How much Information is too much Information?

We are living in the world of Information Technology. In India this word has a lot of significance. It is the information technology boom that started creating many jobs (with earning potential that was well beyond the expectation) and made a lot of people very rich. It is the need for information and stay up-to-date that has spawned some of the most successful companies of recent times. Information about correct websites -spawned Google. Sharing information about ourselves and getting to know about friends spawned Facebook. Information sharing spawned telecommunication, which is the big reason for Apple to be the number one company by revenue in the world. One morning I could not stop myself from wondering whether I actually need all the information that I am getting. It just seems wherever I can focus my eyes on, I am bombarded with information. I sit at work and just train my eyes towards any pillar and there is information about the company’s vision, mission statement etc, When I am driving I just turn left, right, or raise my heads and there are hoardings everywhere with information about some product, TV show etc. I switch on the TV and there are 100 products advertisements with information. I was just discussing with my friend on a New sprite ad where the guy drinks Sprite to become smarter and get to take a girl on his bike while making another guy take an old lady in his car (I find this advertisement offensive to all old people- indirectly it wants to say nobody would like to take the old lady). My friend thought this is one “Dimaag ki Batti jalao” ad (this is Mentos territory). This made me wonder, with so much information have we become passive information junkees? If I am being bombarded by so much information then how much information is too much information? It is known, the part of the brain that is responsible for fact based memory has 1 billion neurons (there are over 100 billion neurons in the brain) and each of these neurons can make a thousand connections resulting in 1 trillion connections. Each of this connection is capable of storing data. (Source: http://www.scientificamerican.com/article.cfm?id=what-is-the-memory-capacity ). If one has to define this as a finite state machine it takes 30 bits to define a neuron and 40 bits to define a connection. For a synapse to form, there are 2 neurons and a connection, which means it can be explained by 100 bits. The definition of entropy says the information in a system cannot be more than the amount to describe it fully. In this case we can define this system by 10^14 bits (1 trillion connections * 100 bits).This is around 12.5 terabytes. But no one is sure how the brain stores information, so according to various sources our capacity varies from 10 terabytes to 1000 terabytes. In a 500GB hard disk we can store over 500 full length movies. So this means the capacity to store 10000 to 1 crore movies. Very impressive, isn’t it? It appears as though my memory capacity is limitless. If each movie can be equated to 2 hrs of content then I can store a minimum of 20000 hrs of data to a maximum of 2 crore hrs of data. Assuming I would store all information that my eye records in a day as a video and this video is actually stored like a summary and not second by second I can say I will record 1 hr of summary of things I see every day, 2 hr of television data (one can generally recall much of a cricket match and TV show so a higher storage for this), 1 hr worth of images (Online reading, social networking images, magazines and news papers etc). So I can assume to store 4 hrs of content each day. This means I can have a memory of at least 14 yrs at any given point in time. But I have to remember a lot theories, maps, academic content etc. Taking the entropy of a system as the basis, if I keep taking in random amount of data my memory does run out of capacity. If somebody says aren’t you reading 10 different newspapers I should be proud to say ‘No’. I don’t have to be an avid reader just to show that I appreciate great novels. I don’t have to watch all Finance news that keeps coming to feel like I am updated (let’s face most of the stock market prediction are good only in hindsight, nobody has been able to correctly predicted most of the downturns anyway). I can refuse to be on social network except when I am truly bored. I don’t have to like and see each and every photograph posted by friends just to please them. After all I want my storage place to be available to store some really important events, sports highlights, academic content, and contents of interest etc. As Sherlock Holmes once said “Mind is like an attic with limited capacity and I want to store only those tools I want to use”. With so much information being bombarded (majority of them by advertisers) on everything we lay our eyes on most of us have become passive information receivers, who would least bother to remember the brands (which in turn has resulted in advertisers trying to put more effort into it- In this year’s IPL every other event is named after a brand). Please pour in your thoughts on how you are planning to curtail too much information getting into your system. There is too much focus on information quantity these days rather than quality. I would like papers to be only of 2 pages (for everything else give an online link, for people to delve into it or additional sheets of expanded summary, news to be only 60 mins a day, and advertising to be done in permitted zones. Why can’t people write things as though they are writing a summary? Why is there focus on trying to elaborate everything?

Future Plans and Insurance

Hi. After a really longtime I am writing this post. Because of a lack of proper subjects, boredom, and sleep addiction I was not able to put any thoughts on writing a post. Now that I have woken up and started reading novels serially (one every weekend) I thought let me start posting again.
Completing my MBA and joining work brought with it the necessity to plan, plan for future. It’s something that I didn’t want to, because every plan needs formulation, which means work. But when you start earning, a lot of bank agents, investment agents, relatives, and friends give you suggestions on planning for your future. I can only say “I agree but not now” or “I will take a decision on it sometime later” so many times. When a suggestion turns out be a call for action one has to make a decision. In this case Yes or No. Saying a yes meant agreeing to the suggestion and not being asked any more question but just signing in some ticked boxes. But I like arguments so it was time to shrug off my indolence and get to work.
The first thing was insurance. I personally dislike life insurance. It means I think my family cannot take care of itself if I am not there. That means underestimating my family’s ability ;). In this day and age where women can stand on their own foot and are equal to men I shouldn’t be thinking like that ☺. But seriously I thought the probability of an untimed death for me is too low to keep paying monthly premium and I was willing to take the risk. This was my explanation. But then people at LIC,Bharti AXA etc had different insurance plans the one that is combined with some kind of retirement plan.
One such plan was that I pay a premium of 7.1 lakhs for the next 10 years and after the 10th year the agency will start paying me Rs.50000 every month for the next 15 years. This also has a life insurance in case of my untimely death anywhere close to 7-8 years of premium pay for no further premium my family will get the monthly income for next 15 yrs plus some life insurance amount (4-5 lakhs). Not only this I will get a guaranteed bonus of 25 lakhs at the end of the policy term.
Now for a normal calculation this looks like I would pay in total of 71 lakhs and receive 1.15 crores plus life insurance. A premium that guarantees returns albeit at a premium ☺. For me to give a No to this I needed logical reasons. So I started my calculations. For any money that I save I can be assured of a return of 12% per annum compounded over a 10 year period. This means the 7.1 lakh investment that I am making every year should be worth a total of 1.25 crores at the end of 10th year. Now the agency starts paying me 50k per month. All of us know that if we take a bank lona of 1 lakh our total EMI payments at the end are more that that because of interest rates and Banks calculate something call Present value of all the EMIs. That means adjusting it by interest rate the total amount of 1.3 lakh or whatever you pay at the end of loan period is equal to 1 lakh today (because all money saved offers returns in this case equal to interest rate). Now instead of me paying and EMI this situation is equal to the Agency paying an EMI for the loan I have given. If now I calculate the worth of the loan amount it comes to 40.1 lakhs add bonus to this and it comes to 65.1 lakh at the end.That means the Agenc’s payments of 50000 per month for the next 10 yrs plus bonus is only worth 65 lakh at the start of 10th year. But my investment was worth 1.25 crores. The agency makes a clear profit of 60 lakhs. I can expect a bank to use my lona and get more than 12% return as normally lending rates or higher than savings or fixed deposit rates right? So for me to even contemplate taking this policy the agency should have guaranteed a payment of Rs.1 lakh per month (double their initial offering) and almost double the bonus amount. I am also enclosing an excel sheet (https://docs.google.com/open?id=0B5senRMGKBIgODNiOTM2NjktZDNmNi00ZjI5LTlhODYtOTFkODMxY2IyNGZh ) for you guys to evaluate any such plan offer you might have got or may get in future. But then again you may attach significance to payment you may get in case of death and still take it. It purely becomes subjective (most insurance plans are). If any of want to buy Insurance premium please let me know I know a few close agents and I can give you their contacts.
Next I was thinking future. In this regard I remember a dialogue by Roberto Di Niro in the movie “The Score”. In a conversation with Edward Norton he says “Figure out what you want (materialistic) and spend the next 25 yrs getting there slowly but steadily” or something to that extent. The idea was not be in a hurry but to be scrupulous. Our government as already gone someway into guaranteeing that we will be crorepatis. If you continue to save 1 lakh per annum that is need for tax benefit purpose and don’t pull that investment out then you can expect to be a crorepati(in nominal terms) in 21 years. I am enclosing a small calculator excel sheet for you to play around (https://docs.google.com/open?id=0B5senRMGKBIgZTMxY2VkODktM2NlMi00YjAxLWI4M2UtODViNTkwNjU2N2U3 ). You can calculate for yourself to be having XXXX money with a particular saving and investment every year how many years you need or given a certain number of years to have XXX money how much saving and investment you need to do. Hope you all have fun using this.
P.S. Some cells in this excel sheet are locked only the cells in which characters are in Blue font can be changed.

To buy or not to buy a house in a big city

Most of us travel away from our hometowns to one of the busy traffic laden cities for jobs. I have had conversations with many friends on whether to buy houses in such in a well-developed city. From the top of the head one can quote many reasons as to why one should buy. It would be a great investment. Real estate prices in these towns always keep on increasing. Tax breaks on interest. Doesn’t have to pay rent anymore. The joy of being the owner of a house. It is not easy to list negatives. Tope of the mind people said investment upfront is very high.
I tried to search of mathematical and subjective reasons for why one should not buy a house in busy towns. Lets talk about numbers first. I have attached a simple excel sheet also for you to play around (https://spreadsheets.google.com/spreadsheet/ccc?key=0ApsenRMGKBIgdEs4X2hVYkJOdHdWV2ZxZzBrX0dDcGc&hl=en_US&authkey=CP-a0-UI). I am posting an example case here
Loan 5000000
Number of years 15
Interest rate per month 0.7500%
Monthly Installment 50713.32921

Rent of the same house/month 10000
increase every year 6.00%
Number of years 15
Total rent paid 2793116.386
Present Value 967282.6116

If I am buying say a Rs. 50 lakh house in Bangalore I will end up paying around 50 k per month in installments if I plan to clear the loan in 15 yrs. While at the same time if I rent a similar such house I may be paying Rs.10 k per month. Lets assume that this rent increases by 6% every year. By the end of the 15th year I might have paid close to Rs. 28 lakh in rent. But this is same as investing Rs 10 lakh today in a bond that yields at 9% and paying of the rent with the returns. Now my Rs. 500000 lakh house has to be worth at least 1.82 crores for it to break even with bond returns at the end of 15 yrs. If for any reason the real estate price fetched me less than this then I would have wasted a considerable amount of money and energy. To more subjective reasons. Is it worth forgoing a huge amount of salary and live in austerity for a long time just to have a house in a big city? Can the youth life be returned to me at the end of 15 yrs. What if at the end of 15 yrs I wish to go back and settle in my hometown or some other calmer place. Is it worth it? These are some questions to ponder over.

The Rational Decisions in Buying a Car

One day while traveling in a car with my brother in law and friends we started having discussions on which car is the best? Now to tell some car as the best we had to look into a whole lot of things and the important one was the price.So we kind of settled on which is the car we should be buying if we were buying for the first time and with our own money. So the BMWs, Mercs and the Audis were out of the picture. For me almost all cars were out of the picture as I was participating in this discussion with no job and a huge education loan on my head. But I wanted to be in this conversation and I imagined myself in my old job.
We started discussing from hatchbacks going as far as SUVs like Innova and Scorpio. My brother in law had owned Scorpio and owned an Innova. According him Innova had not broken down had a good engine and good handling. The image of quality that is associated with Toyota. When it came to scorpio it was mentioned it had good power can hit high speeds easily and was rugged. Exactly the things Mahindra wants to associate itself with. So know I began thinking whether he is feeling these things because that is what he had in mind before buying them or was it unaided and unbiased opinion. A few days ago I saw my friend praising his Ford Figo on Facebook. I began to think as long as a car doesn't breakdown at crucial times the things related to feeling like great power, quality are more or less derived from brand associations.My brother in law did not remember his Scorpio breaking down but when asked the first thing that came to his mind was if you are looking for power Scorpio was the one though he had no problem with his Innova when it came to hitting high speeds.
Lesson number 1 for me was it is hard to differentiate power and handling etc unless I am real expert at it. I did go in both Innova and Scorpio and really couldn't differentiate and it's the power of peer opinion pressure that made me conform to the opinion of Power- Scorpio, Handling-Innova
Next the discussions rolled on to hatchbacks for many of us buying hatchbacks the mileage was a big factor. Even for the same car diesel and petrol variants make a lot of difference when it comes to buying. My brother in law argued the Diesel variant of the Punto he had bought was more value for money than the petrol variant. I decided to analyze this claim. His reason was to go to bangalore and come back it takes Rs.1000 of petrol and Rs.500 of diesel. Now the difference for a Petrol model and Diesel model is Rs.1 lakh. The difference in mileage is 4km/litre (16 kmpl vs 12kmpl). The difference in petrol and diesel is Rs 10 per litre. So for every litre a diesel car gives a saving of Rs.22.5 (10+4/16*50, assuming petrol price is Rs.50)over a petrol car.
Now to the interesting fact: To breakeven with Rs.1lakh differential a diesel car should consume 4444 litres of diesel or should cover 71104 Km. Now I asked my brother in law how long does he keep his car the answer till it reaches 60 thousand to 7 thousand km. I have not taken the present value of the 1 lakh differential. So rational decision making says if people are going use cars mostly in city and sell it once it reaches close to 70,000 km then they should be buying a petrol car
But it doesn't work that way the classic rule of "Segregate gains and aggregate loses" does work. People don't mind paying a high price initially if the gains are distributed and visible. A saving of rs 22.5 per litre does look significant (half litre diesel price) this is what was the difference between a Diesel and petrol car.
So even though a car is a high involvement category where people seek a lot of information and it is believed they take rational decisions. The decisions are not so rational after all....

Advertising

Advertising, to put it simple is a way of creating awareness about a product and its features so that it creates an interest in a consumer. The one question I wanted to explore was “Can advertising persuade a consumer to buy a product?” If so which form of advertising is much better? When it comes to form of advertising the number of forms is huge. Advertising through Press releases, print ads in magazines, billboards, ads on T-shirts of sportsmen, TV advertisements etc. I did not do a thorough research to point out that so and so is the best advertising tool. But I am writing about the form, which I found was very effective, after talking with a host of people.
I interacted with around 20 customers and found out that most of them will buy a product if its features are appealing. So an Ad should bring out the best features of a product. In many marketing situations TV Ads do not work that well. For example take B2B marketing or technology sale. We rarely see television ads. A TV ad is of a limited duration (around 30 seconds at max normally) and it is not possible to create the kind of awareness and talk about product features that would result in a customer inquiring about the product. Intel is one of the technology companies that do a TV ad. But its brand name and the customer mind share it already has makes it easy. Intel doesn’t have to explain its technology in depth. But can simply say which is the new chip they have come up with. They could be sure a customer buying a new computer would end up enquiring whether it has the new Intel chip. I talked with over 20 people to get an idea about the influence of advertising on products that they are already aware of. Lets take Coca Cola and PepsiCo. Many of their products are very similar and are perfect substitutes. Many people don’t care whether they are drinking Maaza or Slice. It comes down to availability and which name is easy and kind of flashy to say. PepsiCo has Nimbooz and Coke has NimbuFresh. If both are available then people preferred Nimbooz to NimbuFresh as the name is catchy and cool.
As the cost of a product increases awareness amongst target market also increases. I conducted a small survey and found out that consumers who shop (mostly consumers going to supermarket to shop) go through the features of the product. An ad itself will not result in consumers buying a product. A well made Ad (and Ads which use celebrities) will get the attention of consumers but won’t guarantee a sale. But majority of respondents agreed that once they know about a product an Ad on the same gets them to stick with the product. Either because the product, with repeated ads, is now more popular or they don’t trust brands which don’t carry any form of advertising.
One of the interesting things that I found during this small survey is many people try a product if friends recommend it. This is one of the things I too found out from my interaction with CIOs and IT heads during my internship (in technology marketing). I did have the opportunity to listen to Chethan Bhagat (he was called for an event by Fortinet, company I interned in). When somebody asked him a question on how he markets his books, his answer was he doesn’t spend anything on marketing. He simply believes in word of mouth. I do think word of mouth is the strongest form of advertising. If a company can get its consumers to vouch for its products then it simply doesn’t have to worry about advertising. Look at Apple if it comes out with an Iphone 4 a lot buzz is already created. Newspapers pick up the release. From social networking to casual talks over coffee people start talking about the new gadget. Look at social networking sites like twitter and Facebook they need little advertising. I for one moved away from Yahoo messenger to Gtalk because all my friends recommended that. In the end it was like I wouldn’t find any of my friends in Yahoo messenger.
In this day and age where consumers are well informed I don’t think there is any better way than having customers themselves as the brand ambassadors. Companies who want market share should make the customers talk…

Trend setting

When I was working on my internship project I found out one thing “people sometimes do things even when there is no requirement”. They do certain things only because that is what everybody else is doing around them. This is clearly observable in our recent bollywood movies. You read about actresses’ answers when they were asked about a smooch in the movie; she would have told that the script demanded it. Funny that we are getting almost same stories and scripts as those written 10 yrs back but nowadays the scripts are demanding kisses. (My only gripe is why is the demand stopping there?) This is an example of a trend.
On a serious note we can think about numerous trends. Lets look at Apple, they are not producing appliances based on trends but are trendsetters. Apple focuses on simplifying things and making the products look sleek and beautiful. This has helped Apple in its positioning, gaining mind share, gaining market share and create a following. Once a trend is set there will be people who follow it. Trendsetter obviously had first mover advantage but companies that ape don’t have to invest too much on R & D so they reduce their cost. This is one of the things that I observed. Once companies come out with similar products most of the time the competition is all on price. So what does the trendsetter do? This is when a trendsetter continues to exist or perishes. Those who continue to exist bring about new enhancements and add on features, which help sell the product before it can be aped and then come up with a different product. This thing is clearly evident in the Mobile market.
What about those going with the trend? We can talk about Fastrack. It identified a trend that the younger generation wanted affordable, branded and fashionable watches and sunglasses. Though competitors are there for watches and sunglasses separately there are not many under the same brand name (I can think of only TIMEX and SWATCH).
I think the difference between those going with the trend and those setting the trend are Trendsetters innovate and make people realize that they have an unfulfilled need. For example take the example of iPOD. There was a Walkman and a radio but the thing was none of them were sleek. iPOD started a trend. In the case of Fastrack they did not create an innovative thing to make people aware that there is a need to be unfulfilled but identified the gaps in the market to create a thing that satisfied a segment.
Now think of having a music player in your pocket you may think of i Pod, there may be a Nike football shoe that I want not because I need it but because everybody else who plays football prefers it. Think of social networking many of us who do not check or make friends on facebook or orkut are still there because that’s the trend. Trendsetters gain mind share even without trying hard. The goal for most companies is to be a trendsetter. (Disclaimer: These are just my views)

Budget, Elections and Spending

It's known that this year's budget is mainly focused on reducing govt spending, and putting more money in the hands of people by reducing overall income tax on individuals. But this doesn’t mean that the total income tax collected will be less. Improved economy means total income tax collected by the government will be more. Some economists believe that people are rational. That is they believe in Ricardian view that if government reduces taxes today it will make up for it by increasing taxes in the future.
I just went back in time a little bit to see how rational I was back then when I was working or how rational some of my friends are who are still working. I didn’t know that Ricardo existed back then. It simply means I was not rational ☺. There was a certain level of bank balance I wanted to maintain all else went into spending. If I had more money there were more chances that I would spend at least some considerable part of it on restaurants, real estate etc rather than saving it up. So consumptions should increase by some factor. I don’t believe it increases household saving too much. The reason is the number of taxpayers in India is around 35 million at the moment (google search ☺). Most of them (in my opinion) have a certain targeted savings, which they always try to maintain as long as they are having a job. The rest should be used to buy cars, household appliances, houses etc. This is at least what I observed when I was working.
If government is reducing its expenditure it has to be balanced by increase in investment and consumption etc (This is classical economics can be got from a book). But I want to bring in the factor of Elections to recession. The election commission has spent more than 10,0000 crores. Taking an average 200 contestants from a state and an average outlay of 5 crores from each contestant. In total around 28000 crores would be spent. But from where does this money come from? This is mostly black money. Think of it this way if there was a total Rs.100 in the economy and black money was Rs 20. That means this Rs 20 is something, which is stashed somewhere and is not in circulation. So we can say money supply is Rs.80. This sudden spending by individuals not only creates jobs for the unskilled people during elections but also suddenly adds money to the system, which was earlier simply not there for use. So using our IS-LM curve we can say that government’s liberal attitude during election year not only increases total output but this sudden infusion of money into the system also increases the output further. So elections in recession are not so bad after all.
The interesting thing is government is reducing its expenditure just after the election year. This should at least cut down the opportunities for politicians to make some money out of granting government contracts and others. Thereby decreasing black money accumulation and reducing money supply. So this should be a blessing in disguise to the economy. I wish there was some way to get the black money stashed in some of the government employees and put it back in the system ☺. But anyway this stashing up of black money might have favorably impact on inflation ☺
I am no authority on economics. Post your comments I want to learn from all my blog viewers ☺