.
4. Strong currency - "My Dollar must be among the strongest of all currencies". The US Dollar is an extremely strong currency. One buck of the US Dollar can buy several bucks of Pesos, Rupees, Dirhams, Roubles, etc. Once upon a time, this status was richly deserved. Can't be too sure about the current position.
   • Presently this status is achieved by a combination of other countries using the dollar as
     • a reserve currency (almost by habit)
     • a tool to keep their own currency undervalued - to enable much easier exports, thus pump-priming their own economy.
   • The situation is further aggrevated by the US using the printing press to generate "wealth" by printing ever-increasing supplies of the dollar!
5. High Litigation - "My citizens must suffer no injustice howsoever minor - to ensure this, I'll punish all those who are guilty by awarding huge punitive compensation". Result:
   • You have ambulance-chasing lawyers
   • You have hugely inflated medical costs due to a plethora of "precautionary tests"
   • You have "over-designed" products
   • You have almost obscene compensation packages to design products (especially investment products) which can generate extraordinary returns to enable the achievement of the "Great standard of living" that's not commensurate with what most citizens do not deserve based on their current levels of education, hard-working ability, etc.
   • Such compensation packages and such investment products create undue risks, eventually ensuring that the huge bubbles which obviously burst from time to time. Result - a huge recession of the kind that we saw last year!

Just think about it. Possibly, I've exaggerated a few of the points mentioned above. But the crux, probably, hits the nail on the head.

Regards,

N

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Alternative Investment Ideas - Learning from the ants

Alternative Investment Ideas - Learning from the ants 

Here's a story about the ants. If you put a food source some distance from the nest and offer the ants paths of various lengths to the source, they are highly efficient at identifying the shortest path. In other words, they are really good at exploiting resources efficiently.

But when the researchers studied the ants, they realised that some of them wandered off the trail from time to time. That didn't seem to make sense, especially if there was a good food source. As they studied it in greater depth, they realised there was a mathematical probability an ant would leave the trail, and that the probability was somewhat related to how likely it was that another food source would appear. So the colonies were adept at exploiting and exploring.

And the point of exploring is that it might be where the next great idea comes from. It's like corporate research and development.

In a similar manner, we must periodically allocate a small portion of our investible surplus for investing in completely offbeat ideas - Look around for investment opportunities based on ideas that emanate from the innards of your own mind which are entirely different from ideas that originate from:

• Blogs
• Websites
• Annual Reports
• Newspapers, magazines, books
• Interviews
• TV
• Friends
• Brokers
• Mutual Funds, Portfolio Managers, Investment Experts
• Telemarketing Calls

Some examples of the thinking process involved:

• You / your family & friends are consuming some product / service that is "New" (New restaurant chain, new super-hit movie, new type of food/clothing/shelter, temptation to go back to your old PSU bank for the benefit of their "Familiar services", etc.)
• Dramatic / drastic changes in the social / political environment that trigger new investment ideas (Increasing social unrest, thefts, etc.? Look for security companies.)
• Unexpected natural / man-made disasters that trigger new investment ideas (Earthquake in Gujarat? Sell holdings in Gujarat based companies with an intention of buying them back at lower levels. Swine flu? Look around for pharma companies with the right vaccine in their portfolio.)

Obviously, a couple of riders would be apt at this moment:

• Often, these investment ideas should be made for the really long term (5-10 years and beyond)
• Be aware that these are high-risk investments
• Put in money in a staggered manner
• While you must put in small amounts, it should be material in nature (While you should not put 90% of your portfolio in these investments, you must not put in 0.001% of your portfolio in these investments either.) Essentially, if the capital erodes by 95%, you must not suffer a heart attack. On the other hand, if it turns into a 100-bagger, it should make you richer in a materially siginificant manner.

Think about it. Enjoy safe & profitable investing!

Regards,

N

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What not to do in 2010

What not to do in 2010

Without comments:

"I suggest that you don't get too hung-up on choosing the right investment before investing. Often that equals to procrastination and you miss the opportunity altogether. For instance, as long as you regularly invest in consistently performing equity mutual funds and be an involved investor tracking their performance at regular intervals, say every quarter, migrating away from loser funds every 18-24 months if the need be, you won't be too badly placed compared to a person who is incredibly lucky to get all his calls right, a feat even investment gurus can't brag of." - Udayan Ray, Outlook Money (Read the whole article in 10 useful Caveats - A "Not-to-do" List for 2010)

What more can I say? As the Nike Ads say, "Just do it!"

Regards,

N

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What desperate brokers do!

What desperate brokers do!

I can't claim that I enjoy plagiarism - or plain copying. However, when it comes to education and with proper referencing, I guess that it becomes slightly more acceptable.

One of my favourite financial blogs is ValueStockPlus.net - I do keep visiting it quite often, and might have even quoted some of its contents in the past. However, this one is a gem worth reading from the original blog directly. Read on!

• A Great post from a favourite blog of mine - Value-Stock-Plus

The above post is a short one. The only point about which I can possibly crib is whether it is indeed a joke - It appears to happen all the time in real life if only one watches the Business TV channels or reads business newspapers and magazines!

Regards,

N

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