Art as a celebration of life

On a long leisurely walk towards Gandhi Bazaar yesterday evening, we ventured into this pretty-looking ancient house which said “Bimba, the Art Ashram”. We turned out to be the only visitors in the place. There were some four “shopkeepers”, led by this guy with a funny beard called Deepak. Deepak was to lecture us for the next half hour about how art is a “celebration of life” and that is what his shop sought to “celebrate”. At the end of it we were so minidfucked that we went out without really looking closely at any of the pieces on display.

While we were walking out, we realized why the store had so few visitors – we’re sure it doesn’t get any “repeat customers”. People would have had their brains bored out so badly on their first visit to the store by Deepak’s lectures that I doubt if anyone would dare to return. And I doubt if the store does much sales also, given that Deepak’s lectures don’t even give visitors an opportunity to check out the stuff properly.

Another Lemma – in a store that claims noble intentions of some sort, you are likely to get less value for your money than you would at a store being run for pure commercial purposes. I leave the proof as an exercise to the reader.

Cab guys’ tales

I travel to and from work in the company-provided cab. It’s a fairly convenient system, offering you flexible timings, and routings that aren’t too bad. The overhead in terms of time of traveling by cab is about 15-20 minutes for a 40-minute journey, so I take it on most days.

Given a choice, I try to sit next to the driver – maybe that’s the most comfortable seat in an Indica, and it definitely is the best seat in a Sumo. On most occasions, I chat with the driver as he drives me, but sometimes I don’t have the opportunity – since the driver is too busy chatting on his mobile phone. Yeah, company rules forbid that, but I guess no one really complains, so these guys get away with being on the phone a lot of the time.

Most of the time, the conversation is about loans, and repayment. Most of it is about informal loans that people have lent each other. The amounts these guys lend each other – seen as a percentage of their income (which I’m guessing based on what one cab guy told me last year) is humongous! They make loans to each other of the order of a few months’ salaries, and it seems like these loans are in perpetual transition – between the cabbies and their friends.

I hear them shout, strategise, pacify, ideate, about these issues. And sometimes after they’ve hung up I talk to them about this. One conversation comes to mind. So there was this cabbie whose family had lost a lot of money by “investing” it in a chit fund. It was an “informal” (i.e. unregistered fund), and in the previous “round”, his family had invested and made a good return. So in this “round”, more members of the family invested in the fund. And the fund manager decamped with the money!

I remember telling him that it was a bad strategy putting all their investments with the same guy, and tried to explain to him the benefits of diversification. He replied saying that he didn’t want to invest in the chit fund (the one he lost money in) but family members forced him to invest along with them, calling him a “traitor” when he tried to diversify!! Strange.

Back then, I didn’t know how exactly chit funds work else I would’ve also told him that it was an especially bad idea for people from the same family to invest in the same chit fund. If you think about how a chit fund works, you are basically betting on the desperation for money among the other “members” of the fund. You are betting that someone else in the pool needs money so badly that they’re willing to forego a higher “discount” which will then come into your kitty. So with members of the family all putting money in the same fund, they were just betting against each other! So even if the fund “manager” hadn’t decamped, it’s unlikely they would’ve got a particularly significant return on their investment.

On reliably asking for help

Last evening while I was trying to teach the wife to ride a geared motorcycle, a middle-aged woman accosted us. She told us that she was a teacher from Hiriyur (Chitradurga district) and had lost all her money and needed help for her bus charge to go back to town. This sounded suspiciously similar to the couple from Nagpur with a similar story that I’ve encountered a few times, and so I told her off, rather rudely I must say.

She seemed to be taken aback, and hurled some curses on me as she walked away, and then my wife pointed out that there were some things about this woman’s story that made it sound genuine. So now I wonder (given that it is a finite possibility that I might be stuck in an unknown city without money) what one needs to do in order to reliably ask for monetary help – given that fraudsters abound (if I had been convinced that this woman wasn’t a fraud I would’ve helped her out, so let’s take that as a given).

Here are some points that I can quickly think of:

Location – would you think someone who would come to you in a residential area (Jayanagar) where not too many people were walking around, and ask for help if they really wanted money? Wouldn’t they rather try at bus stops, or even get on to buses and try get the ticket off a conductor or a fellow-passenger? Or considering that this lady had to make an inter-city journey, wouldn’t it be more reliable for her to have somehow got to the bus stand and asked someone there?
Persistence – after I’d told this woman off, she just kept hanging around, and refused to go after I told her in no uncertain terms that I’m not helping her out. Wouldn’t you expect people who are really in need to be more rational and try and look for other sources rather than hanging on to the one person she sees on the street?
What you ask for – again ties back to the first point that it might be easier to convince people to buy you a ticket than give you money. Or if you were to walk up to a shop and ask to use their landline phone? (mobile doesn’t work, since that’s a well-known method of swindling mobiles; was once tried on me in Bombay)
Abuses – when you are really in need, and someone doesn’t help you out, you don’t loudly abuse them when you go. You’d rather quietly slink away and try your luck elsewhere .

I must say that the woman was rather “respectably dressed”, and before she started abusing she spoke “good Kannada”. It’s just that I wasn’t convinced she wasn’t a fraud so didn’t give her any money.

In any case, what signals would you look for when someone were to come and ask you for monetary help? And what signals would you try to give out if you were to ask for monetary help?

ODI

As the World Cup starts I realize I’m liking ODI cricket more now than I used to in the last couple of years. The key thing for me, I think, is the second coming of classical batsmen to One Day Cricket.

The problem with ODIs in the mid 2000s was that it had become a slambang game. Too many slambang players, with dodgy techniques were dominating the scenes. Boundaries got pulled in and pitches became flat (these two are still a problem I must say) and it just degenerated into slugfests. It was, to use a famous phrase, just not cricket.

In a way, I think the coming of T20 has actually helped make the ODIs a more classical game. What it has done is to make the slambang guys specialize in the even more slambang version (it has helped that there is a lot of money to be made by being good at T20).

Suddenly the slambang guys have figured that they’ve lost the skill of building an innings, which is something crucial for the one day game. If your team has to score 300, it is very likely that at least one batsman has to get something like a 100, and scoring 100s is out of the skill-set of the slambangers.

So you see the likes of “holding players” like Hashim Amla and Jonathan Trott coming good at ODIs, while in the mid-to-late noughties they would’ve never been selected for what was then the “shorter form of the game”.

Also, the quality of cricket in some recent ODI series (RSA-Ind, RSA-Pak, etc.) has been encouraging, and if not for the idiotic format I would’ve been really looking forward to the World Cup.

Reliance Retail?

So on Sunday morning when I went to Reliance Fresh down the road I saw this guy who runs a vegetable store nearby frantically running between shelves, stocking up huge quantities of fresh vegetables. If this were a government store, and if this were license-permit raj, we could have said that this guy was hoarding vegetables.

While this explained why you seldom get fresh stuff at Reliance Fresh later in the day, it made me wonder if Reliance Retail is actually a retail operation. Given the amount of vegetables that this retailer was buying it seemed like it was more profitable for him to walk down the road and source the stuff from Reliance Fresh, rather than traveling a few kilometres down the nearby KR Road to source from the city market.

So thinking about it, this is probably reliance fresh’s strategy. Apart from selling to retail customers, they also make money out of supplying to nearby retailers, who take advantage of the lower prices at Reliance Fresh in order to make a margin for themselves and avoid the long trudge to the wholesale market.

I’m sure Reliance Fresh doesn’t particularly have a problem with the deal, except that they might lose out on customers who know about the poor quality of vegetables one gets there in the evening and so decide to not shop there for other groceries also. Customers know when to get good stuff so they don’t mind. The retailers obviously don’t have a problem.

Neat, ain’t it?

Successful IPOs

Check out this article in the Wall Street Journal. Read the headline. Does this sound right to you?

MakeMyTrip Opens Up 57% Post-IPO; May Be Year’s Best Deal

It doesn’t, to me. How in the world is the IPO successful if it has opened 57% higher in the first hour (it ended the first day 90% higher than the IPO price)? To rephrase, from whose point of view has the IPO been the “best deal”?

What this headline tells me is that makemytrip has been well and truly shafted. If the stock has nearly doubled on the first day, all it means is that MMYT raised just about half the cash from the IPO as it could have raised. If not anything else, the IPO has been a spectacular failure from the company’s point of view.

The US has a screwed up system for IPOs. Unlike in India where there is a 100% book-building process where there is effectively an auction to determine the IPO price (though within a band) in the US it is all the responsibility of the bank in charge of the IPO to distribute stock (as far as I understand). Which is why working in Equity Capital Markets groups in investment banks is so much more work there than it is here – you need to go around to potential investors hawking the stock and convincing them to invest, etc.

Now, the bank usually gets paid a percentage of the total money raised in the IPO so it is in their incentive to set the price as high as they can (and the fact that they are underwriting means they can’t get too greedy and set a price no one will buy at). Or so it is designed.

The problem arises because the firm that is IPOing is not the only client of the bank. Potential investors in the IPO are most likely to be clients of other divisions of the bank (say, sales and trading). By giving these investors a “good price” on the IPO (i.e. by setting the IPO price too low), the bank hopes to make up for the commission it loses by way of business that the investors give to other divisions of the bank. If most of the IPO buyers are clients of the bank’s sales and trading division (it’s almost always the case) then what all these clients together gain by a low IPO price far outweighs the bank’s lost commission.

It is probably because of this nexus that Google decided to not raise money in a conventional way but instead go through an auction (it made big news back then, but then that’s how things always happen in India so we have a reason to be proud). Unfortunately they were able to do it only because they are google and other companies have failed to successfully raise money by that process.

The nexus between investment banks and investors in IPOs remains and unless there are enough companies that want to do a Google, it won’t be a profitable option to IPO in the US. Which makes it even more intriguing that MMYT chose to raise funds in the US and not here in India.

Liquidity

We live in an era of unprecedented liquidity. Think about the difference from just about ten years ago. Back then, there was a much larger amount of cash reserve that one had to keep in one’s home, or on one’s person. There were no ATMs. There were no credit cards. All purchases needed to be meticulously planned, and budgeted for.

Now, because we don’t need to carry as much hard cash, there is so much more money in the banking system. While that gives depositors the nominal daily interest rate (at some obscenely low rate), there is much more money available with the banks to lend out, which increases the total amount of economic activity by nearly the same amount.

Just think about it. It’s fantastic, the effect of modern finance. And I don’t disagree with Paul Volcker when he says that the most important contribution of modern finance has been the ATM.

PS: My apologies for the break in blogging. I was in and around Ladakh for a week (yes, I was there when the cloudburst happened) and there were some problems with my laptop when I returned because of which I wasn’t able to blog. Hopefully I’ll be able to get back to my one-post-a-day commitment. And I have lots of stories to tell (from my Leh trip) so hope to keep you people busy.

Tax Breaks

One thing that has struck me recently is about charitable organizations that try to attract donations by claiming “100% tax break under section 80G” or a similar 50% tax break or some such thing. Given how often organizations use this technique to get funds, I’m sure this works. That people do choose where to donate their money depending upon the amount of tax break they get.

I’m just trying to illustrate this concept from another angle. Let’s say you donate Rs. 10000 to a charity that has gives a “100% tax free” receipt. So effectively your taxable income goes down by Rs. 10000. And considering a 10% marginal tax rate (ignoring cess, surcharges, etc.) your tax payable comes down by Rs. 3000. So effectively, you have donated ONLY Rs. 7000 to this charity and forced the government to pay the balance Rs. 3000.

Do you see the catch in this tax-break scheme? Essentially the government is forced to pay money to charity at the behest of a single citizen! By granting this “tax free status” to a charitable organization, the government is making itself liable to commit unlimited funds to this particular charity (of course I suppose that it isn’t easy to get such breaks for your organization, and considerable greasing of palms is involved. But considering that a small charity run by my extended family gets 50% tax break it may not be very hard after all).

So yeah, I’m sure the numbers will be available somewhere but i’m too lazy to find it. But I’m interested in finding out the aggregate deduction sought by all taxpayers put together under this section 80G (the one where you get tax exemption for donations). And then see where the government’s forced charity is headed!

Booze and volatility

Another of those things I’ve been intending to write for a really long time. Occasionally when I’m not feeling too good mentally, people ask me to go have a drink telling me that everything will be alright. However, given my limited experience in this I’m not too confident it will work. In fact, the only one time I tried drowning my sorrows in alcohol (this was over four years ago) I ended up feeling significantly worse, worse enough to have not tried it since.

The thing with booze is that it increases the volatility of your state of mind. This means that it will flatten out the curve according to which your mental state moves. So after you’ve had a drink or few, you are unlikely to remain in the same state that you were in that you started off at. You end up feeling either significantly better or significantly worse – and the chances of both these go up tremendously when you drink.

I know I have been so far acting based on one data point that went adversely, but I don’t know what causes the selection bias in people who have been through both sides significantly! Of feeling much worse and feeling much better after having some drinks. Why is it that even though all of them would’ve been through significantly worse after drinking at some point of time or the other, they tend to forget about it and only think of the times when they’ve felt better?

Is it that whether you feel good or not is some kind of a binary payoff depending upon the level of the state of mind (basically state of mind < cutoff => “bad”; state of mind >= cutoff implies “good”)? If this is true, then whenever you are “out of the money” (feeling bad), you dont’ really care if you go even more out of the money – your overall feeling doesn’t change by much. And so you don’t really mind the cases when the alcohol starts making you feel significantly worse. But then the barrier is ahead of you so by increasing volatility, you are giving yourself a better chance of surmounting the barrier so drinking makes sense! But then under this condition it doesn’t make sense to drink at all when you’re already feeling good!

Are there any other reasons you can think of for this selection bias? Why do people give more benefits to positive movement in state of mind as a function of drinking than to negative movement in state of mind? Or is it that volatility is a non-intuitive concept and “there’s a better chance you’ll feel better if you drink” is a simple way of communicating it? And let me know your experience about drink making you feel worse..

The TDS Scam

Tax Deducted at Source. TDS. A wonderful measure by the government to hide from us what they are taking away from us. The concept that there is a substantial difference between your “cost to company” and your “take home pay” has been ingrained in all off us, and so we don’t question the diffference. This way, it makes it easy for the government to take away large amounts of money as tax, without really making the taxpayers feel it.

I’ve messed up. Due to a combination of reasons I haven’t yet filed my tax returns for last year (2008-09) and now my tax advisor tells me I have two weeks to do it. And calculating the tax payable for the umpteenth time, I now notice that there has been an error in all my previous calculations. And the additional tax that I need to pay (has to be paid along with a fine for paying late) is not insubstantial.

TDS is a necessary system in order to enforce compliance and putting in checks and balances into the system. It helps the government get its finances on time and save a large part of trouble in revenue collection. What it does, however, is to obscure the amount of tax that is being deducted. A clever method, I think, devised by governments to take away a large part of your money from you without you noticing it!

Of course this is accompanied by this ritual called filing tax returns when you do get a chance to see how much the government has taken away from you, but considering that for most people most of their taxes would’ve been accurately deducted, most people would just go through the process mechanically and few would actually look carefully at the numbers!

The next time you are doing your returns, I strongly urge you to look at the numbers carefully. Look at how much you have actually earned, and how much of it is being taken away by the government without you really noticing it! Open the calculator in your mobile phone and calculate the proportion of time you work every year for someone else – for someone called the sarkaar. There’s a good chance you’ll start demanding more from the government after that.