He is a consummate writer, but it is his cautious approach that irked me. If the finance is a noble, life-affirming profession, he should have singled out the bad eggs that are hell-bent on tarnishing its image. MIHIR DESAIR is the Mizuho Financial Group Professor of Finance at Harvard Business School and a professor of law at Harvard Law School.
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. Retail foreign exchange trading 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.
- 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.
- One of the central goals of finance is figuring out how to value things – both for people and for assets.
- This first part of the book suggests that the question of value—how it arises and how we should measure it—bridges finance to the humanities in rich ways.
- Unfortunately, despite the best intentions and considerable erudition that Mihir Desai brings to the project, I found some elements of the book’s development to be too flawed to get past.
- And of course, ownership is when one company decides to buy another for their capability.
- Soon I began to find finance in literature, in philosophy, in history, and even in popular culture.
I do recommend this book, but as Desai has made clear, its for those of us in the trenches. I remember years ago when my wife worked on Duke Energy’s trading floor in the same town, doing much the same work as Enron. “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. Similarly, there are many, many good bankers out there painted with Angelo Mozilo’s brush.
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.
Inside The Book
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 the wisdom of finance 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.
The game of accumulation is one that will leave one less and less satisfied as one gains more and more. To search for ever-greater satisfaction through accumulation is folly. And it runs completely counter to how individuals in finance often act and how they are perceived. For those in finance forex analytics it is very easy to get so focused on the field that they let their interest in the broader world wither away. One way to make sure you don’t lose touch with the wider world is to read. Mihir Desai,professor at Harvard Business School and Harvard Law School, argues for re-humanizing finance.
The uncertainty and randomness play a huge role, and its fundamental inseparable part of life. Randomness is everywhere, but predictable in aggregate is the foundation of insurance. An obvious choice for my 5 star rating, I found The Wisdom of Finance, Discovering Humanity in the World of Risk and Return by Mihir A. Desai to be a thoughtful, informative, fun, easily digestible, and memorable read.
To make matters still more confused, modern capitalism is complicated – it often isn’t clear who is the agent and who is the principal. This is true in life as well – roles are blurred and muddled. One of the central goals of finance is figuring out how to value things – both for people and for assets. They often end up saying to themselves, “Why not stay another year and create more options for down the road? ” The tool that was supposed to lead to more risk-taking ends up preventing it. Investors use something called beta as a measurement of risk to market fluctuations.
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 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.
Mihir A Desai
And I began to understand why finance and these fields were deeply connected. Many distrust markets, particularly financial markets, because they are thought to be hostile to humanity—but perhaps that has things completely upside down. In the spring of 2015, I found myself in a position I often do—struggling at the last minute to make good on a commitment. I had agreed to give one of the last lectures to the graduating MBA class of Harvard Business School. The so-called last lecture is a tradition that allows professors to offer students, on the eve of their graduation, words of wisdom.
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.
Lists With This Book
Thankfully now I’ve learned better, but the world of finance still has a pretty terrible reputation around the globe. By making commitments to others , you will take actions that you may never have been able to force yourself to do on your own. Ths accountability hold us to a higher standard and may enable us to live richer lives.
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!
Finally, using Lucy’s “muddle” in A Room With a View (i.e., being true to oneself versus satisfying society’s expectations) is a highly questionable example of a principal-agent conflict. As a noobie to finance, I wanted an accessible finance text to introduce me to what the heck is finance. The book is peppered with some great stories and case studies which humanises the financial concepts to a great degree. The fact that you can find reference to Jane Austen and Leo Tolstoy in one page and a few pages later you’re reading about Greek tragedy and Kanye West, shows how great the range of the author is capable of. 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. The Wall Street vs. Main Street rhetoric that has become so pervasive reflects a common view of finance as an industry that extracts more value from the economy than it creates. At the same time, there is a growing awareness of how central finance is to our economy and our lives.
I had always enjoyed stories, but becoming an economist made me distrust them. As is typical, I committed to a title—The Wisdom of Finance—but remained unsure about what it meant. In the subsequent weeks, I was surprised by how easily I could connect the lessons of finance to life, and how rich those linkages were. After the lecture was delivered, I was overwhelmed by the reaction of the MBA students, who were clearly hungry for wisdom that was not distilled from on high but from their own worlds and their own work. Mid-career executives were even more appreciative, as they understood better so many of the challenges that life presents. 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. This book is not about the latest study that will help you make money in the stock market or that will nudge you into saving more.
Finding Heart In Finance, Sources Of Inspiration
The problems that finance addresses, and the beauty of the approach it adopts, are most easily understood by attaching finance to the stories of our lives. More than regulation or outrage, fixing finance requires practitioners to return to the core ideas, and ideals, of finance—which can help them ensure that they are creating value and not extracting it. By linking those core ideas to literature, history, and philosophy, we give them deeper resonance and make them more resistant to corruption. Just to get it out of the way, the reason I picked up this book was to not learn the technical details of finance. This book delivers on what it sets out to do i.e. explain financial concepts that seem out of this world to an untrained person. It does the opposite as well, if you’re familiar with financial concepts already, prof Desai will open your eyes to the real life implications.
I did find the mindset of the author, basing the covered concepts on a foundation of risk, was entirely appropriate, but if you don’t think in that way all the time it might cause the reader to wonder about the path taken. I know I wondered and had different expectations, and I believe it was because I was thinking more as an accountant than a financial manager. Overall, the book was well done and enjoyable to me, more enjoyable than I initially expected. If the idea of using stories to illustrate financial concepts grabs you, you may well enjoy it. In addition to leverage, I came away with much better understandings of risk and risk management, insurance, the relationships between principals and management, mergers, and bankruptcy. For my money (ha!), Papa Karl’s Labor Theory of Value still makes a helluva lot more sense than anything conjured from the mist enveloped regions of finance. A tree and a table are both made of wood, but the table has a higher value.
I think what sets the book apart is the intersection of economics, politics and history to explain the evolution of finance and it’s main concepts. Desai does a great job to help outsiders understand concepts like portfolio theory, hedge funds etc. The asset pricing branch of finance tries to establish the value of assets by thinking hard about the risks they present and the returns we demand for bearing those risks. There are many who dismiss markets as mechanisms for establishing true values. This first part of the book suggests that the question of value—how it arises and how we should measure it—bridges finance to the humanities in rich ways. Mihir Desai’s academic publications have appeared in leading economics, finance, and law journals. His work has emphasized the appropriate design of tax policy in a globalized setting, the links between corporate governance and taxation, and the internal capital markets of multinational firms.
They need to ensure that their activities are truly value creating. More personally, working in an industry that is perceived negatively can take its toll.
The Failure Of Risk Management
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 .