Tag: risk

Home Equity

I’m looking to purchase a house. However, the amount of cash I have with me will not suffice to completely fund the house. Given that I’m confident of earning that difference amount in the future means that some bank will give me a mortgage, and I will thus finance my house with debt. Question is why I can’t finance the house with equity instead.

Let’s say the house I want to buy costs Rs. 1 Crore and I have with me Rs. 50 lakh. Instead of taking a loan for the balance Rs. 50 lakh, why can’t I sell equity instead? A consortium of investors can be invited to invest the balance Rs. 50 lakh in exchange for a 50% stake in the house. Rather, we set up a company that owns my house of which I own 50%, and every month I pay a rent to this company. As and when I get additional funds I start buying up additional shares in the company that owns my home and soon I’ll own it completely.

So who will be these people that will invest the balance 50% in my house? They are going to be dedicated real estate investment funds and their business will be to invest in minority stakes in properties of different sizes and in different parts of the town and country. This they are going to fund via a bunch of funds that allow ordinary investors to take exposure to real estate.

Currently there is no way I can invest in real estate except for taking on a large mortgage and purchasing a whole house. If I’m saving up money to buy a house some day and want to invest it in a way that will help me partially hedge against increase in real estate prices (something that I’m unable to do today) I simply buy units in one of these real estate funds. On the other hand, if I sense there might be some problems with my property (let’s say it is ripe for acquisition by the government for some road widening purpose, let’s say) I can sell some part of it to some of these real estate firms, thus reducing my risk of ownership.

These real estate funds can offer a variety of funds that invest in different kinds of properties in different proportions (like you can have a fund that invests 50% of its money in housing, 30% in commercial real estate and 10% in farmland, say). This allows ordinary investors to get exposure to real estate without any large down payments or mortgages. And reduce the risk of owning property in a particular place (let’s say I’m concerned that property prices in Bangalore might fall while those in tier 2 cities might go up. I will simply sell stock in my Bangalore house and invest the money in a fund that invests in houses in tier 2 cities, thus hedging myself).

Why is such a structure not popular already? In fact, I don’t think you have such structures anywhere in the world. One problem in India is the massive transaction taxes on real estate which makes the market illiquid. If that goes, is there anything that prevents us into getting into a culture of home equity?

Corporate Culture

In good times, when you like the core aspects of your job, you don’t really care about your “organizational culture”. You don’t care so much about how they treat you, about how they make you feel. All you care about is that you are enjoying your time there, that you think there’s some value that the job is adding to your life, and you are happy receiving your salary.

When your organization’s “culture” starts mattering is when things aren’t going all that well in your job. It’s when you stop liking the core aspects of your job, and start wondering why you’re doing what you’re doing. That’s the time when all the “cultural” and “feel good” things about your job that come to the fore. That’s the time when any problems that you have with the organizational culture get highlighted, and you start focusing more on that and less on your work (after all, you’re trying to think whether there’s a reason apart from your core work for you to stay in the job).

As an employer, the risk with not paying attention to your organization’s culture is that when one of your employees doesn’t feel that good about his/her job (and this is bound to happen; irrespective of how much one loves his job, one is bound to go through these cycles), if he realizes that he doesn’t like the culture of your organization, it is that much more easier for him to get extremely disgruntled, and think of deserting ship. By maintaining a great organizational culture, on the other hand, even when someone is going through the troughs (in terms of core work), there is value that they see in sticking on to job, and living to see another day in the job, when (hopefully) the cycle would’ve been reversed.

As a prospective employee, if you see a high degree of attrition in a prospective employer, think twice before joining even if the core nature of work really appeals to you. For, the attrition indicates something is possibly wrong with the culture of the place, and that sooner or later that is bound to bite you.

S&P’s Responsibilities

Reading through some of the reactions from “experts” to the S&P’s downgrade of US debt, I see words such as “irresponsible”, “misguided” and “inappropriate” being bandied around. These experts seem to be of the view that in view of all that the US is already going through (given the debt crisis et al) it was not correct for the S&P to push it further down into the abyss by downgrading its debt.

Now, the S&P is a rating agency. Its job is to rate debt, categorizing it in terms of how likely an issuer is to honour the debt it issues. It is a privately held firm and it is not the job of the S&P to prevent global crises and save the world. In this case, the S&P has just done its job. And having been following the crisis for a while I’m of the opinion that it’s done the right thing (check Felix Salmon’s article on this; he says the downgrade is more due to the risk of the US’s willingness to not default, rather than its ability; given that there is no permanent solution yet to the debt ceiling and it issues all debt in its native currency).

If a simple move like this by a private company is going to bring down the world, it is because of screwed up regulations (read Basel 2 and Basel 3) that ended up giving way too much importance to firms such as this. And I’m sure the US had adequate representation at that meeting in Basel where the accord was adopted, so it can be partially held responsible for the enormous power that rating agencies currently wield.

The bottom line is that excessive regulations based on dodgy parameters have been responsible for a lot of the mess that we see today. #thatzwhy we need strong regulations.

What Should Mexico Do?

If Mexico and Uruguay draw their last league game, then both of them go through to the second round irrespective of what France and South Africa do. However, on account of a better goal difference, Uruguay will qualify as group winners and face the second-placed team from Group B, while Mexico will qualify second and meet the Group B winners, likely to be Argentina.

Uruguay’s option is clear. Play for a draw. If Mexico go for a win, Uruguay should just sit back and try hit back on the counterattack (and in terms of players and style, they are very well equipped for that). Simple case of getting men behind the ball and putting gaaji.

Mexico’s strategy is not so straightforward. The “greedy” thing to do would be to play for a draw, in which case they will most likely end up facing Argentina in the second round (if you remember, Mexico went out last World Cup by losing to Argentina at the same stage). On the other hand, if Mexico beat Uruguay, they will top Group A and meet a potentially inferior team (Korea or Greece) in the second round.

As mentioned earlier, if Mexico go for a win, Uruguay will simply defend and play a counterattacking game which they are good at, so I don’t know if they are going to go for it.

Thinking about it, it comes down to Mexico’s payoff function. I’m sure their payoff is an increasing function of how far they progress in the tournament. However, we should be able to identify one particular “jump” in payoff – some kind of a discontinuity, where the payoff increases considerably for one additional round of progress in the tournament.

If this “jump” is for the second round, Mexico can afford to put Ranatunga Principle, get a peaceful draw against Uruguay and claim their “jump reward”.

If the “jump” is for the quarter-finals, however, then Mexico will want to take the risk at this round in order to get themselves easier opponents in the round of 16 (I’m assuming here that Mexico consider Korea or Greece as much easier opponents than Argentina).

If the “jump” occurs further down in the tournament, I think there is way too much randomness about their potential quarterfinal opponents (especially given the fuzzy results in Groups C and D) and opponents as hard as  (or harder than ) Argentina cannot be ruled out. Nevertheless, they would rather face one tough opponent than two (and I’m assuming here that no team is significantly “harder” for Mexico than Argentina) and so they should put fight to avoid Argentina and thus go for a win.

Considering that they have reached the Round of 16 with reasonable regularity in the last few World Cups, I presume that their “payoff jump” will occur later in the tournament. And based on the above reasoning that means they should go for a win against Uruguay, so that they can try avoid Argentina.

And it is on this thin thread that the French are hanging their hopes (though first they need to thulp South Africa, no easy task).

Don’t Binge on Books

The problem with binging on books is that your reading preferences are static, and given work and other considerations the amount you read is kinda fixed. So if it so happens that you go book-shopping and purchase a much larger number of books than what you can conceivably read in the next few weeks, there is the risk that by the time you get to some of the books among them, your preferences have changed and you don’t find the books interesting any more.

And because you have a pile of unread books at home (from your last few binges), you don’t feel like going and purchasing more books. And you might end up having nothing good to read. Even if you manage to overcome the sight of the stack of unread books and buy more, you will slowly accumulate a huge unread stack. Some of them might occasionally come of use later, but most just end up adorning your bookshelf. And when you are on a binge, there is a good chance that you’ve made enough poor choices that the books don’t even look good on the bookshelf.

And I just mentioned the other problem with a book binge – in your euphoria of having found so many long-awaited and exciting books, you end up picking up stuff that you would normally not pick up. You are likely to end up with a large number of good books, but  they’ll also come along with a large number of poor books, thus giving a very average average to the quality of your binge. A more measured approach is less likely to result in purchase of bad books.

Of course I admit that some of the best books I’ve read are those that had been picked up accidentally during the course of some book binge. But that is far overshadowed by the number of bad books that I’ve picked up. Not necessarily “bad” but more like “not my type”. I need to restrain myself henceforth. Maybe I should give up shopping for books at book shops and switch to flipkart or something. I don’t know how that will help but I think it might.

PS: Ironically for the timing of this post, two days back, in a “measured approach” I bought one book from Crossword at Saket in Delhi (while waiting for Aadisht to turn up). A book called “7 secrets from Hindu Calendar Art” or something. Absolutely atrocious book. Zero fundaes. I suppose I got fooled by the cover and the general description and the few pages that I saw.

PS2: I wrote this post in my dreams. Well, almost. This morning I had this dream that I’m writing a post on this topic. And this was the general theme of that post. So I’ve decided to make my dream come true and am thus blogging this first thing in the morning.

Introducing: NED Talks

I suppose a number of you have heard of TED Talks (ted.com). You might have seen it in the news recently, for it is going to come to Mysore sometime later this year. TED talks are available online (on the ted website), and are in general extremely informative and entertaining.

When TED can have talks, can NED be far behind? So I, along with Kodhi, hereby invite you to the first of the series of NED talks. The beauty of NED talks is that nothing is known yet. So far we’ve been putting NED to figure out what we are going to have as part of those talks. However, wee are confident that we won’t put NED to organize the talks themselves.

So here are a few salient features. You might notice that nothing is concrete yet, heck nothing is even the steel framework yet. I request you to add your own concrete to this, and put in your ideas.

  • The first of the series of NED talks is likely to be held in Bangalore in October 2009. I have picked the date randomly, and is subject to change.
  • The first of the series will be a day-long event. However, if registrations exceed our expectations, the event might last a whole weekend.
  • We have no clue what is going to be there as part of these talks. We know that it is going to be a bunch of mango people (aam junta for the uninitiated) who will be talking, but we dont’ know what they are going to be talking about. We don’t even know who are the people who are going to be talking, though I’m sure I’m going to be one of them.
  • If you have any bright ideas as to what we can do at the NED talks, please let us know.
  • NED is not rich enough to put talks on its own website, hence the videos will be put up on youtube. However, we cannot promise the same quality that the TED videos.
  • Please note that NED talks are only loosely inspired by TED talks, and has nothing to do with the latter. I also wish to clarify that NED talks are not a spoof of TED talks.
  • At the risk of repeating myself – if you have any bright ideas as to what can be done at the NED talks, plis to be cantributing.
  • Oh and at the risk of repeating myself again – we are really serious about organizxing the NED talks. And we promise that we won’t put NED for NED talks.