Speech from Chetan Bhagat to Symbiosis MBA Fresh Batch

Good Morning everyone and thank you for giving me this chance to speak to you. This day is about you. You, who have come to this college, leaving the comfort of your homes (or in some cases discomfort), to become something in your life. I am sure you are excited. There are few days in human life when one is truly elated. The first day in college is one of them. When you were getting ready today, you felt a tingling in your stomach. What would the auditorium be like, what would the teachers be like, who are my new classmates - there is so much to be curious about. I call this excitement, the spark within you that makes you feel truly alive today. Today I am going to talk about keeping the spark shining. Or to put it another way, how to be happy most, if not all the time.

Where do these sparks start? I think we are born with them. My 3-year old twin boys have a million sparks. A little Spiderman toy can make them jump on the bed. They get thrills from creaky swings in the park. A story from daddy gets them excited. They do a daily countdown for birthday party – several months in advance – just for the day they will cut their own birthday cake.

I see students like you, and I still see some sparks. But when I see older people, the spark is difficult to find. That means as we age, the spark fades. People whose spark has faded too much are dull, dejected, aimless and bitter. Remember Kareena in the first half of Jab We Met vs the second half? That is what happens when the spark is lost. So how to save the spark?

Imagine the spark to be a lamp's flame. The first aspect is nurturing - to give your spark the fuel, continuously. The second is to guard against storms.

To nurture, always have goals. It is human nature to strive, improve and achieve full potential. In fact, that is success. It is what is possible for you. It isn't any external measure - a certain cost to company pay package, a particular car or house.

Most of us are from middle class families. To us, having material landmarks is success and rightly so. When you have grown up where money constraints force everyday choices, financial freedom is a big achievement.

But it isn't the purpose of life. If that was the case, Mr Ambani would not show up for work. Shah Rukh Khan would stay at home and not dance anymore. Steve Jobs won't be working hard to make a better iPhone, as he sold Pixar for billions of dollars already. Why do they do it? What makes them come to work everyday?

They do it because it makes them happy. They do it because it makes them feel alive. Just getting better from current levels feels good. If you study hard, you can improve your rank. If you make an effort to interact with people, you will do better in interviews. If you practice, your cricket will get better. You may also know that you cannot become Tendulkar, yet. But you can get to the next level. Striving for that next level is important.

Nature designed with a random set of genes and circumstances in which we were born. To be happy, we have to accept it and make the most of nature's design. Are you? Goals will help you do that.



I must add, don't just have career or academic goals. Set goals to give you a balanced, successful life. I use the word balanced before successful. Balanced means ensuring your health, relationships, mental peace are all in good order.

There is no point of getting a promotion on the day of your breakup. There is no fun in driving a car if your back hurts. Shopping is not enjoyable if your mind is full of tensions.

You must have read some quotes - Life is a tough race, it is a marathon or whatever. No, from what I have seen so far, life is one of those races in nursery school. Where you have to run with a marble in a spoon kept in your mouth. If the marble falls, there is no point coming first. Same with life, where health and relationships are the marble. Your striving is only worth it if there is harmony in your life. Else, you may achieve the success, but this spark, this feeling of being excited and alive, will start to die.

One last thing about nurturing the spark - don't take life seriously. One of my yoga teachers used to make students laugh during classes. One student asked him if these jokes would take away something from the yoga practice. The teacher said - don't be serious, be sincere. This quote has defined my work ever since. Whether its my writing, my job, my relationships or any of my goals. I get thousands of opinions on my writing everyday. There is heaps of praise, there is intense criticism. If I take it all seriously, how will I write? Or rather, how will I live? Life is not to be taken seriously, as we are really temporary here. We are like a pre-paid card with limited validity. If we are lucky, we may last another 50 years. And 50 years is just 2,500 weekends. Do we really need to get so worked up? It's ok, bunk a few classes, goof up a few interviews, fall in love. We are people, not programmed devices.

I've told you three things - reasonable goals, balance and not taking it too seriously that will nurture the spark. However, there are four storms in life that will threaten to completely put out the flame. These must be guarded against. These are disappointment, frustration, unfairness and loneliness of purpose.

Disappointment will come when your effort does not give you the expected return. If things don't go as planned or if you face failure. Failure is extremely difficult to handle, but those that do come out stronger. What did this failure teach me? is the question you will need to ask. You will feel miserable. You will want to quit, like I wanted to when nine publishers rejected my first book. Some IITians kill themselves over low grades – how silly is that? But that is how much failure can hurt you.

But it's life. If challenges could always be overcome, they would cease to be a challenge. And remember - if you are failing at something, that means you are at your limit or potential. And that's where you want to be.

Disappointment's cousin is frustration, the second storm. Have you ever been frustrated? It happens when things are stuck. This is especially relevant in India. From traffic jams to getting that job you deserve, sometimes things take so long that you don't know if you chose the right goal. After books, I set the goal of writing for Bollywood, as I thought they needed writers. I am called extremely lucky, but it took me five years to get close to a release.

Frustration saps excitement, and turns your initial energy into something negative, making you a bitter person. How did I deal with it? A realistic assessment of the time involved – movies take a long time to make even though they are watched quickly, seeking a certain enjoyment in the process rather than the end result – at least I was learning how to write scripts , having a side plan – I had my third book to write and even something as simple as pleasurable distractions in your life - friends, food, travel can help you overcome it. Remember, nothing is to be taken seriously. Frustration is a sign somewhere, you took it too seriously.

Unfairness - this is hardest to deal with, but unfortunately that is how our country works. People with connections, rich dads, beautiful faces, pedigree find it easier to make it – not just in Bollywood, but everywhere. And sometimes it is just plain luck. There are so few opportunities in India, so many stars need to be aligned for you to make it happen. Merit and hard work is not always linked to achievement in the short term, but the long term correlation is high, and ultimately things do work out. But realize, there will be some people luckier than you.

In fact, to have an opportunity to go to college and understand this speech in English means you are pretty darn lucky by Indian standards. Let's be grateful for what we have and get the strength to accept what we don't. I have so much love from my readers that other writers cannot even imagine it. However, I don't get literary praise. It's ok. I don't look like Aishwarya Rai, but I have two boys who I think are more beautiful than her. It's ok. Don't let unfairness kill your spark.

Finally, the last point that can kill your spark is isolation. As you grow older you will realize you are unique. When you are little, all kids want Ice cream and Spiderman. As you grow older to college, you still are a lot like your friends. But ten years later and you realize you are unique. What you want, what you believe in, what makes you feel, may be different from even the people closest to you. This can create conflict as your goals may not match with others. . And you may drop some of them. Basketball captains in college invariably stop playing basketball by the time they have their second child. They give up something that meant so much to them. They do it for their family. But in doing that, the spark dies. Never, ever make that compromise. Love yourself first, and then others.

There you go. I've told you the four thunderstorms - disappointment, frustration, unfairness and isolation. You cannot avoid them, as like the monsoon they will come into your life at regular intervals. You just need to keep the raincoat handy to not let the spark die.

I welcome you again to the most wonderful years of your life. If someone gave me the choice to go back in time, I will surely choose college. But I also hope that ten years later as well, you eyes will shine the same way as they do today. That you will Keep the Spark alive, not only through college, but through the next 2,500 weekends. And I hope not just you, but my whole country will keep that spark alive, as we really need it now more than any moment in history. And there is something cool about saying - I come from the land of a billion sparks.

Thank You.

"Insurance is a subject matter of solicitation." ???

This has something to do with the following concept behind the insurance:

(1) The Insurer (i.e. insurance company) and Insured (i.e. an individual) enter into a legal contract. The Insured pay a premium to the Insurer and in return the Insurer assures the Insured to compensate him against the losses or hazards mentioned in the contract.

(2) The Insured has an insurable interest in the subject matter (i.e. some property or life of certain individual). This means that the Insured stands to gain if the subject matter is protected against the hazards and will stand to lose if any damage is caused to the subject matter.

(3) Though the Insurer assures the Insured to compensate against certain type of losses, he do not assure to compensate 'all' the losses. In any case the Insured stand to lose 'something' in case of loss of damage to the subject matter. (For example, one can not get a property insured at a higher amount than its actual value and then stand to gain from insurance claim in case the property is damaged. This will be a breach of contract.)

(4) Even after entering into insurance contract with Insurer, the Insured will take all reasonable and appropriate steps for the safety of the subject matter. For example, if a house is insured against theft, fire, etc, the Insured party can not delibrately or negligently expose the house to such hazards.

(5) The Insurer approaches, prompts, lure (???) the Insured to enter into the insurance agreement. However, the Insured party is supposed to reveal all relevant information related to the subject matter in 'good faith'. For example, in case of life insurance the Insured is supposed to expressely reveal to the Insurer of any health complications, etc that he is aware of and that may have some impact on the insurance contract. (The insurance premium is decided keeping in view possible risk, so if some factors are concealed, it will impact the amount of premium.)

Technical Risk Ratios for Portfolio Planning

There are five ratios referred to while creating and maintaining efficient portfolios.

1. Alpha,
2. Beta,
3. Standard deviation,
   
4. R-squared, and
   
5. The Sharpe ratio.

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Alpha
A measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund's alpha.

A positive alpha of 1.0 means the fund has outperformed its benchmark index by 1%. Correspondingly, a similar negative alpha would indicate an underperformance of 1%.

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Beta
A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.

Beta is calculated using regression analysis, and you can think of beta as the tendency of a security's returns to respond to swings in the market. A beta of 1 indicates that the security's price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market.

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Standard Deviation

Standard deviation is a statistical measurement that sheds light on historical volatility. For example, a volatile stock will have a high standard deviation while the deviation of a stable blue chip stock will be lower. A large dispersion tells us how much the return on the fund is deviating from the expected normal returns.

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R-squared

R-squared values range from 0 to 100. An R-squared of 100 means that all movements of a security are completely explained by movements in the index. A high R-squared (between 85 and 100) indicates the fund's performance patterns have been in line with the index. A fund with a low R-squared (70 or less) doesn't act much like the index.

A higher R-squared value will indicate a more useful beta figure. For example, if a fund has an R-squared value of close to 100 but has a beta below 1, it is most likely offering higher risk-adjusted returns. A low R-squared means you should ignore the beta.

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Sharpe Ratio

The Sharpe ratio tells us whether a portfolio's returns are due to smart investment decisions or a result of excess risk. This measurement is very useful because although one portfolio or fund can reap higher returns than its peers, it is only a good investment if those higher returns do not come with too much additional risk. The greater a portfolio's Sharpe ratio, the better its risk-adjusted performance has been.

A variation of the Sharpe ratio is the Sortino ratio, which removes the effects of upward price movements on standard deviation to measure only return against downward price volatility.

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Financial health of a company: some tips

We started off by eliminating all those companies that had recorded less than 15% growth in net sales and PAT in any of the past three years.

Further, we filtered companies on the basis of debt-to-equity ratio and return on capital employed (RoCE). While a high debt-to-equity ratio indicates that a company may not be able to generate enough cash to satisfy its debt obligations, a low leverage ratio increases a company’s potential to raise funds.

Hence, we selected companies which had a debtto-equity ratio of less than 1.5. In order to carry sustainable operations, it is necessary for a company to operate at an RoCE which is well above its cost of capital. Only those companies with an RoCE of more than 15% could make it to the next stage.

The final criterion was to do away with all companies whose three-year average net cash flows from operating activities was less than 50% of their reported cash profit.

Behavioral Economics Podcasts

To view some relevant podcasts for Consumer Behavior, visit:

http://www.marketingprofs.com/events/4/podcasts/?adref=emA24468

Ensure that you have enough bandwidth to see a smooth video.

Cheers,
Sachin

SIP + Insurance but Not ULIP

A number of mutual fund companies have tied up with insurance companies to offer long-term investment plans that offer you an insurance cover for the residual part of your entire investment plan. If you die part of the way through the plan, then your survivors will get not just the principal and returns of the amount that you have invested, but also the amount that you had not yet invested, but intended to.

Because this product is so unusual, it's probably not quite clear how this works, so let me explain through a detailed example. Let's say that a forty-year old person decides to invest Rs 20,000 a month till he is fifty-five years old. This amounts to investing Rs 2.4 lakh a year, or Rs 36 lakh over the entire fifteen year period. He decides to invest this money in a Systematic Investment Plan of an equity fund. Based on past experience, he expects to earn an average of perhaps 15 per cent a year on the investments he makes.

He starts investing and for five years, everything is fine. His has invested Rs 20,000 a month for five years, which comes to a total of Rs 12 lakh. His investments have yielded an average of about 15 per cent a year and are now worth a total of Rs 17 lakh. At this point, an unfortunate mishap occurs and he passes away. Normally, that would be the end of the investment plan. Of the Rs 36 lakh he originally intended to invest, he could invest only Rs 12 lakh before he died.

However, if this person had invested in the insured investment products that I'm talking about, then this would not be the end of the story. The 24 lakh that he couldn't invest because he died will be paid to his family by the insurance company. So his family gets the Rs 41 lakh which is Rs 17 lakh (the current value of the 12 lakh that he was able to invest), plus the 24 lakh that he intended to invest but couldn't because he died. His family could then invest the money and thus make sure that the financial plan is not disrupted. This isn't like a normal insurance where the amount you are insured for stays constant. Instead, the amount insured keeps decreasing. At any point, this amount is equal to what remains out of the original investment plan that the investor signed up for.

The obvious question is who pays for the insurance. After all, if the insurance company is covering the risk of the investor's death, then the investor must be paying the premium somehow. The answer is that this premium is paid in the form of an extra one per cent load that is deducted out of the money that is invested. Normally, fund companies charge a load of 2.25 per cent out of the investment you make. In the case of this product, this load is one per cent more. For Rs 20,000 a month, that comes to an extra Rs 200, which would strike most of us as a fair price to pay for the peace of mind that this product offers.

What is interesting is that there is no lock-in and there's no obligation. If you want to pull out of the scheme at any point then you can just stop investing and withdraw your money. Such product, with minor variations, are offered by a number of fund companies including Kotak, DSPML and Reliance.

The obvious downside is that this product ties one to a particular fund company for a long period of time. I think that's where one should spread the risk a bit by splitting one's investment across funds from different companies.

Few things to know before you decide your SIP + Insure

1. Is there a minimum amount that has to be invested in the SIP?

2. Must the SIP be of a certain tenure?

3. Are all equity schemes of AMC, eligible or is it offered only on certain schemes?

4. Will the insured amount be given to the nominee or be used to continue with the SIP so that the investment plan continues?

5. Will all the insurance expenses be borne by the AMC?

6. Is there any age limit to avail of this scheme?

How Big is Large -- Know your Home

The Milky Way's Astronomical Numbers

100,000 - Diameter of the Milky Way, in light-years. It's also around 1,000 light-years thick, and that's just the main stellar disk. One light-year is a little less than 6 trillion miles (10 trillion km), so we're talking about a very big disk. In fact, if our solar system was just the size of a coin in your pocket, the Milky Way would still be the size of the United States. 26,000 - Distance from our solar system to the Milky Way's center, in light-years. Astronomers think our solar system completes an orbit around the galaxy's center once every 225 to 250 million years. That means it was just one "galactic year" ago when the dinosaurs began to appear on Earth. 2.6 million - Low-end estimate of the number of suns it would take to equal the mass of the supermassive black hole that lurks at our galaxy's center. The sun is roughly 333,000 times more massive than Earth. So, it would take at least 858 billion Earths to equal that black hole's mass. Of course, no one can see the black hole. But astronomers theorize that such massive monsters lurk at the hearts of most galaxies. 200-400 billion - Number of stars in the Milky Way. That number is staggering enough. But consider this. Most astronomers say there are at least 100 billion other galaxies out beyond ours. Big as it is, our little corner of the universe really is just that. The Milky Way is but a drop in the bucket.
--Steve Sampson