Thursday, April 17, 2014

Better half can make or break things

How many times we come across couples who complain against each other. 60% of those couples have personal finance (rather, lack of it) as the reason for fights. It starts with money and slowly goes to other things. This is the exact reason why Subramoney advices every couple to see each other's financial traits and then tie the knot.
 
Let us see what are the typical scenarios and what the couple should foresee (from money perspective):
  • Check each other's spending habits. He/She may be suffering from obsessive compulsive disorder of spending or buying online. Believe me, this is a disease. It definitely kills the positive cash pattern.
  • He/She may easily be pulled into bad product. Example: A guy could not say no to hot/sexy/young girl/lady selling XYZ product. Product may not be bad but the reason is.
  • Vacation is another sensitive issue. Read how my wife saved me from exclusive packages, "here". Some people may like lavish vacations while their spouse may like going to places which are close to mother nature (with their respective spouses :P). Trade off between the two may be difficult.
  • Husband may buy furniture from wife's PF account. A sin. Wife may or may not know the impact. Remember the survey which said that life expectancy of wives are more than husband? Wife suffered for no fault of hers (except for not able to say NO).
  • Remember Bichoo movie? The husband is pulled into crime syndicate just to satisfy wife's materialistic needs. The husband simply could not muster courage to say NO (btw, it is really difficult to say NO if your wife is Dolly Bindra).
  • Wife working as daily labour and hubby enjoying that money in Deshi Daru shop. Sad but true.
  • Husband working full time in a private company and increasing his income by becoming LIC agent part time. Wife high on jewellery and cosmetics.
  • Wife enjoys frugality while husband has party every weekends. Add liquor and credit card and it is sure a recipe for disaster.
There could be N number of examples.

The point is before you say "I do", check his/her traits. Some people say that you have to talk and convince or prove to his/her spouse how their spending pattern is affecting the whole family. This is a solution, only if other party is willing to change. Some people are so close minded that they cannot hear their own prayers.

During courtship or when the talks are in the initial stage, drop some hints. Check how the other party reacts. Talk on personal finance, see their expressions. Casually check CC usage. Ask if he/she is ok living in a joint family. If not, how are they going to sponsor new home? Would it be parents, bank or would it be renting as an option.  
Check what are his/her views on your religion/caste (in case of love marriages). This is often ignored but becomes killer post marriage. See how and who is going to provide for girl's parents if they were dependent on her pre-marriage. Yesterday, I met a girl who refuses to marry because every prospective groom from her community rejects the idea of supporting her parents financially. Good that she is bold and brings the topic during first meeting itself. However, this is affecting her personality. She has increasingly become more frustrated and angry (don't know with whom). Sad, true.
 
By God's grace, I got similar thinking wife. Most of the time we are on the same page. Disagreements are there, off course. But that is part and parcel of marriage, right?

So the conclusion is, look before you leap. Consequences of not due diligence could be extra marital affairs, suicide and murders. Think.


Monday, April 14, 2014

Leadership and the skills required

Last week, I happen to attend wonderful training session by Manishaa Barretto. The topic was leadership and the skills required to be a successful leader. Below is almost word to word transcript of the session with due permission from the trainer. The trainer is more than happy to share her thoughts and research for benefit of larger audience. Thank you Manishaa.

The difference between a leader and a manager:
 As the word goes, a leader is someone who leads the team and manager is someone who manages the team. In today's world, a person must play both the roles as per the situation.

Difference between managers and leaders


Typical traits of leader could be a person with vision, is goal oriented, motivates his team and leads from the front.
Typical traits of manager could be a person who is more concerned about getting things done, is work oriented, ability to find start performer in the team and bringing discipline in the team. Hence, we can understand that a project would need a person with both the qualities.


Coming to leadership styles.
Below is the list of leadership styles, out of which a leader may adopt all or some of it depending upon the situation.

Autocratic leadership style:
Such leaders go by the single line: My way or no way. He is adamant on following his set of procedures. You either play by his/her rules or you do not play at all. They are rigid. Make no mistake, such people are needed in many projects. Many times, the team is a set of young enthusiastic people with no experience. In this case, each person would be wiling to go extra mile and be creative in their own way. Problem may be that client has laid down few set of rules, which you just cannot break. Also, if a person thinks in his/her own way, there would be no bonding in the team. Hence, in such situations limited use of Autocratic style of leadership would work.

Coercive leadership style:
Leader who leads his team only by fear is called as coercive leader. Most of the times, such leaders are damaging to the team, organization and project. No wonder that attrition rate is high in their teams. However, such leaders may still find work in projects which has bunch of rude and arrogant people (with whom other leaders do not want to work).

Bureaucratic leadership style:
The leader from this category would follow every rule from book. They follow and implement each and every policy laid down. Nothing wrong, but we all know that many policies are useless in crunch situations and we have to be flexible in our approach. Flexibility has no place in Bureaucratic leadership style. They are talented, hard working but not flexible when it comes to policies and procedures.

Democratic leadership style:
As the word suggests, such leaders emphasize on team engagement. They encourage creativity. They keep the team informed about all the activities. They promote fair team play. However, they retain decision making process.

Transformational leadership style:
He is ideal guy. He is democratic, calm, has fantastic team management skills, he controls other effectively. More importantly, has self control mechanism. The only chink in armour is they tend to take decision in biased or sentimental way.

The next important aspect of effective leader is delegation.
What is delegation? -- Delegation implies assigning work to subordinates. This was from layman's view. Below is trainers' definition: Delegation is assignment of accountability and authority to carry out specific activity in order to reduce workload of leader and increase skills of subordinates.

Below are the types of delegation methods:

Types of delegation


Delegate to teach:
This is basic level of delegation. It is used to teach fresher or new joiners in the organization. It is like saying "Do exactly as I say". Absolutely, no delegation of authority.

Delegate to direct:
Here the leader gives the instructions in a step by step manner. The audience is neither fresher nor experts. The objective is to give direction to audience. Here we have limited or no delegation of authority.

Delegate to support:
Here the leader assigns the task and asks the subordinates to complete few pre-defined tasks in independent manner. It is to support the subordinate to grow.

Delegate to improve:
Here the leader assigns tasks and does limited monitoring. The task is often divided into phases. Review happens at the end of phase. This is done to improve the subordinate's abilities. Much authority is delegated.

Delegate to do:
Here the leader simply assigns the task and asks the subordinate just to inform him what is going on. Here the leader trusts the subordinate completely. Almost, all authority rests with the subordinate. However, subordinate choses how much to use that authority.

Finally, what are the steps for delegation?

Preparation:
Here the leader decides which method of delegation to use. Which method would be appropriate for him and his subordinate. He has to consider the experience of his subordinates and their willingness to complete the task. The leader has clear conversation with the candidate. Explains his roles and responsibilities. Leader explains what must be done, how it must be done and why the said candidate is chosen.

Delegate the tasks:
Prepare phase wise tasks and assign after previous step's discussion. The expectation, too, must be clearly communicated.

Monitor:
Monitoring depends upon the importance of the task, expectation of lead and candidate, complexity of work, working relationships. Monitoring may be direct (i.e. observe directly, ask about milestones and status meetings) or indirect (i.e. track the progress through some frequently updated sheets or monitoring tools).

Evaluate:
Here the leader evaluates the outcome of the task. Evaluation helps both the leader and subordinate. Leader understands both the task status and his own delegation capabilities. On the other hand, it helps candidate understand where he stand and where he needs improvement.


Friday, April 4, 2014

Perfect Financial Porn

Last week, we had a casual discussion on equity among friends. My role was limited to listening. Many of them were sharing their own experiences regarding stock purchase and sell.

Primarily, they were discussing on direct equity investment. Many of them were using bollinger graphs, rolling PE returns, market value, divident percentage, etc.. for stock picking.
 
While everything seemed to be going in a right direction and we were sure of learning something new, a friend interrupted the discussion with different view at stock picking. I used the word 'interrupted' because the advice given by him was purely a financial porn kind of thing.
 
At the outset, I thought he was making sense and we could use his advice. However, on little thinking, I understood how his advice was brilliant on paper but completely useless in practice. This is the exact meaning of financial porn. It will excite you but will not help you.
 
Here is the advice to get excited, think and then understand that you cannot use it:
 
Conversation: 
  • Friend (who gave this idea): Stock picking is very easy. You just have to understand the pricing. No need to research on PE or any other technical stuff.
  • All: how?
  • Friend: Simple. What is the price of say a Parker pen?
  • All: Normal parker pen would cost around 100 rupees.
  • Friend: Right. Now if someone offers you the same pen at 50, what would you do?
  • All: Grab them all and sell it at 100.
  • Friend: Correct. That is what we should all do in equity. To give you guys another example, what is the cost of regular marie biscuits?
  • All: Say 15 rupees.
  • Friend: Now, if someone offers you the same biscuits at 10, what would you do?
  • All: Exactly as previous answer. Buy them at 10 and sell at 15.

Now, on the face of it, looks simple and exciting. All could see themselves milking money.
 
On little thinking, we all saw what the real problem was. The real problem was, how could you apply?

In case or Marie or Parker pens, we have MRP written over it. This is the reason that we found Parker exciting at 50 because we know that the MRP is 100. However, it is not the case with equity. Shares do not come with MRP written on it.
 
Hence, you cannot understand if the current price of particular share is attractive or not, just by the face of it. You have to look for various factors like PE ratio or P/BV ratio to understand its pricing.
Example: I thought NTPC was attractive at 136 (PE<8). I bought it. Then came the news of CERC pricing and court asking NTPC to wait for its dues to get back. Now, the price of NTPC is 116. Suddenly, from swing trader, I have become long term investor for NTPC (I also got decent dividend from NTPC, but that is different story).
I gave NTPC example, just to show how markets move and we cannot estimate if a price is good or bad by just looking at it.
Before buying I should have researched about the date of court ruling and expected CERC ruling.
 
So the point of the post is, it is very difficult to separate noise from information. The advice which seems brilliant on the face of it can be completely useless. It will excite you but will not help you. That is financial porn.
 
Note: I have not commented on NTPC company. My comments were on market movement. Do not ask me why I hate or love NTPC or should I buy NTPC. These questions are better put to master like Subra.