Terms that measure risks of your investments. #personalfinance #investing

Category – money and business

Reading time – 2 minutes

When ever you invest your hard earned money or even inherited money or any money for that matter, there is always some risk.

It may decrease or even evaporate or atleast returns may be lower than expected.

Inflation may kill returns or taxes may eat it away.

Covid like uncertainty might hit your money.

Than what to do. There is not much that can be predicted by human beings. They may claim credit for random guesses but future is not open for speculations.

So, you may use surrogate markers of risk and calm your nerves a bit into thin blanket of mathematics.

Here are three terms you may hear accidentally from financial experts.

1. Standard deviation – This shows amount of expected volatility.

It shows amount of fluctuations possible in an investment from mean value. More standard deviation indicates wide fluctuations are possible,so keep your belts tight.

2. Beta – Risk of your investments in comparison to the market as a whole.

It compares investment to market index like nifty or sensex.

Beta 1 means investment will move in sync with standard index. Higher the beta, more volatility is expected.

3. Alpha – It is extra earnings in percentage of an investment in comparison to a benchmark index.

For example if sensex returns 10% Durning a period and your investments return 12%. Hence your alfa is 2% ( 12-10).

So next time you read this words in a newspaper or blog then you would know what these mean.


Inspiration – Financial blogs

Is your lifetime quota of heartbeats fixed ? kleiber,s law #innovations

Category – Science

Reading time – 2 minutes

Max kleiber was a Swiss scientist.

He researched on agricultural plants and animals. He wanted to find, effect of body size on metabolic rate of the organisms, a thing that was useful in cattle industry.

Cattle industry owners saw potential in his research, as he could predict how fat their cattle will grow and how much bounty they can get by serving them to carnivorous masses.

Working over this, he stumbled upon a pattern, which is called kleiber law.

He noticed that as organisms grow in size, they slow down.

A rat has faster beating heart; as compared to an elephant. A bull’s heart beats slower than a cat, when he munches his grass.

He applied his mathematics knowledge, to analyse it and he found that it follows, “negative quarter power scaling.”

That means something; that blasts mind of every guy, who didn’t like maths at the school.

But, we can only know that if we take mass of an organism and do its square root and do square root of result obtained again; we will get approximate idea of its metabolism. Metabolism is 3/4 th power of its mass.

That means we do sqaure root twice.

By these ratios, we can predict relative metabolism of two animal species.

For example, if we take a cow and a rat. Let’s assume if cow is x times heavier than it; then cow’s heart will beat x times slower than rat and it will live roughly x times longer.

Scientist Geoffrey west took it further, when he applied this law to non living things like cities, creativity and ideas.

It applied well to cities when we saw cable length, petrol stations, factories etc.

But when he applied it to Idea generation and innovation it was not applicable.

As size of cities increased, number of ideas generated increased exponentially.

That is why cities serve as centres of growth and innovation.

As different ideas collide; they generates new combinations.

Hence, although kleiber’s law can help in comparison of heart rates and life-span of different species, it doesn’t apply everywhere as a basic law of energy distribution in nature.

Let’s stop here. I don’t see too many fans of mathematics, who scroll on social media.

Inspiration – Where the good ideas come from Steven Johnson.

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Nirma story #succes #nirma #business

Category – Business

Reading time – 2 minutes

Mr Karda bhai patel worked as chemist in office of Gujrat government in west Indian corner.

He was stuck with an idea to manufacture detergent powder in his backyard and he started selling it in his area.

He did this after his office hours.

He used low pricing to attract cost conscious Indian customers.

People liked it for its quality and low cost. Encouragement led to resignation from job. He set up his small workshop in Ahemdabad.

He slowly captured market in Gujarat and Maharashtra. Then he spread all over the country.

Today Nirma group is a mammoth working in diverse areas like medicines, soaps, detergents, salts and lab products.

Everything starts small.

Everything takes time.

Everything needs to expand, adapt and change with time.

Everything like this is inspirational.

#business #growth #enterpraneur

Communism is must for capitalism survival! #communism #capitalism

Category – business and money

Reading time – 5 minutes

Right from the time, when we wriggled out of the sea water and started infiltrating all over this planet; we always needed fiction to survive.

We needed myths like Gods, states and religion.

Man needed stories to stick to. We needed groups to be part of and we needed feeling of, “us and them” to feel purpose in our life.

Then ideologies corrupted our minds. Some followed communism; which raised right questions but provided few solutions.

Few followed capitalism; that solved many problems but gave birth to extreme inequality and ecological disturbance.

Communism still holds firm in many countries; especially in Eastern parts of the globe.

Communism is basically,” from each according to his ability and to each according to his needs.”

In this all property is owned by the community and each person contributes and receives according to his ability and needs.

Communism is still deeply ingrained inside every inch of capitalism and we don’t even observe it.

It is necessary for capitalism to flourish and spread.

In the house joint family members share their possessions with each other. They earn them by capitlistic market and then put to use based on communist principles.

When we get out of house; we ask strangers for directions free of cost. We may get shelter under strangers umbrella. Somebody may tell you that you forgot to remove stand of your bike, without charging money.

In office, your senior colleague may answer your queries or act as a mentor free of cost.

Now see Facebook and Instagram. How much money they would earn if people didn’t share their pictures and art free of cost.

Would Amazon feel the same, if reviewers didn’t post product reviews for free on it.

So, capitalism may boast of anything but it is nothing without this daily communism.

Elinor Ostrom took this idea to her heart and studied how humans can judiciously share common resources without need of a state or autocracy to intervene.

This concept of commons need to reach more people and should be recognised for its vital role.

Her studies got Elinor Ostrom; Nobel prize in 2009 but still capitalism with its bright lights is outshining the garden of commons.

Inspiration – Humankind by Rutger Bregman

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Why refugees use boats? #immigrants #europe

Category – business and money

Reading time – 3 minutes

This story is taken from the book, factfullness.

It is eye-opening write-up. It tells us that; even if intentions are good and legislation in place, still beneficiary may be deprived of a benefit due to misinterpretation of things and complexities of a process.

In year 2015, as people tried to flee to better lands amongst middle eastern Syrin war. As many as 4000 refugees drowned in meditarranean sea; as they tried to cross it with inflatable boats.

They paid loafty money to mediators and found themselves with their families; in the middle of no where.

This happened in spite of Geneva convention aggrement; which enables refugees from Syria to seek asylum in Europe.

But, when people tried to reach airports they faced effects of anti illegal immigrants directive, which was designed to stop illegal immigrants. This directive required airlines company to ship back illegal immigrant for free.

Hence, on airport counter every asylum seeker was seen as illegal immigrant. Hence Geneva convention failed to help them due unclear and complex process.

Why didn’t they use good boats.

Because, there is EU policy to confiscate illegal boats. Hence, if people used boats they will be captured and gone

Hence, desperate people used inflatable boats which are very unstable and risky.

Hence inspite of remedy (permission of asylum under Geneva convention); it was really hard for refugees to reach Europe to seek asylum.

Inspiration – Factfullness by Hans Rosling

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Selling below cost and still earning profits! #factfullness #money

Category – business and money

Reading time – 5 minutes

This story depicts out the box thinking and alternative approach to a business.

Businesses aim for profits; but sometimes innovative thinking is required to defeat competitors.

Profits are not visible directly, but are indirectly produced by a business model.

Here is one story, that shows exactly how a business can be profitable; even if it gets price below cost of raw material.

Rivopharm is a family pharmaceutical firm in Swiss Alps. It won contract to supply antimalarial drugs to African countries through UNICEF.

It was in bid with other competitors. In its bid value requested for each pill, was lower than the cost of the raw materials.

How this company could offer such a low bid.

Investigations revealed this.

UNICEF contacts are big contracts with long long tenures. It involves big money.

Rivopharm had invested earlier in robotics. It factory had speed. Its factory could make more pills per day than competitors.

Raw material arriving in to the factory on 30 day credit.

Raw material of drugs arrived to its factory in trains. And, within two and half days, it could produce and pack all raw material into final finished pills.

Raw material in the factory

By Thursday, after delivering pills at Genova headquarters of WHO; they get paid on same day. So, in 4 days they get paid for their supplies.

Robots working to make pills

Suppliers of raw material give them time of 30 days to repay.

Hence, large amount of money that they get, accumulates interest in bank account for 26 days!

Delivery of pills and payment by WHO on day 4.

It compensates for their discount and also provides profit.

It also brings more offers at their door as their brand value increase as a reliable generic drugs supplier.

This all is impossible with conventional drug manufacturing facility.

Hence, business is profitable. Not from conventional way of analysis but from Innovative approach.

And their robots don’t demand payhikes or leaves. They complete projects on time.

Inspiration – Factfullness by Hans Rosling

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Leadership lessons from navy SEALS #extremeownership #sniper #personalgrowth

Category – psychology

Reading time – 5 minutes

Jocko Willink and Leif Babin are former Navy Seals who fought in IRAQI town of the Ramadi.

They have now written about their experiences of war and lessons that they learnt, in a little beautiful book , “The Extreme Ownership.”

Let’s see what we can learn from this book.

1. Leader must take extreme ownership of everything bad that happens to his team and mission. He should not blame anybody else.

2. There are no bad teams, only bad leaders.

3. Leader must have a unwavering faith in his mission and team. He must be able to make his team believe, that their mission is vital and must.

4. Leader must not try to nurse or assert his ego. He must accept his mistakes and improve plans of their mission.

5. Cover and move. Each member is vital and win is only possible by teamwork. Each member of team should support other members.

6. Simplify your message and processes, so that team can easily understand it even in extremely daunting situations.

7. Prioritize things. Get decisively engaged, so that you and your team doesn’t have to think about retreating ever.

8. Decentralise Power. Delegate responsibility to your team members, so that efficiency can be increased.

9. Each member should take responsibility in case he finds mission is getting offtrack.

10. Practice with discipline all your important tasks, so that doing them takes minimum effort. Discipline gives freedom.

11. Always know that most of the times leaders have to make decisions based on incomplete information. Have courage to make quick decisions.

Inspiration – Extreme ownership by Leif Babin and Jocko Willink.

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Basics of stockmarket (shares) for Indian babies and children. #stocks #equity #mutualfunds

Category – business

Reading time – 8 minutes

Sorry, for the heading of the blog. This was to get your kind attention.

This blog is about stocks, also known as shares, with particular focus on Indian general masses, who want to enter and explore share market.

It is simplified basic knowledge about share markets.

Babies will not need it. But their dads will need it, to secure their future. Hence in a way this blog is for those babies too; who are going to discover in future, that their daddy knew next to nothing about economics and investing.

As uncertainty, looms in the economy with unpredictable future, you need to have knowledge about all the spheres of the investing.

If you have money, it should grow with time and this can be done by wise investing.

So let’s clear our basic doubts about shares.

First let’s clear biggest confusion according to my analysis. It is terminology which blogs use to explain shares. It is confusing.

We must know that ;

equity = share = stock = security

First you should know this fact that they call shares with so many names. As different sources write different names, it can be daunting. They all are interchangeable.

We will use term share in this blog, to avoid confusion.

“Share is a physical or digital certificate that gives buyer partial ownership of a business.”

Let’s imagine a business is worth 100 rupees. Its owner divides this into 100 shares each worth 1 rupee.

Now, he puts them in stock market ( stock exchange) from where people can buy or sell these shares.

So, if someone buys 40 shares of this company, he becomes 40% owner of the company. Any one who invests 1 rupee, he becomes 1% owner.

So shares help businesses in raising money for their operations.

His investments are now dependent on the performance of the business. If it grows, he earns money and if business falters, he looses money.

He can buy or sell shares anytime on the stock exchanges.

There are two main stock exchanges in India –

1. The Bombay stock exchange ( BSE)

2. The National Stock exchange ( NSE).

Companies are listed on stock exchange. And only listed companies can sell their stock in stock market.

These are regulated by SEBI ( Securities and exchange board of India); which is a statutory body responsible for fair working of the exchanges.

It penalises for wrong practices and frauds and formulates rules and regulations for working of stock exchanges.

Hence, one can invest money in stock market without worrying about frauds or cheating, as far as stock companies are concerned. Whole system runs on trust.

These days stocks are available in digital format and can be easily purchased or sold using apps like zerodha, Angelbroking etc. Whole process is very simple.

You need to make a demat account with regulator and after kyc verification (know your customer) verification; you can purchase and sell from comfort of your home.

How does initial price of a stock is decided?

It is random value in decimels decided by the company promoters. After that performance of the business and demand and supply and perceptions about future decide the price of that stock.

Total number of stocks issued is called total shares outstanding.

If we multiply number of shares issued with the price of one share, we get market capitalisation ( market cap) of the company.

All companies listed on stock exchange are divided into groups based on market cap.

1. Large cap –

Top 100 companies in terms of their market capitalisation. These are safer and successful companies. Examples in India are TCS, HDFC, L and T, wipro etc.

2. Mid cap –

101-250 in list of companies based on market capitalisation. Examples are pfizer, emami, bayer etc.

3. Small cap –

Above 250. These are generally lesser known volatile companies.

Now based on performance of the company, its management, brand value, public sentiments and many external factors like war, disaster, competition, fads;there are fluctuations in the price of stock in the market on day to day basis.

But generally in long term ( 10-15 years ); if business of the company is sound, it results in rise in stock price over time in spite of the short term wide fluctuations. Hence stock market investment is for long term.

If you don’t have 10-20 years of time to let your money grow, it can be less fruitful mode of investment.

What happens when stock prizes rises?

Company can give you part of the profit, that is called dividend.

Or it may hold extra cash for liquidity and expansion.

It may invest gains for further expansion of the business.

Why the people worried about Sensex rising or falling. What is this sensex?

Sensex is a metric using which we can guess overall performance of the economy.

We can’t check each and every stock daily. So we have devised a simple measurement number. It simplifies monitoring.

Sensex and nifty are such numbers. They are stock market indices. They tell the direction of the market, whether towards positive or negative.

Sensex belongs to Bombay stock exchange. It is made up of 31 hand picked companies, which are picked by private firms.

For example, sensex companies are picked by Sand P global. Companies are not fixed. Based on performance new companies enter and go.

Nifty belongs to the national stock exchange. It is made up of 50 stock. Hence, it is called Nifty 50.

Hence, next time you see a news anchor worried about fall in sensex, you will know that, she is talking about the performance of choosen list of companies on that day. Their performance is averaged based on their size and sector.

Few more terms that you hear everyday.

Bull market – when the market is on the rise like horns of a bull.

Bear market – when market is on fall like a crouching bear.

Blue chip companies- companies which are reliable performers.

What is initial public offering?

IPO – Initial public offering –

Each company starts as a small privately owned company. With Time it grows and it needs more money to expand. It then lists itself on Stock exchange, so that anyone in public can buy its shares as IPO. It raises a lot of money for the company.

A board of governors is appointed to oversee working of the company. Its data and performance are public. It is responsible to its shareholders for maintaining good performance.

Hence, IPO is the initial offering stock by a private company, which enlists itself on the stock exchange so that its stock can be bought and sold by general public.

This blog is aimed to provide introduction to the share market to Indian readers.

Inspiration – many financial books.

Get money for living in your house – reverse mortgage loan #personalfinance #happyretirement #reversemortgage

Category – business and money

Reading time – 5 minutes

Many of us are not financial experts. We don’t know what to do with our excess money.

We fail to save for the future.

We don’t know, what will we need when we grow older. We put too much faith in our kids.

We presume that they will take care; like we did. But world doesn’t work that way. It is always better to be self reliant especially in old years.

Things change with time. People also change.

Sometimes it is very tough to bear our senescence. We may still have to work to put food on the kitchen table.

If you have a house, which you own; then there is a way to earn regular income from it.

Thus can help you to enjoy your old age, without worrying about bills.

This remedy is called reverse mortgage loan.

To get it you must be above 60 years of age.

You ought to be living in the house with your spouse. No body touches your house; till either of you is alive.

You get regular income from bank for an amount which is equal to 60% of the current value of your property.

Minimum tenure is 10 years and maximum is 20 years.

When both husband and wife who have taken reverse mortgage loan die, then two things can occur.

Bank asks heirs to pay the loan and reclaim the property.

Bank sells it to recover the loan amount and rest is given to your legal heirs.

If you want to reclaim your house while alive, you can repay loan to get it back.

It requires you to live in that house without prolonged absence.

Sounds good. Yes it is a good option for senior citizens who have problems with liquidity.

Inspiration – many financial blogs and videos.

Things that mentally strong people do. #motivation #selfdevelopment #business

Category – Business

Reading time – 1 minute

1. They avoid self pity. It solves nothing and clouds consciousness. Instead strong people practice graditute.

2. They don’t give key of their happiness to external source. They avoid people pleasing or expecting things from people. They observe and avoid judging .

3. They take calculated risks. They do rational rule breaking. They try to cross little beyond their comfort zones, where progress usually begins.

4. They don’t fear change. They know change is rule of the life. They try to embrace it with open heart and mind.

5. They don’t dwell in the past. They learn from it and move on.

6. They try to never repeat the same mistake twice.

7. They know that it cannot always stay good and smooth. They accept and face difficulties.

8. They take full responsibility of their life and actions.

9. They see long term and have broad perspective.

10. They know that journey makes 99% of any endeavour and they try to savour it.

11. They know no defeat is final and no win is eternal.

12. They see problem in the situation, not in people.

13. They stick to their paths, even if everything falls apart. Grit is rare talent that mentally strong people posses and it is their most formidable tool.

Inspiration – Many books