The Hindu Business Line : Markets are only human

It is easy to turn away from the depressing charts and fret about the fickleness of markets or argue why at all we should be putting faith in them. But then markets are only human, reasons Eamonn Butler in The Best Book on the Market: How to Stop Worrying and Love the Free Economy ( www.landmarkonthenet.com ).

And human interaction of any sort can often produce some odd results, he adds.

Thus, what is blamed as market failure is actually a human failing, or just a

human trait, says Butler.

“We are social creatures. We like to be in with the crowd. We follow the fashion. We want to be part of the latest craze. So when we are told that something is selling well, we all want to buy it too…”

The author asks if you can really blame ‘the market’ when you acted on what you think will happen but it doesn’t.

Alas, information about what actually is happening doesn’t travel at Internet speeds, it takes time to get round a market, explains Butler. “It has to be discovered, extracted, thought about, processed and acted on. That doesn’t happen in an instant.”

Essential read for investors who are keen on knowing the big picture.

Understanding operational risk

Apart from credit risk and market risk, an important arm of the risk management triangle is operational or transaction risk, says S.K. Bagchi in Operational Risk Management ( www.jaicobooks.com ).

He lists a few definitions of the phrase ‘operational risk.’ For instance Basel II

defines it as “the risk of loss resulting from inadequate

or failed internal processes, people and systems or

from external events.”

Bagchi categorises operational risk on the basis of severity and force.

Depending on the severity of input, operational risk may be ordinary (OOR), or exceptional (EOR).

If any element of an operational risk in any business segment is an inseparable part of the business but occurs less frequently and its overall impact on profit/capital is negligible, the same may be treated as OOR, elaborates the author.

“Some authorities consider that if ‘loss’ impact in certain transactions is limited to a maximum of 0.1 per cent of capital, the same may appear to be OOR.”

Key inputs for finance professionals.
Frantic shopping spree

China cannot yet match American or Japanese or European investment in the developing world, writes Joshua Kurlantzick in Charm Offensive: How China’s Soft Power is Transforming the World ( www.oup.com ). “In Singapore, one of the most open and business-friendly economies on earth – and a state that has encouraged mainland Chinese companies to enter its market – American companies have invested more than $40 billion,” he informs. “According to the most recent official statistics available, Chinese investments in Singapore have not yet cracked

the $1 billion barrier.”

The author avers that China’s appeal to the developing world rests in part on portraying the country as an investor.

Kurlantzick narrates many examples of how in the past five years, Chinese firms have embarked upon a frantic shopping spree for commodities, buying up $15 billion in oil and gas fields and companies worldwide, and often paying above market price.
“In Sudan, Chinese firms have become the biggest foreign investors in that nation’s oil industry, ploughing in some $4 billion. In Nigeria, the state-owned Chinese oil giant CNOOC purchased

a $2.3 billion stake in a major oil

and gas field in the Niger Delta…”

Imperative study.
Prioritise, allocate time

Many people suffer stress through their failure to effectively manage their time, says Jeremy Stranks in Stress at Work: Management and Prevention (Elsevier).
Check if these situations sound familiar: “Last minute crises because a report has not been finished on time, travel arrangements have not been made for an impending business trip or too much time was spent doing a task which is enjoyable at the expense of another task considered a chore.”

The outcome is panic, frustration because items cannot be found, feelings of hopelessness, loss of concentration, and anger at how things have worked out, the author describes.
He lists a few ready-to-implement tips for the time-hassled. His foremost counsel is to prioritise and allocate time. “Do not confuse the urgent with the important.”
Plus, say ‘No’ more often than ‘Yes’ to people seeking to take up time, advises Stranks.
“Concentrate on one thing at a time. Break major tasks down into small bits… Manage other people’s expectations, especially customers, to suit your time as well as theirs.”
Recommended stress-buster.

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D Murali

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