Not true, not true, not true at all!

Many people do businesses to:

- keep themselves busy

- to show to the world that they are doing a big business

- hoping to make money 10 years, 20 years or 30 years later!

-for their own ego – and the price is paid for by the shareholders.

Let us take the case of ‘keeping themselves busy’. In this category are a bunch of retail grocery stores. Most of them will earn much, much more by selling their shops and investing the monies well. However just because they have no hobbies, and have no clue about how to manage their time (but for the shop), they continue to go to the shop. What I mean is – If you are the owner of a shop with a market value of say Rs. 1 crore, and are aged say 55 – you should earn at least Rs. 15 lakhs a year – right? Well I know of shop keepers with a Rs. 2 crore shop and earning Rs. 5-6 lakhs…but WILL KILL ME, if I suggest a sale of the shop….’What will I do all day’ is a good rebuff. Not arguing against it, just enumerating as the first …

The second is worse. They are actually wasting good money after bad. They have a big set up, an office, daily visits to the office, AND ARE ACTUALLY LOSING money. One such category I know are some wholesale traders – they ‘invest’ say Rs. 5 crores in stocks…and at the end of the year they earn about Rs. 50-60 lakhs. Again not having a hobby (which means they need to go to an office till they CANNOT go) is a must. I know of a 70 year old who goes regularly…and frankly is destroying wealth. What do you tell him? Nothing.

There are some businesses which justify to their stakeholders business models based on hope. Or optimism. Hoping to make money after 7, 10 or 20 years. This is really funny simply because they way people buy things or services is changing fast. Very few people are capable of or willing to make long term commitment. So to think that businesses must build brands, build a ‘loyal’ customer base…sometimes need to be checked again and again.

The worst are those businesses that are run for the ego of the owner. There is no way on earth that a ‘gas’ or ‘petrol’ agency from a PSU (Fortune 500 Companies!) will ever make money. It is also very difficult to make money from an auto agency of a small car company. However it gives a lot of ‘social’ standing. So people with a lot of money (and own old real estate) need to be roped in.

Of course the absolute worst are subsidiaries of big large companies which may not earn money. The distance between the shareholder of the parent company and the company making losses is so huge that NOBODy really pays attention to what is happening. Shareholder activism, mutual funds becoming active in such companies, or threats of asset stripping are all necessary to help the shareholder. Not seen it in corporate India for a very long time.

Sad, is it not?

Corporate Egoism and Egotism are far more difficult to spot compared to Alcoholism.

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Largely people like short term pleasure over long term benefit. Let me explain.

A sweet stays for 30 seconds on the tongue (thanks to the tongue and the saliva, you know the taste) but for 30 years on the hips. We still choose the sweet.

When biscuits are passed around, butter cookies and kaju cookies are chosen first, then Marie biscuits are taken…

there are a zillion examples.

Recently one kid who was about to ‘invest’ (to fend off the HR guys to whom he had given an undertaking!) used the ‘investment money’ to make a down payment for a new bike costing Rs. 140,000.

why does all this happen? Simple…

Delayed gratification is so boring!

Particularly when it comes to finances, constantly pinching pennies and saving all your extra cash is pretty darn boring when you get right down to it. Which is why so few people do it well. There are too many fun things to spend money on.Yet, unrestrained spending (especially the kind that lands us in debt) is the antithesis to wealth creation. Too many leaks in our cash pool leaves less to save and can ultimately put the lid on plans for our kids’ college, vacations, or dreams of leisure. A common solution — strict budgeting — scares away many people who see it as an existence devoid of any fun whatsoever.Unfortunately, many of us go overboard on the fun stuff during at least one portion of our lives and land in a financial pickle. But you don’t necessarily have to turn to dry roti and onion, bicycle transportation, and radio to meet reasonable retirement goals — a little creativity can give a good balance of gratification now as well as a comfortable retirement later. You need to remember that investments made today are going to help you in consumption later on.

The case of the monthlies

What gets many people in trouble these days is in catching what is called a case of the monthlies. This is the compulsion to sign up for services that are billed monthly at what seems to be a very low rate for all the fun the subscriber gets from the deal.Twenty years ago, your average Indian subscribed to only a handful of basic services — the bare necessities of water, power, and a luxury named telephone. Today he is hooked on extended services such as cellular phones and broadband Internet access, as well as a handful of the many entertainment subscription options — cable TV, digital radio, video on demand, online music stores, etc. — that are all vying for your money. All the consumption is now converted into monthlies – it helps! The car salesman never tells you the price of the car. What he compares is only the EMI (another monthly!). Thus the car looks cheap. Housing is also a monthly! And while most people hate paying for utilities, paid entertainment at least buys some fun in life. Why even that nice plasma television is only 2k a month! So what if it is 48 months? You also have to be careful about credit cards which allow you to pay on an EMI basis – pay 3k per month immaterial of how much you spend!

The monthlies can cost you dearly.

One way to see just how much of your cash is sapped is to annualize what you pay for services. Viewing it this way, your fairly reasonable Rs.250 a month balloons to a Rs.3000-plus annual commitment over the life of the contract. Add to this some tax, some add-ons etc. and you may be talking of a small package! It stands to reason that if monthlies are costly for consumers, then they are a boon for businesses offering them. Smart companies know that it’s easier for consumers to swallow a small monthly cost than a large one-time payment. Apple has also scored big by offering consumers alternative ways to pay for audio content. The existence of small payment possibility is perhaps the single main reason why we have seen such a spurt in the mobile phone business. The recurring nature of monthly payments to businesses also makes them attractive to investors due to the stable cash flows.

Simplify and justify For most consumers, the problem is not necessarily in signing up for a lot of monthly services.

It’s more a matter of blowing money on services they hardly use in the first place. To make sure you’re getting the most fun now while saving some gratification for retirement, consider a few fresh approaches to the monthlies:

* Avoid contracted services unless you’re certain that you will realize the entire value of the contract. Paying that annual membership contract for years will have you kicking yourself if you stop going after three trips. Know your options, too.

* Make the most of trial periods for new services. Test out new entertainment or utility services such as cell phones and cable/satellite television immediately to make sure they’re worth the money before you get locked into payments. If you’re not thrilled, cancel during the trial period.

* Periodically question why you are paying for services. You may realize, for instance, that you no longer need to pay for access to download music if you’ve already gathered a large enough collection of songs on your MP3 player.

* Consolidate redundant services. Many entertainment options now overlap, so you may be paying several different companies when you could actually pay less to fewer companies for the same services. Another important step is to scrutinize your monthly entertainment and utility expenses. For some, unlimited movie rentals with a library might be a wasteful indulgence. In other cases, however, a subscription may actually save you money — particularly if you rent two movies a weekend at Rs.140 a pop from the local library – making it a smarter choice in the long run.

Bringing it home

Everybody has different thresholds for justifying their spending — just make sure you’re honest with yourself and that you’ve considered all the options. If you do, you’ll likely find opportunities to cancel a few services and free up some cash. Also, you may find it easier to resist the temptation to sign up for a gaggle of new monthlies.

A good practice is to automatically increase savings into your savings or retirement funds as you lop off any monthly expenses — so you don’t even realize you’ve freed up extra cash.

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1. First of all you are dependent on your employer. That does not sound too great, does it?

2. Your employer could just do away with medical insurance completely. Period.

3. Suddenly your parents could be excluded – and if they are above 65 you will struggle getting them medical insurance AT ALL.

4. Your employer could exclude your spouse and children (do not look horrified, it happens far more regularly than you wish to accept).

5. What happens if you have quit a job on Friday, decided to join on the coming Wednesday, but your heart decides to attack you on Monday? Remember between jobs you will have no insurance.

6. If you lose your job – and you are perhaps most vulnerable, you lose your insurance too. When you have just lost your job, the chances are insurance premium is NOT likely to be your topmost priority.

7. The waiting period for your spouse and children could be different from the waiting period for you. This means your wife may be without cover for say 3 years because you have changed your job.

8. If you move from a large company (say 15000 employees) to a small company (say 700 employees) – which could suddenly see a reduction in coverage amount.

9. Rarely, if at all, do companies increase the sum assured to cover INFLATION.

10. Many companies take medical insurance without realising the impact of non payment of claim.

…10 points per post!!

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What is a Negotiated Market?

deals that have been done by negotiation, executed -but REPORTED on the trading system – for approval of the exchange is called a negotiated market deal.

What is a when-issued market?

it refers to the security being permitted for trading in the market BEFORE its actual date of issue but after the announcement date.

What are STRIPS?

it is an acronym for Separate Trading of Registered Interest and Principal of Securities. Certain selected dated government securities (gsecs) that can be (and have been separated at the request of the govt.) – under terms prescribed by the Reserve Bank of India. It is not yet available in India (if any reader knows better, please enlighten, I am myself very dated in the debt market – even when I knew it, it was just academic, nothing practical have I done in debt markets).

It would obviously work as follows: a 10 year G-sec will have 20 interest strips (Gsecs pay interest bi-annually) and one principal strip. Thus if I know that it is a 2012 issued G sec and I need to put money away for 3 years, I should, buy the interest strips for 2015 – thus I create a short term instrument out of a long term instrument.

Since there is no default risk, just the interest anticipation is built into the price. The principal strip itself will now act like a zcb (zero coupon bond). If we have enough zcbs we could plot the Gsec yield curve far more accurately than what is being done presently.

Once it is popular corporate bonds could also be issued like this – and if the taxation on such bonds is clear there could be a fantastic secondary market for bonds. But our regulators will not do it, at least not in my life time.

Transparency, after all is only for the smaller people, not for regulators.

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Sebi has been making a lot of changes in the mutual fund business – there is a good chance that the size of the industry will shrink. Same thing about RBI and IRDA.

Just hold on! Is the industry shrinking in size? No. Not at all.

Some re-arranging will happen. If you have been wondering why there were 44 players in the mutual fund industry, but only 4 were profitable, well now there will be more.

Fidelity is planning to sell its stake (according to ET, but then ET has said this many times in the past, and frankly I have no clue whether they will or whether they are planning to).

http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/fidelity-set-t

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Well one of the myths is :

Cow’s milk is food good enough to make you strong

Cow’s milk gives you a lot of protein and calcium

Cow’s milk is food for the Gods and the Kings

….right?

Well do you see what the farmer feeds his cows? Badam or garbage? wastage from agri based industries, etc. And then antibiotics,….Omg..just read on:

http://www.healthguidance.org/entry/9973/1/Negative-Effects-of-Dairy-Products.html

so if you source your protein from cow milk or whey, think again….

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Well, over the last so many years what is the penetration of banking in India?

Well about 6-8% of the country’s population has some access to banking. Why we do not have banks with

EXCLUSIVE mandate to cater to retail needs? – savings, current, small business, retail, traders,  – and perhaps with a local bias. For example every small locality – a CP, a Dariyaganj, a Gurgaon, Besant Nagar, Dadar, Chembur…can all have small local banks catering to the needs of the local population. This would create a lot of jobs, can have local directors, can give local loans and will always remain small. This is a brilliant concept, but the ‘co-operative banks’ which were supposed to do this kind of business have failed.

We instead have a super over banked urban India – where the small account holder is too scared to even enter. Most of these banks are too posh for the common man – who is too scared to even go into such a bank!

Such small banks should have no power to give loans above Rs. 1 crore – and all the account holders should also be shareholders. All this will create good supervision and evidence gathering!!

I can think of about 500 banks / perhaps 10 varieties of banks – rural poor, urban poor, senior citizen branches, or senior citizen branches….

what say?

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Actually to the sharp observer with a conscience the Vodafone and the P Chidambaram case were clear. It is sad that it had to go right up till the Supreme Court. In case of Vodafone a over zealous Income tax department was trying to re-write the Income tax Act. How Vodafone could be asked to pay tax on gains made by Hutch is a question that was difficult. How the High Court accepted the argument is far more difficult to understand, let alone accept.

In the 2G case – announcing a cut off date of 26 Sep 2007  was a cruel joke. It is like saying we will announce the pass marks of an exam AFTER we see how many people get 35! This was clearly telling the applicants – look 575 of you applied, 122 of you have been nice to us…all of you have happily applied before 26 Sep…so we have chosen 26 Sep…now tell me the REAL price that you are willing to pay!! But hello please pay the price to Mr. Raja, …because we, the Congress, is clean! The history of the government arm twisting, corruption, dumb thinking, lack of clarity, in the telecom industry is so scary that putting money in the infrastructure companies. One has no clue about what is happening in aviation, roads, etc. …

Of course Sibal says…it is the NDA’s fault. Talk of self image! My God P Chidambaram, Man Mohan Singh and Kapil Sibal are really thick……as in skin and as in thieves!!

Mera Bharat Mahan…

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• He helps with filling up the form
• He knows what is happening in the industry and will be able to give some useful advice
• He will co-ordinate with the fund house or the insurance company – and most clients find that pretty painful.
• He will handle the claim if it comes to such a situation
• He is authorised and qualified so he must be adding some value in the transaction
• His services are FREE!! HA HA
• He might actually share his commission, will he not?
• He chases, comes home, does all the paper work, reminds…what more can I want? LOL

All this is perhaps true, but let us look at the risks:

• He might give a sub optimal product based on his limited understanding
• Most agents do not understand insurance – medical, life or even simple risks
• The agent may go out of business soon – and you will again be looking for a new guy/gal
• The agent may die before you do…:-)
• If the agent switches loyalty, he may not service the older products he has sold…
• He may fight with the main company – and put your product in a jeopardy!

so be careful in buying a financial product…

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Buying any financial product is not easy. Let us look at a product like life or even general insurance. Fact is, you are buying a ‘security’ – you want to be reasonably sure you are dealing with a good company, right.

What do people look for:

1. Can I buy it online: Ease of buying.

2. Is it cheap? : Price

3. Is the documentation simple? – ease of operation

etc…..etc.

However when you are buying insurance what you should be looking for is:

Will this company pay the claim at all?

Will this company make it easy to claim the amount, and in case of medical insurance is there a cash less option available?

Will I have the patience to deal with the company in case of a claim?

Of course there are some people who :

Do not care about web based execution, they are not comfortable dealing on the net. Yes they are a small minority, but yes sure they exist even in big cities like Mumbai, Delhi and Bengaluru….

These people look for an agent – who (they hope) will help them with their claim….we will look at that in another post…

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