Wednesday, February 13, 2008

Risks and in general

I have a job now from campus placements. And this event rendered me quite useless and lazy and good for nothing for the next few days as I could see no more utility in studying and attending classes. It was during this time that I have thought of something about risk. Some of my friends said that they ve already read this theory by some famous thinker :-) he he I was born a little late. Else may be mera naam bhi newton ya plato ya something hota.

Theory 1:

empirical evidence is there that backbenchers and people who come average in class generally do well in life. Better than toppers.
Well I think when a backbencher is not studying for the exam, or is caught sleeping he is taking a risk. Right. And going by the fundamental law that risk and return have a correlation, this risk taking appetite if what makes these backbenchers continue on their journey to break from the herd and do something worthwhile. High Risk High Return.

Theory 2:

Treat yourself and many others like stocks. Go for a bottom up stock picking approach. If you do your calculations well and research well you may end up picking one of the high return yielding human stock. Thats how focussed mutual funds beat market portfolio based mutual funds.

the point is simple, if as a professional you dont take enough risks, there is as much return you can expect as someone would expect on zero coupon long term government bonds. Its implications are profound:

If you are earning the risk free rate of increments in salary and you plan to buy a house which is appreciating in value and you plan to buy it after some time, by the time you reach that time event, the house would cost you more and stretch your cash flows which can force you to go for extra leverage. More risk.

See. No Risk. No Returns.


Anonymous said...

Soul-less, Opportunistic Hitesh :D ... you think humans as stocks...great going.... as you seem to be good in valuating must have set a price for giving up your weekend too?..... did guys like u learn this in your MBA or were u always like that :P

Anonymous said...

Theory 1 looks good.... eternally optimistic... silver lining in cloud... since most of junta is under-performer as per their benchmark... it will sell like hot-cake just like '5-point-someone'.

hitesh said...

no one is soul less but everyone is Opportunistic :-)

and its not bad to be one either i think

Rohan said...

Somebody wants to take you out over the weekend. I suggest grab the opportunity with both hands. :P

Megha said...

Very profound! :) Theory One makes a loottt of sense. somebody tell the recruiters :)