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Wednesday, September 17, 2008
My sympathy to Lehman employees
Its a terrible, terrible day for Lehman employees everywhere. Such is the uncertainty they face that they wouldn't have expected it ever. The ones who got scared earlier left faster, the ones who didn't get scared (like their CEO) are in a state of shock. 1 month ago no-one expected this to happen.
These employees are usually the best of the lot, the 'straight-A's of the schools, champions on the debating team and generally bright candidates. If you are young it wouldn't be very difficult to get back up. But if you are the sole bread winner of the family, your condition will edge on desperation.
I wish all these good guys all the best. You will certainly live to tell the tale and laugh about it. A little bit of uncertainty can teach a lot in life. Things could have been worse but they aren't.
These employees are usually the best of the lot, the 'straight-A's of the schools, champions on the debating team and generally bright candidates. If you are young it wouldn't be very difficult to get back up. But if you are the sole bread winner of the family, your condition will edge on desperation.
I wish all these good guys all the best. You will certainly live to tell the tale and laugh about it. A little bit of uncertainty can teach a lot in life. Things could have been worse but they aren't.
Monday, May 26, 2008
Debt burden
A 56 yr old seems unhappy now-a-days. He is working very hard to earn some money which will pay off his debt, but he can't manage enough. This keeps him worried. You might think that he is poor. It may even be partially correct. But his Net worth (current market value of assets - liabilities) is more than sufficient to be called upper middle class. Why the problems you might think. Well he his asset rich, but cash poor. Whats that you might ask. All the net worth comes from value of investments he holds, virtually all of which are in real estate. And by its nature real estate is not liquid. Especially in the current soft market. For some reason or the other he cannot sell any of his real estate. How unfortunate, you might think.
But if you look closer many families do the same mistake. Too much money in one type of asset. And Indians have a penchant to do it in real estate.
There are 2 types of lessons to be learnt.
1. Management of finances
2. Diversification
Management of finances: an asset will pay in 2 ways, current income and capital gain. It is important to have a good combination of both types of income. Current income-only type of assets like bonds and FDs will never keep their value against inflation, unless you reinvest substantial portion of the returns back into them. Taxes in India are higher on current income than capital gains. So your FD interest gets taxed at a higher rate before you can reinvest some of it back. Theres hardly any left to keep. For middle aged couple its best to keep maximum of one years expenses in FDs. All other saving should be diverted towards capital gains generating assets like real estate and stocks since they are more tax efficient. Even if they give slightly lower return, difference in tax rates and compounding will generate larger size returns at the end. Infact because tax is levied when the asset is finally sold and not every year, the asset compounds at a higher rate.
Talking about diversification, its important to diversify simply because when you need money you wont have to sell something at a loss. And some assets are better collaterals for loans than others. Basically it improves the 'liquidability' of your wealth. Plus there will not be a wide variation in your wealth all the time.
But if you look closer many families do the same mistake. Too much money in one type of asset. And Indians have a penchant to do it in real estate.
There are 2 types of lessons to be learnt.
1. Management of finances
2. Diversification
Management of finances: an asset will pay in 2 ways, current income and capital gain. It is important to have a good combination of both types of income. Current income-only type of assets like bonds and FDs will never keep their value against inflation, unless you reinvest substantial portion of the returns back into them. Taxes in India are higher on current income than capital gains. So your FD interest gets taxed at a higher rate before you can reinvest some of it back. Theres hardly any left to keep. For middle aged couple its best to keep maximum of one years expenses in FDs. All other saving should be diverted towards capital gains generating assets like real estate and stocks since they are more tax efficient. Even if they give slightly lower return, difference in tax rates and compounding will generate larger size returns at the end. Infact because tax is levied when the asset is finally sold and not every year, the asset compounds at a higher rate.
Talking about diversification, its important to diversify simply because when you need money you wont have to sell something at a loss. And some assets are better collaterals for loans than others. Basically it improves the 'liquidability' of your wealth. Plus there will not be a wide variation in your wealth all the time.
Sunday, May 25, 2008
Pulsar Personalisation/Modification project
I own a pulsar 180 classic march 2002. Its 6 years old, and one o the oldest relationships i have had. I haven't treated her very well though. Recently i was feeling too guilty about it so i gave her to a repair and servicing. The mechanic was reasonably good so it came back looking like a million bucks. New spokes and some chrome polishing made it look new.
I also have been having thoughts about making her look unique because i wanted something new and couldn't afford a new bike. I have liked the looks of the p200 a lot, so i have started with that as a target with some differences.
1. I want a round headlight
2. Sticking to the old electronics
3. Tail piece remains as the old
I would like to stick to fairly simple and inexpensive changes. No welding work.
I want to start with some basics.
1. The swing arm for a longer wheelbase and greater strength. rs. 850
2. This necissitates change of chain and sprokets which will be open like in the p200. Rs. 750
3. This will include a change to gas shocks and Gas shocks will mean new or no saree guard. Rs. 1350 per pair. 250 for the saree guard
4. The rear mudguard of the dts-i which seems necessary to accommodate the longer wheelbase.
5. Taller handle from the original 150 dts-i. More relaxed position; 150 bucks
I want to make it feel closer to a touring machine like the BMW F650. So it needs a taller front suspension as well. But i dont see a good replacement for that.
Lets call this phase 1. Its cost is coming to around Rs. 4000 including labour. Next post will be when i'm done executing these changes end of next month.
I also have been having thoughts about making her look unique because i wanted something new and couldn't afford a new bike. I have liked the looks of the p200 a lot, so i have started with that as a target with some differences.
1. I want a round headlight
2. Sticking to the old electronics
3. Tail piece remains as the old
I would like to stick to fairly simple and inexpensive changes. No welding work.
I want to start with some basics.
1. The swing arm for a longer wheelbase and greater strength. rs. 850
2. This necissitates change of chain and sprokets which will be open like in the p200. Rs. 750
3. This will include a change to gas shocks and Gas shocks will mean new or no saree guard. Rs. 1350 per pair. 250 for the saree guard
4. The rear mudguard of the dts-i which seems necessary to accommodate the longer wheelbase.
5. Taller handle from the original 150 dts-i. More relaxed position; 150 bucks
I want to make it feel closer to a touring machine like the BMW F650. So it needs a taller front suspension as well. But i dont see a good replacement for that.
Lets call this phase 1. Its cost is coming to around Rs. 4000 including labour. Next post will be when i'm done executing these changes end of next month.
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