Layoffs and the desire to be the master of your own destiny

FHLBC will be shedding employees perhaps for the first time in its history. Lives of folks are going to change especially because a job at this bank is considered a lifetime employment.

Amidst this news I am left contemplating about whatI should do. I don't see much of a career at the bank. I am also convinced that the team in its present form will not cut it for raising capital. I am enamoured about making it on my own as a consultant. What I really want to do is to manage money using mathematical models. I Should start a money management outfit.

Mean Gene, Come into my trading room

I rapidly read Terry Burnham's 'Mean Gene' as well as Alexander Elder's 'Come into my trading room' during the weekend of April 22.
Mean Gene offers a biological explanation of why we do most of the things we do- take risks,

Elder's book had some gems of information about trading and risk management- all of which I have flouted! Elder recommends a trading journal with all the reasons to enter the trade as well as determining the stop loss set up BEFORE you enter the trade. He also talks about not risking more than 2 pct of capital on one trade and not more than 6 pct at any given point in time.

Short History of Nearly Everything

I am reading/listening to Bill Bryson's book- fascinating history of the earth, earthquakes, volcanos, quantum physics etc.

Short History of Nearly Everything

I am reading/listening to Bill Bryson's book- fascinating history of the earth, earthquakes, volcanos, quantum physics etc.

Happiness -Whence

Happiness is a function of age. When you are young, happines comes from achievements. As you grow older, happiness comes from relationships. -- Kalyan Madhavan

Principles in Life

With the birth of my second child, I think about what are things that I want to teach my kids. There are things that I have done right and wrong and haven't done. It is tough to develop a compendium of these experiences just like Aesop's fables, and derive a moral from each episode. What is needed is a distilled set of principles that the children can always fall back on. Here are some. This list, like me, is a work in process!

• Choose something that you are in the 90th percentile are better. Very few things help you make a living when you are in the 50th percentile of that profession.
• Believe in yourself. If you dont respect yourself, don't expect others to respect you.
• Know yourself. Experiment with small things and see how you react to various results.
• Look for inspirations in life. It could be inspiring people or inspiring moments.
• Don't try to please everyone. You end up pleasing no one. Decide on who are the folks who are important in your life and concentrate on them.
• Many a time we dont have perfect information about the consequences of changes that we make. The fear shouldn't stop you from making changes.

-- Kalyan Madhavan

Innocence and Idiocy

Self-professed ignorance when you are really young can be considered a shade of innocence, but when tried any at other time of life is just raw idiocy

Self-confidence: The ultimate make-up

I have encountered differing roles of self-confidence in two dichotomous ways. An analytic person who is in pursuit of knowledge and truth is prone to be less-opinionated and self-effacing so that it is easy to elicit various thoughts from different individuals. Once these ideas are obtained then one's power of logic can be used to sift through ideas and accept the ones that stand the test of logic. Self-confidence, in this context, becomes a not so welcome characteristic. However, in the world of business, the degree of self-confidence that an individual possesses is a key indicator of career success-in fact, self-confidence creates opportunities for success which then breeds on itself (except in the rare case where the confidence to talent gap is big and in the wrong direction!). The fact that there are no absolute rights and wrongs in the world of business (unlike the world of math, for instance) makes self-confidence the key characteristic that replaces the depth and quickness of logical thinking as primary indicator of success. Of course, it always helps to have both self-confidence and the intellect. Having straddled both the worlds, I am inclined to justify the action of being self-confident in the business world as follows- If you don't feel like betting on you and your skills, it is unfair to expect someone else to bet on you. The sexist interpretation that I have heard from my boss is that among all the different make-up that he likes, self confidence is the one that he likes most!

Mean markets and Lizard Brains

I am reading Terry Burnham's book called "Mean markets and Lizard Brains- How to profit from the new science of irrationality"

The central thesis of this book is that humans act irrationally in certain circumstances. This irrationality is called the "lizard brain" which has a backward looking aspect to it and is built to look for patterns that have worked well in the past. Investing, unlike other ancestral tasks, requires staying a step ahead of others. For investing, the only rule is to predict what everyone else is doing and move to profit from their behaviour.

Shackle the lizard brain

• Don't trade emotionally
• Never trust anyone, not even yourself
• Losers average losers
• Do not dollar cost average (because losers average losers!)
• Don't open your mutual fund statements (Keep financial news flows consistent with your decision frame)
• Spin control yourself (Look at your financial position in an aggregate fashion)
• Keep options to decide when to go all in (Keep your investment position conservative enough to preserve both options of increased risk or decreased risk should others panic and present you with an opportunity)
• Avoid impulsive trades. Remove temptation; don't expect to resist it Reduction of Financial Risk
• Allocate more money to low-risk assets
• Buy short-term bonds
• Live in a smaller house
• Have a fixed rate mortgage
• Invest in other currencies (or buy stocks in firms that make money outside of US)
• Pay off your debts
• Seek a secure pay check

Keys to Profiting from Mean Markets

Be Different

Buy when others are selling and sell when others are buying. Success requires using cognition to control the lizard brain

Make investment moves that do not produce dopamine

Another key to making money is to buy those that haven't done well and selling those that have done well. Our brains are actually bathed in pleasure causing dopamine when we take actions that we have done before. But financial markets are the worst environments in which to use the stimulus response process. To make correct financial decisions, we have to do exactly the opposite of what has been giving us our emotional reward.

Make an emotionally realistic financial plan

Successful investors must be aware of their own irrationality and craft plans that anticipate and preempt moments of irrationality

Be tough enough to stick to the plan

-- Kalyan Madhavan

Imperfect Understanding is the Human Condition

Once we realize that imperfect understanding is the human condition there is no shame in being wrong, only in failing to correct our mistakes. - George Soros

The dream of freedom through entrepreneurship

I was talking to Ashish who has decided to freelance on his own and
has been doing very well. I was very proud of what he has done. I
realize that the dream of freedom is innate in all of us and the
desire to create your own system or be enslaved by another man's is
so true.

--
Kalyan Madhavan