For those of you who are hearing of this gentleman for the first time, he was the 19th century scholar who postulated (the Malthusian Theory), that nature will keep producing population growth, until it creates a resource crunch, which will then create a series of natural calamities, decimating the population and setting off a new cycle.
Intuitively, he found a lot of adherents, because in the old, pre-industrial, deflationary economy, this was actually true; till man learnt ‘systematic innovation’ and started to create new professions and economics became a tool in his hands to achieve progress.
After 1850, the world learnt about inflation, monetary policy and the Industrial Revolution, which created the modern era. Thereafter, the ‘natural limits’ to any constraint started to shift outwards, until 150 years later, we have started to believe that even a desperately poor country like India has a hope of beating the Malthusian Theory.
After Japan, it became the done thing to argue that human ingenuity would be able to beat all known (resource) constraints. You could have a tiny island nation with almost no natural resources, and the dubious distinction of having a quarter of all known natural disasters, which could grow to be the most productive nation in the world, by all known measures of savings and wealth accumulation.
As always, we Indians learn the wrong lessons. We extrapolated this to tell ourselves that our huge population would never hit a resource crunch, and that our own ingenuity would always delay the onset of Armageddon.
We forgot that every time man beat the Malthusian clock, then it was because he had a lot of time to see the threat and react to it.
This time, global warming will set off a series of events that might not give us enough time to react. If the current El Nino effect turns out to be a regular affair, how many years of 60 per cent monsoon deficits can we survive?
The current monsoon deficit may well turn out to be the most comprehensive, countrywide drought that we have seen in the last 100 years. We have been following coal-based energy usage, refusing to give up our right to pollute, with the “dog in the manger” attitude that it was the West that had done the most damage till now. But the worst affected will be us; the frail, weak uptick that we have seen these last 10 years, will be over-shadowed by what follows.
If we have three monsoon failures in a row, do we have the desalination industry that will produce enough clean, potable water to quench an entire nation’s thirst? How quickly do we have communication systems to create a culture of rain harvesting, water conservation/recycling etc.? No doubt, Israel has beaten all limitations to agricultural productivity, but how quickly can we duplicate those achievements?
In the short run, we will need to quickly create a market for water. There is no way you can tell a population that something has suddenly become precious, without putting a price to it.
The reason this will not happen is this: Mamata Banerjee/The Left/The BJP will politicise the issue. Just as any concessions given to the Kyoto negotiations is seen as a sign of weakness. I am very sure that no national consensus on water will be built, until it is too late.
This time, the consequence will not be economic, but humanitarian. Geopolitical think-tanks have postulated that India will be one of the worst-affected victims of global warming, with an estimated 100 million people dying.
If 2009 is to water, what 1991 was to forex, then we have the same man-in-charge. The PM hopefully has the same understanding of this problem that he had of the forex crunch. Certainly, he has the mandate to move swiftly on this issue. He just needs to tick off the following policy prescriptions:
* Get off your high horse on the Kyoto negotiations. It makes no sense to defend our right to pollute just because the West had done so;
* The country that gets off the ground first, on ‘alternate energy’, will see technological leadership in one of the most important pillars of economic progress in the current century — clean energy. The solar mission, if it is serious, is a step in the right direction. It needs to be followed up with the development of a quasi-fiscal investment market that subsidises the excess capital cost of solar energy, leaving enough space for cost-led innovation;
* Then focus on the clean energy applications. The first would be a full commodity market in water: just make water enormously profitable to everyone;
* Create a panel of IDFC-like nodal investment institutions, whose bonds have 200 per cent weighted tax-free deduction, i.e. for every Rs 100 subscribed to the bonds, you get Rs 200 as deduction (far better than raising the taxable limit). That provides a 70 per cent subsidy to the capital cost of solar power, which the institution channelizes as debt to the sector. Set high debt norms with long paybacks for eligible projects.
* Now let a thousand flowers bloom. Include the desalination industry in this panel of clean energy users. Create a pseudo-market in “water paper”, where credits are given to those who recycle industrial (waste) water, converting it to agricultural-grade clean water. This should create millions of recycling units, mostly based on solar applications, a variant of the solar water heating systems that have been so successful in rural areas;
* Promote the same ‘water paper’ to create a micro-irrigation industry, through which farmers can buy entitlement to water through the adoption of micro-irrigation techniques. Target subsidies through a small set of producers, where the leakages would be less;
* The first step is to create a sense of crisis, before a real one is created (I hope I have not spoken too late). The current monsoon may be typical of many more to come, and we will need a typical Dhirubhai Ambani overkill: create a giant capacity, 100 times the water needs of Delhi, then get to work at making it dependent on clean energy, maybe solar.
The problem with a product market for water is that the (commodity) prices will be very volatile, with prices collapsing during a good monsoon. So it has to be an investment-led market, not a product-market, i.e. the capital cost would be contributed through a market instrument, similar to the timeshare industry, or the one-time premium insurance products. If all sides of the industry are left open to market pricing, then there would be enough space for innovation to create a spectacular winner. A company that either reduces the cost of the project, or which can reduce the cost of capital, or which can extract other operating efficiencies, will find itself at the top of the industry.
“The cost of communication will go to zero”, said Ambani to a new recruit in 1989, when asked about the next big thing for the ‘90s. For the new millennium, Reliance should have been working at taking the cost of energy to zero. Certainly, if it can take the cost of water to zero, it would have made every Indian its customer: another Dhirubhai dream.
There is more greatness for anyone interested. A company that sits at the heart of all Indian energy usage is bound to be the next Reliance (if it isn’t Reliance itself). 80 per cent of the energy used in India’s villages, goes into water management. Think of the economic potential that will get unlocked by someone who takes that out.
Monday, September 28, 2009
Thursday, September 17, 2009
10 Ways To Get Rich By Warren Buffet
With an estimated fortune of $62 billion, Warren Buffett is the richest man in the entire world. In 1962, when he began buying stock in Berkshire Hathaway, a share cost $7.50. Today, Warren Buffett, 78, is Berkshire's chairman and CEO, and one share of the company's class A stock worth close to $119,000. He credits his astonishing success to several key strategies, which he has shared with writer Alice Schroeder. She spend hundreds of hours interviewing the Sage of Omaha for the new authorized biography The Snowball. Here are some of Warren Buffett's money-making secrets -- and how they could work for you.
1. Reinvest Your Profits: When you first make money, you may be tempted to spend it. Don't. Instead, reinvest the profits. Warren Buffett learned this early on. In high school, he and a pal bought a pinball machine to pun in a barbershop. With the money they earned, they bought more machines until they had eight in different shops. When the friends sold the venture, Warren Buffett used the proceeds to buy stocks and to start another small business. By age 26, he'd amassed $174,000 -- or $1.4 million in today's money. Even a small sum can turn into great wealth.
2. Be Willing To Be Different: Don't base your decisions upon what everyone is saying or doing. When Warren Buffett began managing money in 1956 with $100,000 cobbled together from a handful of investors, he was dubbed an oddball. He worked in Omaha, not Wall Street, and he refused to tell his parents where he was putting their money. People predicted that he'd fail, but when he closed his partnership 14 years later, it was worth more than $100 million. Instead of following the crowd, he looked for undervalued investments and ended up vastly beating the market average every single year. To Warren Buffett, the average is just that -- what everybody else is doing. to be above average, you need to measure yourself by what he calls the Inner Scorecard, judging yourself by your own standards and not the world's.
3. Never Suck Your Thumb: Gather in advance any information you need to make a decision, and ask a friend or relative to make sure that you stick to a deadline. Warren Buffett prides himself on swiftly making up his mind and acting on it. He calls any unnecessary sitting and thinking "thumb sucking." When people offer him a business or an investment, he says, "I won't talk unless they bring me a price." He gives them an answer on the spot.
4. Spell Out The Deal Before You Start: Your bargaining leverage is always greatest before you begin a job -- that's when you have something to offer that the other party wants. Warren Buffett learned this lesson the hard way as a kid, when his grandfather Ernest hired him and a friend to dig out the family grocery store after a blizzard. The boys spent five hours shoveling until they could barely straighten their frozen hands. Afterward, his grandfather gave the pair less than 90 cents to split. Warren Buffett was horrified that he performed such backbreaking work only to earn pennies an hour. Always nail down the specifics of a deal in advance -- even with your friends and relatives.
5. Watch Small Expenses: Warren Buffett invests in businesses run by managers who obsess over the tiniest costs. He one acquired a company whose owner counted the sheets in rolls of 500-sheet toilet paper to see if he was being cheated (he was). He also admired a friend who painted only on the side of his office building that faced the road. Exercising vigilance over every expense can make your profits -- and your paycheck -- go much further.
6. Limit What You Borrow: Living on credit cards and loans won't make you rich. Warren Buffett has never borrowed a significant amount -- not to invest, not for a mortgage. He has gotten many heart-rendering letters from people who thought their borrowing was manageable but became overwhelmed by debt. His advice: Negotiate with creditors to pay what you can. Then, when you're debt-free, work on saving some money that you can use to invest.
7. Be Persistent: With tenacity and ingenuity, you can win against a more established competitor. Warren Buffett acquired the Nebraska Furniture Mart in 1983 because he liked the way its founder, Rose Blumkin, did business. A Russian immigrant, she built the mart from a pawnshop into the largest furniture store in North America. Her strategy was to undersell the big shots, and she was a merciless negotiator. To Warren Buffett, Rose embodied the unwavering courage that makes a winner out of an underdog.
8. Know When To Quit: Once, when Warren Buffett was a teen, he went to the racetrack. He bet on a race and lost. To recoup his funds, he bet on another race. He lost again, leaving him with close to nothing. He felt sick -- he had squandered nearly a week's earnings. Warren Buffett never repeated that mistake. Know when to walk away from a loss, and don't let anxiety fool you into trying again.
9. Assess The Risk: In 1995, the employer of Warren Buffett's son, Howie, was accused by the FBI of price-fixing. Warren Buffett advised Howie to imagine the worst-and-bast-case scenarios if he stayed with the company. His son quickly realized that the risks of staying far outweighed any potential gains, and he quit the next day. Asking yourself "and then what?" can help you see all of the possible consequences when you're struggling to make a decision -- and can guide you to the smartest choice.
10. Know What Success Really Means: Despite his wealth, Warren Buffett does not measure success by dollars. In 2006, he pledged to give away almost his entire fortune to charities, primarily the Bill and Melinda Gates Foundation. He's adamant about not funding monuments to himself -- no Warren Buffett buildings or halls. "I know people who have a lot of money," he says, "and they get testimonial dinners and hospital wings named after them. But the truth is that nobody in the world loves them. When you get to my age, you'll measure your success in life by how many of the people you want to have love you actually do love you. That's the ultimate test of how you've lived your life."
1. Reinvest Your Profits: When you first make money, you may be tempted to spend it. Don't. Instead, reinvest the profits. Warren Buffett learned this early on. In high school, he and a pal bought a pinball machine to pun in a barbershop. With the money they earned, they bought more machines until they had eight in different shops. When the friends sold the venture, Warren Buffett used the proceeds to buy stocks and to start another small business. By age 26, he'd amassed $174,000 -- or $1.4 million in today's money. Even a small sum can turn into great wealth.
2. Be Willing To Be Different: Don't base your decisions upon what everyone is saying or doing. When Warren Buffett began managing money in 1956 with $100,000 cobbled together from a handful of investors, he was dubbed an oddball. He worked in Omaha, not Wall Street, and he refused to tell his parents where he was putting their money. People predicted that he'd fail, but when he closed his partnership 14 years later, it was worth more than $100 million. Instead of following the crowd, he looked for undervalued investments and ended up vastly beating the market average every single year. To Warren Buffett, the average is just that -- what everybody else is doing. to be above average, you need to measure yourself by what he calls the Inner Scorecard, judging yourself by your own standards and not the world's.
3. Never Suck Your Thumb: Gather in advance any information you need to make a decision, and ask a friend or relative to make sure that you stick to a deadline. Warren Buffett prides himself on swiftly making up his mind and acting on it. He calls any unnecessary sitting and thinking "thumb sucking." When people offer him a business or an investment, he says, "I won't talk unless they bring me a price." He gives them an answer on the spot.
4. Spell Out The Deal Before You Start: Your bargaining leverage is always greatest before you begin a job -- that's when you have something to offer that the other party wants. Warren Buffett learned this lesson the hard way as a kid, when his grandfather Ernest hired him and a friend to dig out the family grocery store after a blizzard. The boys spent five hours shoveling until they could barely straighten their frozen hands. Afterward, his grandfather gave the pair less than 90 cents to split. Warren Buffett was horrified that he performed such backbreaking work only to earn pennies an hour. Always nail down the specifics of a deal in advance -- even with your friends and relatives.
5. Watch Small Expenses: Warren Buffett invests in businesses run by managers who obsess over the tiniest costs. He one acquired a company whose owner counted the sheets in rolls of 500-sheet toilet paper to see if he was being cheated (he was). He also admired a friend who painted only on the side of his office building that faced the road. Exercising vigilance over every expense can make your profits -- and your paycheck -- go much further.
6. Limit What You Borrow: Living on credit cards and loans won't make you rich. Warren Buffett has never borrowed a significant amount -- not to invest, not for a mortgage. He has gotten many heart-rendering letters from people who thought their borrowing was manageable but became overwhelmed by debt. His advice: Negotiate with creditors to pay what you can. Then, when you're debt-free, work on saving some money that you can use to invest.
7. Be Persistent: With tenacity and ingenuity, you can win against a more established competitor. Warren Buffett acquired the Nebraska Furniture Mart in 1983 because he liked the way its founder, Rose Blumkin, did business. A Russian immigrant, she built the mart from a pawnshop into the largest furniture store in North America. Her strategy was to undersell the big shots, and she was a merciless negotiator. To Warren Buffett, Rose embodied the unwavering courage that makes a winner out of an underdog.
8. Know When To Quit: Once, when Warren Buffett was a teen, he went to the racetrack. He bet on a race and lost. To recoup his funds, he bet on another race. He lost again, leaving him with close to nothing. He felt sick -- he had squandered nearly a week's earnings. Warren Buffett never repeated that mistake. Know when to walk away from a loss, and don't let anxiety fool you into trying again.
9. Assess The Risk: In 1995, the employer of Warren Buffett's son, Howie, was accused by the FBI of price-fixing. Warren Buffett advised Howie to imagine the worst-and-bast-case scenarios if he stayed with the company. His son quickly realized that the risks of staying far outweighed any potential gains, and he quit the next day. Asking yourself "and then what?" can help you see all of the possible consequences when you're struggling to make a decision -- and can guide you to the smartest choice.
10. Know What Success Really Means: Despite his wealth, Warren Buffett does not measure success by dollars. In 2006, he pledged to give away almost his entire fortune to charities, primarily the Bill and Melinda Gates Foundation. He's adamant about not funding monuments to himself -- no Warren Buffett buildings or halls. "I know people who have a lot of money," he says, "and they get testimonial dinners and hospital wings named after them. But the truth is that nobody in the world loves them. When you get to my age, you'll measure your success in life by how many of the people you want to have love you actually do love you. That's the ultimate test of how you've lived your life."
Subscribe to:
Posts (Atom)
