Fixed Income Analysis
Last year, we had created a beautiful heart in excel for Valentines Day. This time around, we decided to take a more practical approach and created something which impacts all of us.
What makes us feel satisfied in a relationship?
The fact that we see rewards associated with what we are about to invest, in the case of relationships, our investments are time, effort and in-depth emotional commitment.
Let us take the example of Emily & Jack.
They met. Fell for each other. And then decided to be in a relationship.
Now, let us take a look at their investments.
Investments can be financial (like a house), temporal (such as time spend together) or emotional (such as in the welfare of the children). Investments can thus has a â€˜sunk costâ€™ effect, where a person stays in a relationship simply because they have already invested significantly in it.
So how do you think Emily & Jack will be satisfied in the relationship they have invested so heavily in?
By getting rewards. The ‘fruits’ of their investment.
The house will give them material satisfaction, the time spent together will keep them satisfied for the moment and a raising a family together will satisfy them emotionally.
Let us say, for some reason, they end up being unhappy with this relationship.
Then, the only way to salvage their present is to remember that the past is past.
Look to the future and see what they can get there rather than what they have spent, which can never be recovered anyway. They would still have the rest of their life!
Emily & jack’s story holds true in Investment Analysis and is a test of the Investment Model.
Who would’ve thought, but Life’s Lessons can be learnt from Fixed Income
1. The Learning: For a woman who wants to be financially secure after marriage, the trick is not to marry the rich guy, but to marry the guy who has the potential to be rich.
The Inspiration: Invest in a bond that has the potential to be rich and may not necessarily be rich at the time of investment. Perform the rich-cheap analysis.
2. The Learning: Whatever route you take for office every morning, you just cannot beat the traffic
The Inspiration: It’s almost always impossible to beat the market!
3. The Learning: Just cause that watch in a glass case looks fancy, doesn’t mean it will change your time.
The Inspiration: CDOs may seem fancy, but they can pick your pocket if you’re not careful!
4. The Learning: Every young girl has a dream wedding she fantasizes about.
The Inspiration: Every bond trader dreams too.
5. The Learning: You’re always richer when you enter the Casino than when you leave it.
The Inspiration: It’s fairly difficult for a Portfolio Manager to beat the Market.
So, what do we learn from the guy who met the girl, wooed her, made her fall for him and realized he had invested his time and effort in the wrong girl when he really got to know her?
He obviously did not hear about EduPristines Fixed Income Analysis course before valuing his investments.
But you know better, don’t you?