Skip to main content


Showing posts from June, 2022

Should you take that $100k job offer? A Tale on PPP.

If you took a notebook and pen, and travelled the world, and you wrote down the prices of a pack of 6 locally produced eggs in every supermarket in the world, what would you discover? Apart from the fact that you may have had a lousy trip, you will realize how cheap it is to buy eggs in Bucharest (Romania) and how it is more expensive to by eggs in Dubai (UAE). In a perfectly competitive world, all eggs everywhere would cost the same after factoring in the exchange rate. Same goes for Crude oil. Or for a Mattel toy car. Or for a Lego toy box. These should cost the same everywhere in the world. Except it is not the case. The PPP theory states that, over a long period of time, the cost of similar goods in 2 countries would be the same if you converted the currencies at the prevailing exchange rates. However, this rarely happens. Due to a host of reasons; transaction costs, government interventions, tariffs & duties, non-competitive prices or even sticky prices (wherein even with chan

Understanding the Great Depression

The great depression is the period known to us right after the Oct 29th stock market crash of 1929 almost until the end of WW2, in fact – the depression started right in the middle of the interwar period. It is the worst economic phase in the 19th century according to economists and here is a brief summary about what really happened.  (I will talk about it briefly first, but since there are many things about economics the depression can actually teach us, I will cover them separately after the summary) The US experienced a huge boom in the stock market in the 1920s, wherein there was almost a growth of 20% each year in the 5-6 years leading up to the 1929 crash. On September 3rd 1929, the DJIA - Dow Jones Industrial Average - was at 381 – margin trading (financial invention at that time) giving way to excess liquidity, led to a lot of people heavily investing in the markets without their own money and there was an overall boom in confidence. However in 1929, fueled by a huge over valu

The Beauty of Compounding & Importance of Rate of Interest

 This is said so often, ever so often. We've learnt it in high school - remember all those simple interest and compound interest rate formulas? It's amazing - the simplicity of the math. What does compounding mean? Why is it used so often in conjunction with wealth creation? Well, let's dive right into it. The amount that you are going to invest in your first year - say on 1st of January, that's the principal amount. Let's say you just received your year end bonus of 1 lakh; and you decide to place this entire sum in a Fixed Deposit (FD) in your regular bank; which gives you 6.5% interest per annum. Let's see what happens to your money. Your money (1 lakh @ 6.5% per year) grows to 1 lakh and 6.5k in exactly one year. But the magic starts in the second year. Your new starting point is now 1,06,500 which @ 6.5% - becomes 1,13,423 by January 1, 2021 - i.e. after 2 years. In the table below, you can see how the money grows year on year (Y-O-Y). But the beauty is und