When I heard that question, in my own geeky way I asked her back the questions, well...why does it rain? why is there an ocean? why do plants grow? why are we here? She looked at me strangely and said, so we don't know any of those? I nodded with a smile. She replied quickly, as if it was pretty obvious to her. "I think it snows so children can play and grownups can get a work out!" She went back to play. That was good enough answer for her! :-)
Thursday, December 31, 2009
Why does it snow?
My daughter asked that question today. It snowed about 3 inches and I was blowing away the snow on the drive way. My kids were excited to come out and play on the snow. They were running around on the lawn covered with the white stuff, making snow man, making snow ball to throw at each other. They always have a blast when it snows. But I have to make sure the drive way is clean so we can get the car out easily.
Wednesday, December 23, 2009
Try, Win, Quit
We have all heard about the importance of trying hard and not quitting. There are inspirational poems and quotes about not quitting. But do you know that quitting is a constant companion of winners!?
In Seth Godin’s book, The Dip, he reveals the truth about quitting: “In a free market, we reward the exceptional. Everyone picks the best one when given a choice. And the people who are perceived as the best get rewards that dwarf the people who are third and fourth and fifth.” So, being average is same as losing! One has to quit or be exceptional. So, winners DO quit, after all!
It is "try, win, quit" ideally. But often times, "try, quit,..., try, win, quit" is also a norm. As a saying goes, "The art of being wise is the art of knowing what to overlook"!
Saturday, December 19, 2009
The reality of Indian agriculture
The situation is not good! Not that it is any surprise to those who keep up with the news of farmers committing suicide in different villages often times. But I didn't realize the profession is like a slow poison in every farmer's life until my recent visit to India. When I talk to the folks in agriculture, most of them seem to have no clue that they are in a financial quick sand. On the other hand, with poor literacy in villages, the farmers seem to have no option but to live in a no win situation. The situation is really bad for those who are 100% relying on agriculture as their sole family income.
I see three groups of people in agriculture.
1. The passive income group
2. The farmers group and
3. The hopeless group!
The passive income group is a working class of people who have a job or primary income from sources other than agriculture and have farming as a passive income producing source. They are passionate about investing in agriculture most likely because they grew up in an agricultural family environment. They are not directly involved in farming. But have someone close to the farms (farmers group) take care of agriculture while they make their living in cities. Almost always the indulgence of this group in agriculture is an emotional decision to retain the family tradition or to maintain the inherited agricultural fields. They are not making profit in the investment. They are not hurt by the loss either. Some of them are under the illusion that their agricultural investments are profitable short term investments. Two concepts in financial management prove otherwise - the risk and the opportunity cost.
The passive income group puts forward an argument for agriculture that goes like this. If I invest one lakh rupee in agriculture, I get 1.5 lakh in about 6 to 8 months. That is probably true. Can't argue with numbers. There are three nuances in this argument though.
1. To begin with, one has to come up with a significant amount of money to invest in agriculture as a down payment before harvesting the returns. Luckily this group of people are able to do that on their own and avoid the "cost of capital" burden in terms of payment of interest and principal on that investment cost. The other two groups unfortunately are not as lucky.
2. The return is not guaranteed and depends on many factors like the rain/water level in the well, monsoon fluctuations, seasonal pests, etc. There is no systemic protection such as insurance against any of these factors. The biggest risk however is that the producers have no control over the price of their produce! Invariably when the volume of production is high, prices are down and when the volume is less, prices are moderate to high. So profit is shot always as Profit = Price*Quantity produced - Sunk Costs. Price is set by the "commission" shops who are traders of the produce. When the price is artificially controlled against the supply-demand dynamics and the costs are ever increasing because of the increasing labor, fertilizer, pesticide costs, profit becomes very unreliable. So there is enormous risk in the agricultural investment. Higher the risk, higher should be the expected reward.
3. In addition, if you look around to invest that initial expense in a bank FD or gold or residential land or some other investment what is the potential return? That is the opportunity cost. (Of course, each one of those alternatives come with a risk profile)
If you take the opportunity cost, add a markup for the risk factors and adjust for inflation (by the way, that goes up almost every year. Rs. 100 last year is worth less than Rs.100 this year) you should expect a return that exceeds the actual return consistently year over year. But that calculation is never considered by this group. Neither do they keep record of their investment and return over a long period of time to study the performance of their investment against alternatives. They write off the sunk costs if it comes to that and continue to go on. Well good for us! Without this group, agriculture is doomed in India.
That's a lot for now. More on the other two groups who are worse off than the first group. At least this group can sustain the losses and continue to invest in agriculture. The other two groups can not.
I see three groups of people in agriculture.
1. The passive income group
2. The farmers group and
3. The hopeless group!
The passive income group is a working class of people who have a job or primary income from sources other than agriculture and have farming as a passive income producing source. They are passionate about investing in agriculture most likely because they grew up in an agricultural family environment. They are not directly involved in farming. But have someone close to the farms (farmers group) take care of agriculture while they make their living in cities. Almost always the indulgence of this group in agriculture is an emotional decision to retain the family tradition or to maintain the inherited agricultural fields. They are not making profit in the investment. They are not hurt by the loss either. Some of them are under the illusion that their agricultural investments are profitable short term investments. Two concepts in financial management prove otherwise - the risk and the opportunity cost.
The passive income group puts forward an argument for agriculture that goes like this. If I invest one lakh rupee in agriculture, I get 1.5 lakh in about 6 to 8 months. That is probably true. Can't argue with numbers. There are three nuances in this argument though.
1. To begin with, one has to come up with a significant amount of money to invest in agriculture as a down payment before harvesting the returns. Luckily this group of people are able to do that on their own and avoid the "cost of capital" burden in terms of payment of interest and principal on that investment cost. The other two groups unfortunately are not as lucky.
2. The return is not guaranteed and depends on many factors like the rain/water level in the well, monsoon fluctuations, seasonal pests, etc. There is no systemic protection such as insurance against any of these factors. The biggest risk however is that the producers have no control over the price of their produce! Invariably when the volume of production is high, prices are down and when the volume is less, prices are moderate to high. So profit is shot always as Profit = Price*Quantity produced - Sunk Costs. Price is set by the "commission" shops who are traders of the produce. When the price is artificially controlled against the supply-demand dynamics and the costs are ever increasing because of the increasing labor, fertilizer, pesticide costs, profit becomes very unreliable. So there is enormous risk in the agricultural investment. Higher the risk, higher should be the expected reward.
3. In addition, if you look around to invest that initial expense in a bank FD or gold or residential land or some other investment what is the potential return? That is the opportunity cost. (Of course, each one of those alternatives come with a risk profile)
If you take the opportunity cost, add a markup for the risk factors and adjust for inflation (by the way, that goes up almost every year. Rs. 100 last year is worth less than Rs.100 this year) you should expect a return that exceeds the actual return consistently year over year. But that calculation is never considered by this group. Neither do they keep record of their investment and return over a long period of time to study the performance of their investment against alternatives. They write off the sunk costs if it comes to that and continue to go on. Well good for us! Without this group, agriculture is doomed in India.
That's a lot for now. More on the other two groups who are worse off than the first group. At least this group can sustain the losses and continue to invest in agriculture. The other two groups can not.
Wednesday, December 16, 2009
Sunday, December 06, 2009
A.D to C.E
Recently I came across a year notation like "6th century B.C.E" and I was lost. What is B.C.E? Turns out when I was not looking, the calendar convention B.C and A.D., which we were taught in the schools was changed to B.C.E and C.E.
The use of C.E.—signifying "Common Era" apparently has become popular in recent decades. As Christians and others have become increasing aware that Christianity is not the only Western tradition, it has made sense to many to switch the designation of dates from A.D. (Anno Domini meaning in the year of the Lord) to C.E., and thus also from B.C. ("Before Christ") to B.C.E. ("Before the Common Era").
Well. Perhaps we should close the history books on Y2K and start afresh on a new scientific era (S.E). Let's get ready for 10 S.E folks!
:-)
The use of C.E.—signifying "Common Era" apparently has become popular in recent decades. As Christians and others have become increasing aware that Christianity is not the only Western tradition, it has made sense to many to switch the designation of dates from A.D. (Anno Domini meaning in the year of the Lord) to C.E., and thus also from B.C. ("Before Christ") to B.C.E. ("Before the Common Era").
Well. Perhaps we should close the history books on Y2K and start afresh on a new scientific era (S.E). Let's get ready for 10 S.E folks!
:-)
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