In My Hands Today…

Principles: Life and Work – Ray Dalio

Ray Dalio, one of the world’s most successful investors and entrepreneurs, shares the unconventional principles that he’s developed, refined, and used over the past forty years to create unique results in both life and business—and which any person or organization can adopt to help achieve their goals.

In 1975, Ray Dalio founded an investment firm, Bridgewater Associates, out of his two-bedroom apartment in New York City. Forty years later, Bridgewater has made more money for its clients than any other hedge fund in history and grown into the fifth most important private company in the United States, according to Fortune magazine. Dalio himself has been named to Time magazine’s list of the 100 most influential people in the world. Along the way, Dalio discovered a set of unique principles that have led to Bridgewater’s exceptionally effective culture, which he describes as “an idea meritocracy that strives to achieve meaningful work and meaningful relationships through radical transparency.” It is these principles, and not anything special about Dalio—who grew up an ordinary kid in a middle-class Long Island neighborhood—that he believes are the reason behind his success.

In Principles, Dalio shares what he’s learned over the course of his remarkable career. He argues that life, management, economics, and investing can all be systemized into rules and understood like machines. The book’s hundreds of practical lessons, which are built around his cornerstones of “radical truth” and “radical transparency,” include Dalio laying out the most effective ways for individuals and organizations to make decisions, approach challenges, and build strong teams. He also describes the innovative tools the firm uses to bring an idea meritocracy to life, such as creating “baseball cards” for all employees that distill their strengths and weaknesses, and employing computerized decision-making systems to make believability-weighted decisions. While the book brims with novel ideas for organizations and institutions, Principles also offers a clear, straightforward approach to decision-making that Dalio believes anyone can apply, no matter what they’re seeking to achieve.

In My Hands Today…

Good Economics for Hard Times: Better Answers to Our Biggest Problems – Abhijit V. Banerjee and Esther Duflo

Figuring out how to deal with today’s critical economic problems is perhaps the great challenge of our time. Much greater than space travel or perhaps even the next revolutionary medical breakthrough, what is at stake is the whole idea of the good life as we have known it.

Immigration and inequality, globalization and technological disruption, slowing growth and accelerating climate change–these are sources of great anxiety across the world, from New Delhi and Dakar to Paris and Washington, DC. The resources to address these challenges are there–what we lack are ideas that will help us jump the wall of disagreement and distrust that divides us. If we succeed, history will remember our era with gratitude; if we fail, the potential losses are incalculable.

In this revolutionary book, renowned MIT economists Abhijit V. Banerjee and Esther Duflo take on this challenge, building on cutting-edge research in economics explained with lucidity and grace. Original, provocative, and urgent, Good Economics for Hard Times makes a persuasive case for an intelligent interventionism and a society built on compassion and respect and show how economics, when done right, can help us solve the thorniest social and political problems of the day. It is an extraordinary achievement, one that shines a light to help us appreciate and understand our precariously balanced world.

In My Hands Today…

Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street – Sheelah Kolhatkar

Steven A. Cohen changed Wall Street. He and his fellow pioneers of the hedge fund industry didn’t lay railroads, build factories, or invent new technologies. Rather, they made their billions through speculation, by placing bets in the market that turned out to be right more often than wrong and for this, they gained not only extreme personal wealth but formidable influence throughout society. Hedge funds now oversee more than $3 trillion in assets, and the competition between them is so fierce that traders will do whatever they can to get an edge.

Cohen was one of the industry’s biggest success stories, the person everyone else in the business wanted to be. Born into a middle-class family on Long Island, he longed from an early age to be a star on Wall Street. He mastered poker in high school, went off to Wharton, and in 1992 launched the hedge fund SAC Capital, which he built into a $15 billion empire, almost entirely on the basis of his wizard like stock trading. He cultivated an air of mystery, reclusiveness, and excess, building a 35,000-square-foot mansion in Greenwich, Connecticut, flying to work by helicopter, and amassing one of the largest private art collections in the world. On Wall Street, Cohen was revered as a genius: one of the greatest traders who ever lived.

That image was shattered when SAC Capital became the target of a sprawling, seven-year investigation, led by a determined group of FBI agents, prosecutors, and SEC enforcement attorneys. Labeled by prosecutors as a magnet for market cheaters whose culture encouraged the relentless pursuit of edge and even black edge, which is inside information SAC Capital was ultimately indicted and pleaded guilty to charges of securities and wire fraud in connection with a vast insider trading scheme, even as Cohen himself was never charged.

Black Edge offers a revelatory look at the gray zone in which so much of Wall Street functions. It’s a riveting, true-life legal thriller that takes readers inside the government’s pursuit of Cohen and his employees, and raises urgent and troubling questions about the power and wealth of those who sit at the pinnacle of modern Wall Street.

In My Hands Today…

How Money Became Dangerous: The Inside Story of Our Turbulent Relationship with Modern Finance – Christopher Varelas and Dan Stone

From a veteran of the trade, a provocative and entertaining voyage into the turbulent heart of modern money that sheds new light on the rise of our threatening and complicated financial system, how money became our adversary, and why finding a new course is crucial to a healthy society

In the not too distant past, money was simple. You might have had a bank account and a mortgage, perhaps some basic investments. Wall Street didn’t have a reputation for greed and recklessness. That all started to change in the eighties, as our financial systems became increasingly complex, moving beyond the understanding of the general public while impacting our lives in innumerable ways. The financial world began to feel like an enigma—a rogue force working against us, seemingly controlled by no one.

From an industry veteran who’s had firsthand involvement in the events that shaped modern money, How Money Became Dangerous journeys from the crime-ridden LA jewelry district to the cutthroat Salomon Brothers trading floor, from the high-stakes world of investment banking to the center of the technology boom, capturing the key deals, developments, and players that made the financial world what it is today. The book illuminates the dark, hidden forces of Wall Street and how it has dehumanized and left behind everyday Americans. A fresh and enlightening take on how we reached this point, How Money Became Dangerous also makes the case for why Wall Street needs to be saved, if only to save ourselves.

Financial Literacy for Teens and Young Adults

BB & GG only started getting serious pocket money from the start of this school year. Luckily for us, they don’t really spend the money they get as pocket money, instead putting it in a money box. I’ve told them that at the end of the year, we will tally the money they’ve saved and half of that will go into their bank accounts and the other half is for them to spend.

I’ve also opened a trust savings account for them, this was when they were about a month old. Into this account went all the money they’ve received till date – all birthday money and any money that their doting grandparents and other relatives would give to them on festivals and occasions. I’ve also been putting a small sum into this account every month and over the years this has added up to a good amount. The money in this account is meant for tertiary and other education for both of them and I don’t want them to have access to this account ever!

So that BB & GG learn the importance of a savings account and learn to use it responsibly, I am keen that at least by the end of this year, I open savings accounts for them, these will not be linked to the ones I have already opened for them.

So that they know how to manage their finances, I’ve also been reading up on financial literacy. I actually consider this one of the most important subjects that should be, but is not taught in schools and colleges and so I decided to read up and then go on to teach them the same.

So what exactly is financial literacy? One definition I found and which I felt was very appropriate says, “Financial literacy is the ability to use knowledge and skills to make effective and informed money management decisions”.

Income and Expenses and the relationship between them
To be able to make informed money management decisions, the first thing you need to do is to teach your child what income and expenditure are and the relationship between them. In very simple terms, income is what you earn – your monthly or weekly salary plus anything else you earn when you are not working. Expenditure is everything you spend on. The difference between this is your net profit or loss. Profit happens when income is more than expenses and loss is when the reverse happens.

All expenses need not be bad, some expenses, which you incur to obtain something which will stay with you for a while (that is what we call an asset) is probably good expenses. Examples for this can be buying a house, spending money on learning something new which helps you in your day job or paying for your passion, which in turn is turned into a source of income.

However, not everything you buy that stays with you for a long time is a good expense. Now we bring into the picture a term called Depreciation. Simply put, depreciation is the reduction in value of an asset over a period of time due to wear and tear. A good example would be a car. You pay good money for the car, add to this the various taxes and the maintenance you pay for it over a period of time. When the time comes to sell the car, you would not get even half of what you’ve paid for it, this is depreciation. Another good example is electronic items when you buy them, you pay a premium, especially for some products. Then when the next upgrade comes, your current model is sold for pennies!

Spend, Save, and Share
When you earn, it does not mean that you need to save everything except that which you need for daily expenses and necessities. You should also keep some money to spend on things that you like. However, it is always better to divide your income into two or more buckets – to save, to spend and maybe to use for the less fortunate.

By this same token, if you have multiple goals, you can have multiple accounts in your bank

Saving for long and short term goals
The long term goals will be big goals – like a house, a car etc, medium and short term goals can be holidays, electronic equipment, etc and the daily expense account should be your usual account. As soon as your salary gets credited to your account, transfer the agreed upon percentage to each of these accounts. This is called ‘Paying Yourself First’.

Make sure that your ATM card is not linked to these accounts so there is no temptation to dip into them. Make it easy to see the balance online, but difficult to access it online and through the ATM. This will reduce the temptation to use these accounts as back-ups when you find yourself short.

Since BB & GG are not earning members of society nor have any long-term goals at the moment, all their savings will be for short or medium term goals. I am going to get them to write down their short and medium goals so that they have goals to work towards.

This is perhaps the biggest lesson that financial literacy teaches us and one that is often relegated to the bottom when it comes to personal finance. Anyone who deals with money needs to budget it. And when you are young like BB & GG, it becomes important that they learn this when they just start learning about money so that by the time they start earning decent money, budgeting becomes as essential to them as breathing or eating!

Budgeting is a plan you make each month (or week or whenever you get your income) on how to spend your money. Budgeting is important because it allows you to have a plan for your money and also makes sure that you always have money for things that are necessary and those that are important. It also keeps you on-track for your short, medium and long-term goals in life.

When you go to purchase anything, ask yourself always if you can live without the item. If yes, then go away and do not buy. If the answer is no, then still put it back, but think about it for a week or so. If after a week, you still can’t stop thinking about it, either see if you can afford it or if no, then plan to save it for your short-term goals.
Making an initial budget is quite simple – make a list of all income on one side, and then first move money to your savings, then account for the necessities and what’s left will be your fun money or money you can use for entertainment or for yourself without feeling guilty about it.

If you have basic accounting knowledge and know how to reconcile your own accounts, it will help you in own budgeting and financial planning.

The power of Compound interest
One of the biggest advantages when it comes to financial management, especially for those who start saving early on, compounding your money allows it to grow faster. Compound interest happens when the interest that is accrued to your savings account adds to the money into the account and that interest, in turn, earns more interest.

So for compound interest to be really effective, you need to start saving much earlier, rather than later. Even if you put in small sums, but at regular intervals over a period of time, starting from when you first start working (or even earlier, if possible), then with careful planning, you may even become a millionaire by the time you hit 50 years of age!

Here are some images which show you the immense power that is compounding.


As BB & GG grow older and more financially savvy, I want to introduce investing concepts to them. These are all topics for posts which will probably come later as they become more financially lierate.