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The Wisdom Of Finance By Mihir A Desai Read By Mihir A Desai

It provides an excellent framework to think about how we should approach life’s important aspects with ideas borrowed from the ‘not-so-much-loved’ finance universe (reference to the chapter ‘Why Everyone Hates Finance’). I loved how he connected literature, arts, and finance to deliver his ideas in a form of outstanding and highly readable work. So glad to discover this book from Mihir Desai’s podcast with his colleagues. Desai’s stories and analysis made me reevaluate what finance was all about. It isn’t all just about securing mergers and looking at financial models, it’s about what’s at work behind the curtain. All of these models and general assumptions about growth in finance are based on aggregated randomness and risk. When you work in a mutual fund, you essentially are assessing risk and using the collective pool of loans given to assure compensation.

Both of those things are going to help financial players and markets a lot, and that’s great, because it’s going to help the economy more importantly a lot. It’s going to free up a lot of capital that can come back to this country. I think the real thing is, let’s get back to these underlying ideas as a way to move the industry forward. So I thought it would be much more interesting, much more fun to talk about risk management with that , as opposed to the Black-Scholes-Merton pricing formula.

His research has been cited in The Economist, BusinessWeek, The New York Times, and several other publications. the wisdom of finance takes well-known financial concepts and applies them to our most pressing life issues.

Thoughts On the Wisdom Of Finance: Discovering Humanity In The World Of Risk And Return By Mihir A Desai

The excessive leverage/borrowing can result in bankruptcy during bad times, but under favorable business situation, the results are very rosy. Similarly, we should experience as much as possible in order to make good decisions and understand the world with the right probabilities. Our own experience will be always limited, therefore understanding from the experience of others through books, lectures will enrich in taking better decisions. Experience is the key method to deal with the chaos of the world as in the case of insurance.

Lack of inappropriate financial structure can result in distrust, and stifle the growth of the economy. Lack of appropriate financial infrastructure can result in financial manipulation, the sector extracting more value than the value that the sector is creating. The understanding of financial concepts and its correlation/analogy with daily life scenarios will definitely enrich our understanding and decision making. Author Mihir A. Desai employs literature to explain how the principles of business and high finance inform universal human challenges not only in business, but in life.

  • Though I loved the anecdotes and the excerpts from classic literature, the real purpose of the book was lost on me….may be, the title is a misnomer.
  • In our life the role of principals and agents keep on changing depending upon the scenario.
  • I had long been bothered by the common presumption that markets, and finance in particular, were a crass domain that we had to shelter ourselves from in order to live a good life.
  • I was not only reading the book with pleasure but watched some movies like Double Indemnity & Working Girl, for which book was perfect illustrator of their use.
  • The person who’s usually valorized — the guy who says, “I stand by my commitments, no matter what” — is not really the hero.
  • His work has emphasized the appropriate design of tax policy in a globalized setting, the links between corporate governance and taxation, and the internal capital markets of multinational firms.

Unfortunately, despite the best intentions and considerable erudition that Mihir Desai brings to the project, I found some elements of the book’s development to be too flawed to get past. The Wisdom of Finance is a book that certainly promises a lot. What lessons can we glean from the academic discipline of finance that will help us lead better everyday lives? In turn, what can examples from art, philosophy, literature, or film provide to help us understand our economic relationships better? Indeed, any volume that manages to conflate in a compelling way the truth and beauty of the humanities with the practical realities of managing financial opportunities would seem to be a noble and intoxicating venture.

The Wisdom Of Finance: Discovering Humanity In The World Of Risk And Return By Mihir A Desai

In that situation, no plausible concession can be made that allows the industries to continue operating in their accustomed manner. There is a successful financial model for pollution alleviation—acid rain. My favourite chapters are ‘On Value’+ ‘Becoming a producer’ + ‘No Romance Without Finance’.

Appropriate bankruptcy structure is critical to create environment in which business & innovation can flourish in the society. Principal-Agent problem has analogy with even day today decisions as consciously or unconsciously we are taking decisions on behalf of others. Many a time, we have forex analytics to delegate the task in our life to others in our professional as well as personal life, in that case effective delegation, supervision and empowerment of the task and objectives is crucial. While delegating the task, we as principal want the agent i.e. subordinates to do the task.

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Finding the order within the chaos is something many people cannot do in their own lives, let alone doing it with wealth. And this interconnected movement of people caring for themselves and doing the right thing individually composes the collective market, a beautiful symphony when played correctly. Dr. Mihir Desai’s examples about shipping forex analytics insurance agreements are a corollary to Dr.Peterson’s ideas in that there is a shared responsibility of bearing your burdens by the shipping company. Desai adds that there is a safety net for when one does make a mistake, and many mistakes are also collectively handled by the social fabric, another statement Dr.Peterson would agree with.

In our life the role of principals and agents keep on changing depending upon the scenario. Risks and uncertainty are undeniable, and it shouldn’t be ignored it should be managed through insurance. The more experience an insurance company has with a population, the better their understanding of probabilities, creating pooling mechanism and the more successful is the business. For insurance companies, experience is a critical method for success. Precisely because he looked for the humanity and only then its pale reflection in finance and not the other way around. Replete with examples from history and literature, not to mention everyday life, there little are nuggets for everyone. Clever, fun nonfiction read on the parallels between finance and the humanities.

It not only would help one understand finance but also help understand it’s applicability in our day to day lives for both money and non-money matters. As with firms, so even in an individual’s life the people we have in our life are assets. The author does a tremendous job of connecting the myriad concepts of finance, it’s origins with our lives through very relatable experiences and stories of people in the preceding millennia and right upto today. Financial Wisdom is a unique book, offering a new perspective of revitalization in one of the world’s most complex and misunderstood professions.

The book is philosophical in its approach, but Desai’s thesis is peppered with real-life examples of how financial types can and should see the world around them. I met this professor from his “Leading with Finance” class at HBS. He takes you from personal stories and takes you to a deep understanding of finance terms and concepts. Either you are new on the econ or finance room, you’ll get something new out of it. In a long time, I have read a book about finance where the author talks about ‘great values’ in finance.

In the ‘Mergers’ chapter, for example, I really try to show how — and this is really cheeky, but I think it works — a lot of the folklore about how mergers applies to marriages. That’s what I hope happens — we move back to simpler, core finance, like what banks in a way used to be in some sense, and get away from these much more complex institutions that are both hard to regulate and hard to manage. Obviously, nobody knows his name anymore, and the reason why is, he turned down that job. He went on to become, again, the wealthiest man in the new country. He owned half of New Jersey, half of New York — and then he went bankrupt. And his bankruptcy was the triggering event for us to stop thinking about bankruptcy as a moral failing.

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Other parts of his story are remarkably current, as when he provides an explanation of how frothy markets are driven by excessively low interest rates and how a bankrupt company is restructured. I had long been bothered by the common presumption that markets, and finance in particular, were a crass domain that we had to shelter ourselves from in order to live a good life. It has become common to denigrate finance and to assume that finance has little of value to offer the world, and certainly has no wisdom behind it. Executives who make ham-fisted comparisons between finance and God’s work only make the case that finance has little wisdom in it. They need to explain and justify what they do more clearly to win back confidence.

Insurance provides guaranteed coverage for your pooling of assets and asks for interest to pay for its coverage. This part of the book will make you entirely change your understanding of the correlation between finance and insurance. Insurance executives may not seem as boring and out of touch when one understands that many of the same principles that are in finance apply to insurance as well. Understanding the role of risk in our lives is one of the most profound realizations one can have, and that is why the ability to predict risk is such a highly coveted skill.

Spot markets are typical business arrangements – someone needs a piece of machinery and finds a vendor to build it for them. Contracts are things that include terms such as exclusivity, special pricing considerations, minimums, or any other specific deal items. And of course, ownership is when one company decides to buy another for their capability.

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The Bankruptcy Act of 1800 changed a lot of things about bankruptcy because of Robert Morris. We started to view failure not as something that you should look down on and demonize, but as something where you should actually protect the people who fail, and you should understand it as a consequence of risk-taking, not moral failure. Released from the conventional wisdom of the opposition of finance and markets to humanity, I decided to write a book that tried to unify them. That unification is my effort to fix finance and to make it accessible. De la Vega captured the best and worst of finance by relaying a story—and that story led me to see finance in many stories.

His research is regularly cited in major publications, and he has testified several times before Congress. Then I show how Ray Charles and Kanye West take on this same idea. Ray Charles’ original idea is this beautiful idea of how romance has nothing to do with finance, and how this woman who loves Ray Charles is fantastic. Then Kanye flips it in “Gold Digger,” completely flips it in sentiment, and he literally uses the lyrics that Ray Charles used to really question that. The reason I like that is it makes you just see these things are connected.

Economic behaviouralists like Daniel Kahneman, psychologist Dan Ariely, Richard Thaler and Cass Sunstein get into how the mind actually works when people are given moral choices disguised as financial options. Most of the forex concepts or advices were quite obvious and didn’t really need all the explaining and analogies the author draws from other spheres of life. Nonetheless, some good things, some non-trivial messages, put interestingly.

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