Wednesday, February 17, 2010

On Technology


Technology is advancing at such a fast clip nowadays that it is impossible to keep up.  And AAARAAA too – that’s short for “Acronyms Are Advancing Rapidly Across All Activities”. I’m sure you are not aware of some of the latest technical (and management) acronyms that are a result of the initiative undertaken by AEIUAA - Association for Enhancement and Integration Of Universal Animal Acronyms.  If you haven’t heard of that organization, you should google.

The AGE Committee (Acronym Generation Evaluation Committee) is currently looking at including these acronyms into the DOTAGE – Dictionary of Technical Acronyms in
General English.

MULE: Multi User Limited Experience: Technical Enhancement to Massively Multi-user Online Games to Limit the experience of certain category of players based on age and other criteria.

DOG: Dedicated Optimized Gateway: The rapidly evolving science of Optimizing Dedicated Paths used by companies on Public Gateways to enable greater speeds while ensuring greater security of data.

CAT: Collaborative Application Terminal: Artificial Intelligence built into “dumb” terminals to enable collaboration across Applications.  Also stands for the Common Admission tests of the Indian Institutes of Management which are currently struggling to go online.

COW: Co-located Online Workstation: The new feature offered by certain advanced call centers, where two associates who are remotely located can be co-located thorough on-line meshing of their workstations.  A very advanced technology still under development.

PIG: Practical Implementation Guidelines: On the principle of KISS – Keep it Simple and Stupid comes this new SRS (Systems Requirement Specifications) development guideline – a new standard for Implementation Guidelines to be part of standard SRS documents in future.

EMU: Extended Management Unit: An extension of management cells into branch locations designed to replicate all decision-making functions – not just a branch office, but a head office in a branch.  When applied to Chip Manufacture, refers to remote special-purpose chips being used as temporary EMU’s or extensions of the CPU to speed up processing.

HEN: Heuristic Engagement Networks: Optical Fiber Networks that figure out on their own how to re-route data packets based on statistical analysis of traffic density at various points of time during the day, and current and expected load of traffic.  Uses extensive heuristic thumb-rules developed by the NSO – Network Statistical Organization.

ANT: Application Networking Terminal: A terminal that enables Applications to cross over on their own across various networks thus ensuring seamless connectivity and performance. 

RAM: Rapid Application Management: Software techniques to enable quick development of enhanced versions of existing applications – popularized by the new book “Ram it through” by Ram Ramgopal.

BEES: Business Enhancement and Effectiveness Strategy: A new technique originating from Harvard.  Means what it says.  What it says can be learnt more in detail through a five-day seminar in Boston costing 100,000 dollars. 

LIONS: Latency Inhibited Offline Network Server: A Server that acts as an Offline Inhibited Network Router – helping to cache data offline, for specified amounts to time depending on traffic density, and release it in tranches based on programmed latency models – the current servers that are being tested increase Total Network Throughput (TNT) by about 20% while the average increase in time delay is only 2 milliseconds.

MOOSE: Multi-User Online Oligopolistic Server Enhancement – an initiative by Microsoft and Intel to compete in the server market. They intend to combine their respective expertise in software and hardware to create special servers for massively multi-user online environments.  It’s one of the initiatives under their Future Initiatives Baselining (FIB) project.

OX: Obsolescent Xtras: Useless resource-guzzling features that all application software developers are alleged to add to their products to ensure that current hardware configurations become obsolescent.  It is suspected that this is a conspiracy between the major software and hardware companies to increase sales of their products.  The allegations have not been proven. “When they want to retire their hardware early, they ask the software people to OX it.”

FOX: Freeflowing Online Xtensions: Extensions to open source online software.

TIGER: Time Induced Growth and Extinguishment Rationale: Modern theory of how to manage a Product Life Cycle – how to grow it, milk it, and kill it over time.  Refer to the bestselling book “Evolution of the TIGER – Management Lessons from the Jungle” by Prof. Mule of Mumbai.

VIXEN: Vertically Integrated Xpanded Enhanced Networks: After the era of Networks expanding horizontally across the world – the coming era is expected to be one of vertically integrating all networks with the businesses and applications they serve to create a seamless global knowledge network.  Research in this area is fast gathering momentum.

ZEBRA: Zero-based Estimation of Budgets, and Rational Allocations: A new advancement in Finance theory combining zero-based budgeting with “Theory of Rational Allocations based on Social Inequality – a new Paradigm for Justice” by Prof. OBC Iyer.  This is expected to be the next big thing after Going Green.

Wednesday, February 3, 2010

Part 11A: It is time to take stock (answers)


1) If you estimate that your current monthly expenses (for your family of four) are in the region of Rs.20,000 per month, what is the corpus you would need today, in order to be able to retire?  It’s a very open-ended question so let’s put in some more conditions.  Use the method already explained in Part 1, and make a similar assumption for taxes. Assume that your corpus will yield 8% p.a. pre-tax. Since you still don’t own a house, you need to add Rs.25 lakhs to your final answer. I am looking for one number, in Rupees.

Ans: Rs.97 lakhs.

A corpus of Rs.30 lakhs yields Rs.20,000 p.m. as interest at 8% p.a.  Doubling this gives Rs.60 lakhs.  Adding 20% for taxes gives Rs.72 lakhs.  Adding Rs.25 lakhs for the house gives Rs.97 lakhs.


2) Which of the following are assets in the sense that we have defined it? (a) Yacht  (b) Motorbike (c) Cash (d) Equity Shares (e) Units in a Money Market Mutual Fund (f) RBI Bonds (g) Kisan Vikas Patra (h) 30% discount voucher of Shoppers’ Stop

Ans: The following are the assets as per our definition:

(c) Cash
(d) Equity Shares
(e) Units in a Money Market Mutual Fund
(f) RBI Bonds
(g) Kisan Vikas Patra


3) When interest rates go up, the NAV of your long-term GSec Fund (a) goes up (b) goes down (c) stays flat (d) fluctuates (e) can’t say

Ans: (b) – When the interest rate moves up, the NAV of a long-term GSec Fund goes down.


4) You invest Rs. One Lakh in your savings bank account. (A) What would it amount to at 3.5% per annum in 10 years? (B) What would be the Net Present Value of that amount today if you discount it at the expected inflation rate which is 7%? (2 points)

Ans: (a) Rs.1,41,060    (b) Rs.71,708


5) Your credit card company charges you 3.1% interest per month, compounded monthly.  You have a credit card balance of Rs.50,000.  How many months (rounded off to the nearest month) will it take to repay the whole balance assuming you repay 5% of the monthly outstanding every month? Assume the balance is repaid the moment the outstanding balance drops below Rs.100.

Ans: 300 months. That’s right - 25 years!      


6) You take a personal loan of Rs.50,000 to repay the credit card balance.  The loan is at 15% per annum (@ 1.25% p.m.), interest calculated monthly on the outstanding balances.  You repay 5% of the outstanding balance every month. How long will it take you, in months (rounded off to the nearest month) to repay the entire loan? Assume the loan is repaid the moment the outstanding balance drops below Rs.100.

Ans: 160 months

7) Arrange the following in ascending order of liquidity (least liquid first, most liquid last). Land, Cash, Car, Equity stocks, US Dollar bills, Five-year Bank FD opened three years back, your Wedding Ring made of gold. Keep sentiments out of the picture.

Ans: Land, car, [wedding ring, five-year FD/equity stock (both are about equally liquid)], US Dollar bills, Cash


8) Arrange the following loans (assuming you are the one who is doing the borrowing) in order of most desirable to least desirable, in terms of interest rates (a) house loan (b) personal loan from a bank (c) credit card debt (d) overdraft against security of shares from a bank

Ans: House loan, overdraft against security of shares, personal loan, credit card debt


9) (A) How many companies is the BSE Sensex composed of? (B) What proportion of the Sensex is represented by the top 5 shares by market capitalization? Answers within +/- 2% will be taken as correct. (2 points)

Ans: a) 30   b) about one-third, as on Feb 26, 2010.  See attached link for the details:

http://www.bseindia.com/mktlive/indiceswatch_scripweight.asp?iname=BSE30&sensid=30&type=sens&total=2460549.41&mktcapteck=1219463.52&dateheader=Tuesday%2C+February+02%2C+2010

10) Index Funds are usually (a) actively managed (b) passively managed (c) not managed

Ans: b) Passively managed

11) You are about to retire in five years’ time.  Conventional financial wisdom indicates that you should currently have most of your money invested in (a) 100% Equity (b) 100% Debt (c) Predominantly Equity (d) Predominantly Debt.  Assume Equity and Debt are the only two investment options available.

( d) Predominantly Debt
 

12) 916 Gold refers to how many carats?

Ans: 22 carats.  916/1000 = 22/24.  24 carats is pure gold.


13) If you want to retire, the following things are important to do: (1) Keep rigorous spending targets (2) Keep aside the balance by Paying Yourself First (3) Invest the balance to earn steady returns (4) Invest for the long term and allowing the money to compound (5) Have a judicious mix of less risky and more risky investments depending on life-stage and other factors (6) All the above

Ans: (6) All the above


14) You invest Rs. One Lakh in a five-year deposit with a finance company that promises to double your money every six months.  At the end of five years, how much money are you likely to get back?  Hint: Not everything in the world was achieved with Math.

Ans: Zero. You will not get any money back.  At those interest rates, did you really think you would? 

15) A Systematic Investment Plan is good because (a) it inculcates discipline in investing (b) of Dollar cost averaging (c) It takes away the hassle of thinking and analysis, while retaining good investment wisdom (d) of all the above

Ans: (d) All of the above


16) Diversified Equity Funds diversify by (a) investing in a broad range of Equities (b) investing in a mix of Equity, Corporate Debentures and Government Securities (c) buying and selling often (d) investing in only companies that sell a diverse range of products (e) investing in varied geographies (f) all the above

Ans: (a) Diversified Equity Funds diversify by investing in a broad range of Equities


17) Money Market Funds invest predominantly in securities with maturities exceeding one year – Yes/No

Ans: No.  Money Market Funds invest in very short maturity securities, ranging from one day to a few months at most.


18) Fidelity believes ‘more’ (remember ‘more’ is only a matter of degree) in which of the following: (you can indicate one or more choices)  (a) top-down stock picking (b)  bottom-up stock picking (c) quick short-term returns (d) investing for the longer term

Ans: (b) and (d). Fidelity believes in “bottom-up stock picking” and “investing for the long term”


19) Peter Lynch managed which Fidelity Fund?  Name one book that he has written?

Ans: Magellan Fund.  He has written three books (with co-author John Rothchild) – One Up on Wall Street, Beating the Street, and Learn to Earn.

 
20) Who is known as the Sage of Omaha?

Ans: Warren Buffett  (The last two were easy for those who know how to google!)

Part 11: It is time to take stock


Every person who sets out to train / explain / teach / pontificate sooner or later succumbs to the urge of running a quiz to see whether people have been reading his stuff all this while.  And every person who takes such a quiz tries to get the answers without reading the stuff – what are friends for?

Who are we to resist these age-old temptations?  Let’s try to do a recap-cum-quiz.  The rules are that you can refer to the past issues (available in the Archives – go to the bottom of the home page); you can google for the answers if you don’t get them directly (not every question will be from the syllabus!); or you can phone a friend – this is however fraught with risk since he/she may know less than you do.  Send in your answers by the time indicated to be eligible to win prizes – the kind of prize will be restricted by the budget available – you can thus pretty much guess what the prizes will be.  Lots will be drawn from the correct entries to select the winners – who said investment is all about knowledge and ability only – you need luck as well.  The decision of the judges will of course be final and they will be anonymous just so that you don’t try to bribe them.  The first prize winner will get a chance to audition for the Fidelity Band.

1) If you estimate that your current monthly expenses (for you and your family of four) are in the region of Rs.70,000 per month, what is the corpus you would need today, in order to be able to retire?  It’s a very open-ended question so let’s put in some more conditions.  Use the method already explained, and make a similar assumption for taxes. Assume that your corpus will yield 7% p.a. Since you still don’t own a house, you need to add Rs.50 lakhs to your final answer. I am looking for one number, in Rupees.

2) Which of the following are assets in the sense that we have defined it? (a) Yacht  (b) Motorbike (c) gold ornaments (d) Cash (e) Equity Shares (f) Units in a Money Market Mutual Fund (g) RBI Bonds (h) Kisan Vikas Patra (i) 30% discount voucher of Shoppers’ Stop

3) When interest rates go up, the NAV of your long-term GSec Fund (a) goes up (b) goes down (c) stays flat (d) fluctuates (e) can’t say

4) You invest Rs. One Lakh in your savings bank account. (A) What would it amount to at 3.5% per annum in 10 years? (B) What would be the Net Present Value of that amount today if you discount it at the expected inflation rate which is 7%? (2 points)

5) Your credit card company charges you 3.1% interest per month, compounded monthly.  You have a credit card balance of Rs.50,000.  How many months (rounded off to the nearest month) will it take to repay the whole balance assuming you repay 5% of the monthly outstanding every month? Assume the balance is repaid the moment the outstanding balance drops below Rs.100.

6) You take a personal loan of Rs.50,000 to repay the credit card balance.  The loan is at 15% per annum (@ 1.25% p.m.), interest calculated monthly on the outstanding balances.  You repay 5% of the outstanding balance every month. How long will it take you, in months (rounded off to the nearest month) to repay the entire loan? Assume the loan is repaid the moment the outstanding balance drops below Rs.100.


7) Arrange the following in ascending order of liquidity (least liquid first, most liquid last). Land, Cash, Car, Equity stocks, US Dollar bills, Five-year Bank FD opened three years back, your Wedding Ring made of gold.

8) Arrange the following loans (assuming you are the one who is doing the borrowing) in order of most desirable to least desirable, in terms of interest rates (a) house loan (b) personal loan from a bank (c) credit card debt (d) overdraft against security of shares from a bank

9) (A) How many companies is the BSE Sensex composed of? (B) What proportion of the Sensex is represented by the top 5 shares by market capitalization? Answers within +/- 2% will be taken as correct. (2 points)

10) Index Funds are usually (a) actively managed (b) passively managed (c) not managed

11) You are about to retire in five years’ time.  Conventional financial wisdom indicates that you should currently have most of your money invested in (a) 100% Equity (b) 100% Debt (c) Predominantly Equity (d) Predominantly Debt.  Assume Equity and Debt are the only two investment options available.

12) 916 Gold refers to how many carats?

13) If you want to retire, the following things are important to do: (1) Keep rigorous spending targets (2) Keep aside the balance by Paying Yourself First (3) Investing the balance to earn steady returns (4) Investing for the long term and allowing the money to compound (5) Having a judicious mix of less risky and more risky investments depending on life-stage and other factors (6) All the above

14) You invest Rs. One Lakh in a five-year deposit with a finance company that promises to double your money every six months.  At the end of five years, how much money are you likely to get back?  Hint: Not everything in the world was achieved with Math.

15) A Systematic Investment Plan is good because (a) it inculcates discipline in investing (b) of Dollar cost averaging (c) It takes away the hassle of thinking and analysis, while retaining good investment wisdom (d) all the above

16) Diversified Equity Funds diversify by (a) investing in a broad range of Equities (b) investing in a mix of Equity, Corporate Debentures and Government Securities (c) buying and selling often (d) investing in only companies that sell a diverse range of products (e) investing in varied geographies (f) all the above

17) Money Market Funds invest predominantly in securities with maturities exceeding one year – Yes/No

18) Fidelity believes ‘more’ in which (you can indicate one or more choices) of the following (remember ‘more’ is only a matter of degree): (a) top-down stock picking (b)  bottom-up stock picking (c) quick short-term returns (d) investing for the longer term


19) Peter Lynch managed which Fidelity Fund?  Name one book that he has written?

20) Who is known as the Sage of Omaha? Hint: It is not a-la-carte.

Send in your answers to ______ by _____.  Winners will be announced and answers posted on the BitsnBytes website on ______.

All the Best!

(P.S.  The fact that you manage to answer all the above questions correctly will not by itself make you a successful investor.  If you manage to answer very few of them, it means you dislike reading, as do many rich people I know)