The Hedge Fund

The Hedge Fund

Question :What is in a name ? Ans : AN ERROR.

Recently the hedge funds are in the news, but this time all for the bad reasons. There has been news about imposing more regulations on it and The Security Exchange Commission Investigation for some reports of insider trading. In this article a take an effort to explain the hedge funds.

What exactly is a Hedge Fund ?

Well to be very honest, the name hedge fund is a misnomer. Hedging is a financial jargon used for the investment procedure by which we minimize the risk associated with the investment. But let me caution you, the hedge fund is the riskiest investment and with greatest return.

The Hedge Fund is formed by pooling the money from High Net Individuals (HNIs) rather Ultra HNIs and some other financial investors like pension fund etc. once the money is pooled it is invested into various financial instruments to earn some extraordinary profit. Well! so far it sounded like a Mutual fund investment ? True! But its similarity with the mutual fund ends here itself.

Hedge Fund Vs Mutual fund

The most important difference between Hedge Fund and MF is that the Hedge Fund is not regulated where as the MF is. This means that the area of investment in case of MF is well defined and the investment is confined there. For example is the scheme of mutual fund is to invest in fixed income scheme like bond and debenture, the MF can’t invest in equity. But in case of the Hedge Fund there is no such fix area. It can invest where ever it like to, be it equity, debt, derivatives or even any instrument which promises to pay high like , who knows even they can gamble J .

1998, the hedge fund called Long Term Capital Management Company made a loss of $2 bn and Amaranth made a loss of over $3 bn. Now for the positive note, the return on such investment sometimes is more than 50-60 %. So, what is that makes it so risky and an investment of high return?

J High Return :

Hedge Fund created includes pooling money from accredited investors. Accredited investors are those investor who themselves have collected money from retail investors with a promise to pay them some return, like pension funds. As the accredit investors have to pay some return to the retail investors as well as to have some return for themselves, they want to invest in fund that give them higher return. Also, the Hedge Fund themselves want some return which make expected return from the investment by

the Hedge Fund very high. Therefore the investment is made by the Hedge Fund in only those instruments which promises high return.

Various strategies adopted by the Hedge Fund to get higher return:

i) Opportunistic Hedge Fund: In this strategic investment the company invests in long and short equities. Short equities are equities whose price is expected to fall in near future. HF borrow such securities from some investors at some price and sell it in the market, and once the price come down it is bought back at lower market price and returned back to the lender of security. The gain is the decrease in price of share minus the charge paid to the investor who lends security. Long equities are those whose price is expected to rise up. For these type of equities the Hedge Fund buys it today and sell it later when the price climb up, thereby making profit.

ii) Venture in Hedge Fund: The investment is made in those equities whose price is going to fluctuate because of some major events like merger and acquisition, buy-outs or any major change in the company itself or the company is in some kind of distress but is expected to do well later etc.

iii) Relative Value Hedge Fund: This is slightly complicated to explain. Layman like me can me explained like there is difference in valuation of instrument giving same return. With same return they are being sold in market at different price. For example a convertible bond is giving same return to a combination of debt and security but price of bond is less than the D/E combo. So the Hedge Fund will sell the D/E combo and buy the bond. The return will be same for both combination and gain will be the difference in price the two structure.

L High Risk:

The investment is always exposed to BLACK SWAN EFFECT. European always believed that there are only white colored swans in the world as they had never seen any other color swan. Until 1698, when they found Australia and black swan they thought there were no black swans. Same is the case with investment. Since some risk has never occurred doesn’t mean that it is not there. The Hedge Fund say that there is no big risk. But they can’t hide the fact that every high return is associated with very high risk quite contrary to their claim. The advisor with foreign accent can easily convince the fallible investors.

A 32 year old made billions of profit though HF by expecting that price of natural gas is going to sky rocket. He took debt and invested in the natural gas. The next year Katrina occurred, wiping out islands. Prices shot up and the idea clicked. He sold natural gas at very high price and paid back the debt and earned return. The very next year a company called Amaranth invested on the same assumption and weather remained calm and pleasant and prices didn’t come down. This time the company was wiped out, not by the Katrina but by the stability in the price of natural gas.

BRAND PERIODIC TABLE

Hello friends,

There is very common perception that marketing is for nothing. Whenever you ask anyone who is not from marketing background, his simple answer will be nothing new in it, “simple jargons”, no learning and most common answer will be “NO VALUE ADDITION”.

In schooling we have learnt about Periodic table of elements in chemistry. On the basis of that table we can find out the characteristics of all elements.

Ques: Have you ever think of branding periodic table?

Answer: Hopefully not.

Have a look....

Built by Kolbrener, corporate branding experts

May be you find nothing new and quite confusing but just click on both the pictures & open them in new tab.Wait for few seconds TABLES will open in new window then move your cursor on each of the elements and compare the ease in explanation of elements etc.
There is misconception that marketing is only for confusing the customers. Its wrong marketing is not to confuse customers but to provide service in most convenient way.

I believe its a best way to explain branding jargon in unified form..

Now a time to appreciate the creativity, learning and value addition from marketing.

KUDOS for marketing..

Cannibalization of One Dayers!

Cannibalization refers to a reduction in the sales volume, sales revenue, or market share of one product as a result of the introduction of a new product by the same producer. The sales volume we are talking about is the TRP rating, endorsements, and revenues from ads. The product we are talking…. ya you guessed it right we are talking about 20 20 cricket. this power packed, limited edition of cricket has caught everyone's eye. With boys in blue bringing home the world cup there's more hype and hoopla around this latest invention in cricket arena. If Test sounds like jazz, One day sounds like rock n roll, then you can switch to 20 20 which definitely is a Caribbean calypso. Cricket is a game of uncertainties, but 20 20 is uncertainties exponentialized. Control swings from one over to other, one team to other, one ball to other, and it rains sixes in 20 20 land! If u want some adrenaline rush watch 20 20.

Lets do a SWOT of 20 20.

Strengths

• More cricket for more money.
• More value for money - for the same ticket you get more 6s and 4s.
• More number of teams as the format becomes popular.
• Shorter duration adds to the excitement.
• Greater unpredictability adds on the thrill factor.

Weakness

• More cricket more injuries.
• Shorter duration, lesser ads for companies.
• Are there anymore weaknesses? I don't find any.

Opportunities

• It can compete with sports like football and baseball.
• This format might be excepted in Olympics.

Threats

None!

Blue Ocean: Cost & Differentiation focus in Red waters

MTNL's new move could just break the clutter in the PC market. If you happen to be an MTNL customer, you will soon be able to get a PC for as low as Rs 4,500. To top it up, this PC, which MTNL will offer in partnership with Chennai-based Novatium comes bundled with an internet connection for a small monthly fee. Communication and IT minister A Raja is slated to launch the low cost PC in Delhi on Monday. This computer, called netPC by Novatium, is a no frills device, this means, most of the common hardware that you find on any normal PC is absent here.

The terminals will be connected to a centralised server in the locality by MTNL and provide it with the internet service. The PC which looks and functions like any other desktop does not have a regular CPU or any storage devices. All applications, including the storage of data of all customers are done by the centralised server in the locality. A similar project undertaken by Novatium in a south Chennai locality provided all users with 2GB of remote storage space on a central server. With regard browsing the internet, common problems like the viruses, installation of different security software does not occur since connectivity to the World Wide Web is remotely managed by Novatium.

Put simply, Novatium and MTNL will sell computing as a service against the traditional model where the customer buys the device and then takes a connection from a telecom company or internet service provider to access the net. The netPC’s advantage is that its customers do not have to face the challenges associated with a regular PC. The USP for this model is the low cost of ownership, low maintenance and only server end system upgrades that keep obsolescence at bay.

Customers also have the choice to use either Windows or the Linux operating systems. Since the entire concept is routed through a centralised server, customers are saved the hassles of hardware and software costs as well as upgrades as these tasks are carried out centrally.

This model is totally new and never been tried. A good thing to note here that core here might now be the desktop but the service provided. If this model works out the whole idea of a desktop might go for a toss as the storage space is completely out of picture. But privacy and integration might be issues. So guys do you think its an apt example of blue ocean in red seas?

Source: Economic Times dated 24th sep 2007

Sethusamudram or Shri Ram Sethu?

In India, religious issues spread like fire in a jungle. Few days back when UPA government announced to dismantle the Ram setu Bridge between palk bay & gulf of mannar (between India & Sri lanka), there was huge protest started across the country. As usual, Ram setu issue got ignited by one of our national party in India. Today in every part of India, this issue become fire.

Lets look at the statement of UPA government when “RAM SETU” bubble spurt and become a world wide protest.

According to Mr Kapil Sibbal (congress patry leader)stated: “There is no clue that ram setu bridge between India & Srilanka is man made or made by Lord Rama”.

Recently the statement by DMK leader and Tamil Nadu CM, Mr M. Karunanidhi that there is no hindutva & no lord Rama, Its imposed by Aryans on dravidans, then on Thursday another statement of respected Tamil Nadu CM was- Lord Ram a ‘drunkard’ and a ‘big lie’.

These statements of Tamil Nadu CM worked like “GHEE IN FIRE”.

This issue of ram setu came into picture few days back with central government statement of dismantle of bridge but it was started on 9^th March, by various hindu groups to protect the heritage of HINDUTVA & to stop the construction of central government’s huge project of Sethusamudram Ship Canal Project (SSCP) between palk bay & gulf of manaar.

Benefit of SSCP (Sethusamudram Ship Canal Project):

• Reduction of distance around 650 km (around 350 nautical miles)

• Marinetime Security

• Reduction in time by 12 hours

• Reduction in expenditure of about 21 crores on fuel.

• Economic & industrial development of coastal Tamil Nadu

• Extension of ports and 13 new ports in tamil nadu coastal regions.

Now It’s a time to look at the issue with various angles…

Religious issue: According to Hindu's epic Ramayana, Lord Rama with his vanar sena (army of monkeys) formed this bridge to cross the sea and fight against Lanka’s king RAVANA. According to recent NASA pictures its proved that there was one bridge between palk bay & gulf of mannar. If we match the epic’s words with this bridge it showed that there was lord Rama who made this bridge.This bridge is heritage to hindus and become world heritage after NASA pictures.

Controversial points:

• Rama’s bridge is only 3,500 years old: CRS

• Rama Setu is NOT a natural formation: Dr. Badrinarayanan, former director of Geological Survey of India and a member of the National Institute of Ocean Technology (NIOT) says the Adam's Bridge was not a natural formation

• Rama Setu IS a natural formation: American space agency NASA has said that the structure of sand bars and rocks situated in the Palk Strait between India and Sri Lanka, known as Ram Sethu or Adam's Bridge in maps, is a natural phenomenon and not a man-made structure.

Possible Outcomes: These burning statements of political leaders can cause huge religious turbulence.

Implications: All epics are just stories because there is no fact & proof is available.

Political issue: In UPA government there was big conflict between the parties (i.e. congress & left front)on 123 agreement and this issue raised a huge protest against DMK party (coalition partner in UPA).

Mrs.Ambika Soni, the disgraceful Union Minister for Culture, soaked and steeped in her self-chosen, imperious, insolent, comfortable, cozy, and self-confident ignorance, may not be aware of the fact that there are exquisite sculptures of Rama Setu carved in the 9th and 10th centuries AD at Prambanan Temple, Java, Indonesia. Also known as Loro Jongrang Temple (Temple of the Slender Maiden), Prambanan Temple was built in the 9th century and is the largest Hindu temple complex in Indonesia.

This temple in Indonesia was largest temple of country & UNESCO (a non-saffronized International Organization!!) has declared this temple complex as a World Heritage Site.

Source: ivarta.com

Possible Outcomes:

• Huge affect on the vote bank of congress in different states.

• Economic benefit of northern Srilnaka region currently occupied by LTTE, so it may hamper the relation of India & Srilanka.

• Anti Hindutva image

Implications: Politicians or minister are not well aware of facts which implies that they are for personal interest inspite of public interest .

Environmental issue: Ramasethu, played a key role in protecting the coastline in South India against the unforeseen ravages i.e Tsunami (2004). This setu acted as a natural shoal barrier preventing the inflow of waters.

Adverse effects:

• The SSCP will adversely affect the south Indian coastline i.e Dhanushkodi ,coastline of Kerala &Konkan region.

• Cause changes in temperature, salinity, turbidity and flow of nutrients

• Cause oilspills from ship and other marine pollution to reach the coastal areas and specifically the sensitive ecosystems of the Gulf of Mannar.

• Lead to higher tides and to more energetic waves, and hence to coastal erosion.
  

• Affect the local sea atmosphere and thereby alter the pattern of sea-breezes and hence affect rainfall patterns.

· This project will badly affect the ecology of region, gulf of mannar has 3,600 species of plants and animals and is India's biologically richest coastal region.

There are so many doubts about the authenticity of SSC project because there were number of environmental & technical issues are still unsolved which opposed this mega project of government.

Technical issue:

• As per NEERI(National Environmental Engineering Research Institute, Nagpur) report, government recommended the project but now researchers proved that when NEERI submitted its report to government of India Tsunami 2004 event was not taken into consideration

• Effect of a tsunami-type of event on the SSCP. All the scientists are unanimous in their view that a recurrence of tsunamis cannot be ruled out.

• Locations for dumping the dredged sand

• Costs of continuous dredging given the continuous sea currents which tend to create the shoals through the never-ending natural accretion process, again and again rebuilding the Ramar bridge, and thus making the SSCP, apart from being financially unviable, inoperable for most of the time.

• There has been no market study of the numbers and types of vessels which will navigate through the channel and the freight rates expected to be paid by these vessels for being tugged through the proposed Canal.

Lack of competent project leaders: According to Prof Rajamanickam (India's eminent coastal geo-morphologists and mineralogists.): India have lack of Earth System scientists- geo-morphologists, sedimentologists, mineralogists, oceanographers, climatologists .The present monitoring team, which comprises scientists from Marine Biology, Fisheries etc., will be able to do only 10% of the total required monitoring work.

Questions to Government:

• Why was the Metro route passing ’close’ to Qutub Minar in New Delhi, modified and later reworked fearing prospective damages to this 815- year old man-made monument?

• Why was the Taj project corridor (which would have generated lots of money for our money-minded government) put off after environmentalists raised a hue and cry fearing any construction near the Taj ’may’ damage the 359-year old man-made monument? Please note that the environmentalists only ‘feared’ that the monument might be damaged; they did not state it would be damaged!

• Will any government in China destroy or even alter the Great Wall of Chi-na (2,695 years old) for the sake of money?

• Will any one allow pulling down the 4,507 year-old Pyramids of Egypt in lieu of any amount of money?

If the answer is NO, then why this 17,25,000-year-old, man-made monument is being destroyed for the sake of some coins?

References:

IBNLIVE.COM

Ramasetu

Advertising and its Negative Recall

Some ads speak to us in a way that irritates, and we detest their repetition nevertheless they have high recall. This brings in the phenomena of negative recall. The essential difference between liked and disliked ads is not what they say but how they say it. Negative recall are disliked but can still work.

In our society, the history and culture of advertising has its root in communicating news about products and brands. Today we see a lot of advertising messages delivered as though they are new when they are not. Unrequited expectations of being told something new tend to annoy us. Some ads, by their very nature, are ads with messages formulated in such a way that they almost are guaranteed to irritate us if they are constantly repeated. One problem for advertisers is that such advertising can wear out more quickly than other type of advertising. Some advertiser deliberately attempts an irritating formulation of ad and its jingle to increase recall value or brand saliency. But then they risk their brands image. It is important to remember that Advertising is a part of Brands overall personality. Memorability more than recall value should be the objective. If the ad had really struck a chord, we will never forget it in the positive sense. But if we see an annoying ad all the time or hear that frigging jingle, its negative recall.

Not all ads are made to entertain us. For example when a news commercial reveals a solution to a current problem, then experience and enjoyabilty can take a back seat. For such ads to be effective it is not crucial that we like the ad if it gives us some news about the brand that is relevant to removing some irritation or problem we have with the product that we are currently using.

Liking an ad doesn’t necessarily make it work but, other things being equal; advertisers should prefer us to like their ads. There are not reasons for this:

i. Just as good clothes make a person look more attractive so a brand’s advertising attire can add to its appeal. Ads that are dressed up to be cute and enjoyable are more acceptable than ads that speak to us in a way that grates and annoys.

ii. Just as we feel more inclined to argue with someone we dislike than with someone we are fond of, so our minds tend to react similarly with advertising. We are less inclined to counter-argue when we find ourselves enjoying the ad.

The ad agencies and their clients should make clear distinction if they want Consumers Engagement or Consumers Annoyance.

Wars for Greed: US annihilation of Iraq

I am continuing from my previous post titled 'Wars' where I had explained Resource wars waged for need, now we look at why greed fuels wars? The war under our microscope is the US invasion of Iraq. Let’s ponder on the 'ultima risorsa' which might have led to this war.

Oil - The well of all evil…

‘Conventional oil’ means oil drawn from liquid pools in the ground, reached by conventional drilling, therefore excluding tar sands, bitumen, and exceptionally deep wells reached by new techniques. According to the BP statistical review of World Energy the top 3 players are Saudi Arabia - 262.7BB (22.1%), Iran – 132.5BB (11.1%), and Iraq – 115BB (9.7%). According to the Energy Information Administration, Iraq has 125 BB, but it is suspected of having far more, perhaps as much as 300BB. Exploration using advanced techniques has not been done there since the 1960s, so unofficial estimates rest on preliminary work done by Iraqis with French and Russian help. Iran now claims to have made new discoveries after a long period without exploration.
Overall, roughly two thirds of the world’s proven reserves are in the Middle East. To see how unbalanced this really it, note that 25.7% of world reserves (and roughly 40% of Middle East reserves), are in Saudi Arabia alone! Iraq, second in line (and, rumor has it, possessing even larger reserves than recorded), has a share in world oil reserves of about 11%. Apart from that Iraq borders with Kuwait and many unexplored reserved lie beneath this border area.
Taking world oil reserves as a whole, at current rates of production there are more than 40 years left before exhaustion. Considering individual countries at their present rates of production, for Iran there are 81 years, for Iraq 140, for Kuwait 150, for Saudi Arabia 96, and for the United Arab Emirates 86.
Venezuela has 53 to run, but, the US has only about 18 years left before the exhaustion of its oil reserves. As time passes, we become more technologically advanced more and more oil will be recovered at a faster rate. With the advancement of technology oil can be produced from unconventional sources such as oil sands. Presently, the costs of recovering petroleum from oil sands may prove daunting; almost as much energy must be used in processing as the final product will contain! Moreover, the processes generate severe pollution.

Modern economies apart from being knowledge based are also energy based but energy cannot be recreated like knowledge and hence must be acquired.
“By 2010 we will need on the order of an additional fifty million barrels a day. So where is the oil going to come from? ... While many regions of the world offer great oil opportunities, the Middle East with two thirds of the world's oil and the lowest cost, is still where the prize ultimately lies.” - Dick Cheney
Now let’s look at this vital resource from US perspective. As I have mentioned that currently 2/3rd of the oil booty resides in Middle East. US imports only 20% from here whereas OECD Europe imports about 35% like other nations. Next major chunk of import come from Saudi about 15% and 11% from Venezuela which is the costliest of all in terms of extraction. Within last few years US's foreign relations with Middle East and Saudi has become weak due to its 'war on terror'. In all the developed oil based economies like Saudi the oil wells have 'peaked’. Mind you US has got just 18 years to rectify this situation.
The idea behind the ‘peak oil’ hypothesis is simple enough: given finite deposits of a natural resource –oil, say, or copper – before we begin exploiting it the rate of production is zero, and after it is exhausted it will again be zero. In between the rate of production will rise, at some point it will peak, and then fall back towards zero. We will start with those deposits that are most accessible and easiest to exploit; as we invest, the rate of production will rise, and as infrastructure is developed the rise will accelerate. But sooner or later we will exhaust the easily managed deposits, and will have to turn to more difficult ones. At this point the rate of increase in production will slow down – and eventually stop rising. This is the peak. After this, the rate of production will fall, first slowly, then faster, then gradually sinking to zero. The first proponents of the hypothesis suggested that the peak was likely to occur very near the middle. US oil has already peaked in 1971. Proponents of peak oil suggest that world oil will peak somewhere between 2005 to 2011. Two of the largest wells in the world in Saudi and Mexico have already peaked and their production rates are falling faster then expected (this is one of the reasons for recent hike in crude oil prices).

But if peak oil is a myth, we can expect production to be jacked up, exploration to bring new supplies, and new technologies to develop oil from unconventional sources at competitive prices. On this view, eventually, prices will fall, and it may even happen that shortages will be displaced by surpluses. Or, perhaps, there are positions in between – it may be that some producers, e.g. the US, have indeed peaked, and are on what is very likely a permanent downhill path.

In such situations the unexplored, hidden oil booty in Iraq can be a life saving drug for the already receding American economy. So was oil the only reason for Iraq invasion with the excuse of Iraq possessing weapons of mass destruction?

Rationales for the war

1. Oil & Oil companies
Leftists believe Iraq was invaded very largely because the US ruling class wanted the oil, whether for oil companies or for another more complex reason which involves ensuring control over the oil supply. Some of these people argue that the United States has a growing oil deficit and is moving to secure oil sources. They point to the possible exhaustion of oil supplies in the near future. One variant of this argument points to the nearness of the Caspian Sea and the oil pipelines emanating from there. Those supporting this view draw attention to the way that Western oil companies are buying former oil wells on former Soviet territory. A cruder version highlights the special role of oil in the US administration—the fact that Bush and Cheney both had oil interests at one time. Some argue that the oil companies wanted to raise the price of oil, and others that the US government wanted to lower the price of oil.

2. a. There are those who see the war as a natural extension of the interests of the chief capitalist power and hence a natural development of its imperialist nature. For them it is big business doing what big business always does. The various contracts given to US companies, particularly to Kellogg Brown and Root, the Halliburton subsidiary, show the reason for the war. From this point of view, Saddam Hussein’s regime was anti-market, and Iraq had to become more open to privatization in order to provide US capital with an extension of its interests.
b. A subset of this argument asserts that the United States is displaying its imperial power and so establishing world dominance, now that it is the single world power. In other words, the end of the Soviet Union has cleared the way for the United States to impose its imperial might over the world, but most particularly over the underdeveloped world.

3. There are those who argue that the conservatives have taken over the administration of the United States and that their agenda is one of remaking the Middle East in the interests of the United States. For these observers, Rumsfeld, Wolfowitz, The Weekly Standard, and others of that ilk determine the policy of the United States, and they have a well developed doctrine of US supremacy that they are implementing, a doctrine going back a decade and sometimes more. One aspect of this view is that the conservatives want to establish a new order in the Middle East more favorable to Israel. It is certainly no secret that they want to democratize the Middle East, by force if necessary. The question is not whether the conservatives wanted war but whether they played such a critical role in the US administration that they themselves were the actual cause of the war. We can dismiss the idea that the United States really went into Iraq in order to remove weapons of mass destruction or a genuine terrorist threat. That was never on the agenda, except, perhaps, for Tony Blair. Nonetheless, this argument is of some importance, in that it was used as the excuse for the war, and the very lameness of the excuse forces one to try to understand what lies behind the excuse itself. In other words, the very weakness of this argument appears to suggest that there was another structural reason driving the US government to act, a reason so powerful that the administration was compelled to go to war.

So friends I have told you of all the strategic reasons for waging the Iraq war which is the reason you think compelled US to take such a step. Was there no alternative? So why does US interfere in the energy crunches of Asian countries like India when it is not able to handle one itself? Your comments will help me ponder further...

Interesting sites related to Iraq war…
www.photojournalismstock.com/
www.rubyan.com/politics/war/
dearkitty.blogsome.com/.../big-oil-grab-at-iraq/



Related articles

Wars

FINANCE SERIES-2

Prem Kumar

2nd year Student (finance)

IBS Hyderabad


Dear Friends!

We had discussed the Basics of Risk and Return in our last Paper.Having discussed the basics, we now come to some deeper concepts of CAPM.

CAPM (Capital Asset Pricing Model):

The CAPM is a model that relates Risk & Required Rate of Return (RRR) for assets in a well diversified portfolio.

Assumptions of CAPM:

• Single holding period
• Identical expectations for all investors
• Unlimited funds can be borrowed or lent at the risk free rate.
• Assets are perfectly divisible
• No taxes
• No transactions costs
• Price takers: Individual investor would not be able to influence market
• Fixed quantities of all assets

CAPM helps us to construct a portfolio of securities based on our specific Risk-Return Profile (What is your Risk – Return Profile?).We can make a variety of portfolios consisting of distinct weightage of stocks from a given set of stocks. All these portfolios make a feasible set of portfolio.

An Efficient portfolio is a portfolio of stocks chosen from the Feasible set of portfolios, which satisfies any one of these two conditions:

a)Maximum return for a given risk

b) Minimum risk for a given amount of return.

As can be understood with little mind boggling that within the frame of feasible set, one can have a collection of efficient portfolios. The collection of all these efficient portfolios is called the Efficient set /Efficient Frontier.

fig.1

Now, lets discuss one basic logic: If you are given a specific return A and are ready to face a risk X for expecting this risk. If there is an alternative return B for which you are ready to bear a risk Y and you have your own analysis of various such Risk –return tradeoffs ( Your Risk-Return Profile),then we take all such points on Risk-Return graph and connect them. This curve is your Indifference curve (Similar to one in Microeconomics).

An Indifference curve reflects an investor’s attitude towards risk/return trade off. Now your trade would definitely be different from mine. So all of us have our distinct Indifference curves based on our respective Risk averseness.

Now the point of intersection of your Indifference curve with efficient portfolio (efficient set) is called your optimal portfolio.

fig.2

Now, if we introduce an asset like Treasury bill (Risk free) in our so called optimum portfolio, what should happen?

We know, if Krf is the return of any such asset,then this will represent a point somewhere on Y axis( because risk representing X dimension is 0).This asset is included in our optimum portfolio,so this point should be added in new efficient frontier.

Hence draw a straight line from Krf , a tangent on old efficient frontier.

fig.3

The line MZ is called Capital Market Line and is defined as a locus of all possible combinations of Risk free asset and portfolio M.

Portfolios below CML are Inferior and all investors will choose a portfolio on CML.

fig.4

_{Now, what is your New optimum portfolio?}

Now, what is your New optimum portfolio?

It is the Point of intersection of Your Indifference Curve and CML.

Now let me make something clear because for beginners there is a very big confusion between two terms.

Capital Market Line (CML) is NOT Security Market Line (SML).

What is SML (Security Market Line)?

SML gives risk/return relationship for an individual stock whereas CML gives the same for efficient portfolios. We have already discussed SML in our last article.

Related Articles:
Finance Series-1

BLOGSPHERE & ITS ACHIEVERS

Today, blogging become a passion for writers, techies, editors, students etc. Here in his/her blog one can explain his/her love, passion even anxiety against anyone. Its your personal web page and you have full right to write whatever you want to write.

Today, DYUTITA crossed the initial target of 1200+ visits in just one month of time. The most astonishing aspect is about its visitors. Today morning, when we were analyzing the whole report of our blog visitors, we found out an amazing fact that our visitors are from 12 different Indian states and international visitors from 27 different countries & highest from US...

Lets look at the statistics of our blog:

On (19^th September, 2007)

source: google analytics

THANKS TO ALL OUR VISITORS

WORLD BLOGSPHERE:

There are number of bloggers who do blogging but if you ask him that that who is world most famous blogger, he will get stuck----“ Unfortunately I was that person who don’t know about such important facts”. It’s a bad impression because if you are doing some very passionately then you should know about its evolution, achievers etc. To avoid such setback for you & me once again I am giving you a glimpse of veterans of BLOGSPHERE.

Start from bottom:

No. 10: Mr. Brain Lam – (Technology blog)- popular gadget blog Gizmodo- . 40-50 posts daily.

N0.09: Mrs. Gina Tarapani- (technology blog)- Gina’s blog

No. 08: Ariana Huffington- (political blog)-The Huffington Post

No. 07: Mark Frauenfelder- (writer’s blog) Boing Boing

No.06: Pete Rojas- (gadget blog) - Engadget

No.05: Joi Ito- (techie blog)- just look at the profile of such personality…Joi’s blog

No.04:Jason Calacanis- (popular personality of Internet)-direct publicly attacking on founder of dig.com Mr. Kevin Rose. Jason's personal blog..

No. 03: David Sifry- (Founder of technorati.com)-Icon of blogging world- David’s blog

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Waiting for NEXT !!!

No.2: Kevin Rose (founder of dig.com)- Kevin’s blog

Now WORLD’s most famous blogger, god father of blogging……….

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NICK DENTON- Denton is the founder and proprietor of Gawker Media, perhaps the most successful blog network. It includes 14 high-traffic blogs, the largest of them being gadget blog Gizmodo, productivity blog Lifehacker, gaming blog Kotaku and porn blog Fleshbot. He was previously a journalist with the Financial Times.

Denton owns 8 blogs in the Technorati Top 100 list, and has created the most powerful blog empire. His estimated wealth is about $280 million according to the Sunday Times Rich List 2007. While he has downplayed the viability of a blog as a business, many believe that that’s just his way of discouraging competition. With very low costs (including modest wages for staff writers), Denton’s blogging income is guessed to be pretty high. And in total, his blogs have the most links pointing at them.

Nick’s blog

Don’t be disheartened that all are foreigners, we Indians are very good in finding bypass to achieve success. Lets look at few Indian Bloggers

Trak in – blog on current business movements, if you missed to know about something. You can get full stuff.

Digital Inspiration-1.2 million hits per month, most visited in blog in India. It was started by Mr. Anil Agarwal in year 2004.

Now India’s top blogger in World TOP 50 BLOGGER LIST

Neil Patel- Ranked 50 among world top 50 bloggers- Patel has successfully branded himself as one of the top experts on SEO and Internet marketing, including linkbaiting and social media such as Digg or Netscape. This is not only because he finds ways to exploit loopholes in the system to get on the Digg homepage or a high ranking on Google, but because he’s willing to talk about it and share his secrets with others. In addition, he’s done some high-profile publicity, such as publicly challenging Weblogs Inc. owner Jason Calacanis when Calacanis implied that SEO techniques don’t really work — and the high-profile publicity has made Patel one of the top names in the industry.

Neil's QuickSprout , Pronet Advertising

Om Malik- ranked 35 among world top 50 bloggers- Malik is a former senior writer for Forbes magazine, one of the original team for Forbes.com, and a former senior writer Business 2.0 magazine. In 2001, he started technology blog GigaOM, which is now in the Top 40 in Technorati. He’s still the editor and chief writer for GigaOM, but he has expanded to form GigaOmniMedia Inc..

Om’s personal blog

It’s a snapshot of world & Indian best bloggers, today when we talked about our blog there was very common reaction from public that blogging is outdated but I believe If you have creativity, enthusiasm and ability to change with changing market scenario nothing can be outdated…

Blogging is like a business if you have marketing myopia then business will be no more but If you have vision, proper strategy and above traits then success will be your next target..

Keep visiting & keep blogging friends.................

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Top 10 ways to infuriate your customers

When, and if ever, is customer service going to catch up with customer expectations? With the multitude of tools and technology available in the market today to help businesses understand their customers better, one would wonder why there doesn't seem to be any improvement in service.

I consider myself a reasonably easy customer to manage. I don't expect top-notch service everywhere I go, and I'm willing to overlook minor shortcomings in the services rendered. I also generally remain calm when dealing with helpdesk officers whom are paid--no doubt with the proceeds I forked out to purchase the service--to help me troubleshoot.

And yet, too often, businesses are fronted by a customer service setup that is incapable of managing customers. I recently encountered two examples of inadequate service management, with my mobile operator and the security vendor that produced my antivirus tool.

My experience with both companies inspired this Top 10 list of ways to piss off your customers. So, here goes...

1. Tell new customers that because they signed up for your service later than others, they will experience delayed service delivery.

Last month, I signed up for a new service to receive results of the latest lottery draw--yes, I have dreams of retiring early--via SMS (short messaging service). Somehow, I kept receiving the results 35 minutes later than my friends--who were customers of the same mobile operator--had received theirs.

So I called up the customer service desk, and was told that the results were delivered by batches, based on a queue system. As a result, customers who signed up for the service earlier would receive the results sooner than those who signed up later.

I then highlighted the fact that I pay the same service fee as those 'early-bird' customers, and a 35-minute delay was unacceptable.

2. When they don't buy that explanation, tell them it actually isn't a delay and that it's only a perceived delay.

To which, the customer service operator replied in a stern voice that it wasn't a delay, but the way the backend system works.

Wow, and I thought companies these days sold their services based on "transparency", where they stress the fact that their customers do not need to know how the back-end works. Rather, what matters most is that the customer's direct contact with the product or service is first-rate.

3. Make no apologies for deploying a back-end system that can't support the delivery of basic services.

So I promptly pointed out that as a customer, I shouldn't have to understand the back-end issues because at the end of the day, my experience with my mobile operator is that I'm encountering a 35-minute delay in receiving a service that depends on a timely delivery.

Rather than offer an apology for inefficiencies of the company's back-end system, the customer service officer repeated again that it wasn't a delay.

Seriously, just how many customers does it take to clog up a batch delivery system to create a 35-minute delivery gap? It's obviously time for my mobile operator to upgrade its back-end infrastructure.

4. Say you can't get your tech guys to help because you're only a customer support staff.

When I asked if her colleagues in the tech department could offer any assistance to fix the problem, the customer service staff said she couldn't ask them for much help.

Wow.

5. Make no attempt to retain customers who complain about your service. Instead, repeatedly tell them they can always choose to cancel the service.

Throughout the conversation, the service officer never once uttered "sorry" or even a "we regret the inconvenience".

Instead, the one phrase she kept asking was whether I wanted to cancel the service, which I eventually did, of course.

So now, I get my friends to forward the results to me--it's free and it's faster, no more 35-minute delay.

6. Be inept in using modern communication tools.

Then, three nights ago, I decided to log into an online chat session with a tech support staff who worked for the security vendor that manufactured my antivirus software. I was having problems receiving e-mail messages, and suspected it was caused by the e-mail scanning security tool.

For every five lines of text I typed out to explain the problem I was experiencing, the helpdesk staff responded with a single line and after a long two- to three-minute wait.

Wouldn't he--I'm assuming the username belongs to a male--be so used to handling chat sessions in his job that he would be able to be type more than 15 words a minute?

7. Get your helpdesk to keep telling your customers to troubleshoot by uninstalling and reinstalling the software they bought from you.

Failing to resolve my problem after a short series of tests, he then suggested I uninstalled and reinstalled the antivirus software. But, that's what I was hoping to avoid doing by contacting the helpdesk!

8. Tell your customers to wait two to three minutes while their problem is escalated to "a senior analyst", but return only after 10 minutes in a hope that the customer would have by then left in a huff.

Still, I decided to heed his advice in a desperate bid to at least achieve some results after the long consult. By that time, it was past 3 in the morning because it had taken two hours for him to relate his instructions via text.

Surprise surprise, the reinstallation did not help. He then said he needed to "escalate" my case to a senior tech analyst and asked if I could wait "2-3 minutes". After two hours, a couple of minutes didn't seem that bad.

I waited...and waited...and waited. It wasn't until more than 10 minutes later that the "senior tech analyst" finally entered the chat session.

9. When all else fails, have the helpdesk tell your customers the problem doesn't lie with your product. Point the finger instead at other companies such as the ISP, the hardware maker or the OS maker.

He repeated the same instructions that his "junior" colleague had given me earlier, and when that failed again to resolve the issue, he finally suggested that his company's product wasn't the problem.

Instead, he suggested that I approach either my ISP or the software maker from which I bought my e-mail client for help.

By then, at 4.30am, I was too exhausted to argue and promptly ended the chat session.

10. Give economy class customers, economy class service.

Over lunch with some industry folks the other day, one of them related a story about a friend who was on a flight to the United States. The airline's woolen blanket was shedding and had left specks of lint on his shirt. So he called a stewardess over and showed her what the airline's low-grade amenities had done.

The stewardess walked over, pointed to a sign on the aircraft and retorted: "It says Economy Class."

Oh boy, and I thought airlines were already charging too much for those darn narrow coach seats.

I fully understand why companies need to differentiate their service levels by the value of their clients. They are, after all, still a profit-based business and must ensure the top-value customers--who likely contribute to the bulk of the company's revenues--remain satisfied and well looked after.

But that in no way means their basic-tier customers, who make up the majority of their clientele, should receive shoddy service.

When you piss off 1,000 customers who pay $50 a month for your services, and they leave in exasperation to join your competitors' terrain, you just lost $50,000 of your market share to the competition.

Think about that before you next tell your helpdesk to flippantly suggest customers cancel your service if they're unhappy.

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Mohan. A
Bangalore