Money makes the world go round

This article is published in the April’2008 issue of the magazine “Management compass”

Nothing but bucks
How money makes the world go round

In his movie presentation on global warming, former US vice-president Al Gore made this statement somewhat humorously, “It is difficult to convince a man about something if his salary depends upon not following it.” Contrary to what Mr Gore had to say in his presentation, reputed Times of India columnist and former editor of Economic Times, Swaminathan S Anklesaria Aiyer had this to say in his article Global warming or global cooling that scientific truth (of global warming) is rarely mentioned. Why? Because the global warming movement has now become a multi-billion dollar enterprise, with thousands of jobs and millions in funding for NGOs and think-tanks, top jobs and prizes for scientists, and huge media coverage for predictions of disaster. The vested interests in the global warming theory are now as strong, rich and politically influential as the biggest multinationals. It is no co-incidence, says Crichton, that so many scientists skeptical of global warming are retired professors: they have no need to chase research grants and chairs.

This reminds one of the Luddite movement that was launched against the industrial revolution which began in the later part of the eighteenth century. The manual labour-based economy of Great Britain began to be replaced by manufacturing machinery and industry. Their main objection was that the introduction of new wide-framed looms that could be operated by cheap, relatively unskilled labour could result in the loss of jobs for many textile workers and cause widespread unemployment. For a short time the movement was so strong that it clashed in battles with the British Army. Measures taken by the government included a mass trial at York in 1812 that resulted in many executions and transportations (removal to a penal colony).

Since one has to keep the kitchen fires burning, people are bound to be desperate when their very survival is at stake; how does one decide the Laxman Rekha in such matters? Over the years, one gets to read or hear of several examples such as these from different professions. Some software people are of the opinion that the people who make vaccines for computer viruses introduce the viruses in the first place. Some years ago, it came in the papers that the head of an aids related organisation in Bombay stated how some US multinationals were trying to advocate that HIV and Aids were linked, in order to promote their drugs, although there was enough evidence to the contrary. There were a couple of programmes on a prime Indian televsion channel, which revealed how teachers used to threaten children refusing tuitions with negative marking in exams and how doctors were in tandem with laboratories to recommend all kinds of tests which the patients did not need.

This reminds me of some of my experiences in this connection. My father, while taking his mother to the hospital, was advised rest and a checkup was forced on him because he looked emaciated. His blood pressure did appear less than normal but he was advised to stay in the hospital for the night and a temporary packemaker was inserted in his body. Later, a permanent pacemaker was put in its place next morning. This entailed a lot of cost and till today, he is not sure whether or not this was actually required.I myself suffered from slip disc seven years back. I was advised surgery but since spine surgery is dicey, we thought better to take more than one opinion. All the three doctors advised surgery and two of them proactively asked me whether or not I had a medical insurance. The manner in which the question was mooted reeked of something amiss and what hurt more was that one of the doctors was known to me. I once also heard about a commercial pediatrician, of all things. Even children have started being treated like commodities. The recent case of kidney thief Dr Amit Kumar, aka Dr Santosh Raut who had stolen more than 600 people’s organs in the past seven years is an extreme manifestation of this trend.

There are examples from different strata of society. The Times of India (Nov 25, 2007) talks of Maoist insurgencies violently disturbing the peace in 165 of India’s 602 districts and these are largely made up of unemployed young men, which implies that had they been employed, the turmoil, if any, would be of a lesser degree. This has been true for some of the other terrorists as well. The October 29, 2007 issue of India Today reported how in the last six years, 17 officers of the rank of Brigadier and above have been indicted in corruption and misappropriation of funds, which includes the sale of military rations like meat, pulses, liquor and fuel in the open market. The situation was aptly summed up by a retired major general, “Among politicians and bureaucrats, it is an exception to be honest, in the Army, it is an exception to be corrupt. “There are many people of the view that the Kashmir issue had to be kept alive to sustain the Pakistani Army’s dominance and importance in that country.”

We have cases like prohibition not being implemented because of fear of losing excise revenue of liquor industry and ditto for tobacco. The Times of India reported that health minister, Ramadoss stipulating gory picture advertisements after December 1, 2007, as a measure to prevent smoking , said: “Four chief ministers and 150 MPs have met me to tell me that they don’t want anti-smoking advertisements and labeling of products. Seven chief ministers wrote to me pleading for the beedi workers and one chief minister met me three times regarding this. Are the lives of 1.1 billion people not more valuable than the livelihood of 30 lakh beedi workers from this kind of work?”. He further added that it
was unfortunate that the fight against the tobacco lobby had run into opposition from his own colleagues.

In the corporate world, Arthur Anderson and Enron are examples of fraud by the company’s auditors, as their audit and other consultation compensation depended upon the powers in the corporate world. The chairman of Infosys, Mr Narayan Murthy, a man known as much for his integrity as for his numerous achievements in the software industry admits in the book Business Gurus speak, “Since all our operations were outside, we had very few operations here(India) and had no need to bribe anyone. Maybe we would have done it, if forced to by circumstances. Every corporation can take only a limited amount of nuisance; beyond that it becomes very difficult”. One has to admire Mr Murthy’s forthrightness in admitting this. In motivation speaker Arindham Chaudhary’s book Count the chickens before they hatch, it was mentioned that a popular teleserial espousing simplicity was discontinued for fear of losing ad revenues.

Speaking from my own experience, the best boss(an outstanding CEO and later very successful businessman) that I worked under told me once that “ I draft a legal agreement with the assumption that the entire world is a cheat.”. When I started my career, my father who turned around a sick company warned me: “All your inter-departmental communication and not just communication with outside parties should also be in written form. People flatly deny what they may have committed or said” . One of the factors attributed to Dhirubhai Ambani’s success is trust but it is better to tread the middle ground as advocated by a book on leadership by Harvard University which cautions “Trust but Verify”. How is one to know that the person being trusted remains trustworthy throughout his life.

Since most cases are reported in the media, they also have their share of the black sheep. On July 5 2007, The Times of India reported that a Rajkot woman stages semi-nude protest against dowry demand when alleged mental and physical abuse by her husband’s family drove a 22-year-old woman,Pooja Chuahan to strip to her underwear and walk through the city in protest. I happened to be in Rajkot in August on some personal work and could not help asking a well known personality about this incident. She said that while there was some truth in the matter, she had learnt from reliable sources that Pooja had been encouraged to do this by a local Journalist for a news story. Then she narrated her own experience on how she had given an advertisement in a newspaper once and was called by a rival newspaper to give a similar ad to prevent being projected in a bad light in that paper. When I narrated this story to a gentleman from pharmaceuticals industry on my train back to Delhi, he narrated a similar story of his own. The autobiographies of cricketing superstars, Sunil Gavaskar and Kapil Dev reflect very poorly on some elements in the media . A former filmstar who used to be asked about his reported rumors reported in the film press would dismiss such talk with a brusque remark “They have to sell their magazines”. It sounded like they could write anything to sell their magazines. Many spiritual books denounce the ad world for projecting wants as needs or necessities.

The examples of lower strata of society are somewhat amusing. When a panwallah was interviewed during the Babri mandir demolition in Ayodhya about his views on the Mandir- masjid issue, prompt came the reply, “Chaahe kuch bhi bane, humare pet pe laat nahin lagni chaahiye”. (Whatever happens, our livelihood should not be affected) This was followed by a Rickshawalla’s comment in Delhi, “ Mandir bhi banao, masjid bhi banao par sabse pahle Rickshaw stand banao. (Construct both Mandir and Masjid but first construct a Riksha stand). The most humorous remark that I have heard in the context of someone trying to defend his professional interest is “It is like asking a barber whether you need a haircut or not”.

One comes across articles not only on politicians but people from other professions on how they go to any lengths to make money in total disregard of all professional ethics. “Some men worship rank, some worship heroes, some worship power, some worship god and over these ideals they dispute but everybody worships money” — Mark Twain . It reminds of an old song: “na biwi na bachha na baap bada na bhaiyan the whole thing is that ke bhaiya sabse bada rupaiya.”

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One more song which is perhaps one of the all time greats of Hindi Cinema but could not escape the editor’s scissors above but is representative of the situation(particularly the last two paragraphs). It shows that people have a natural tendncy to pull out all stops to safeguard their professional interest .:-

Chingari koi dhadke, to savan use bujhaaye
savan jo agan lagaye , use kaun bujhaaye ?

Pathjar jo baag ujaade, toh baag bahaar khillaye
jo baag bahar mein ujade, use kaun bujhaye ?

Koi dushman thes lagaaye , to meet jiya bahlaaye,
Man meet jo ghaav lagaaye, use kaun mitaaye ?.

Duniya jo pyaasa rakeen, to majhira pyaas bujhaaye
Majhira jo pyaas lagaaye, use kaun bujhaaye ?.

Majhdar me naiya dole, to maajhi paar lagaayen
Maajhi jo naav duboye, use kaun bachaaye?

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Practical Money Management

(This article was published in the October issue of the mgazine “Educare”

Learn the basics of money management now

By Hiren Shah

I once came across an engineer who told me how lucky I was to be a chartered accountant’s son and receive training on practical money management and how badly he had been fleeced because of his lack of knowledge of accounts and finance. I read about a case in management consultant Pramod Batra’s book on how a motorcycle dealer from Escorts was fleeced by his own accountant and got a heart attack at the Escorts office when the Escorts accounts staff apprised him of major embezzlement. The third interesting case that I remember from my experience is my immediate engineer boss, who was to get several double promotions in one year and later go on to build a big business of his own. Here is what he had to say about accounts “I used to ask our professor in the MBA about the logic behind accounts preparation of balance sheets but he could never answer properly”. What he could not learn in two years in the MBA, he managed to learn within a few weeks by sitting with the accountant. When I was a commerce student in the accounts class, my father told me, “Don’t ask questions on accounting rules. Just follow them and make the balance sheet. You will understand automatically.” Since everybody has to manage money, a knowledge of accounts is always an added bonus.

Before the personal computer came into being, accounting was a cumbersome and a complicated problem. It entailed knowing the entire financial accounting system — the preparation of vouchers, ledger posting, trial balance, profit and loss account and the balance sheet. However, on the computer, one only has to feed the voucher in an accounting software and the computer does the rest. This makes it considerably easier for a layman to learn if he wants to. One should know how to make one’s personal balance sheet, where all one’s personal investments, assets and bank transactions are given. This is not difficult at all because all it entails is bank and cash entries. Once the grouping is done on any accounting package with someone who knows accounts, this is child’s play as the accounting reports also get updated simultaneously. If one really applies oneself diligently, one can learn the deeper logic in a few weeks and can then operate even if something happens to the computer. Those insights can then be utilised to study balance sheets of companies.

In MBA programmes, the focus is more on finance or understanding balance sheets rather than accounts, which has more to do with preparation. In my view, since money management has to be done by everyone throughout life, it is better if he has a good understanding of both. Some of the best things I learnt from my father are very well explained in the books Rich Dad, Poor Dad and the book The Millionaire Next Door, which is a study of American millionaires by two PhDs.

Most young people want to be wealthy but do not know what being rich really means. According to both the books, though normally the word “rich” may imply a high consumption lifestyle with the best brands of both necessities and luxuries, in reality, that is far from the truth. According to the authors, being rich basically implies being financially independent, which implies that one’s regular income from investment is such that one can survive from that alone and can choose not to work if one wants to. Looking at my father who is a good saver, investor and tax planner, I would say that that is quite a formidable combination. It is not difficult to achieve it, if practical money management is taught in schools to everybody and not just commerce students alone. Both the books bring about the practical aspects in their own unique manner.

The book Rich Dad, Poor Dad is about a boy whose friend’s father is rich. When the two boys are refused entry in a high-profile party, it instills in them a fervent desire to be rich. For this purpose, they are given practical training by the rich father right from the age of 9.

The objective of this article is to highlight the importance and basics of financial education. In the book, the author says that practical financial intelligence is a synergy of accounting, investing, marketing and law. He also says that children spend years in an antiquated educational system, studying subjects they will never use, preparing for a world that no longer exists. Each child needs to know the rules — a different set of rules. Money is one form of power but what is more powerful is financial education.

What is more interesting is what the book reveals about high consumption lifestyle. This is what it has to say about perpetual spenders. It says, “They get a few bucks in their hands, again the emotion of joy, desire and greed take over. But the joy that it brings is often short-lived, and they soon need more money for more joy, more pleasure, more comfort, more security. They don’t want to lose the big houses, the cars, the high life that money has brought them. They worry about what their friends would say if they lost all their money. Many are emotionally desperate and neurotic, although they look and have more money”. My father encouraged thrift from the time we were in secondary school. He would do things like not refusing any of our bigger wants but picking on our smaller wastages or expenses, to inculcate the principle “A penny saved is a penny earned”. As soon as we passed the Class X, both me and my brother (an engineer) were prevailed upon to learn practical accounts.

What is written about young people running after money reminds me of my trading experiences in the stock market where I came across many young people who had burnt their fingers very badly. As against investments in shares, which has a horizon of two years minimum, trading is more like a business where one buys and sells shares within a day (day trading), a week or two (swing trading) or position trading(three months). This is based on a study of graphs through a subject called technical analysis, which traces the movements of share prices rather than fundamental analysis, which focuses more on the performance of the company. Technical analysis has three aspects — trading psychology, money management and trading strategy. Each person has to have his own unique system depending upon his psychology — his fear, greed and balance of both. What one should remember is one man’s meat is another man’s poison – one trading system may make somebody a multimillionaire and another a pauper and trading system that suits oneself is something one learns from trial and error.

The most intelligent man I met in the stock market was a broker who had a background in merchant navy (most individual brokers are commerce graduates). He told me that he had a position trading system which he had been perfecting over a period of ten years and was still coached by a mutual fund advisor. He also showed me some literature in the most advanced books on trading (one of them was by the originator by a TA indicator himself) which was totally against what was written in the ordinary books available in the market He was much more intelligent than a couple of other people I worked with who spoke on Television. When I asked him why he chose to be anonymous, he replied “Genuine traders make much more money by trading than by talking or consulting”. His views corroborated with a book by an American author on Random investing, which stated, “If one is really talented in trading, one can become a millionaire in no time with a reasonable amount of capital”. One of the assistants who came to install my TA software also told me about his boss and owner who was also a trader and a speaker at CNBC. “If he is such a great trader, why should he be doing this business (TA software). He can make much more money in trading.” The whole industry works on the principle of “Why should you kiss the maid (trade in the stock market which is tough) when you can kiss the mistress (be a consultant and fool rookies and other people), which is relatively easier.

The fact is that trading has a 95 percent failure rate in the United states as well and some of the worst casualties are highly intelligent people whose egos were so high that they could not adjust to the reverses in the stock market and made heavy losses. There would of course be exceptions to the rule. I know another 29 year old young man who trades much better without graphs than any of his more illustrious colleagues that I came across, but such people are more an exception than the rule. It is better to use TA for studying long term graphs on when to enter and exit for long term investments rather than trading which is like sophisticated gambling. Actually, technical analysis is such an interesting subject than anybody can be fooled by it but in the highly manipulated Indian market and even otherwise, no system is good enough to capture the vagaries of the market in the short term. People who are still interested should still be aware of all the pitfalls. Two of the best books that I have come across:-

• Financial Trading: How to Trade Successfully for a Living, by Alexander Elder
• Trade your Way to Financial Freedom, by Van Tharp

I would recommend The Millionaire Next Door, which gives a thorough practical financial orientation and how to be rich realistically in the long run rather than do short term somersaults. This book gives practical examples of two brothers or friends or colleagues, both of whom may have started their careers. One may be a good earner but a high earner. The other may be a poor earner but good saver and investor. After some years the poor earner has a much higher net worth than the good earner. The book is full of such interesting practical examples and gives a very good insight of what practical financial concepts and management are all about. It may not make you a millionaire but can definitely prevent you from becoming a pauper.