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Are we really a Global Village?

28 Mar

I ask this question after it took me nearly two months to find a pair of cycling shoes. Let me step back and set the background. Spinning  (RPM) s a great group exercise – 1 hr of Spinning can help you burn 800 – 1000 calories. A few months of regular spinning can help you lose weight real fast.

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I started Spinning nearly 6 months back and since then have got addicted. When I travel abroad I look for hotels that have Gyms with spinning stations. And most people in the class are – the morning batch at our gym Zela is sold out 30 min before the class and of the group of 15 women, many come as early as 1 hr before the class, its a cat-fight to get the front row bikes  (I am still not sure what attracts them –  exercise or the instructor)

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After a few months as you build stamina and want to push yourself more you are looking at means to improve efficiency.  One way to do it is get the right gear.  The right shorts and shoes can help you improve performance by as much as 50%.

Ladies Cimson and Creme Shorts

This is where the saga begins. I visited Decathlon at Sarjapur Road in late Jan and bought the right shorts and a pair of shoes with Cleats. The technician fixed it and I was all excited. The next day at class I realized that the Cleats were embedded too deep inside the sole of the shoes and it was not possible to use them in the cycle.

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I went back to Decathlon the next weekend and tried to exchange the shoes – unfortunately the other model with the cleats jutting out was not available in my size. The store manager was friendly and said stocks were expected in a weeks time. I visited after a week – but still it had not come – Decathlon was kind enough to give me a refund.

A few days later my instructor informed me of a new online store that specializes in biking gear. http://www.cyclingboutique.in. The CEO was nice enough to get back with lots of options but unfortunately did not have my size. (Before people think I am a giant – my size is 11 , which is pretty normal). He promised to order my stock from Italy and assured me that it would be available in a few weeks by end Feb. I kept following and finally yesterday they acknowledged they had goofed up and the stock was yet to be ordered.

On a visit to Whitefield yesterday I spotted a Decathlon there and took a chance again. Luckily they had my size in the variety I wanted. But then there was no technician to fix the cleats ( It requires a special instrument to screw the cleats). Going to Decathlon is a challenge as it can take ½ a day – however my enterprising driver figured a way to get the cleats fixed.

So here I am after nearly two months finally with the shoes I wanted. I am hoping it works today evening when I go for my class.

But the question that bugs me – would I have had this problem in any other large city in US or Europe or even Singapore? When it comes down to getting stuff like these shoes or even Mascarpone Cheese, or Halloween Costumes it’s a big challenge even in a Delhi, Bangalore or Mumbai – you literally have to hunt down the few stores which have a remote chance of stocking them (Mascarpone Cheese is a key Ingredient to make Tiramisu) – chances are 9 out of 10 you wont be lucky.

So what makes us say we are in a Global Village  – or do we have to wait for some more years for the Wal-Mart’s & Tesco’s to come before we can truly become a Global village.  Let’s hope that happens soon.

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Brilliant, Down to Earth people – A dying Species

22 Mar

Recently I had an email debate in our building Yahoo Group with a very intelligent person – who stuck to his point even when he knew he was on the wrong track.  And I asked myself where does this behavior come from ?  One thing led to the other and here I am trying to present a new theory in the form of a simple grid to try and position people

Over 2000 years back the Greek physician Hippocrates (460–370 BC) incorporated the four temperaments – Sanguine, Choleric, Melancholic & Phlegmatic into his medical theories. Since then these have formed the basis of many psychometric & behavioral testing methods. (Source – Wikipedia) This is indeed complex and difficult to understand.

Lets look back –  over the years we would have interacted or been influenced by thousands of people – famous personalities, teachers, friends, office colleagues, managers, team members , all the people you have interviewed for potential jobs , a shopkeeper , a Pizza delivery boy…….. And I ask myself is there a simple and easy grid that can be created, to plot the behaviors of all these people, something that is effective & simple. Something that does not require a degree in Psychology to understand.  Here is a simple grid that I propose – let me know if this appeals to you.

First let me ask you two simple questions

a)   Would you like your Child to be Brilliant or Dumb?

b)   Would you like your Child to be Arrogant or a Simple Down to Earth person?

The answer is obvious. So I guess the same thing applies for everyone you interact with. Using this simple principle I have created a grid called the B.D.A.D template. A visual speaks more effectively than words so I am enclosing the grid with samples of few people who fit in beautifully into the four different quadrants.

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The BA Type (Brilliant Arrogant) 

The name is self explanatory. These guys are world beaters. They are best in class. Many are Brilliant bordering on eccentricity. They Know it – and thats where the arrogance comes from. They are probably less than 0.1% of the global population – brilliant & hardworking they are a deadly combination. They are high achievers and are almost always right with their logic – but on that rare occasion when they are wrong they do not accept it and stick to their guns. They come from the best of colleges & universities what they missed out was a simple sentence that can be so powerful – “Sorry I was wrong” ! In India the IIT/IIM ‘s generates many of this type of personalities.

The BD Type (Brilliant – Down To Earth) 

The world would be a much better place if we had more of these people. Everyone loves these guys. They are Brilliant & Simple. Their class speaks for themselves. They are so talented that they shine & sparkle. Sadly this is a tribe that is continuing to diminish in numbers – call it the curse of Kaliyug. Its great to have these people as your manager or your team members – it just makes your job a breeze , thankfully I am in that spot these days.

The AD Type (Arrogant & Dumb ) –  This is a deadly combination . A dangerous type and you want to stay away from these people by a mile. They are loud, thick-skinned, and inconsistent. Some are also wily and that makes them a deadly and miserable specimen of humanity. You will see them all over the place – the guy in office taking credit for work he has not done, the cricketer who knows he has friends in BCCI, the kid whose father is a big shot “babu” ……… Some of them have done very well in their careers – one even went on to become the President of the US !!!  I may be biased here but I feel that in India this specimen is found in higher density North of the Narmada, specifically in and around the NCR region.

And finally the type thats probably 80% of the world population , The Dumb – Down to Earth (DD) Type

This is the common man, Not sure if this is the group that Justice Katju was referring when he said that 90% of Indians are dumb. These guys don’t have a public view and tend to get swayed easily. These people love to be in groups and follow the voice of a leader. They are simple, down to earth people, not harmless in any way. They are just the quiet silent mass.

So are there just 4 types? Like in any grid there are shades of traits of these four characteristics in every individual. With this Grid its easy to create a scale where 10 = Most Brilliant, 1 = Big Dumbo  & again 10 = Most Down to Earth and 1 = Most Arrogant

So a B10D10 = Best profile of someone who is extremely Brilliant & Rooted to the ground. Thats a dream profile. We all need to work hard to get there or maybe its just in the genes.

The other end of the spectrum is B1D1 = Someone who is extremely Dumb & Arrogant. In-between these extremes you have all the different permutations & combinations where we can fit almost everyone we know.

So the next time you need to hire a person – you can send a detailed JD to your HR manager but top it with a ” I want a B5 D5 guy” –  because that may best explain the cultural fitment you need for your team.

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Wealth Managers – do they really grow your wealth ?

14 Mar

18 Months back my wealth manager sold me a financial instrument. It was a structured product from Deutsche Bank and was linked to the growth of the Stock Index. While there was no written commitment I was assured of returns that would be much higher than a bank FD – lots of upside , no downside – I was promised. Last month I got my money back – but not a paise in gain. Input 10 Lacs – Output 10 Lacs.  During the 18 month period the Nifty did go up  – Deutshe Bank made money , Axis Bank made money , my wealth manager made her incentive – and I was left looking like a sucker. (If I had put this money in a  FD I would have made ~ 1.5 Lacs in Pre Tax profit)

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Ever wondered how Banks / Wealth Managers make money. What funds the fancy offices and hefty bonuses ? They have no manufacturing , IP , Code, product  to sell ? Why is it that they promise a lot but never commit even 1 % more than a bank FD ?

The harsh truth is they  make money out of you. Insurance policies , Complicated Structured products , the stock market itself – are all designed smartly to ensure that the retail investor is attracted but very soon left high & dry. The head of  Wealth Management of a large bank  told me that 90% of retail investors lose money in the Market. After 20 years of stock market investing I tend to agree with him – whether in the US or in India you gain big & lose big but Nett Nett if you do not have tremendous discipline its difficult to make money in the stock market.

So the next question is where do you invest ? How do you beat inflation ?  India’s gross domestic savings rate has increased near-steadily over the Five-Year Plans and is among the highest in the world ( Nearly 35%) . The recent savings rate of the country is comparable to Indonesia, Thailand and Korea but much lower than that of China, Malaysia and Singapore. (Consumer states like the US and the UK had their savings rate as low as 11% levels in 2009, while the rate is 17% for France and 21.4% for Germany. Among emerging economies, Brazil had a low savings rate at 16.5%.)

Lets look at simple FD – its easy to understand , easily available in every branch , has high liquidity. If you see the table below for people in the 30% Tax Bracket your FD interest rate does not help you beat Inflation !

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Talking of Tax – most of us think we pay 30 % Tax – but we pay a lot more. There is service tax on everything you buy , add education Cess , Metro Cess and inflated prices on Petrol – we probably end up paying 10 – 15 % on everything we buy – so our actual Tax Liability is much higher than 30%.

Real Estate has got expensive. 10 years back  when you bought a new flat you paid Registration on the undivided share of land only. Today you pay on the entire flat value – add to this the Service Charges & VAT on construction  – you actually pay close to 20% of property value in Taxes & Registration. Builders take away most of the profit and appreciation is limited.

Making money has indeed become difficult in the last few years . Which brings me back to the question of what are the options to beat Inflation – I see a few of them.

1. Debt Funds – which should hopefully give 10% + Post Tax returns if the RBI governor starts cutting Interest rates

2. Land – yes its not Liquid and requires a lot of research to get a clean deal – but with population growing and mass exodus to Metro’s difficult to lose money on good land deals.

3. Gold – Not so sure on this one. Looks like it will crash. But given the wealth and black money that exists in this country the demand for Gold may not drop and with india being one of the biggest markets for Gold globally – it may keep shining for many years. But this is virtual profit – because no indian family sells Gold for cash at a profit ( not many Jewelers give you cash too ) – they either hoard it  trade it for newer jewellery  , or loan it  to Muthoot finance.

4. Maybe buy  the Index ( Nifty-bees) – because from a long term you can go wrong on individual stocks or mutual funds – but its very difficult to beat the Index. That may be the simple and safe way to 12% annualized returns.

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Who says Inflation is 7 % ?

4 Mar

The latest issue of Business India has a cover story that talks about workers in Hero MotoCorp demanding hefty annual salary hikes that would translate to them earning about 1 Lac /month in next 3 years. I hope it happens. Corporate India, the rich  (the 42,000 people who officially earn more than 1 Crore / year) , the IT workers, Successful Businessmen & Traders  – get richer & richer, while the common man on the street struggles with his day to day life.

I do my neighborhood walk once in a while (Its more of an obstacle course these days with broken footpaths & cars parked all over) and it was interesting to see the increase in cost of a few items that we all tend to consume regularly.

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Coconut water is healthy and is now available every 500 m in major Bangalore roads. A truck visits these footpath outlets twice a day and delivers stock. (Looks like there is s smart entrepreneur who has figured out a big business opportunity with no investment). For many years you could get a nourishing coconut drink for Rs 10, a few months back it became 12, had a fleeting stop at 15 and has now rested at Rs 20/- .  That’s a 100% hike in the last 12 months.

Every Sat morning after my visit to the temple I stop by at the Darshini or any other standing joint and have a cup of Coffee. I always carried coins for Rs 6/- so that there was no hassle of change. The price of Coffee went up from 6 – 8 – 12 in less than 6 months. Again a 100% hike.

I also visit Ballal Residency (Residency Road) frequently on my way back from the Gym. My normal order would be a Moosambi Juice, Idli Vada and a Coffee to top it up. Normally its about 80 Rs – yesterday when I gave the 100 rupee note the waiter pointed the bill and showed me the rate as Rs 180/- . Again a 100% + rise.

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The truth finally sunk in when on my evening walk I stopped by at a Puchka seller (Gol Guppa) – something I do once in 6 months when temptation kills rational thoughts. A plate of 6 used to cost me 60 P many moons back when I was a kid, but for many years in Bangalore it was Rs 10, became Rs 12 and is now Rs 15/- . A 50% + Hike.

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And finally the Sona Masuri I have been buying for Rs 38/kg for the last few suddenly shot up to Rs 51/Kg ( A 30 – 40% increase in a few months)

Government, RBI & Economic Survey data claim that WPI Inflation is now under control at 6 – 7%. (And I wonder how they calculate this). The inflation on the street is easily upwards of 15 – 20%.  And if we create an Index that consists of Vegetables, Fruits, Cereals, Petrol, and Transportation Costs – we may well see the rate of Inflation well above 25%.

Companies like Hero, Bajaj, Mico Bosch, Maruti Suzuki and many other manufacturing firms hire less than 50% of the staff on their rolls, rest are contractors and pay them very low salaries and hardly any perks. I have heard that a Diploma Mech Engg in a Pune manufacturing plant works 6 days a week, 12 hrs. shifts and earns Rs 7- 10,000/- month.  Labor Unions have become meek and even Hindi Cinemas no longer focus on the challenges of the poor but take us to magical lands of joy & prosperity. (Here is an opportunity for Abhsishek Bachan to come back in some of his father earlier avatars as the messiah of the poor)

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Source : Trak.in

India is growing but we are a country where 650 M do not have basic sanitation facility and less than 10%  of our 15 M wage earners have an income of > 1 Lac / Year . I shudder the think how the common man earning 15 – 20 K / month manages his daily life.

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The price of Onion is up by 80% and many a Govt has seen its fall when the price of Onion goes up drastically. This divide and the sense of helplessness amongst the common man  is fast going to accelerate the sense of anarchy that is spreading across the nation.

As Mr Modi says its time for a Government with Mission to come and fix the mess in the country while those who survive on Commission are shown their way out.

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What would you like to be re-born as ?

29 Jan

A data point I recollect is that there are more women on FB than men. As I start this blog something tells me that it will evoke strong reactions from this majority. But then you write on something you feel strongly about.

It all started with a simple question in our small group of 4 over a drink at our favourite haunt – If you were born again what would you like to be born as ? And one of the 4 mentioned without a blink – “A Housewife in our Building Complex”

He explained – If you have 2 – 4 maids , a driver , unlimited spending power on your credit card , a few hrs in the gym every day , a private trainer , an evening walk with some tasty gossip, a weekly visit to the Spa , a party & a movie every fortnight, and a lovely group of friends who at 40+ dress and act like they are 30+,  thats the lifestyle you would kill for.  (That is the lifestyle of many a women in the top 50 apartment complexes of Bangalore, NCR , Mumbai ….. )

How has life changed for women in the last 30 years ? At least for some of them thankfully.

Life has indeed changed – there was a time 30 years back without Maids , Mixies, Washing Machines – you cut the veggies, cooked , cleaned , washed  clothes , ironed them , stitched clothes, made pickles & chips and still had time & energy to make the weekly sweets.

Circa 2013 – it’s now hard work to store the stacked & ironed clothes the laundryman delivers at home. 

Life has indeed changed – 30 years back a school project for Kids meant poring thru books & encyclopedias hunting for the answer and that elusive picture in some magazine.

Today its all available at a click of a button – thanks to Google. 

Life has indeed changed – as family & friends descended unexpectedly ( no Phone / no SMS) you managed to put together a great meal with whatever you had at home.

Today you call the restaurant next door. 

As I made this argument to two women – I got bashed up. The arguments were emotional (without data) – the key thing I grasped was “Look at the pressure we go thru. We have to go to the school to meet the teacher (once a year) , take care of buying all the grocery & vegetables, manage the maids, pay all the bills online “There is so much of work and so much of pressure – 30 years back our mothers did not have to do all this ?

I rest my case – and I say enjoy it, you have earned it , but appreciate it and say  – Thank You God once a day.

Because as my friend said ” We would all love to be reborn as a housewife in our building”

Can we ignore 200M + People ?

18 Dec

News channels yesterday were debating on two key topics – Narendra Modi winning a thumping 3rd term and the sad rape of the college girl in Delhi.

Todays TOI reports that Delhi has more rapes than the other 3 metros put together. Delhi is the capital of the country, every second month a high profile incident like this happens and then it dies down quietly in a few days.

I wonder what would have happened if the rape had happened in Ahmedabad instead of Delhi? The high decibel leaders from UPA would have immediately jumped on to every channel demanding Presidents rule in the state.

Gujarat incidentally is one of the safest places in the country for women and during Navratri its common to see girls out till the early hours of the morning. Women comprising 50% of the population in Gujarat are safe & happy and 40% of Delhi (The male Female Ratio is closer to 60: 40 in Delhi) is afraid to venture out at night.

Garba

Lets now look at some of the Modi bashing points – which keep coming out in every debate. The great thing about Modi is people hate him or love him. And it looks like the majority in Gujarat love him. Here are some arguments I place against the points raised against Modi

1.   The minority is restricted to areas like Juhapura and these places are slums with no water, electricity, sanitation etc.

Bangalore has Shivaji Nagar, Mumbai has Mahim, Kurla & Masjid, Hyderabad has Charminar & Begum Bazar – every city in India has a minority colony. Even the slums in Koramangla do not have water, electricity & sanitation. The Sikhs in Delhi are clustered in a few areas. Why just India – Chinatown exists in SFO, LA & New York. It’s common for minorities to live together.

2.   BJP did not give a seat to any minority community representative. Unless there is representation how does the locality / community improve

Modi wants to win the election with a 2/3rd majority. If there are candidates who could have won on a BJP seat he would have probably considered them. But chances are given the rhetoric of the last 10 years people are now brainwashed and will not vote for BJP even if Modi presents a minority candidate – so why should the BJP lose a seat even before the election has started ?

3.   The Modi story of development is a myth – he is Corrupt?

 The development is there for everyone to see. Industry is rushing in, the Government has been voted to power twice and is all set for a 3rd term. As charges of corruption fly thick & strong against the UPA Government – one has hardly heard any charge of corruption (from a non Congress Source) against Modi.

 4.   The events of 2002 cannot be forgotten and with Modi at the helm the minority can never progress?

Yes 2002 was unpardonable. But people tend to forget the spark that caused the fire. History is replete with wrong doings – the Sikh backlash post Indira Gandhi Assassination, the high handedness and loot of the British and when one reads of the massacre of Ghazni & Ghori it makes even the most moderate persons blood boil. Till when do we keep stoking the fire of anger – maybe we should have asked the Eng cricket team to go back if they did not return the Kohinoor diamond and claim our due share  from Nadir Shah’s descendants in Iran.

6600 Indians die of road accidents every day, thousands more die in the hell called our Govt hospitals every day. We don’t seem to be making an issue of this at all. Yet the media & the opposition keep alive the 2002 riots for their political agenda and for securing their vote banks.

What worries me more is the impact of all this on the educated Muslims. 20% or 200M + is not a minority. There are probably more Muslims in our country than Tamilians or Bengalis. But where are they?

In our apartment complex of 124 flats – Dominated by Hindus, 6 Jains & 1 Sikh families. I am sure this would be the case in the top 100-apartment complex in every large city. Someone as famous as Shabana Azmi recently said that she was finding it difficult to buy an apartment in a central Hindu locality in Mumbai. Check out your child’s school – in a class of 90 across 3 sections you may find 1 – 2 Muslim students. I worked in a large IT company with over 100,000 employees – I don’t recollect interacting with more than 5 Muslims in 13 years. If someone does a count the % of Muslims in India’s top 5 IT companies will be less than 2%.

Check out your Facebook friends and look back on how many people you sent an Id Mubarak greeting ? When was the last time you attended a function at a muslim friends house. This is not how it was 30 years back when we were kids.

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There was a time in the 70’s when Muslims were always the helpful friendly characters in movies – whether it was Pran as Sher Khan in the immortal Zanjeer or Rishi Kapoor as Akbar in Amar Akbar Anthony. Today they are always the bad guys, the Terrorists.

The challenge is not Modi – the challenge is we and our inability to live peacefully with nearly 1/4th of the country. It doesn’t help if the media & politicians keep fanning the fire. And it needs both sides to take a few steps forward – but thats the only way forward.

 

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Bequeathing an Inheritance by Leveraging the Power of Compounding

13 Dec

I am worried ever since I wrote my last post. ( How much is enough to Retire?).

You start work at around 22 , the initial 10 years are low salary , long hours hardly any savings. The next 5 – 6 years go in buying a house, paying the loans and finally when you are  40+  & have  a reasonable saving potential – you start thinking of retirement and the Corpus needed to safely hang your boots gets you worried.

What could we have done differently if we were to start all over again ? Can we leverage some of this knowledge to bequeath a princely inheritance for our next generation ? Lets look at an interesting story, which highlights the power of COMPOUNDING. 

This is the  story of a Wise old man and a stingy Sultan. There was a severe draught and the villagers were on the edge of a famine. The Sultan had enough stock of grains in his granary but refused to partake the same. The villagers met the Wise old man and sought his help.

The Wise man presented the Sultan with a fabulously beautiful chessboard, intricately made with carved ivory, rare woods, and precious stones. It was so exquisite the Sultan offered the Wise man whatever price he named.

Beautiful Crystal chess

The Wise man asked for one grain of rice. The Sultan was shocked. The Wise man continued – one grain of rice for the first square on the chessboard; one day later, two grains for the second square; two days later, four grains for the third, and the same simple doubling for the remainder of the 64 squares on the chessboard.

Laughing, the Sultan agreed. “So I am to pay you a few grains of rice for all your wondrous work?” he asked. “It is sufficient for me, Your Majesty,” was his humble reply.

The Sultan directed his Treasurer to award the Wise man and do the needful for the next 64 days. The Wise man received his single grain gratefully on day 1 , and the Sultan forgot about him.

Dutifully, the Wise man showed up at the Treasurer’s office every day to receive his meager award of rice. On the 12th day, he received about two handfuls – 2,048 to be exact – and ignored the Treasurer’s sneer.

The sneer was still there on the 16th day, when he received little more than a single pound of rice. By the 21st day, the sneer was gone, replaced with a curious frown, for the Treasurer had to give the Wise man 35 pounds of rice – over a million grains. By the 24th day, the frown was replaced by worry – for the Wise man received 280 pounds of rice.

Two days later – the 26th – the look was fear and panic, for the Wise man had come for over one thousand pounds of rice. The Treasurer had, days ago, switched from counting in grains to pounds – and now realized that soon the Wise man would be owed all the rice in the entire sultanate.

“This cannot go on,” he told the Wise man. “Tomorrow it will be 2,000 pounds.” “2,200,” the Wise man corrected him. The Treasurer continued. “That means four days from now, the 30th day, it will be almost 18,000 pounds. This must stop.”

“But by the 30th day,” the Wise man objected, “we haven’t even reached the second half of the chessboard.” Then he smiled. “That’s when it gets really interesting.”

So you’ll owe me 2,200 pounds tomorrow, 17,600 pounds in four days, and over 70,000 when we reach half the chessboard in six days – which will be over two billion grains of rice, by the way.

“But, Mr. Treasurer, we’re just getting started. Two billion? That’s nothing. By the 41st day – 15 days from now – you’ll owe me 365,000 more pounds of rice than the 1,000 you owe me today, or over one trillion grains of rice.

By the 51st day – just 25 days from now – you and the Sultan will owe me 379 million pounds of rice That’s over one quadrillion grains of rice.

“By the time we reach the 64th square you and the Sultan will owe me three quadrillion pounds of rice, or 9 quintillion grains – more rice than there has been or ever will be in the world. Not bad starting out with that one single grain you laughed at two months or so before.”

The Treasurer fainted. When he awoke, the Wise man was gone. So he went to explain things to the Sultan – who had him immediately beheaded. Then the Sultan called for the Wise man. “My heart says I should execute you as I did that stupid treasurer,” said the Sultan, “but my head says I should have someone as smart as you to take his place.”

The Wise man accepted so quickly and calmly it was as if this was what he expected all along.     

Lets now apply this to our day to day life and see how we can Bequeath a princely inheritance to our next in Kin. Lets assume your child is 5 years old. Suppose you start a RD of Rs 10,000 / – Month for the next 10 years (lets assume an interest rate of 10%)  – your corpus at the end of 10 years will be about 18 Lac’s. (Child is now 15 Years)

Take this corpus and put it in a FD. Lets assume the same interest rate of 10%  – how much time does it take for the money to double. You can do it by the GP formulae A = P(1+R/100)^n or use a back of the envelope calculator and divide 72 with the interest rate. At 10% interest your investment will double in about 7.2 years ( 72 / 10 the interest rate) lets for simplicity round this up as 8 years.  Child’s Age 23 – Corpus 36 Lac’s

Keep doing this till the child is 55 years old. So in the next 32 years you have 4 cycles to double your Corpus.  36L – 72L – 1.44Cr – 2.88Cr – 5.66Cr.  

Hopefully you will be around to gift her this and see the smile on her face. 

So an investment of 12 Lac’s ( 10K * 12 * 10) spread across 10 years has resulted in a Corpus of 5.6 Crores. Not a bad inheritance and did not take too much of an effort. One may question and say what will be the value of 5.6 Crores 50 years from now ? You can continue the same mantra and start another RD after the 1st one matured or increase the value from 10 K / month to 15 K / month – enough ways to play around to leverage the power of Compounding.

While Equity , Debt Funds , FMP may sound Sexy they are liquid and – a simple RD & FD combination  and some discipline can help you build a lot of wealth by leveraging the power of Compunding. For the same reason a PPF & LIC works similiar miracles – and it does not even have the burden of tax liability.

So leverage the power of compunding and see your Wealth grow in geometric proportions . Enjoy the power of Compounding.

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How much is Enough to Retire ?

3 Dec

During my brief stint in one of the Big 3 head hunting firms I  met nearly 200 + candidates hunting for a change . There was a common theme cutting across most of them. 80% of them were 40+, bored with their job, felt they were getting a raw deal and that their potential was far higher.  They were all experiencing the impact of the Pyramid Effect after nearly 20 years in the industry.

Once you start talking to them ( and they talk a lot !) more common themes emerge – Should I change Industry, should I start a business (Restaurant & Head hunting firms are top picks!), maybe I left US too early and should have stayed on and finally – How much do you think is a good corpus to retire!

The last question is an interesting one and merits more attention.

Lets look at how life has changed in the last 30 + years.  Rice Rs 4 / Kg –  Rs 40 / Kg (10X) , a Gas Cyliner of Rs 60 is now nearly 600 + (10X) ,  A loaf of Bread that cost 2 Rs is now   Rs 20/- (10X) , Petrol was about Rs 10/L – currently Rs 70/L (7X,  and we thought Petrol had the steepest hike), Bhindi that costed Rs 4/Kg is Now Rs 40/- (10X). Cal – Chennai one way on Indian Airlines was 1K  ( I remember that clearly since that was the first flight a family member took in 1983 to attend my sisters marriage) – Now it varies from 5 – 10K , One USD was = 10 INR and now its 55 ( 5.5X).

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I am not an economist and this may not be very scientific but we can draw an inference that when it comes down to day-to-day expenses the costs have gone up by about 10X in 30 years.

This does not take into account the cost of property. That has grown astronomically – I recollect a relative buying a 5000 sft plot of land with a bungalow in Alwarpet , the heart of Chennai for Rs 1 Lac in 1980. Today that property would cost upwards of 10 Crores ( 1000 X appreciation)

12112012-Consumer-prices-still-high-in-India-equitymaster

The  salary of a Sr executive in a private firm 30 years back was about Rs 5000/- month (Taxes at the highest limit were 90% and the Presidents Salary at 10K / Month was the maximum limit).

So if cost of most items have gone up by 10X – then an corresponding increase in salary to 50K/ month should have been good enough – but that’s not true. Entry-level salaries for engg graduates from Tier 1 institutes are 7 – 8 Lacs / annum and Sr executives with 20 + years are unhappy with 50 Lac packages.

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Can you manage a household for 50K a month in Bangalore or BBY or Delhi ? Yes many do – but for people who are my FB or Linked in friends that’s not true. At a very conservative level the monthly expenses for a family of 4 can vary from 1 – 2 Lacs / month. That’s nearly 2 – 4K USD / Month ,

when you look at it that way you realize that not many in the US spend that much every month.

So what has changed? Lets shift gears to the 1st chapter in my class 10 ICSE Economics Book by Khosla & Khosla. The author had beautifully explained two concepts – 1. The difference between Desire & Want (A Desire backed by necessary means and the willingness to partake with the means is a Want) and 2. The concept of Necessity, Comfort & Luxury and how these brackets vary from person to person based on their social strata. 

Lets now take these concepts and see what has changed and then come back to the original question of How much is enough ?

30 Years of economic growth has made Luxuries & Comforts a Necessity . Today a good car, eating out once a week or an annual holiday ( Vs the visit to Grandparents house)  is considered a necessity. Kids Birthday bashes are no longer an evening affair at home. New clothes are no longer events that happen in Diwali or Durga Puja but at every second month or the weekend sale.

It’s a combination of two things –  having tasted blood for the Good Things in life you want more and of course there is peer pressure.  And today we are ready to partake the means to fulfill our wants – even if it means taking a loan and bearing the burden of a monthly EMI.

Hammock

Before we do the math – some questions that bug me

  1. In the next 30 years (say when we are 70) – will the cost of goods be 10X more expensive than today. So should we expect Rice & Bhindi to be Rs 400 / Kg and a gas cylinder at Rs 6000/-
  2. In Countries like the US & UK where per capita income is in excess of $ 35000 (India just crossed the $ 1000 mark) – cost of fruits / vegetables / Petrol is already at par with India. So should we assume that with increasing development the costs will continue to spiral?
  3. Inflation in India which is at ~ 10% needs to come down – Inflation is like rust , will it come down to 2 – 3 % ?  (Which is why I like the RBI Governor who is holding on to pressure from the Finance Ministry and not reducing Interest rates till Inflation climbs down)

Depending on the answers we can arrive at some estimates. One way to look at it is that when you are 70 if you need 10X what you need today – you will probably need 5 Lacs / Month . I am assuming that you are not downsizing and continue to maintain a certain lifestyle that you are accustomed to. Lets also assume that with just husband & wife and lesser needs to impress society that reduces to 2 – 3 Lacs / Month.

At a 10% interest your tax-free income is 7%, to get 2 Lacs / Month or 24 Lacs / Year you need a corpus of  3.5 Crores in a FD. ( Remember if Inflation comes down you will not be getting 10% interest)

With medical costs spiraling and chances of Public Health systems not improving much you need to put away a Corpus to take care of your health in case of something serious. Lets say you put away Rs 1 Crore when you are 50 to multiply over the years so that at 70 that’s maybe 2 – 3 Crore’s + (that may not be sufficient – so ensure that you have good health, exercise regularly , clean diet !!)

You would like to travel and holiday, lets budget another Rs 1 Crore at age 50 to be kept in a Corpus for Holiday & Entertainment & Fun , between the interest and some corpus dilution every year you can manage for the next 20 – 30 with some decent holidays.

So if you are in a position where you have taken care of all your children’s higher education, marriage expenses (at least 1 Crore / Kid assuming they study in India over the next 10 years), have a house that is fully paid off and have no other liabilities then maybe a kitty of 5.5 Crores (That’s 1 Million $) at age 45 – 50 should be good enough to pull you along. This can be a combination of both assets & liquid cash –  rental income for a second house may be a good hedge given the rate at which property prices have risen in the past.

Jackpot

Unless you have a windfall profit from stocks or real estate its difficult for a salaried person to make that money in his 20 – 25 years of career. (In one my future blogs I will share some insights on the power of Compounding – while it may be a bit late for us in our 40’s to leverage this , its a good learning for the future generation )

For all those who are there – enjoy your retirement! For others like me it’s back to the grind for many many more years.

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Sale Sale everywhere but not a drop of Service

7 Oct

In one of their bestsellers C.K.Prahlad & Gary Hamel had talked about a framework where every successful company created their core competency from a set of 3 parameters. You need to be good at all 3 but to be truly world-class be the best in at least one of these 3 parameters.

1. Innovation 

2. Operational Efficiency

3. Customer Service 

Being Innovative is hard and in the recent past Apple stands out as the best example of a company that has Innovation as its Core Competency. ( Apple excels in all 3 areas which is probably why it is at a high that no company has previously achieved) DELL did well for many years with its strong Operational Efficiency and Singapore Airlines continues to lead with its focus on Customer Service.

Lets now shift gears to India – and companies operating here. We don’t see too much of Innovation and its more of a Copy culture , Commitments don’t matter so there is limited focus on operational efficiency – the only hope we had was to excel in Customer Service. But sadly that has not happened.

Every company  has hordes of sales people – Insurance , Phones , Cars , Houses, Credit Cards … we are deluged with mails and calls. You walk into a bank and someone rushes out trying to sell a scheme or a Bank loan. 99% of these guys are half baked , don’t know the products they sell and cannot answer the basic questions you have for them. When it comes to after sales the problem is even worse.Let me share with you some experiences from leading brands in India – 4 disasters and 1 Wow.

The HP Printer Debacle 

HP is the worlds leading printer brand. I would assume controlling > 50% market share. We changed our printer 14 months back and got a HP Photo-smart. A month back it stopped working . Reliance Digital the store we bought it from asked us to contact a HP service centre. We checked their website and landed up at Redington – Cunningham Road the authorised service centre.  The hassled busy girl at the counter took an advance of 2000 Rs and said it would be fixed in a week. We called after a week , and she said one more week. After the second week when we called – she said she would revert. The third week when we called she said it would be ready by Fri. On Fri morning she said the spare was yet to come. I was traveling to Redington Chennai on Mon and met the CEO and shared with him details about the incident. Our meeting was at 930 AM , by 3 PM the printer was delivered at my home. The print head had to be changed – and it took nearly a month and almost the cost of the printer to get fixed – and if the escalation had not happened to Redington CEO I wonder how much more time it would have taken.

Cancellation after 6 weeks @ Tanishq  Koramangla 

I spotted Asin wearing a wonderful necklace at Riteish Deshmukh’s marriage  and wanted to get a similar one made. We visited the Tanishq store at Koramangla. Service was great – coffee was served and well dressed men and women sashayed by. They looked up their design brochures and found a design that was almost 90% in line with our request. An order was placed and a sum of Rs 77,000/- paid as advance. Delivery time was 2 weeks.

Two weeks later when I called the salesman, he said work was going on and it would take another week. A week later when I called he said they needed one more week. This went on for nearly a month and finally I did get a call saying that I could come to the store. It was a Saturday nearly 6 weeks from the date of my ordering . The sales man who had taken the order was not there and the manager came up and informed me that they were not able to make the necklace and hence would refund the money. It took some calls to the Regional head and in a week the chk was sent to my house.

TATA AIG – How your Nett Worth can go down ! 

Some years back I fell prey to a smart sales girl from HSBC Bank who sold me a TATA AIG Insurance policy. It was linked to markets and I was assured of great returns. My annual premium was 1 Lac & the lock in was 3 years.  Post the 3 years I needed some liquidity and since the markets had performed exceedingly well decided to encash. By then the lady from HSBC had moved 3 companies and HSBC was no longer servicing TATA AIG policies so I had to meet the TATA AIG folks. After 2 long hrs and trying to convince me not to encash they finally came with a  calculation that the amount due to me was 2.5 Lacs.  Only now did I find out that deep within the 20 page document they made me sign was a clause that stated that the 1st year processing & administration fee was 60K , second Year 30 K & 3 year 10 K – so of the Rs 3 Lacs paid , 1 Lac had gone away in service charges and on the balance with the gains the net worth of my policy was 2.5 Lacs.  I could not argue , took the money – but with the learning that if you need a Insurance policy stick to LIC . Since then I have taken 5 more policies and referred many friends – but none for TATA AIG.

Axis Bank Home Loan 

Axis Bank is a good bank. I have had excellent service from their Privy & Wealth management section. I recently took a home loan. All home loans are serviced by DSA agents (Agencies who work on commission). Having taken a few loans in the past I was wary about 2 things and specifically asked him two Questions

1. Is there any insurance linked to the home loan ? 2.  Is there a limit on how much I can prepay in the course of a year and whats the prepayemnt penalty if any? 

He was emphatic that Axis Bank had no insurance mandate and there was no prepayment penalty. With this assurance we moved fast and within 10 days had the approval letter. The letter clearly mentioned that loan would be sanctioned subject to my taking a 50 Lac Insurance Policy against the property. The DSA tried all reasoning and explanations – but it was a clear case of wrong commitments in a desire to close a deal. I had to speak to some Sr folks at Axis bank and fortunately the matter was resolved – but this was one more example of a good brand delivering poorly on customer service.

All of us have experienced similar incidents and I could go on and on – and its baffling at the scant respect for customer service and meeting commitments from some large corporations which position themselves as great trustworthy brands. Sometimes the smaller mom & pop shops go the extra mile at ensuring customer satisfaction.

The Flipkart Experience 

At the other end of the spectrum is the small online startup Flipkart. It is sheer pleasure to interact with Flipkart. the website is smooth easy to navigate  , payment gateways always work , the choice of products is a wow and most importantly the quality of customer service and response is outstanding. Most people buy from online sites because its cheap – I would buy from Flipkart even if it was at a premium. They exceed expectations at every step and honor all the commitments they make – no questions asked. Flipkart is the gold standard on Customer Service in India. Its setting the standards for online business and lets hope these standards become the norm in the long run.

How is it that in the same country a startup with young CEO’s in their 30’s deliver CSAT experience which some of our largest Corporations are unable to even comprehend. Is it lack of vision , lack of investment , or just the culture of ” Chalte Hai” ?

Whatever it is Young India is going to get more demanding and if Indian Companies don’t fix their service orientation  we will see many big names going down the drain in the coming years. This is both an opportunity & a threat

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The Grass is Green…. the other side

2 Oct

They say that the grass is always green….. on the other side. A very old adage that is very very true. This is a tale of two smart, young men around 30 years old. I have interacted with both  and there is great similiarity between them. Both are  logical, data oriented, great at analysis & number crunching. Trustworthy & reliable. Not prone to job hopping, have spent long stints in the same company. Rare qualities to see in todays middle management workforce. For the sake of convenience lets call them Ram & Shyam.

Both were born in simple middle class families – Ram in small town Kottayam in the midst of God’s own country. Surrounded by serene backwaters and the swaying coconut palms. A land where every second house has an NRI.

and Shyam from Indias fastest growing state,  the land of  thepla, Garba & Dandia – the land of diamond merchants and stock brokers – Rajkot.



Both did well in school and completed their graduation in Commerce. The similiarity ends here.

Ram decided to move to Bangalore and joined a MNC in the finance function . After 5 years he changed his job and moved to a second large MNC . He did well and decided to change track from Finance to Business Intelligence & Product Management – which is what he currently excels in. In the interim he also completed his CA.

Shyam took a slightly different route. He decided to do an MBA from Paris. Took an internship at a large MNC in Paris and went on to become an employee of the same company in London. He has been at the same company since then and is responsible for  Business Intelligence for the entire region . He is on top of his work, and an asset to the organization.

Both have done well in their careers , are respected & valued for their contributions and would be among the top 10% when compared to their industry peers.

Both have bought a house at a young age and have a bright future ahead.

Now comes the dilemma. Given a choice Ram would like to move from Bangalore to London or Singapore or Dubai while Shyam is equally desperate to come back to India. I spoke at length to each of them and was able to empathize with them since I had to take a similar decision in 2002 , when we came back to India from Dallas. Lets look at the reasoning of Ram & Shyam.

 Top Reasons for Ram to move out from Bangalore 

1. Tired of the clutter , chaos & cacophony of Bangalore – Power Cuts , Garbage , Q’s . Not just Bangalore every large city is a mess. Would love to go back to small town in Kerala but there is no scope for livelihood there.

2. Financially I think I may be better of working for a few years abroad. My saving potential will be better.

3. My brother is in Singapore and my wife & me would like the experience of going abroad for a few years. Kids are small so there is no challenge at this stage.

4. The exposure to the work culture & professionalism in UK & Singapore would be a great learning.

 Top Reasons for Shyam to come back to India (Bangalore)

1.  Have done the same job for too long – monotonous, difficult to get a change. People here are expected to do the same job for eternity

2. Professionally feel a little aloof at times, cultural integration is an issue even in 2012 in the global world

3. We have to do everything by ourselves  – no Maids.

4. We miss the family and when we have kids we would love for them to be surrounded by relatives.

But somewhere deep down he does not want to sell his house in London suburbs.He still wants to keep some of his investments in GBP – and he did wait till he got his citizenship before evaluating coming back. In other words a safety net … just in case things did not work out in India.

I sometimes wonder what would happen if there were no Visa Restrictions for Indians. Would there be mass exodus ? Would Punjab , Harayana , Andhra , Kerala become ghost states ? Would 100 M or 200 M or even 500 M people rush out of the country ?

But for every youngster who wants to go there are many people coming back. Yes the folks coming back have established financial security and will probably come back to a world of fancy villas, multiple maids, drivers & International Schools.

What would my advice be to these two people? Tough one since they have compelling arguments to justify the change the seek.

It also makes me wonder which is the ideal place to settle down for the future  – what does one want  – Fresh Air, Clean water, Non Stop electricity, Good roads, Good Efficient Public Transport,  Public Health systems that function, Low Inflation , Affordability , Peace , Good schools, safety and security  – and I ask myself do we have this in India or Bangalore or any other city ? Do we have hope that we will have this in the next 10 – 20 years. Going by precedence things if any have gone worse, there was a time when as kids we could drink water from the railway station tap and cycle down the  road to buy vegetables & biscuits. Our kids today cant even step out of the road to the shop outside. We are lucky to live in a bubble . Education system is messed up and if you don’t have MONEY or POWER life is a struggle.

We need to ask ourselves why would millions of India rush out if there was a Visa free regimen ? So my answer to my young friends is quiet apparent. Think rationally , think of the future of your kids and take the right decision.

These are all Rational thoughts and if  you start bringing in the emotional quotient of family then the thought process does take a different turn. But each person has to do what is right for him.

So whats my recommendation – The final analogy is a harsh one – but truth is bitter. So here I go. You have two choices – Do you  want to live like a slightly underfed, slightly undernourished street pup that has the freedom to roam round in the city  or do you want to be a well fed, well groomed Alsatian on a LEASH. You decide 

All the best Guys !

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