Unearthing The Wisdom In Finance

I also see the phalanx of asshole traders and policy makers that have unearned, unaccountable, and unscrutinized influence over all aspects of society. I get the impression Desai believes economics to be a “hard” science, though he only once mentions this. He dismisses a common critique of finance as erroneously factual as misguided. As his book demonstrates repeatedly, despite its patters, “laws” and formulas, finance never exists in a social and political vacuum. In other words, economics is a social science (go ahead, use the term “behavioral” if you prefer. I don’t see what that adds). The understanding of financial concepts and its correlation/analogy with daily life scenarios will definitely enrich our understanding and decision making to live a meaningful life creating tons of value in the society. Appropriate Financial structure is extremely important for the growth of the economy.

Expected a little more humanities than finance based on the author’s note at the beginning of the book and don’t know if one who doesn’t have some background in finance would enjoy it as much as I did. But, it was more fun than my finance/economics classes in college and an enjoyable read. Loved the chapter on marriage/mergers as well as likening stock options to Jane Austen’s Pride and Prejudice. It’s an unusual book that connect finance with real life stories, full of wisdom and real stories of past man and woman, not always connected to finance. When I read Piketty’s “Capital in the Twenty-First Century” I found that I really appreciated his efforts to explain wealth and capital in historical context by referring to the fiction of the times, especially Jane Austen’s. A highly recommended book, for anyone remotely interested in finance – which we all should be as it is inseparable from our lives!

I wish he had done more here in teaching the finance types about ethics and bringing in those human values into their lives and models. To give one example that illustrates the astonishing range of Desai’s understanding, consider his illustration of leverage by comparing George Orwell (who went into semi-seclusion for years to write 1984) to Jeff Koons . He uses this not just to understand the role of leverage in the financial system but also to introspect about his own life where he is on the Orwell-Koons spectrum, and how that relates to happiness. THE WISDOM OF FINANCE is a wholly unique book, offering a refreshing new perspective on one of the world’s most complex and misunderstood professions. Though I loved the anecdotes and the excerpts from classic literature, the real purpose of the book was lost on me….may be, the title is a misnomer.

Unearthing The Wisdom In Finance

I assume the main audience for The Wisdom of Finance is people who relate to finance and not the people who read classic literary fiction. Now the problem is that if you haven’t read ‘The Pride and the Prejudice’, ‘The Maltese Falcon’, ‘The Financier’, ‘O Pioneers! That said, credit goes to Mihir Desai for deciphering every piece of classic fiction so that a non-reader could also relate to them. I don’t have any misgivings about the breadth of Mihir Desai’s intellect.

I think that’s probably a very risky move, and I think it’s probably not going to happen. You might recall, the underlying story is a governance story. Having procrastinated for a while, I initially retreated to familiar territory and decided to give a talk about recent financial developments in American corporations. It would be titled The Slow-Motion LBO of America and it would describe how the current share repurchase craze should be understood and reversed. I had something concrete to say, it would be provocative, and, to make myself feel even more superior, I rationalized that it was meatier than the puffery that is usually offered in these settings. This website uses cookies to improve your experience while you navigate through the website.

As you can see, leverage allowed you to buy a much bigger house than you otherwise could. If house values rise 10%, in Scenario A, you now have $110 worth of assets and $0 debt, which equals $110 of equity. In Scenario forex B, you now have $550 worth of assets and still only have $400 of debt, which means your equity is now equal to $150. If prices decrease 10%, you would have $90 equity in Scenario A but only $50 equity in Scenario B.

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For readers unfamiliar with, but curious about, finance, this book attempts to outline the main ideas of finance without a single equation or graph—and only with stories. I’m always struck by how intimidating finance is to many of my students. There’s a reason for this—some people in finance want to intimidate other people. By attaching stories to the ideas of finance, previously intimidating material will hopefully become accessible and fun. For concerned citizens or aspiring professionals, finance has never been more important—and ignorance of it has never been more costly. At a minimum, when someone you know starts going on about options, leverage, or alpha generation, you’ll know what they’re talking about.

Peterson has suggested that when one strays from responsibility, then the rest of society suffers. Desai says that the consequence of not acting out your responsibilities is the higher cost of insuring for everyone. This book is one if read correctly will make so much sense in all aspects, and the connection between morality and finance becomes more and more obvious as you continue to read. The collective burden being shared by society is a sentiment that was expressed in the Bhagavad Gita, too.

Wisdom Of Finance: Discovering Humanity In The World Of Risk And Return

To the practitioners of the hard sciences economics and its snotty little offspring, finance, are more mythology than science. A comprehensive scientific understanding of economics is of far greater importance to humanity than, say, particle the wisdom of finance physics. I’m not sure this amazing author knew how profound his message might be. I ran into my own moral philosopher in business school, the noted Canadian accounting professor Al Rosen, the sort of guy you either loved, or loved to hate.

The societal stigma associated with failure needs to be rewired, and treating failure as an undeniable aspect of life is crucial. Similarly, in our life, if we take decisions with the perspective of valuation and value creation, it will significantly improve our allocation of time, energy, resources to fulfill our objective and live a meaningful life.

  • For those readers engaged in finance deeply, the book holds one final promise.
  • There’s a reason for this—some people in finance want to intimidate other people.
  • “We’re not like that,” I remember them saying but at that time, being an energy trader in Houston led many people to assume you were a snake oil salesman if not an outright fraud.
  • His research is regularly cited in major publications, and he has testified several times before Congress.
  • Through this novel, creative approach, Desai shows that outsiders can access the underlying ideas easily and that insiders can reacquaint themselves with the core humanity of their profession.
  • And, as has happened before in my life, I unwittingly stumbled into a commitment that provided returns that far exceeded the investment I had made.

The book follows a conceptual arc that is divided roughly between those two branches. For students or practitioners of finance, this book allows them to revisit the big ideas of finance in a fresh, different way.

Copyright © 1969 by Henry Holt and Company, copyright © 1936 by Robert Frost, copyright © 1964 by Lesley Frost Ballantine. Used by permission of Henry Holt and Company, LLC. All rights reserved. Currencies forex The 21-year-old that is considering a degree in finance, the 48-year-old who loves philosophical discussions, and anyone that wants to see what money can teach us about having a better life.

His scholarship on corporate finance, international finance and tax policy has prompted several invitations to testify before the U.S. Congress and serves as the basis of his advisory role to leading global companies and organizations. Mihir Desai was born in India and raised in Hong Kong and New Jersey. Professor Desai points out that, in spite of all the ways in which people apply the basic principles of finance to their daily lives, the subject of finance draws consistently negative reactions around the world.

Why Finance Needs More Humanity, Hbr Facebook Live

Desai indeed humanizes finance throughout, and readers within that discipline, and outside of it will benefit from reading the book, which is relatively brief , but packed with interesting material. A major point is that finance is not just about numbers, goals and deals, but about the human creativity, thoughts, emotions and motivations behind what we see in the headlines; or numbers in stock tables. He believes that the demonization so many people feel for the financial sector is unwarranted and unhelpful.

Puzzled by how financial markets work, they consult the shareholder for insight. He explains, for example, that the dividends of the Dutch East India Company are sometimes paid in cloves .

If I were forced to put wisdom on a numerical scale with finance as 1, then humanity might be a 100, and the ignorance of humanity might be 10,000. This is once again one of those forex analytics books that I wished I had access to when I was younger. It is genuinely a must read if we find ourselves at the crossroads of risk and rewards, as we all do on a daily basis.

And their omnipresence could be found not only in business, but in literature, movies and even art. The largest individual investor of Apple is Tim Cook who owns 0.02 % of the company. The largest institutional investor of Apple owns less than 10% of the company. There are millions of investors in Apple, they have delegated the job of managing the company to professionals, and the investors expect that the managers will take decisions in the best interest of the company and shareholders. The conflict of Principal-Agent Problem is central to Corporate Governance. Shareholders/investors are principal, and managers are agents of the corporation.

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Many practitioners of finance I see in my classroom were taught finance in a mechanistic way that has led to a fragile understanding of the fundamental ideas. When I probe them for the underlying intuitions, their understanding of the formulae helps little, and they can struggle to relay the conceptual underpinnings of what they do. By seeing these same ideas in a completely different way than you’re used to, you will deepen your understanding and, most importantly, your intuitions. Mihir A. Desai was born in India and raised in Hong Kong and New Jersey. As a professor and award-winning teacher at Harvard Business School and Harvard Law School, Desai teaches finance, tax law, entrepreneurship and has recently developed an online finance course for the HBX platform.