Tag: increments

Extremes and equilibria

Not long ago, I was chiding an elderly aunt who lives alone about the lack of protein in her diet (she was mostly subsisting on rice and thin rasam). She hit back citing some research she’d seen on TV which showed that too much protein can result in uric acid related complications, so it’s ok she isn’t eating much protein.

Over the last couple of years, efforts to encourage non-cash payments in India have been redoubled. The Unified Payments Interface (UPI) has come in, payments banks are being set up, and financial inclusion is being pursued. And you already have people writing about the privacy and other perils of a completely cashless economy.

Then you have index funds. This is a category of funds that is 40 years old now, but has gained so much currency (pun intended) in the recent past that the traditional asset management industry is shitting bricks. And so you have articles that compare indexing to being “worse than Marxism” and dystopian fiction about a future where there is only one active investor left.

All these are cases of people reacting to suggestions with the perils of the suggestion taken to the extreme. My aunt needs more protein in her diet, but I’m not telling her to eat steak for every meal (which she anyway won’t since she’s a strict vegetarian). The current level of usage of cash is too high, and there might be more efficiencies by moving more transactions to electronic media. That doesn’t imply that cash in itself needs to be banned.

And as I mentioned in another blogpost recently, we probably need more indexing, but assuming that everyone will index is a stupid idea. As I wrote then,

In that sense, there is an optimal “mixed strategy” that the universe of investors can play between indexing and active management (depending upon each person’s beliefs and risk preferences). As more and more investors move to indexing, the returns from active management improve, and this “negative feedback” keeps the market in equilibrium!

In other words, what more people moving to indexing means is that the current mixed strategy is not optimal, and we need more indexing. To construct scary scenarios of where everyone is indexing in response is silly.

Effectively, what we need is thinking at the margin – analysing situations in terms of what will happen if there is a small change in the prevailing situation. Constructing scare scenarios around what will happen if this small change is taken to the extreme is as silly as trying to find the position of a curve by indefinitely extending its tangent from the current point!

Work Etc.

There are these days when you wake up and start wondering what the fuck you are upto. You start asking yourself why you are where you are, doing what you are doing. You ask yourself why you are not on that monthlong roadtrip of rural Karnataka, with the hope of maybe producing a shelf of books at the end of it. You ask yourself why you haven’t been doing stuff that you had promised yourself that you would do.

That new guitar has already started rusting, and the left index finger that you had cut the last time you played has long healed. The car mileage grows only in small increments – which approximately represents the distance you go to work. Half the days you cook rice, and mix it with copious quantities of Mother Dairy Dahi, and some pickle that has been sent from home. The other days you go to the same restaurant, sit at the same table and order the same set of items.

You are doing it for the sake of your career, you tell yourself. Career. Tha FUBAR thing. Which you are trying to marginally resurrect and repair by doing what you are doing, and trying to bring back to it some vague sense of recognition. You meet your friends. You hear them shag about their jobs. You hear about all the cool things that they are doing, and about how they are fast moving up the corporate ladder. About how you are a failure in life if you don’t work hard at this stage of life, and if you can’t win the rat race.

You meet friends’ friends. The first thing they ask you is what you do – and you are likely to get judged on that. So you need to make sure that you have a good story to tell about your job, which makes you sound cool. Coming up with formulae to price the movement of sacks of rice is not cool, as I found out. Financial services is usually met with a question asking you to predict the direction of the index. Sales is usually met with “the sun is very hot nowadays, no?”. And IT is met with “are you a Java coder or a C# coder?”.

Occasionally you want to get away from all this. These are the times when you accept that you are doing what you are doing because of the increments it produces in your bank balance. Sometimes you realize that the monthly increments in your bank balance are not enough; and some of those times you console yourself saying that you are doing this in expectation of larger inflows in the future. You consider your job to be an investment – that the dough you are not getting now will get more than compensated for later in your life. 

So when on certain days you wake up and ask yourself why the fuck you are where you are and doing what you are doing, you usually don’t have an answer. In those states of mind, “career”, “development”, “investment”, “corporate” etc. all don’t matter at all. Neither does “net present value of expected future earnings”. Your total costs look inflated. Your benefits look deflated. Every line of thought that runs in your head then tells you that you should go off into the Himalayas. You go to office instead. 

I’ll stop this essay here. In a forthcoming essay I’ll explain about how a job is essentially about costs and benefits, and why they use the word “compensation” to describe your salary. I have occasionally argued in the other direction, but thinking about it again, I think the word “compensation” with reference to salary package does make a lot of sense.