Ever imagined how risk free derivatives trade actually is :
Quoting from the famous book traders guns and money :
Breaking down the hierarchy of the trading, “There are salespeople-they lie to clients. Traders lie to sales and to risk managers. Risk managers? They lie to people who run the place-correction, think they run the place. The people who run the place lie to shareholders and regulators”.
Here is self-explanatory poster how these different department see each other. To ease things out, you have to read from right. How the research department see themselves visa-vis other departments like Syndicate, DCM, Trader, Sales
As I did a story few days back When to sell and When to buy ? Trying to recollect the some book rules for Investments that holds true in many adverse scenarios.
As all of you must be aware of that the field of behavioral finance has helped us to understand that we don’t always make rational investment decisions.We often make poor decisions because of our biases. And the designers of structured product are well aware of these “flaws” in investor behaviour. So they structure products that exploit our flaws. Continue reading
Commodity derivatives markets started in India in 1990s, The National Agriculture Policy, announced by the government in 2000, advocated the development of futures markets so that consumers and producers of commodities could use these contracts to procure commodities at a more rational price than at the Minimum Support Price (MSP) set by the government, which came with a large cost to the exchequer. This set in place a drive of reforms in these markets, following the reform model that had lead to the development of the Indian equity markets previously.
In 2003 commodity futures contracts started trading on electronic exchanges with a nation-wide reach. Counterparty credit risk, that was a serious problem in the older exchanges, was eliminated using netting by novation at clearing houses similar to their more visible equity derivatives cousins. Total traded Continue reading
September 15 2008 was one of the most extraordinary days in global financial history.A simmering credit crisis exploded into a full-blown apocalypse in the global financial sector when Lehman Brothers filed for bankruptcy.
With assets of $639bn and a further $613bn of debts, it was the biggest corporate bankruptcy in the US. The collapse of Lehman had immediate repercussions, frightening financial markets around the world, but with hindsight its demise has come to embody the failure of investment banks to adequately assess risk and invest accordingly.
Market Performance (from the close before Lehman BK) – Silver +71%, Gold +61%, S&P +58% ( For S&P the dividend are not accounted for. Including dividend it will be close to 88%)
Here is a must watch documentary of 60 min : “The West is done, it’s over! We screwed it all up. Do you want your great-grandchildren speaking Chinese 🙂
Warren buffet: A good business that can be purchased for less than the discounted value of its future earnings.
George Soros: An investment that can be purchased (or sold) prior to a reflexive shift in market psychology/fundamentals that will change its perceived value substantially.
Benjamin Graham: A company that can be purchased for substantially less than its intrinsic value.
Some other examples are:
The Corporate Raider: Companies whose parts are worth more than the whole. Continue reading