Author: shyam

Introducing BPS: Bill Payment at Source

A committee in the RBI has circulated a paper on a wonderful new idea of an Indian Bill Payment System through Government Internal Revenue Order system, i.e., IBPS-GIRO

Imagine a brave new world where you will pay every bill through IRCTC. IBPS-GIRO will be just like that, only better – because you can avoid travelling by trains, but how far will you go without paying your electricity bill?

May I be bold as to suggest a better idea? BPS: Bill Payment at Source. Instead of you first getting your salary and then logging onto IBPS-GIRO, and then paying your bill, the RBI should direct all utility providers to submit your bills directly to your employer who will automatically deduct the amount at source. This way, it will be one more hassle that the government will free you from.

In fact, the RBI can go two steps further and directly deposit the remaining amount, if you have any, into the National Pension Scheme (NPS.) After all, what is left after income tax, utility bills, EMI and saving for retirement?

Read the whole thing here: Report of the Committee to Study the Feasibility of Implementation of Giro Based Payment System in India They even have a logo mocked-up.

 

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Behavioral Biases and Investment Decisions

Investopedia has an interesting article on the different biases that investors have. We can all empathize at some level with these:

  1. Overconfidence – in both the information that we have and on our ability to time the market with that information.
  2. Not taking losses, aka, reducing regret.
  3. Making the most satisfactory decision instead of the most efficient decision.
  4. Chasing trends

The best way to avoid the pitfalls of human emotion is to have trading rules. Or use algorithms like we do to make those decisions for you.

Read the whole thing: 4 Behavioral Biases And How To Avoid Them

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[stockquote]SHALPAINTS[/stockquote]

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Food Security Bill – Flawed From the Get Go

FirstPost took it to Amartya Sen on the Food Security Bill. The beauty of being a socialist is that you never have to personally worry about paying the bill. And as it turns out, the bill is going to create a bottomless pit.

The expenditure behind the food security bill is stated to be at Rs 1,20,000 crore. But this the CACP report feels is just the tip of the iceberg. This expenditure does not take into account “additional expenditure (that) is needed for the envisaged administrative set up, scaling up of operations, enhancement of production, investments for storage, movement, processing and market infrastructure etc.”

Apart from thoroughly skewing incentives for farmers towards rice and wheat production, the bill also doesn’t address what happens when there is a drought, or how food procurement can be scaled.

What fascinates me is that our government seems willing to spend huge amounts of tax-payer money on things that a) are not backed by any kind of hard data, and b) not through through fully. However, if you believe that our government is inherently evil, then the Food Security Bill has found its mark: an estimated Rs 2,07,000 crore will be siphoned off by middlemen.

Forget scams, if you were still looking for a persuasive reason to fire our government, this should be it.

Read the whole thing here: 10 reasons why Amartya Sen is wrong about food security bill

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The Anatomy of a Ponzi Scheme

The Anatomy of a Ponzi Scheme

A Ponzi scheme is an operation that pays returns to it’s investors from either the investors own money or money paid into the operation by subsequent investors. The word “Ponzi” refers to Charles Ponzi, who, in the 1920s, promised clients a 50% profit within 45 days, or 100% profit within 90 days, by buying discounted postal reply coupons in other countries and redeeming them at face value in the United States as a form of arbitrage. In reality, Ponzi was paying early investors using the investments of later investors.

Ponzi schemes are doomed because their funding requirements increase geometrically over time. So there are not too many exit strategies for the person running a Ponzi scheme. It always ends ugly. However, that doesn’t mean that people don’t try. In 2009, 20% of the fraud cases investigated by the U.S. Securities and Exchange Commission (SEC) were Ponzi schemes.

Next, we see how chit-funds operate and how they are just a tiny step away from being Ponzi schemes.

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[stockquote]SHALPAINTS[/stockquote]

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Watch what they do, not what they say

Whenever there is a new piece of technology, finance figures out a way to butcher it. Using social media for sentiment analysis is a great tool for manufacturers who don’t sell directly to the consumer to get advance warnings of shifting tastes or possible product recalls. If you look at the lead times between when the product is boxed and shipped to the retailer and when sales turnover numbers make their way back to the manufacturer, twitter is a god send of an early warning system. For example, it makes sense for a company like P&G to invest in social media monitoring tools to make sure that a new fragrance they released into the market is not met with backlash that spirals out of control.

However, I have seen a significant uptick in data vendors pushing social media sentiment analysis tools onto traders. Now traders can react to twitter sentiment in real time. Does it really make sense or did we just find a new way to lose money?

First, do investors really know how to gauge the impact of bad publicity on the stock price? For example, if P&G released a purfume that people on twitter hated, should investors really care and by how much?

Second, the stock markets are reflexive. Investors will say a lot of nice things about a company whose stock is going up and will start finding faults with it when it starts going down. You don’t need twitter to tell you that.

Third, does it really matter what they say? For a day-trader, the order-book summarizes how others are voting, in real-time, with their own money, on where the stock should trade. For investors, daily or weekly charts neatly summarize the sentiment of people willing to bet their capital, i.e., people who put their money where their mouths are.

Fourth, it only makes sense if you get this news ahead of everyone else who is going to react the same say as you did. For example, Reuters releases the University of Michigan Surveys of Consumers to “ultra low-latency” subscribers 2 seconds before it is made widely available. Since you might expect all investors watching this news to react the same way, those 2 extra seconds allow you the front-run the “muppets”, so to speak. But if only you have the news, and nobody else cares about it or have differing opinions on how it is going to impact the stock, then it makes no sense for you to have it.

And lastly, remember this: the market is the news.

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