Spotlight

Beware the Mirage Called Financial Freedom

April 15, 2018

9th January 2018 was the last day at my office. I quit my software job to spend more time pursuing the work that I love, i.e., reading, writing, and building my personal projects. I received calls from a handful of friends when I broke the news. Most of them congratulated me and some showed concerns too about my seemingly hasty decision.

However, one of them asked me a sincere question – “Are you financially free to justify this bold decision?”

It’s hard to discuss money without bringing up the topic of financial freedom, isn’t it? Unfortunately, the idea of financial freedom, like the concept of God, has been abused so much especially in last 10-15 years that it has lost its meaning.

If you’re in a job or profession where you spend a significant amount of time doing things which you’d do even if you weren’t paid for it, you can stop reading here. There’s little this essay can offer you.

However, if you are spending 40-50 hours every week doing something which you’d rather not (but still have to because it pays the bills) then read on.

Dealing with Failure in Life and Investing: Lessons from the Chaos Monkey

February 15, 2018

Note: This post was originally published in the June 2017 issue of Value Investing Almanack. To read more such posts and other deep thoughts on value investing, business analysis and behavioral finance, click here to subscribe to VIA.

Amazon Web Services (AWS) is the Titanic of cloud hosting. It provides on-demand cloud computing platforms to both individuals, companies, and governments, on a paid subscription basis. The platform is designed as a backup to the backups’ backups that prevents hosted websites – including some of the largest in the world – and applications from failing.

Yet, like the Titanic, AWS crashed in April 2011, taking with it popular websites like Reddit, Quora, FourSquare, HootSuite, and New York Times, among many others, for four days.

It faced another major outage in February 2017, which again brought a large number of key websites down on their knees.

There was, however, one site that kept chugging along well during both these instances, despite also having AWS as its host at both the occasions.

This was Netflix, the world’s leading streaming video website and one that owns a dominant share of downstream Internet traffic – almost 35%; double of YouTube – in North America during peak evening hours.

Be Risk Averse, not Loss Averse

September 30, 2016

Note: This post was originally published in the August 2016 issue of Value Investing Almanack. To read more such posts and other deep thoughts on value investing, business analysis and behavioral finance, click here to subscribe to VIA.

On April 10, 2003, Pepsi announced a contest called “The Pepsi Billion Dollar Sweepstakes”. It was scheduled to run for 5 months starting from May in the same year.

For the contest, Pepsi printed one billion special codes which could be redeemed either on their website or via postal mail. According to Pepsi’s estimate, about 200-300 million of these codes were redeemed. Out of these, 100 codes were chosen in a random draw to appear in a two-hour live gameshow-style television special. Each of these 100 people were assigned a random 6-digit number, and a chimpanzee (to ensure a truly random number and of course to rule out any monkey business) backstage rolled dice to determine the grand prize number. This number was kept secret and the 10 players whose numbers were closest to it were chosen for the final elimination. On the evening of September 14, the final day of the contest, the event, titled Play for a Billion, was aired live. If a player’s number matched the grand prize number, he would win US$ 1 billion.
(Source: Wikipedia)

Given the scenario, it was highly unlikely that anyone would win a billion dollar. The chances were literally 1 in a billion. In spite of that, Pepsi was unwilling to bear the risk of the possible billion-dollar prize. So they arranged for an insurance company to insure the event. They paid US$ 10 million to Berkshire Hathaway to assume the risk. Yes, Warren Buffett’s Berkshire Hathaway. The same guy who is famous for his two iron rules –

1. Never lose money
2. Don’t forget rule number 1.

Then why would Buffett expose his company to such a big risk for a relatively paltry premium of US$ 10 million? Isn’t this akin to playing Russian roulette?