The Hindu Business Line : Avoid being swept along by market manias

“Most people put their faith in experts and their money in mutual funds, and they get their opinions from the headlines. But if he can tune out the noise of the public spectacle altogether, an investor has a chance of at least keeping his dignity… and maybe even his money.”

When the stock market index touches fresh highs every day, there are at least two casualties. The first to suffer is the news headline, fighting a losing battle in conjuring up a dramatic phrase to capture what seems to become a routine phenomenon. And the other casualty, a more perturbing one, is the common man’s comprehension of what’s happening.

For the latter, though, here is some timely help: ‘Mobs, Messiahs, and Markets’ by William Bonner and Lila Rajiva ( www.landmarkonthenet.com ). The book opens with a lament that the ‘world improvers’ don’t set off some signal before they go bad.

“Instead, the most successful of them – such as Benito Mussolini and Adolf Hitler — actually gain market share as they get worse. Their delusions are self-reinforcing, like the delusions of a stock market bubble; the higher the prices go, the more people come to believe they make sense.”

Deceit, however, is nothing new, remind the authors in a chapter titled, ‘Love in the time of Viagra’. Humans didn’t invent deceit; there are, for example, butterflies whose tails look like their heads! “Birds will pretend to be injured in order to distract predators from the nest.

Dogs will sometimes pretend to be injured, too — merely to get petted. The only difference is that having bigger brains, human beings can lie better.”

It is in bluff, bluster, humbug and fraud that we live every day, fret Bonner and Rajiva. “None of us really likes honesty. We prefer deception — but only when it is unabashedly flattering or artfully camouflaged.”

Studies have shown, they say, “that people are more likely to accept the opinion of a confident con man than the cautious view of someone who actually knows what he is talking about. And professionals who form overconfident opinions on the basis of incorrect readings of the facts are more likely to succeed than their more competent peers who display greater doubt.”

More paradoxically and dangerously, lies are said to work best when the perpetrator ‘believes his own lies’.

Ditto with markets, where “some financial gurus have gone broke following their own advice.” Investors who follow newsletter gurus have no guarantee of making money, the authors declare. “But those who follow the crowd are practically guaranteed that they will not.” The duo asks, ‘So, what should you do to make the money?’ but hastens to wonder if the right question is right. For, “The proper question is: What should you not do?”

Avoid being swept along by the manias of the market, advises the book. “Most people put their faith in experts and their money in mutual funds, and they get their opinions from the headlines. But if he can tune out the noise of the public spectacle altogether, an investor has a chance of at least keeping his dignity… and maybe even his money.”

A book that can anchor you to reality just when things are turning headier, and the market regulator comes up with draft norms for investment advisors.

Management 2.0

For thousands of years, markets and hierarchies were the only alternatives when it came to aggregating human effort, writes Gary Hamel in ‘The Future of Management’ ( www.tatamcgrawhill.com ). “Now there’s a third option: Real-time, distributed networks.”

Management 2.0 is going to look a lot like Web 2.0, he bets, but alas, your company may not be exploiting the capabilities of new version. Because, while your business processes may be 21st-century Internet-enabled, management processes may continue to be of mid-20th-century, “all built atop 19th-century management principles”.

Reinvent the technology of management, pleads Hamel. “The only way to build a company that’s fit for the future is to build one that’s fit for human beings as well. This is your opportunity — to build a 21st-century management model that truly elicits, honours, and cherishes human initiative, creativity, and passion — these tender, essential ingredients for business success in this new millennium.”

Forceful arguments.

Gandhiji’s economist

Meet Gandhiji’s economist in Mark Lindley’s ‘J. C. Kumarappa’ ( www.popularprakashan.com ). It was in 1929 that Kumarappa met Gandhiji, and undertook an economic survey of a rural area in Gujarat. “The result of the survey was a book with statistics compiled from thousands of detailed interviews in fifty villages,” narrates Lindley.

Among the findings was that while the government’s computation of annual per capita income in 1881 was Rs 27, the district under study had only half that amount to boast of, ‘even without allowing for rise in prices’. The discrepancy, according to Kumarappa, was due to inclusion of ‘the income of millionaires’ in the government calculation, while his own average was ‘arrived at purely from the income of village people’.

In 1942, Kumarappa spoke of the need for ‘a society of largely self-supporting rural units’, within which the evil effects of competitive money-economy would be restrained. “An increase in the number of millionaires does not necessarily prove the country’s prosperity,” he said. “We cannot be blindfolded by the seeming prosperity evidenced by new buildings rapidly rising in suburban areas, nor by the increase in the capital drawn from Indians for working a few industrial concerns, nor by the luxurious lives of city-dwellers. India lives in the villages, and the evidence as to the prosperity or poverty of India has to be sought in the villages.”

Instructive material.

The culture mosaic

If your firm were a computer, your corporate culture would be akin to the operating system, guiding your employees to think, feel and act on the job, say Adrian Gostick and Chester Elton in ‘The Carrot Principle’ ( www.crosswordbookstores.com ).

“If your organisation were a living, breathing person, your culture would be your personality and very soul. It runs that deep.” When employees and managers understand their company’s culture, they would be able to make tough decisions instinctively, rather than having to refer to policy manuals.

Ensuring that employees fit with the culture is like creating a giant mosaic, made up of thousands of individual pieces, describe the authors. “In a corporation, something extraordinary happens when all the individual pieces combine to reflect the same company culture. The effect is absolutely awe inspiring.” A juicy ‘carrot’ that you can nibble at “to create a team where almost is replaced by above and beyond, where close becomes on target.”

Powerless losers

The global environment is our common home, but not everyone lives in the same room, observes James K. Boyce in one of the essays included in ‘Inequality, Cooperation, and Environmental Sustainability’ edited by Jean-Marie Baland, Pranab Bardhan and Samuel Bowles ( www.oup.com ). “Clearly, many crucial dimensions of environmental quality are not private goods, exchanged in markets where the rich can buy more than the poor. But neither are they pure public goods, that when available to one person are equally available to all.”

Many aspects of environmental quality lie in the intermediate terrain between the public and the private, he says. “A terrain where, in George Orwell’s haunting phrase, some are ‘more equal than others’.”

The essay poses three inconvenient questions: First, who are the winners, benefiting from economic activities that degrade the environment? Second, who are the losers, bearing the costs of environmental degradation?

And finally, why are the winners able to impose environmental costs on the losers? In answer to the final question Boyce lists three possible answers that could be unsettling: “The first is that the losers do not yet exist; that is, they belong to future generations who are not here to defend themselves.

The second possibility is that the losers exist but lack information about the costs that the winners are imposing on them; even if they are aware of the costs — for example, they may see that their children are ill — they have not traced these costs to the activities of the winners.” And the third possibility, which the author focuses on, is that the losers exist and know that the winners are imposing costs on them, but they lack the power to prevent this imposition.

Compelling read.

D. MURALI

http://BookPeek.blogspot.com