The global financial system has been engulfed in possibly the deepest crisis of our time shaking our world view of the financial sector to its roots. As attention both around the world and here in India shifts from managing the crisis to managing the recovery, the importance of consolidating the lessons of the crisis and reflecting them in our forward plans can hardly be overemphasized. Being at this conference and sharing some thoughts and ideas with you is therefore an opportunity to which I attach a lot of value.
II. Calls for Making Banking Boring2. Banks have been at the heart of the global financial crisis and bankers are widely seen as being responsible for the crisis. Quite understandably, there is a deluge of ideas and suggestions on reforming banks, banking and bankers. One of the more influential ideas, one that has generated a vigorous debate, has been the thesis put forward by the noted economist and Nobel Laureate Paul Krugman that the way to reform banking is to once again make it boring.
3. Taking a long term historical view, Krugman argues that there is a negative correlation between the ‘business model’ of banking and economic stability. Whenever banking got exciting and interesting, paid well and attracted intellectual talent, it got way out of hand and jeopardized the stability of the real sector. Conversely, periods when banking was dull and boring were also periods of economic progress.4. To support his thesis, Krugman divides American banking over the past century into three phases. The first phase is the period before 1930, before the Great Depression, when banking was an exciting and expanding industry. Bankers were paid better than in other sectors and therefore banking attracted talent, nurtured ingenuity and promoted innovation. The second phase was the period following the Great Depression when banking was tightly regulated, far less adventurous and decidedly less lucrative - in other words banking became boring. Curiously, this period of boring banking coincided with a period of spectacular progress. The third phase, beginning the 1980s, saw the loosening of regulation yielding space for innovation and expansion. Banking became, once again, exciting and high paying. Much of the seeming success during this period, according to Krugman, was an illusion; and the business model of banking of this period had actually threatened the stability of the real sector. Krugman’s surmise accordingly is that the bank street should be kept dull in order to keep the main street safe. 5. The challenge for Indian banks, therefore, is to reduce costs and pass on the benefits to both depositors and lenders. This will involve constantly reinventing business models and designing products and services demanded by a rapidly growing and diversifying economy. As we noted earlier, in the wake of the crisis, there are proposals at the global level to mandate higher capital standards, stricter liquidity and leverage ratios and a more cautious approach to risk. Admittedly, all these safeguards are necessary, but they will also raise the banks’ funding costs. Wha54. Let me now conclude by summarizing the issues that I have addressed today. I have referred to the debate generated by Prof. Krugman’s thesis that ‘exciting’ banking will make for an unsafe and unstable financial system and that an important preventive against future crises is to restore boring banking.
55. I have argued that making banking boring is neither a cure to the ills that the banking system was plagued with before the crisis nor an appropriate path for the future of banking. Banking has to evolve, grow and innovate in response to the developments in financial markets and institutions. The excitement lies in responding to the challenges that this growth brings.
56. From an Indian perspective, what banks do and how well they do it is going to be central to accelerating and sustaining our growth momentum. In particular, I have referred to four challenges that the banking sector has to meet head on - deepening financial inclusion, financing infrastructure, strengthening risk management and improving efficiency. These are formidable challenges, and meeting them is going to be an exciting, rewarding and fulfilling opportunity. Perish the thought of Indian banking ever getting boring.
Thursday, November 26, 2009
Thursday, November 12, 2009
Thursday, October 29, 2009
- Measure results, not work. Build your business plan and day-to-day operations around real results that are quantifiable and measurable. For example, a result is not forty hours of work, but a prototype complete, partner contract signed, or first customer sale.
Wednesday, October 28, 2009
Posted: 27 Oct 2009 07:32 PM PDT
Every week, I will post a few updates and links that would be of interest to you for your money management decisions.
I also have been adding resources on my Online RupeeManager Workshop. Check it out.
Tuesday, October 27, 2009
http://www.personalfinance201.com)" style="color: #888; font-size: 22px; font-family: Arial, Helvetica, sans-serif; font-weight: normal; text-decoration: none;" target="_blank">Website on personal finance
Posted By Flexo On October 26, 2009 (8:00 am) In Personal Finance
Article taken from Consumerism Commentary: A Personal Finance Blog Since 2003 - http://www.consumerismcommentary.com
URL to article: http://www.consumerismcommentary.com/2009/10/26/seven-zen-principles-guide-your-money-life/
A few years ago, I visited the Japanese Tea Garden in Golden Gate Park in San Francisco. Japanese gardens are designed precisely to appear natural, resulting in an interesting collision between nature and man. There is a set of principles or aesthetics that guide the creation of Japanese gardens, including the dry gardens commonly called “Zen gardens.”
The basis for these modern Japanese aesthetics has existed for thousands of years and is rooted in Buddhist writings and teachings. However, the full concept of aesthetics relating to these ancient ideas has been discussed only within the past two centuries, as the the traditional Japanese concepts have been infused with the Western idea of art and aesthetics.
These same Japanese aesthetics, the attributes that define a Japanese garden, can be further stretched by the Western mind to relate to other areas of thought. If you are particularly interested in personal finances, as we are here at Consumerism Commentary, you might attempt to apply these concepts to attitudes and behaviors surrounding interaction with money.
Here are seven aesthetics rooted in Japanese culture that can be drawn upon to make us think about the way we live with and deal with money, from personal expenses to investing.
Keep your finances simple. The extreme limit of necessity would be to have no other financial accounts but one checking account for paying your bills. Simplifying at this level may beyond the limit of practicality even if still possible. But there is no reason I should continue to have savings accounts at seven different banks, even if seven is an odd number, compliant with other aesthetics.
In addition to utilize as few banks as possible, simplify your investment accounts. Keep your investments in one account in one index fund or target retirement fund that matches your risk profile. This also makes it much easier to evaluate your asset allocation to ensure your investments on the whole match your tolerance for risk.
There is rarely a need to have more than one credit card for your personal matters. Zero is an even better number.
Simplicity in all financial matters is an attainable goal.
Managers of actively managed mutual funds earn their pay by buying and selling investments frequently. Index funds take the opposite approach by matching a stock index, adding or removing stocks only when the index does, which is rarely. Index funds embody this concept of stillness. Unnecessary activity, like stock trading, makes the stock broker rich while you’re adding risk and decreasing your chance of beating an index fund’s performance.
Keeping your wealth still and motionless allows time to have a chance to cultivate it. The effect of compound interest increases when you let it work for decades.
If you’ve simplified your finances down to a small number of accounts, you can further keep your money motionless by removing the necessity of transferring funds from one place to another. The 0% balance transfer game or otherwise moving your credit card balances from one card to another is in direct conflict with this aesthetic.
Break free from your possessions. We buy things because they reflect who we are or who we want to be, but no thing can be a true reflection of a self. Not only do material possessions drain you of funds that could be spent on necessities, but you will have less money for sharing with others within and outside of your family.
Break free from conventional thought and following the bandwagon. You are free to be your own person and find your own path. You should never feel trapped in a job or a career. Even a steady bi-weekly paycheck is a pattern that could be broken without fear. With creativity, draw income to you through something unexpected.
Don’t confine yourself to your budget. The ultimate way to grow wealth is to spend less than you earn, so as long as that continues, you can break free from your budget and enjoy flexibility without too much worry.
Focus on the bare essentials. Add something to your life only if it has a functional purpose and fills a need. This concept is a nod to frugality and sparsity. For example, do you need three televisions, one for each large room in your house? Do you even need one television when you can find entertainment, including comedy, nature, and drama — possibly even crime-focused drama — for free, by sitting in a park and watching other people interact? Wouldn’t it be more fulfilling to visit a National Park than to sit on your couch and watch a documentary about it?
Decide what in your life is not essential and eliminate it. If something does not add value more than or equal to its expense, consider it a candidate for elimination. I think immediately of the interest that you pay on a credit card balance. Once you pay interest, you’ve paid more than the value of whatever you’ve purchased with the credit card. If you decide a $1,000 television brings $1,000 worth of value into your life, then it may be worthwhile. But if you put that on a credit card and pay the balance and interest over time, the new question is whether that $1,000 television added $2,000 worth of value into your life.
You should represent yourself to the world truthfully and without pretense. There is no need to purchase expensive cars and houses when necessity allows for lesser purchases. Don’t concern yourself with “keeping up with the Joneses.” Without the need to show the world you have more money than you really have, you will lose the desire to buy more than you can afford. As a result, the chances of falling into the trap of debt from unnecessary spending will diminish.
My thoughts on this are drawn to people with public-facing careers. Real estate agents, for example, often want to project an aura of success. If clients believe that the agent is rich, the clients will then believe that they are successful agents. The natural conclusion is that these agents are successful because they represent clients fairly and offer quality houses. The same is true for lawyers whose business is representing clients in court trials. Lavish spending projects an image of wealth, which indicates to prospective customers a history of successful court appearances.
This is all show and all pretense. Anyone can look wealthy or successful thanks to the availability of credit. You can’t see what lurks beneath someone else’s surface.
Do not cover up all that is natural. Do not hide money or money-related problems from your partner or spouse. Finances should be part of a communication that is open and honest, not hidden beneath layers of creative stories.
Create a budget, a monthly spending plan that outlines your limits for expenses in a variety of categories that make sense for you. A budget by definition starts out the same each month but will look different by the month’s final day. Life’s asymmetry is natural, and your budget should reflect this asymmetry while maintaining balance. You spend more for gifts as the December holidays approach, so you might budget more for gifts in November and December than you might in June or July. In order for this asymmetry to be balanced, an increase in one category at one time should correspond with a decrease either in another category or at another time.
This flexibility is essential for creating a workable budget. A budget should free you, not trap you.
Balanced asymmetry appears elsewhere. “Work/life balance” is a relatively new concept that is based on this idea. When my employer talks about “work/life balance,” they are not trying to imply that we should spend an equal amount of hours in our life between our career and everything else we do. It is an asymmetrical approach to living a more fulfilled life.
Whenever your personal financial issues are public rather than private, choose subtlety over directness. Do not brag about your successes. There is no need for you to have your latest business acquisition or marriage listed in your college’s alumni magazine. If you give charitably to an organization, you do not need to publicly list your name or the amount of money you donated.
In the business world, there is a movement towards personal branding. It is good for your career to find ways make yourself stand out among your colleagues or among a sea of job applicants. While I would agree that it’s important to protect your identity, particularly online, from anything that might damage your reputation, the best way to stand out is to be the best rather than to declare you are the best.
Let others declare it for you.
A guide, not a rule
While it would be great if all of the above could apply to our interactions with money all the time, I like to look at these aesthetic concepts as a guide. Just considering these ideas and allowing yourself to think about money in a different way can be enlightening. Perhaps you can strive to achieve several of these concepts in your own life, or perhaps you can appreciate this way of living even if you choose to relate with money in a different manner.
Simplifying my finances is one way I can start applying this approach to my life. As I mentioned above, I currently use seven accounts for my savings. Many of these I open so I can review them for Consumerism Commentary, but even the purely personal bank accounts number too many. Do you or would you apply any of these aesthetics to your finances?
Disclaimer: I am not an expert in Japanese philosophy or, for that matter, in personal finance. I drew the above concepts of Japanese aesthetics from a variety of sources.
Do you have a business idea that you want to pursue? If so, you are probably wondering if it is going to work and if it is going to make you a ton of money, right?
I am sorry to be the bearer of bad news, but the chances are, neither I nor anyone else is going to know whether your business idea is going to work or not. So instead of asking people what they think about your idea, here is what you need to do:
Start the business
If you are really passionate about your idea, you need to go with your gut and start it. Now, this doesn’t mean you’ll necessarily succeed, but you’ll never know if you don’t try it out.
If you just keep on asking people if they like your idea, you are going to get mixed results. Most people won’t know the industry you are trying to get into, so they won’t know if your idea is good or not. And even if they are in that industry, they could be wrong.
By no means am I saying that you shouldn’t ask people for advice, but take it as a grain of salt. Sometimes you just have to do what you want to do.
Save your money
When you are starting your business money will be tight, so you shouldn’t get fancy when it comes to laying the basic groundwork. For example, there is no need to hire a high priced attorney to incorporate your business when you could just go to Legal Zoom and spend $149.
Once you start making money you can go back and pay a good law firm to work on your incorporation. The point I am trying to make is that there is no need to spend thousands of dollars on things that won’t help your business make money… especially when you first get started.
You should reserve all of your cash for things like infrastructure, supplies, employees, and potentially marketing if you have enough cash. And most importantly, always keep a good portion of your cash on reserve for the unexpected.
Prove me wrong
I said your idea sucks, right? Well now that you have started your business you need to prove me wrong. And the only way you can prove me or anyone else wrong is by making money.
This doesn’t mean you have to be profitable, but instead you have to have meaningful revenue numbers. For example, if your company brings in $1,000 a month, that could be meaningful revenue number as long as your monthly expenses aren’t exceeding $5,000 month. On the other hand if your company brings in $3,000 a month and your monthly expenses are $30,000, that isn’t a meaningful revenue number.
If you are having trouble getting to revenue, I don’t know what to say other than to try harder. I wish I could tell you the secret sauce that will cause your business to boom, but I don’t know it. The secret sauce is different for every business.
The best advice I can give you is to look at your competitors and see what they are doing. This should give you a good understanding of what you need to do to make money. Just don’t copy everything your competitors are doing because what works for them may not work for you.
Don’t get ahead of yourself
Hopefully your business idea is working out and making money, but if it isn’t, don’t stress out. Pick yourself up and keep trying other ideas until something works.
If you are making money, pat yourself on the back because you’re half the way from not having a shitty business idea.
You now need to get to profitability. The two main ways you can do this is by either cutting your costs down (which could be a bad idea) or by figuring out creative ways to make more money.
I typically favor the second option and spend time on sales, marketing, and business development deals to get my companies to profitability.
Whatever route you decide to take, the best advice I can give you is to stop dreaming. What I mean by this is that you’ll tend to spend a lot of your day imagining what will happen if you get more sales, did more marketing, or even locked in a business development deal. You may even dream about what you’ll do with the money you’ll make.
Dreaming is a waste of time and all it will do is cause you not to reach your goals. If you really want to achieve your goals you have to act on things and work hard. And once you get to a point where your business is flourishing you still can’t dream because everything isn’t in your control. Things like lawsuits and recessions can crush your business and cause you to go broke.
I know this blog post is a bit basic compared to most of my blog posts, but I really want to get you to stop asking people for input on a business idea you may have. Just because someone was successful in the past or went to a good college, it doesn’t mean that they’ll know a good business idea if it stares them in their face.
For example if you asked me what I thought about Facebook, Twitter, or even Hulu when they first came out, I would have told you that they would fail. But I was wrong and I probably will be wrong when it comes to predicting thousands of other business ideas.
Remember, just because someone is in the industry you are trying to enter, it doesn’t mean they’ll know what’s best for you!
Monday, October 26, 2009
- "Step right up! Step right up! Buy the Miracle Growth JOOOOOOOOOOOCE!"
- "You will get 10 times taller and 20 times stronger and 400 times sexier by sipping this juice!"
- "Get it for $986,594,895,820,958,253,253,233,253,235.99! TODAY ONLY SON!"
The Big Bad Business Amateur
The Big Bad Business Amateur thinks thriving in business is a zero-sum game; that is, the more you take from your customer, the richer you'll become.So, they screw Customer X for their $ -- which becomes incrementally unsustainable over the long-term.For instance, take the financial industry:
- Bernie Madoff built a ponzi scheme that stole billions from his customers; his ponzi scheme toppled because screwing over customers = not sustainable.
- Blackrock, on the other hand, has built a sustainable win/win revenue model by aligning their interests with their customers: the richer their customers become, the richer Blackrock becomes
Experienced business leaders
Experienced business leaders take this mindset:
- In a free market economy, buyers will gravitate to those where they can get the greatest value
- The sustainable way to build a business then is to build products that provide that value
How do you build sustainable product?
Make customers richer/happier with every purchase of Product X.For instance, take these sustainable revenue models:
- AdWords: the higher you bid, the more customers you attract
- Brokerages: the more you invest, the greater value you get
- Candy bars: the more you have, the happier you get
- Walmart: the more items you buy from them, the more you save on those items
Unsustainable revenue models?
- Cars: its depreciating effect will burn you; the higher you pay for a car, the more money in equity you lose
- Newspapers: the more you buy, the sadder you get (i.e., you don't need three copies of today's newspaper)
- Manufacturing in expensive countries: the more a business spends, the more money in opportunity costs it incurs
- Pyramid schemes: the more you spend, the poorer you become
Align your interests with your customers' interests.You'll build products that will provide customer value ages from now.
Make customers richer.
Yes, You. For the matter it includes me too but the title seems catchy that way !
Jokes apart, what is it that out of so many people invested in the Stock Markets only a few make a real fortune out of it? As a matter of fact, barring Mr. Rakesh Jhunjhunwalla I don’t think there is any self-made millionaire in India who made his fortune via the Stock markets (probably very few unknown others).
Does it mean that the others are ill equipped or the luck isn’t in their stride. No, because there are those Ivy League experts who are adept at number crunching like anyone else, yet they don’t ride the Stock Markets. Luck can be a factor but then not matter how clichéd it sounds,
“Fortune favors the brave”
When we are talking about Stock Market Riches, the Oracle of Omaha – Mr. Warren Buffet’s name has to be taken in the same breath. The world’s richest man sits on the top of the world having made him a fortune investing in stock markets over a period of time. What’s more, he has done it for millions of his shareholders as well, invested in Berkshire Hathaway.
Did you know that a $10,000 investment in Berkshire Hathaway in 1965, the year Warren Buffett took control of it, would grow to be worth nearly $30 million by 2005
The marketplace is abuzz with Buffet’s investment principles with dozens of books and millions of citations on the Internet. But, then we haven’t seen anyone come remotely close to the fortunes that Mr. Buffet has made.
Technical and Fundamental Analysis apart, there are some very simple yet important principles which are highlighted in Mr. Buffet’s Investment rationale.
Never invest in a business you cannot understand
Sound simple. The philosophy is so profound yet how many of us tend to avoid it. One look at his portfolio and the statement makes all the more sense .Coca-Cola, Nike, Procter & Gamble, J&J. The business intricacies apart, the companies make products we can all relate to and probably use them too on a regular basis.
Risk can be greatly reduced by concentrating on only a few holdings
How many of us have heard, “Never put all eggs in one basket” or Diversification is the key to effective investment. But, then aren’t we culprits of over-diversification at times. I remember holding 17 stocks in my portfolio at one time. Over diversification leads to dilution of possible gains and it is difficult to track 17 companies at once.
Mr.Buffet’s portfolio has a list of 41 stocks. It may sound too much, but then he has accumulated them over years and has hundreds of people managing his investments now.
This single word is the game changer of sorts. This virtue alone separates the likes of Mr. Buffet, Peter Lynch from the average Joe. The explanation for this is best understood in terms of Mr. Buffet’s principles itself.
- Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years
- Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market
- The advice “you never go broke taking a profit” is foolish
- Buy a business, don’t rent stocks
The quotes speak for themselves; invest in Stock Markets to become a co-owner and not to make profits out of fluctuations.
It would be wrong to say that these 3 are the principles that made Mr. Buffet his riches. A lot of research and number crunching is responsible for Mr. Buffet buying stocks at a “Fair” price or on the basis of intrinsic value which the whole world is trying to figure out. But these are some no-nonsense jargon free fundamentals that can go a long way in ensuring a long term healthy investment portfolio.
I would like to know from Stock Market Enthusiasts out there – Do you think that if you stick to these 3 principals of Mr. Buffet, you will make money in Stock market?
[This post has been written by our regular contributor Ankit Agarwal, an ERP Consultant by profession, a wannabe entrepreneur and stock market stalker by passion]
It’s March, the tax planning season is at its peak and Ajay (person earning 6Lakhs pa working in an MNC) has started his yearly ritual of scouting for investments for saving income tax. Ajay tells his financial planner Pankaj that he is looking for an insurance plan which is very low on risks and will give good returns. Pankaj is a smart financial planner and tosses a question to Ajay which puzzles him. Pankaj asks Ajay “Do you buy a general insurance product for your car which gives you car insurance plus returns at the end of the year?” Ajay says “Car insurance plans are meant for protection against risks like accidents and not for returns.” On hearing Ajay’s answer, Pankaj smiles and says “Bingo, you are absolutely right. Don’t you think the same applies to life insurance also? Returns should be best left to investment products and not insurance. Life insurance should be bought only to cover the risk of loss of life and remaining surplus money should be routed through investment products for superior returns. A person should not mix insurance and returns.”
http://www.iwillteachyoutoberich.com/blog/best-investment-career-time-money/ The sender also included this note: Interesting stuff!
Sunday, October 25, 2009
I am the captain of a personal finance team. I call it the IPFL Team (Indian Personal Finance Literacy Team). Each of my team members have a personality and I have a name for them too.
And the goal of this team is to change the way Indians manage their money.
Let’s take a look at the team. They are:
- This Blog, aka Sehwag. The blog has been there for the last three years. And from being an e-scratch pad to improve my own knowledge, it now has an opinion of it’s own. It’s a plain, simple commonsense approach without getiing into too much technicalities. Hitting the ball, aka Sehwag, is all that matters.
Apart from the playing 11, I have a few things up my sleave. The future stars. They are:
- Financial Products Database,
- Satisfaction Surveys,
- Financial Freedom Yearbook
So you can see that I am about to change the world! Atleast, change the way Indians manage their money.
There’s a question that doesn’t leave me alone, “What can you offer the world that no one else can?”. It’s a pretty tough question. Maybe this blog will help me with finding the answer. In any case, I believe that I can be the medium which can change the way Indians manage their money!
Thanks for stopping by. Comments and feedback is most welcome.
- Why did companies fail during the 2008 financial crisis?
It went like this:
- Loan mofo: "We want our money!"
- Leveraged mofo: "We don't have money!"
- Loan mofo: "We will kill ya"
- Leveraged mofo: "OH NOOOOOOOOOOOO!"
When the economy tanked, companies that failed had loans that they couldn't repay.
What Will Make You Fail
Debt -- especially the long-term ones with variable interest rates -- will suck you down, and will be the main cause of your impending failure.
- Google avoids long-term debt.
- Microsoft avoids long-term debt.
- Apple avoids long-term debt.
- Walgreen's avoids long-term debt.
- Any company with great financials = no long-term debt.
Unless your main line of business is providing loans (i.e., you're a bank), leveraging your company = NO GOOD.(The banks that died over-levered themselves.) Instead, ask yourself this:
"What if we could get money for free?"
"BAM DANG SON HOW AN I DO THAT?!?!?!!" you're asking.Raise it.
- "No! You shouldn't give away your equity! Boo!"
- "You work so hard! Investors are sharks!"
- Equity financing (i.e., raising money from investors) is free money with no interest rates (i.e., helps you grow much quicker).
- Avoiding interest costs puts money back into your business to reinvest, and grow exponentially stronger financially.
- You can always buy back the sold equity.
Solid businesses perform financially awesome to the awesome to the max avoid long-term debt.
- When you: (1) avoid debt, and (2) keep raising money = YOU WILL NEVER FAIL HIGH FIVE
I don't know if this happens to you, but I'm noticing it more and more. Someone offers you a refund, or agrees to sell you something or even hires you to do a project, but then spend a lot of time explaining that it's a one time thing, or that it's against policy or it's not even something they like to do.
What's the point of agreeing to anything begrudgingly? Does it get your partner to do his best work? Does it increase the chances that you'll get to win next time?
If you're going to do something, do it. Go all in. Doing it half in makes no sense at all to me. It's a like a store that has so many rules and regulations about sales and exchanges that you wonder if they really want to be bothered to sell you anything at all.
Posted: 23 Oct 2009 08:14 AM PDT
A lot of people find self-imposed limits comforting. If you only believe a brief list of options is possible, you’re not failing by staying within your comfort zone; you’re merely being reasonable.
Unreasonable people make things happen. They dream big dreams and risk pursuing them. They see how things could be, not just how they are. They don’t believe “can’t” until they prove it themselves.
Be unreasonable today. Stretch the limit of what you think is possible, and then take a step along that path. Remember: you’ll regret the things you didn’t do more than the things you did.
©Equitymaster Agora Research Private Limited 2007-08
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