Small interventions with charity – big impact on society

If you follow my blog you would know I am a big fan of 80/20 – small causes which can create big impact. I am all about using leverage- in the positive sense.

I am also big into doing charity because it is good Karma.

But I think not all charity is created equal. In my opinion if you do charity to solve a problem at the grass root level then in the long run it can have a major impact on the society. Its all about prioritizing how your funds can have the biggest impact.

In India one of the big challenges we face is poverty. So poor people don’t send kids to school because they get additional hands to work, earn money and therefore feed the family.

Since the kids don’t go to school they also spend their life in poverty-stricken situations. This also leads to an increase in crime, drug abuse etc.

A simple solution that was found, was to feed kids in schools so that the kids get one good meal. Now the incentive for the parents to send the kid to the school is not educational but the lunch that the kid will get. On the other hand for the government and society the long term benefits are better, healthier citizens who may eventually come out of poverty and the crime rates will also be lower.

The challenge is how do you feed so many kids. That’s where NGOs come in. They take donations from people like us.

A lot of NGOs do good work. However I support these kind of charities because the small interventions of feeding say 25 kids for a full year, every year will ensure that 10 years from now I know there will be 25 less people who will be on the road living in poverty. The amount needed to feed one wholesome nutritious meal to say 25 kids for a year would be just USD 500 but the long term impact could be so amazing.

Mohnish Pabrai runs a similar program where he helps kids get trained for higher education and sponsors their education. The Grameen Bank founder and Nobel prize winner did a similar thing by giving micro loans to the poor people so they could do their own business.

While all charity is very good, give wherever and whenever you can, however if you can also do some focused charity it can have major long term benefits for society.

Till next time then.

Carpe Diem!!!

Interest rate differences over the time period

Financial Independence, Uncategorized

Last time I showed a graph and calculations of how a doubling of a bet for every cricket wicket or golf hole can make you a millionaire many times over if you allowed to take the bet over a large number of wickets.

The bigger part however is that the real advantage comes as you take the period over a longer term.

This time I will show you how the value of the bet can change the value of your earnings. As I have repeated many times in my blogs earlier also, the value of money you end up with is has low co-relation to the amount you start with but rather with the duration and the rate of interest.

So this time also we will start with only one dollar to start with and show you how the value of the amount you get depends at the rate at which you grow your bet. We will consider 8%, 15%, 17% and 24%. There is a reason for choosing these rates.

Typically a long term bank deposit in India can get you about 8%. Its almost guaranteed to not fail. So you don’t have to take any risk to get this kind of return.

15% -17% is the average return that the Indian stock market has returned on average. 24% is the kind of lowest return the investing gurus have been able to generate from the stock market.

Wicket in cricket / hole in golf	Rate of interest 8%	Rate of interest 15%	Rate of interest 17%	Rate of interest 24%
1	1.08	1.15	1.17	1.24
2	1.1664	1.3225	1.3689	1.5376
3	1.259712	1.520875	1.601613	1.906624
4	1.36048896	1.74900625	1.87388721	2.36421376
5	1.469328077	2.011357188	2.192448036	2.931625062
6	1.586874323	2.313060766	2.565164202	3.635215077
7	1.713824269	2.66001988	3.001242116	4.507666696
8	1.85093021	3.059022863	3.511453276	5.589506703
9	1.999004627	3.517876292	4.108400333	6.930988312
10	2.158924997	4.045557736	4.806828389	8.594425506
11	2.331638997	4.652391396	5.623989215	10.65708763
12	2.518170117	5.350250105	6.580067382	13.21478866
13	2.719623726	6.152787621	7.698678837	16.38633794
14	2.937193624	7.075705764	9.007454239	20.31905904
15	3.172169114	8.137061629	10.53872146	25.19563321
16	3.425942643	9.357620874	12.33030411	31.24258518
17	3.700018055	10.761264	14.42645581	38.74080563
18	3.996019499	12.37545361	16.87895329	48.03859898
19	4.315701059	14.23177165	19.74837535	59.56786273
20	4.660957144	16.36653739	23.10559916	73.86414979
21	5.033833715	18.821518	27.03355102	91.59154574
22	5.436540413	21.6447457	31.6292547	113.5735167
23	5.871463646	24.89145756	37.00622799	140.8311607
24	6.341180737	28.62517619	43.29728675	174.6306393
25	6.848475196	32.91895262	50.6578255	216.5419927
26	7.396353212	37.85679551	59.26965584	268.512071
27	7.988061469	43.53531484	69.34549733	332.954968
28	8.627106386	50.06561207	81.13423187	412.8641603
29	9.317274897	57.57545388	94.92705129	511.9515588
30	10.06265689	66.21177196	111.06465	634.8199329

If you see the difference between the 8% and 24% rate of interest is 3 times. However the outcome is 63 times different over 30 units. If you were to look at an even larger period like say 50 units the difference will come out to be 1000 times.

The human brain is not able to comprehend this major magic of compounding when trying to compute mentally.

Now look at the columns which are with showing you 15% and 17% interest rates. While the difference is only 2% if you see the outcome after 30 holes at 17% you have earned double then at 15%. If you were to extend this to 50 holes then the amount at 15% would be 1083 while at 17% it would be 2566. A difference of 2.5 times. Why am I showing you this. If you pay 2% commission to someone to manage your investment then you lose that kind of money.

The people like Warren Buffet or Raamdeo Aggarwal or Mohnish Pabrai have become so exorbitantly rich because they manage their own money and manage it a higher rate of interest for a longer period of time.

However even if you think you cannot manage on your own, its better to get some reputed ETF so that the cost of managing is very low. Only in cases of some high growth markets look for managers to manage specialised funds.

Another thing you will notice from the table – till about the 4th unit all the values were not very far apart. But see how the 24% chart suddenly breaks into another orbit after the 10th unit and the gap widens so dramatically.

The biggest lesson in this post and the earlier one is however that you need to start at the earliest, with whatever you have and let it compound over a long period of time.

For those of you who are more visually inclined, you can have a look at the chart below

Till next time choose the right interest and keep it for a long long time

Carpe Diem!!!

How do you take the message of compounding to the “bottom of the pyramid”

Financial Independence, Uncategorized

The concept of the “bottom of the pyramid” was brought forward by the late management guru C.K.Prahlad. His basic premise was that people with lower incomes also have aspirations which are similar to the middle class. If the consumer companies can produce products in lower volume packaging and lower margins, then the absolute amount of profit that companies can make will be dramatic.

The typical case was how the volume of shampoo usage went up dramatically when companies started creating sachets which were priced at Rs1/- per sachet (about 10ml). All brands eventually followed this model eventually and everyone’s business in FMCG space grew dramatically in the 90s and thereon.

During most of their interviews, stock market stalwarts like Ramesh Damani or Raamdeo Aggarwal or Mohnish Pabrai talk that becoming rich is not very difficult. You just need to make sure that you are compounding at an average of about 24% per year and in 30-40 years what ever value you start you would be about 10000 times in 40 years. Most of these stalwarts and people like Waarren Buffet have been compounding on an average more than 35% for a long period of time. At 24% also, if you were to start with $100 today you would have $1million in 40 years. These stalwarts don’t tire telling everyone willing to given them an ear that compounding is the only magic that anyone needs to understand.

I have tried many a times to tell my maid, the Uber drivers whom I sometimes interact with and a lot of people from the lower income group whom I come across about the power of compounding. Everyone listens but then no one takes action to start investing. They are unhappy about their situation but they are not willing to take action. They are willing to work harder to earn a little more but they are not willing to start investing and let money work for them.

Which brings me to the question – are we happier being in a rut which we know off but not willing to take action to get into another situation which may actually make us better. Is this true only of people at the lower income levels or is it seen at other levels also. To be fair there are a lot of aspects of life, where I also tend to be stuck in inertia and don’t take action to move forward because I prefer the known compared to the unknown.

I think we take the simplicity of compounding lightly. Like all universal principles, relativity, 80/20, compounding is also so simple in its depiction but very difficult for most people to comprehend in its applications. Even well educated colleagues of mine think that compounding results which I show them are good to look at when seen on an Excel sheet but in reality its not possible. If we keep investing aside, the whole Japanese concept of Kaizen is based of very small incremental improvements having a dramatic result because the benefits compound when done continuously over a period of time.

To return to the topic, how do you take the message of compounding to the masses for every aspect of our life, not only in aspects of finance but for every sphere of life.

Have any of you had success with taking the message of compounding to the masses. Would you be willing to share it with everyone.

Look forward to hearing from all of you.

Carpe Diem!!!

Sponsored meals for one year for 12 kids.

Financial Independence, Uncategorized

In my blog of 10th December 2018, I had mentioned that using Paul Dunn’s concept of Buy1Give1(B1G1.com) in a slightly different way- because I don’t have a business of my own – I intend to give away a dollar for ever new follower of my blog/website and Linkedin – and achieve my objective of donating to my charities on a regular basis.

Based on the number of followers I have today on my website/blog and the new followers on Linkedin, I have added a dollar for each. I have been able to donate meals for one year for 12 kids on Akshay Patra. I have a target to reach the capability to sponsor one meal for one year for 100 kids. If the number of followers on my blog/website and Linkedin keep growing I should be able to hit this number also pretty fast. Right now I am active only on these two. Slowly I will raise my activity levels on other media as I see success. If you are interested in knowing more about the work the click Akshay Patra.

If you compare Tony Robbins’ agenda he wants to be able to feed 6-8 million people in a year. He has written 2 books Money Master the Game and Unshakable and donated all the proceeds to help achieve that objective.

My achievement seems so small compared to what Tony is doing. But as I mentioned, I got inspired by Paul Dunn’s Ted Talks that even very small regular interventions can dramatically improve the world. If you have not heard Paul’s 4 Ted talks, I sincerely suggest you watch them. So what I used to do haphazardly and irregularly earlier, now becomes a system.

In multiple posts earlier, I have mentioned that I follow Mohnish Pabrai, the US based fund manager who runs Pabrai investments. He runs the Dakshana foundation to which he is every year donating a certain portion of his wealth. Mohnish is an ardent follower of Warren Buffet and like Warren, wants to donate a certain portion of his wealth every year. This foundation helps poor, deserving kids in India, who have potential, to get trained so that they can appear for entrance exams and qualify for the best engineering (IITs) and medical institutes(AIIMS) in India.

Now Mohnish has a major lament, which I have noticed in his YouTube videos. He believes that given the speed at which he is donating his wealth year-on-year to Dakshana, there will not be enough deserving kids left who have potential to be trained. His feeling is that there are not enough deserving kids coming out of the government/municipal education institutes in India.

One of the reason for that, is that poor parents don’t send their kids to school even though school education in India is now virtually free in all states. They want the kids to work and earn some money, so that the family can be fed. The more hands working the more possibility of earning. If we eliminate the challenge of feeding the kids, that too with a very nutritious meal, then these parents will also send their kids to the government schools. Akshay Patra kind of organisations are helping achieve that goal. Once the kids are fed well, they will be more healthy, have less sickness and they will hopefully also learn well and then the Dakshana Foundation kind of organisations will get more kids to train for higher eduction. Once more kids get educated they will bring up the “standard of living’ of their families. From the ground-up we will be able to take India and the world forward

Again the 12 that I have sponsored or the 100 that I have a target for, may not create a positive Tsunami but if more people like me keep doing these small interventions we will make this world a better place.

Till next time then….

Carpe Diem!!