Competition – Facing the heat

Routine instances in our life exhibit to us various complex issues in a very straight forward way. The issues just stare at you and you come to know, oh this is what it is! Taking one such example which is, like a fresh dikashun of coffee (am sorry for the people who don’t know what the coffee dikashun is) to me. It’s about the plethora of events coming up at IFMR in the upcoming week.

All the clubs at IFMR have been planning to hold an event or the other of theirs since some time now including the TEC club, but none of them was able to launch an event for so long when there were no events being conducted at all. I could only see one reason for this mass dumping of events apart from the natural reason for which it is being conducted. The reason which I am speaking about is Competition; I think you would agree with me when I make this statement. All clubs have been planning for quiet some time now and it’s almost high time for each of them to actually launch their event and conduct it as soon as possible that too in a grand manner as it is going to be the first for each of them for this academic year.

I ascertain the reason to be competition just because of the fact that, once a club member comes to know that X club has launched its event or is looking forward to conduct its event on x date, there is a sense of ego or feeling of loss (loss of opportunity of being first, or for being slow/late). Now the above reason brings in a spirit of competition that, hey even I need to launch my event soon, its high time, X club who started after us is already ready with their event, why do I remain behind, let me fix a slot one day before club X. This sense of competition is good at times but at times it may just be due to the ego. But whatever it is competition is very important in the world, it helps in various ways and results in great creations at times if dealt with appropriately.

The above stuff is written following the incident which I faced today when I saw the marketing club members working on their event, finance club members preparing the poster/invite for their event and most importantly after seeing the mail from the HR club who have already launched their event (but not disclosed the date yet :D). All this made me even more geared up to finally launch the event by TEC, as the event was already ready but due to some reason or the other which was getting delayed from being launched. But after seeing these plethora of events coming up we have booked a slot for the TEC even before few others just to ensure that we don’t end up being in the zone of the late latifs. And the sense of competition has reinforced in us the spirit to do well.

So do you think we have learnt what competition does to one? Its kicks at your back and then you get only 2 options Do or Die!!!

By the way TEC’s event is on 1st September 2008 at 17.00, be there and face the competition!!! And then you’ll know what’s facing the heat!!

(This article is some how also in connection to me trying to keep the blog as active as possible and updating it regularly, would soon try to do something interactive. Keep watching)

Just like that

Hmmm was just thinking if I could make the Blog a bit more active or interactive so to say. But there are questions all around as soon as I think of it, questions like, how can I make it active, what all shall I try to do, how often do I think to update it, how will I make it interactive, to make it interactive I need response from others, who will respond to my blog, why will they do so, if at all they do how long will it go on, will I be able to live up to the expectations, I already write so bad, how will others bear such writing and so on and so forth.

But then I thought when Amitabh Bachan, Amir Khan and others can do it, why not me, what if I am not as big a star as they are, what if I haven’t become something in life, is it necessary only to do it if u r big enough, is it necessary for 100’s of people to respond and react everyday, they have their own world, I shall have my own, what if there is no response, why do I need one, I do it for my satisfaction so why bother if get a response or not, but what do I get by updating the blog everyday with what ever stuff I am thinking of, may be it may work like a diary, but I can maintain a personal diary in that case, that too a hand written one, or even an online one, so why do I need to share it with others on the blog, why this sudden urge, am I looking for popularity, I am trying to seek attention, why at this point in time am I trying to seek attention, or is it just someway I want to be active or again interactive so to say, I am puzzled. I get an idea, I get another counter intuitive question and there I am confused.

Lets see if I am convinced enough to go ahead and if at all I am, whether I have something worth the time and effort to share regularly, all depends on my day to day activities and how interesting or boring they end up being.

Let’s see…. At least this way, I have updated the blog today with this idea. Now back to the thinking mode; will be back soon. By the by what do u think, is it a good idea or a bad one, should I or should I not, if yes then in what ways, if no why so? Keep thinking…

ILLNESS + DILEMMA = MiSery (Medical Science)

I have an old relationship with Illness and Dilemma hand in hand for a long time. The instances have taken toll on me and at times I was just inches away from the operation theatre when it was in no ways required. I could share with you a couple of them to empathize with me for the kind of dilemma I have been in, in the past and the highs and lows associated with them.

I was about 10-12 yrs old and was suffering from fever for almost half a month and had severe pain over the period in my back and stomach as the days increased, so apart from the fever this became a major concern for me and my parents. So to deal with the same we consulted with a couple of doctors who gave different opinions amongst which one of whom being a well respected and experienced one who after examining me, in a very firm tone asked my parents to admit me immediately, so that I could be operated early next morning and he would cancel his other appointments to operate me for APPENDIX. As soon as I heard this I was in a state of shock thinking about operation and stuff at such a young age and was very nervous but could not speak a word in front of the doctor there. But my parents told the doctor that we shall go home and get back to him through telephone after talking to others at home and left the place. And after coming home my parents were somehow convinced that we needed another opinion so decided not to talk to the doctor until we consult some one else. So the next day we went to another experienced doctor whom after a long wait we were able to see at his home, as it was a Sunday. He just examined me for a minute or so and said that I don’t have any appendix or anything and I am completely alright, just a tonic will make me alright soon. And trust me I felt cured already after having heard that I don’t have APPENDIX and I would not be subjected to any operation or so. And I think I was alright in 2 days after seeing this doctor and felt like I had got a new LIFE that day. Such a major twist in the tale just in a matter of less than 24 hours.

The next instance is a recent one, I had met with an accident and hurt my knee as a consequence of which. For almost 3 months I was under the impression that it was just a strain in my knee, which would be alright soon. But days passed by, I consulted half a dozen or more doctors, everyone having their own story analysis about my recovery. At the end of 3 months I underwent an MRI scan which was the only way to figure out what was actually wrong with my Knee and then we came to know that I had a Ligament tear in my knee, now the concern was what to do with this tear. Again I had a series of opinions from over half a dozen of different specialists throughout the city, with opinions varying from requirement of an operation to just physiotherapy will do and so on and so forth. Finally I haven’t undergone any operation, just took some physiotherapy and thial malish treatment of Kerala’s fame. I haven’t recovered from my ailment but still getting operated was a difficult decision but somehow got convinced that I can recover without operation if I follow certain exercises regularly (which I haven’t followed for long now, laziness and boredom being the reason and may be that’s why I haven’t recovered fully yet). But the whole episode of consulting doctors went on for about a year or more and as it can be seen, every visit used to bring different experience and outcome making life even more difficult.

Now coming to the present, I am suffering from some fever for about 15 days or so and have consulted 2 doctors so far (both of them are my Family doctors, whom we consult normally), and both have different opinions about my illness, where one says I am suffering from Chikengunya, the other claims it cannot be Chikengunya. So here I am again confused but not yet cured. I am no game for Science, and I am only concerned with getting back to normal and that too ASAP, I think I have had enough as it has already been half a month of suffering and I have taken enough number of tablets of different sizes and colors.

Just wish that I am cured of what ever illness I am suffering from, whether one medical book looks at it in one way and the other looks at it in yet another way. All I want is freedom from illness and if science itself is confused with its verdict then how am I to solve this riddle every time. How do I know who is right and why? I think the doctors irrespective of their exact study, learn the same basic science, if they can differ every time then how do I know whom to agree with and what treatment to undergo. Is there a solution?

(I am not trying to blame either science or the doctors in question, just trying to highlight how different incidents changed my life and could have had serious implications on my life. I am basically confused as to what is to be done in such circumstances when an individual is in a fix. And just to make things clear, I have not been taking opinion of different doctors just for the heck of it; I have actually done so, only after a reasonable period of time, when the former doctor’s medication failed to cure my illness. I believe firmly in science but am just concerned with differing views which has implications on ones life, views can differ in any field or context, but when the stake is so high, what must one do with differing views, how to handle the catch-22 situation)

Derivative - Is it Lucrative ???

I as a novice in this world of finance, with dreams to study and understand such a great product of finance which lures trillions of dollars every year in to the financial markets look at things in a completely different way. To begin with I understand derivatives to be instruments to HEDGE an underlying exposure a company/individual has interest in and fears the loss of value in the future. So to avoid/minimize this loss the company/individual undertakes Futures/Options route to mitigate or minimize the potential risk.

As per my understanding derivatives and related markets (futures and options) were introduced to address the following issues

- To have a platform or meeting place for the two ends to meet, and to minimize the substantial part played by middlemen in trade of commodities and other assets.
- To have a better method of price discovery through such exchanges where the demand and supply in sync with other factors will lead to appropriate price of the asset.
- To help the parties involved to mitigate or minimize the risk of value erosion, supply/demand and other risks in reference to their interest.

But so far of what ever I have learnt and seen in this short tenure, I haven’t yet been convinced with the working of the whole system as such. The issues I confront everyday while I deal with the subject are as follows

- If this concept was to make the 2 ends meet and minimize the role played by middlemen, then why are the exchanges allowing parties not involved in that particular trade or having exposure in the underlying allowed to trade in the commodity (Speculate) and make things even more complex (I know the first response to this will be for liquidity, would come to it later!).

- If these exchanges/ markets are for better price discovery, then again how can speculators in such markets help for the same, I believe only the parties having interest/ exposure in the underlying can help in a better price discovery and not novices like me, who don’t know a thing about the underlying at the first place.

- If all the above is done for the sake of liquidity and opening up of the financial markets and the economy in the world in a big way, my question is where are we answering the real issues for which such innovative financial products were developed.

To be able to explain the above concerns I would like to share certain examples I have come across so far which have provoked me to delve deeper into this subject and understand it better.

The case of MGMR (Metallgesellschaft), which clearly shows how the derivative contracts led to its risk in the underlying quadruple, I believe if it was not hedged the losses would have been far lesser than it were due to the hedged position. I simply think that when MGRM was already locked with the underlying contracts its only fear was that its underlying should not be affected in value or other ways, so it undertook several other derivative contracts and locked itself further more, which only led to increase in the number of ways it was locked than the number of ways it should have been able to come out of the losses (risks). And we see the result of it, a reputed company owned by several financial giants (German banks) had to liquidate due to the risk management techniques which infact increased the risk not only of the underlying but of the company as a whole leading to an uncalled liquidation with losses not just from the underlying but from various other ends including the derivatives, liquidity and many more ways.

I have studied 12 ethanol producing companies of US during my summer training (April – June 2008) and have found that most of them have huge losses (unrealized) on their derivative transactions which have reduced their profitability in an industry where there are various other factors which are already making life difficult for the companies, over which such derivative contracts are not making life any easier. Ethanol companies generally undertake derivatives contract in two underlying commodities namely Corn and Ethanol, the dynamics of the industry have changed a lot in the last 2 years and again as mentioned earlier I feel these companies would have faired better even without such contracts. The more time they spend looking after the risk management, the more they loose their time to concentrate on their underlying business itself (to me it seems like loosing from both ends).

Another important example to support the view is of the Crude oil prices which have soared to the level of $147 in July08 from about $70 in a year’s time. According to various research reports 60% of the increase in crude prices is due to speculation by various big players who are throwing money in crude to make money, which is leading to notional increase in demand of crude which subsequently resulted in increased price due to high demand (notional). Today the crude price again is at about $113(August 15 2008); the volatility of such an important commodity to the whole world is uncalled for, as it is leading to such levels of inflation in the world making food, travel to be even a rich mans dream. The main reason for such volatility in Crude prices as mentioned earlier is speculation, where in parties who do not have any exposure of the same playing dirty games in the exchange and leading to such worse condition of the world. Now again I feel the same question raises, where has the availability of such contracts helped to hedge the risk or even in price discovery. It has infact done things the other way round, the risk increased even more in the world level, prices were not discovered but infact were (are) being dictated by giants with huge liquidity who are moving the market the way they want (why should millions of people in the world get affected, just because several giants want to make money from such activities). I don’t think anyone can convince me in this context (at least no one has been able to so far).

I am not questioning the ability of this product (derivatives) to help minimize the risk but my only concern is that it’s not able to safeguard your interests always (most of the times). One must realize that such contracts are taken to limit the down side, while we must also remember and understand the fact that it’s a zero sum game, if one party earns, the other looses. Infact as seen in various situations such contracts are even leading to limit the upside and the company remains exposed to the downside i.e. in case the company was not hedged it would have made much more money when the price increased, while in case the company is hedged it earns only a limited predetermined profit because of the so called derivative contract, while in the downside also the same applies, as in when the company is not hedged it looses only the value of the asset to that extent, while when it is hedged it looses in terms of the value of the asset plus also on the investments or upfront expenses it had done to undertake the derivative contract.

One important thing one must remember in all these arguments is that one takes a derivative or any other contract after making certain assumptions about the movement of the price of the asset, what I want to say is, if you already have a view of the movement and your derivative contract is also to augment that view then what’s the need of it at the first place, as you can just follow your view and you can make money. The problem only comes when your assumptions turn out to be wrong and then neither does your view help nor does the augmenting derivative contract. I believe a contract can only help me, if and only if it is able to take away any possibility where my view goes wrong because I would anyways make money in other ways without the contract through my view and actions following the same.

To sum it all up, I am not game for these lullabies that this financial product was started with such and such intention and it is the best way to mitigate risk and so on, yes I like the concept and the innovation but still its not able to address the main issue which it was supposed to address so I don’t think its worth a thing to boast about or at least in that context (context that it helps to mitigate risk, price discovery bla bla). I think I need some more time to understand it better, need to do some more R&D before I come to any final conclusion but this whole write up was to sum up my initial relationship with such a novel concept.

Do feel free to comment, criticize or rectify me where ever I am wrong, as mentioned in the start I am a novice trying to understand and learn and I believe there is no better way of learning than to express your thoughts and build on it with guidance from other stalwarts.