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WE KNOW WE KNOW WHAT WHAT WE DON’T KNOW WE DON’T KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

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Page 1: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

WE KNOW WE KNOW WHAT WHAT

WE DON’T KNOWWE DON’T KNOW

Dr. Chittaranjan A. Patel (M.D.)

17741 Holly Court, Tinley Park, IL 60487

Phone # (708) 429-4720

Page 2: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

All these work under the same principle: Which?

Stock Market

Casino

Insurance Industries

Page 3: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

Question:Question:

If you toss the coin 10 times and If King isIf you toss the coin 10 times and If King is

the winner & Queen is the looser, what arethe winner & Queen is the looser, what are

the chances that you get the Kingthe chances that you get the King

(winner) all 10 times?(winner) all 10 times?

Page 4: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

Answer:Answer:

Probability is 0.01% means 1 out of 1000.Probability is 0.01% means 1 out of 1000.

11 500500

22 250250

33 125125

44 6464

55 3232

66 1616

77 88

88 44

99 22

1010 11

Page 5: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

““Further backward you look, further forward you can seeFurther backward you look, further forward you can see .”.” - Winston Churchill - Winston Churchill

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1929

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Dow Jones Index (1929-1954):

Depression --------------->

Deflation <---------------

Page 6: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

““Something which is non-sustainable has to come to a sustainable levelSomething which is non-sustainable has to come to a sustainable level .”.”

Defeats and Then Victories in Asia and North Africa (Assets Class Performance, 1929-1945) 

Year Large Stocks Small StocksLong-Term Government

BondsTreasury

BillsInflation

1929 -8.4% -51.4% 3.4% 4.7% 0.2%

1930 -24.9 -38.1 4.7 2.4 -6.0

1931 -43.3 -49.8 -5.3 1.1 -9.5

1932 -8.2 -5.4 16.8 1.0 -10.3

1933 54.0 142.9 -0.1 0.3 0.5

1934 -1.4 24.2 10.0 0.2 2.0

1935 47.7 40.2 5.0 0.2 3.0

1936 33.9 64.8 7.5 0.2 1.2

1937 -35.0 -58.0 0.2 0.3 3.1

1938 31.1 32.8 5.5 0.0 -2.8

1939 -0.4 0.3 5.9 0.0 -0.5

1940 -9.8 -5.2 6.1 0.0 1.0

1941 -11.6 -9.0 0.9 0.1 9.7

1942 20.3 44.5 3.2 0.3 9.3

1943 25.9 88.4 2.1 0.3 3.2

1944 19.8 53.7 2.8 0.3 2.1

1945 36.4 73.6 10.7 0.3 2.3

Average (No Compounding)

7.4 20.5 4.7 0.7 0.5

Compounded Average 3.5 7.6 4.6 0.7 0.4

Growth of $1 1.8 3.5 2.14 1.12 1.06

Page 7: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

Performance of the Indices

Year DJIA S&P 500 Dogs of the Dow

1989 31.70% 31.50% 26.50%

1990 -0.40% -3.20% -7.60%

1991 23.90% 30.00% 34.30%

1992 7.40% 7.60% 7.90%

1993 16.80% 10.10% 27.30%

1994 4.90% 1.30% 4.10%

1995 36.40% 37.60% 36.50%

1996 28.60% 23.00% 27.90%

1997 24.90% 33.40% 21.90%

1998 18.10% 28.60% 10.70%

1999 27.20% 21.10% 4.00%

2000 -4.70% -9.20% 6.40%

2001 -5.40% -11.90% -4.90%

2002 -14.90% -22.10% -8.90%

2003 28.30% 28.70% 28.70%

10-Year return

14.40%

13.00% 12.9%*

   * Ten years ended December

31, 2003 

Performance of the IndicesPerformance of the Indices

Page 8: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

Average annual total return on stock from Average annual total return on stock from 1928 to 20061928 to 2006 was 9.6% per Year. was 9.6% per Year. 4.6% dividend yield.4.6% dividend yield. 5.0% earning growth.5.0% earning growth.

When there are multiple solutions to one problem: Choose the simplest one.When there are multiple solutions to one problem: Choose the simplest one.

Two sources of superior return on index fund.Two sources of superior return on index fund. Broadest possible diversification.Broadest possible diversification. The tinniest possible cost: Minimal tax.The tinniest possible cost: Minimal tax.

Real money in investment will be made not of buying & selling but owing & holding security.Real money in investment will be made not of buying & selling but owing & holding security.

Common stocks, Real estate and commodities perform better during periods of slight to moderate Common stocks, Real estate and commodities perform better during periods of slight to moderate inflationinflation

During high inflation: all financial assets and common stock do poorly.During high inflation: all financial assets and common stock do poorly.

Two great enemies of investor are:Two great enemies of investor are: Expense Expense EmotionEmotion

For investor as a whole, return decrease as motion increase.For investor as a whole, return decrease as motion increase.

Where return is concerned, time is your friend but when cost is concerned, time is your enemy.Where return is concerned, time is your friend but when cost is concerned, time is your enemy.

““I can calculate the motion of heavenly bodies, but not the madness of people.” - I can calculate the motion of heavenly bodies, but not the madness of people.” - Sir Isaac Newton Sir Isaac Newton

Page 9: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

One of the largest booms and busts of the late twentieth century involved the Japanese real estate and One of the largest booms and busts of the late twentieth century involved the Japanese real estate and stock markets. From 1955 to 1990, the value of Japanese real estate increased more than 75 times. By stock markets. From 1955 to 1990, the value of Japanese real estate increased more than 75 times. By 1990, the total value of all Japanese property was estimated at nearly $20.00 trillion-equal to more 1990, the total value of all Japanese property was estimated at nearly $20.00 trillion-equal to more than 20 percent of the entire world’s wealth and about double the total value of the world’s stock than 20 percent of the entire world’s wealth and about double the total value of the world’s stock markets. America is twenty five time bigger than Japan in terms of physical acreage, and yet Japan’s markets. America is twenty five time bigger than Japan in terms of physical acreage, and yet Japan’s property in 1990 was appraised to be worth five times as much as all American property. property in 1990 was appraised to be worth five times as much as all American property. Theoretically, the Japanese could have bought all the property in American by selling off Theoretically, the Japanese could have bought all the property in American by selling off metropolitan Tokyo. Just selling the imperial palace and its grounds at their appraised value would metropolitan Tokyo. Just selling the imperial palace and its grounds at their appraised value would have raised enough cash to buy all of California.have raised enough cash to buy all of California.

The stock Market countered by rising like a helium balloon on a windless day. Stock prices increased The stock Market countered by rising like a helium balloon on a windless day. Stock prices increased 100 fold from 1955 to 1990. At their peak in December 1989, Japanese stocks had a total market 100 fold from 1955 to 1990. At their peak in December 1989, Japanese stocks had a total market value of about $4.00 trillion, almost 1.5 times the value of all U.S equities and close to 45% of the value of about $4.00 trillion, almost 1.5 times the value of all U.S equities and close to 45% of the world’s equity-market capitalization.world’s equity-market capitalization.

StockStock Based on Firm-Foundation Investing theory, Japanese stocks sold more than 60 times earnings, Based on Firm-Foundation Investing theory, Japanese stocks sold more than 60 times earnings,

(U.S. at about 15 times earning and London at about 12 times earning)(U.S. at about 15 times earning and London at about 12 times earning) almost 5 times book value and almost 5 times book value and more than 200 times dividends.more than 200 times dividends.

Two myth Two myth Land price could never go downLand price could never go down High saving and low return on saving. High saving and low return on saving.

Law of gravity Isaac Newton arrived in 1990. Financial law of gravity knows NO geographic Law of gravity Isaac Newton arrived in 1990. Financial law of gravity knows NO geographic boundary.boundary.

The Japanese Yen for Land & StockThe Japanese Yen for Land & Stock

Page 10: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

0

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1991

Nikkei 225: 1949-1990 240

Nikkei 225 : 1949-1990Nikkei 225 : 1949-1990

Page 11: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

Between 1950 – 2005 Between 1950 – 2005 Total number of recession : 11 (Time duration : 96 months)Total number of recession : 11 (Time duration : 96 months) Shortest : 6 monthsShortest : 6 months Longest : 12 monthsLongest : 12 months

660 Months – 96 Months = 564 months recovery660 Months – 96 Months = 564 months recovery

85:15 (Growth : Recession)85:15 (Growth : Recession)

Through out American history : 1/3 recessionThrough out American history : 1/3 recession

Those who has mood & money (Cash & Courage), they get the highest return.Those who has mood & money (Cash & Courage), they get the highest return.

Why recession is short & shallow?Why recession is short & shallow?

Recovery & RecessionRecovery & Recession

Page 12: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

Number of days, on average, that the stocks are held in the portfolioNumber of days, on average, that the stocks are held in the portfolio ..

Average turnover rate between 1945 and 1965: 16% means average holding period of stock in the Average turnover rate between 1945 and 1965: 16% means average holding period of stock in the portfolio: 6 Years.portfolio: 6 Years.

Between 1995 – 2005Between 1995 – 2005

Index %

Average holding period of stock in portfolio

DIAMOND 100% 12 months

ETF 200%-800% 6-1.5 months

Russel 2000 7500% 3 Days

SPDR 8500% 2.5 Days

Volatility (Turnover Rate)Volatility (Turnover Rate)

Page 13: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

Wealthy FamilyWealthy Family::

A wealthy family named the Gotrocks, grown over the generations to include thousands of brothers, sisters, aunts, A wealthy family named the Gotrocks, grown over the generations to include thousands of brothers, sisters, aunts, uncles, and cousins, owned 100% of every stock in the United States. Each year, they reaped the rewards of investing: uncles, and cousins, owned 100% of every stock in the United States. Each year, they reaped the rewards of investing: all the earnings growth that those thousands of corporations generated and all the dividends that they distributed. Each all the earnings growth that those thousands of corporations generated and all the dividends that they distributed. Each family member grew wealthier at the same pace, and all was harmonious. Their investment had compounded over the family member grew wealthier at the same pace, and all was harmonious. Their investment had compounded over the decades, creating enormous wealth, because the Gotrocks family was playing a winner’s game.decades, creating enormous wealth, because the Gotrocks family was playing a winner’s game.

But after a while, a few fast-talking But after a while, a few fast-talking HelpersHelpers arrive on the scene, and they persuade some “smart” Gotrocks cousins that arrive on the scene, and they persuade some “smart” Gotrocks cousins that they can earn a larger share than the other relatives. These Helpers convince the cousins to sell some of their shares in they can earn a larger share than the other relatives. These Helpers convince the cousins to sell some of their shares in the companies to other family members and to buy some shares of other from them in return. The helpers handle the the companies to other family members and to buy some shares of other from them in return. The helpers handle the transactions, and as brokers, they receive commissions for their services. The ownership is thus rearranged among the transactions, and as brokers, they receive commissions for their services. The ownership is thus rearranged among the family members.family members.

To their surprise, However, the family wealth begins to grow at slower pace. Why? Because some of the return in now To their surprise, However, the family wealth begins to grow at slower pace. Why? Because some of the return in now consumed by the Helpers, and the family’s share of the generous pie that U.S industry bakes each year- all those consumed by the Helpers, and the family’s share of the generous pie that U.S industry bakes each year- all those dividends paid, all those earning reinvested in the business-100% at the outset, starts to decline, simply because some of dividends paid, all those earning reinvested in the business-100% at the outset, starts to decline, simply because some of the return is consumed by the Helpers.the return is consumed by the Helpers.

To make matters worse, while the family had always paid taxes on their dividends, some of the members are now also To make matters worse, while the family had always paid taxes on their dividends, some of the members are now also paying taxes on the capital gains they realize from their stock-swapping back and forth, further diminishing the family’s paying taxes on the capital gains they realize from their stock-swapping back and forth, further diminishing the family’s total wealth.total wealth.

The smart cousins quickly realize that their plan has actually diminished the rate of growth in the family’s wealth. They The smart cousins quickly realize that their plan has actually diminished the rate of growth in the family’s wealth. They recognize that their foray into stock-picking has been a failure and conclude that they need professional assistance, the recognize that their foray into stock-picking has been a failure and conclude that they need professional assistance, the better to pick the right stocks for themselves. So they hire better to pick the right stocks for themselves. So they hire stock-picking experts-stock-picking experts- more Helpers!more Helpers!- to gain an advantage. - to gain an advantage. These money managers charge a fee for their services. So when the family appraises its wealth a year later, it finds that These money managers charge a fee for their services. So when the family appraises its wealth a year later, it finds that its share of the pie has diminished even further.its share of the pie has diminished even further.

To make matters still worse, the new managers feel compelled to earn their keep by trading the family’s stock at To make matters still worse, the new managers feel compelled to earn their keep by trading the family’s stock at feverish levels of activity, not only increasing the brokerage commissions paid to the first set of Helpers, but running up feverish levels of activity, not only increasing the brokerage commissions paid to the first set of Helpers, but running up the tax bill as well. Now the family’s earlier 100% share of the dividend and earning pie is further diminished.the tax bill as well. Now the family’s earlier 100% share of the dividend and earning pie is further diminished.

ConclusionConclusion: : More the manager & brokers take, less the investor makes. Get rid of all your helpers. Then our family More the manager & brokers take, less the investor makes. Get rid of all your helpers. Then our family will again reap 100% of the pie that Corporate America bakes for us.will again reap 100% of the pie that Corporate America bakes for us.

Page 14: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

““In the short run, the stock market is a voting machine….(but) in the long run it is a weighing machine.”In the short run, the stock market is a voting machine….(but) in the long run it is a weighing machine.”

““Imagine that in some private business you own a small share which cost you $1000. One of your Imagine that in some private business you own a small share which cost you $1000. One of your partners, named partners, named Mr. MarketMr. Market, is very obliging indeed. Every Day he tells you what he thinks your interest , is very obliging indeed. Every Day he tells you what he thinks your interest is worth and furthermore offers either to buy you out or to sell you an additional interest on that basis. is worth and furthermore offers either to buy you out or to sell you an additional interest on that basis. Sometimes this idea of value appears plausible and justified by business developments and prospects. Sometimes this idea of value appears plausible and justified by business developments and prospects. Often, on the other hand, Mr. Market lets his enthusiasm or his fears run away with him, and the value he Often, on the other hand, Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposes seems little short of silly.proposes seems little short of silly.

The investor with a portfolio of sound stocks should expect their prices to fluctuate and should neither be The investor with a portfolio of sound stocks should expect their prices to fluctuate and should neither be concerned by sizable declines nor become excited by sizable advances. He should always remember that concerned by sizable declines nor become excited by sizable advances. He should always remember that market quotations are there for his convenience, either to be taken advantage of or to be ignored.market quotations are there for his convenience, either to be taken advantage of or to be ignored.

If you are a prudent investor will you let Mr. Market’s daily communication determine your view as the If you are a prudent investor will you let Mr. Market’s daily communication determine your view as the value of your $1000 interest in the enterprise? value of your $1000 interest in the enterprise?

Mr. Market StoryMr. Market Story

Page 15: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

It is not the strongest of the species that survives, not the most intelligent, but the one most responsive to It is not the strongest of the species that survives, not the most intelligent, but the one most responsive to change.change.

In 1917, Forbes published a list of the 100 largest U.S. companies. Over the next 71 years there was the In 1917, Forbes published a list of the 100 largest U.S. companies. Over the next 71 years there was the Great Depression, World War II, the inflation of the 1970s, and the spectacular postwar boom. When Great Depression, World War II, the inflation of the 1970s, and the spectacular postwar boom. When forbes reviewed the original list in 1987, 61 of the companies no longer existed for one reason or another. forbes reviewed the original list in 1987, 61 of the companies no longer existed for one reason or another. Of the rest, 21 still were in business but no longer were in the top 100. Only 18 were, and with the Of the rest, 21 still were in business but no longer were in the top 100. Only 18 were, and with the exception of General Electric and Kodak, they all had underperformed the market indexes. Since then, exception of General Electric and Kodak, they all had underperformed the market indexes. Since then, Kodak has had serious difficulties so GE is the sole, truly successful survivor. In 1997, Foster and Kaplan Kodak has had serious difficulties so GE is the sole, truly successful survivor. In 1997, Foster and Kaplan checked the endurance record of the Standard & Poor’s 500 Stock Index since it was created 40 years checked the endurance record of the Standard & Poor’s 500 Stock Index since it was created 40 years earlier. Only 74 of the original companies were still in the select 500, and that group had underperformed earlier. Only 74 of the original companies were still in the select 500, and that group had underperformed the overall index by 20%.the overall index by 20%.

Charles DarwinCharles Darwin

Page 16: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

A Black Swan is a very low probability but extremely high impact event. (They prove to be turning points)A Black Swan is a very low probability but extremely high impact event. (They prove to be turning points)

Nassim Taleb, an original and creative philosopher, introduces the concept of the Nassim Taleb, an original and creative philosopher, introduces the concept of the Black SwanBlack Swan. The black . The black swan. The black swan is a freak of nature, and until Australia was discovered, civilized people could not swan. The black swan is a freak of nature, and until Australia was discovered, civilized people could not believe a black swan could happen.believe a black swan could happen.

Black Swans are totally unpredictable happenings, 20 standard deviation events that come out of the great Black Swans are totally unpredictable happenings, 20 standard deviation events that come out of the great nowhere of the inconceivable to change the world. The assassination of Arch Duke Ferdinand, the rise of nowhere of the inconceivable to change the world. The assassination of Arch Duke Ferdinand, the rise of Hitler, Pearl Harbor, the fall of the Soviet Union, Hitler, Pearl Harbor, the fall of the Soviet Union, September 11, 2001September 11, 2001, and the crash of 1987 were all , and the crash of 1987 were all Black Swans. What were the odds that event happening.Black Swans. What were the odds that event happening.

SIRIS & Bird flue epidemic.SIRIS & Bird flue epidemic.

EMP AttackEMP Attack: :

Let’s say the freighter ship launches a nuclear-armed Shahab-3 missile off the coast of the U.S and the Let’s say the freighter ship launches a nuclear-armed Shahab-3 missile off the coast of the U.S and the missile explodes 300 miles over Chicago. The nuclear detonation in space creates an electromagnetic missile explodes 300 miles over Chicago. The nuclear detonation in space creates an electromagnetic pulse (EMP).pulse (EMP).

Gamma rays from the explosion through the Compton effect, generate three classes of disruptive Gamma rays from the explosion through the Compton effect, generate three classes of disruptive electromagnetic pulses, which permanently destroy consumer electronics, the electronics in some electromagnetic pulses, which permanently destroy consumer electronics, the electronics in some automobiles and, most importantly, the hundreds of large transformers that distribute power through out automobiles and, most importantly, the hundreds of large transformers that distribute power through out the U.S. All of our lights, refrigerators, water-pumping stations, TVs and radios stop running. We have no the U.S. All of our lights, refrigerators, water-pumping stations, TVs and radios stop running. We have no communication and no ability to provide food and water to 300 million Americans.communication and no ability to provide food and water to 300 million Americans.

Black SwansBlack Swans

Page 17: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

Investing BankInvesting Bank Goldman SachsGoldman Sachs Morgan StanleyMorgan Stanley Merill LynchMerill Lynch Lehman BrothersLehman Brothers Bear StearnsBear Stearns

Commercial BankCommercial Bank CitiBankCitiBank JP MorganJP Morgan Bank of AmericaBank of America

Weapons of Mass Destruction (WMD)Weapons of Mass Destruction (WMD) CDS (Credit Default Swaps) : Bank A making a $10 million loan to company B. Bank A can eliminate most of the risk of B from its books by CDS (Credit Default Swaps) : Bank A making a $10 million loan to company B. Bank A can eliminate most of the risk of B from its books by

going to C, a dealer in these swaps, who agrees to pay the $10 million to A if B defaults, in exchange for A paying an annual premium to C for going to C, a dealer in these swaps, who agrees to pay the $10 million to A if B defaults, in exchange for A paying an annual premium to C for the protection.the protection.

CDO (Collateral debt obligation)CDO (Collateral debt obligation) Currency TradingCurrency Trading Oil, Gold, Commodity TradingOil, Gold, Commodity Trading

At First glance, the financial markets are remarkably complex. Stocks and bonds are complicated enough, At First glance, the financial markets are remarkably complex. Stocks and bonds are complicated enough, but then there are options, futures options on futures, interest rate swaps, government “strips” and an but then there are options, futures options on futures, interest rate swaps, government “strips” and an array of other products so arcane that new Ph.D.s in mathematics routinely head for wall street rather than array of other products so arcane that new Ph.D.s in mathematics routinely head for wall street rather than the Ivory Tower. At the Chicago Mercantile Exchange, it is now possible to buy or sell a futures contract the Ivory Tower. At the Chicago Mercantile Exchange, it is now possible to buy or sell a futures contract based on the average temperature in Los Angeles. Across town at the Chicago board of Trade, one can based on the average temperature in Los Angeles. Across town at the Chicago board of Trade, one can buy and sell the right to emit CO2.buy and sell the right to emit CO2.

““The dollars still enjoys a special status Safe Haven”The dollars still enjoys a special status Safe Haven”

As the crisis has deepened, investors, companies and banks world wide have raced to get their hands on As the crisis has deepened, investors, companies and banks world wide have raced to get their hands on dollars. Either because they need U.S dollar to do business and pay bank to borrower or because they dollars. Either because they need U.S dollar to do business and pay bank to borrower or because they perceived the buck as a Safe Haven.perceived the buck as a Safe Haven.

BanksBanks

Page 18: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

Blue Chip StockBlue Chip Stock: A well-established company having stable earnings and no extensive liabilities. Most : A well-established company having stable earnings and no extensive liabilities. Most blue chip stocks pay regular dividends, even when business is faring worse than usual.blue chip stocks pay regular dividends, even when business is faring worse than usual.

Income StockIncome Stock: They have steady streams of revenue that allow for a high level of income payout to : They have steady streams of revenue that allow for a high level of income payout to investors. The ideal income stock would have a very low volatility Ideal income stocks would also show investors. The ideal income stock would have a very low volatility Ideal income stocks would also show a history of increasing dividends on a regular basis so as to keep up with inflation, which eats away at a history of increasing dividends on a regular basis so as to keep up with inflation, which eats away at future cash payments. future cash payments.

Growth StockGrowth Stock: Growth Stocks are stocks that appreciate in value and yield a high return on equity : Growth Stocks are stocks that appreciate in value and yield a high return on equity (ROE). Analysts compute ROE by taking the company's net income and dividing it by the company‘s (ROE). Analysts compute ROE by taking the company's net income and dividing it by the company‘s equity. To be classified as a growth stock, analysts expect to see at least 15 percent return on equityequity. To be classified as a growth stock, analysts expect to see at least 15 percent return on equity

Value StockValue Stock: A value investor believes that the market isn't always efficient and that it's possible to find : A value investor believes that the market isn't always efficient and that it's possible to find companies trading for less than they are worth. An easy way to attempt to find value stocks is to use the companies trading for less than they are worth. An easy way to attempt to find value stocks is to use the "Dogs of the Dow" investing strategy - buying of the 10 highest dividend-yielding stocks on the Dow "Dogs of the Dow" investing strategy - buying of the 10 highest dividend-yielding stocks on the Dow Jones at the beginning of each year and adjusting it every year thereafter.Jones at the beginning of each year and adjusting it every year thereafter.

Cyclical StockCyclical Stock: The stock of a company which is sensitive to business cycles and whose performance is : The stock of a company which is sensitive to business cycles and whose performance is strongly tied to the overall economy. Cyclical companies tend to make products or provide services that strongly tied to the overall economy. Cyclical companies tend to make products or provide services that are in lower demand during downturns in the economy and higher demand during upswings. Examples are in lower demand during downturns in the economy and higher demand during upswings. Examples include the automobile, steel, and housing industries. The stock price of a cyclical company will often include the automobile, steel, and housing industries. The stock price of a cyclical company will often rise just before an economic upturn begins, and fall just before a downturn begins. rise just before an economic upturn begins, and fall just before a downturn begins.

Type of StocksType of Stocks

Page 19: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

Defense StockDefense Stock: A stock that tends to remain stable under difficult economic conditions. Defensive stocks : A stock that tends to remain stable under difficult economic conditions. Defensive stocks include food, tobacco, oil, and utilities. These stocks hold up in hard times because demand does not include food, tobacco, oil, and utilities. These stocks hold up in hard times because demand does not decrease as dramatically as it may in other sectors. Defensive stocks tend to lag behind the rest of the decrease as dramatically as it may in other sectors. Defensive stocks tend to lag behind the rest of the market during economic expansion because demand does not increase as dramatically in an upswing.market during economic expansion because demand does not increase as dramatically in an upswing.

Speculative StockSpeculative Stock: A stock which is considered to be very risky, in comparison with its expected return. : A stock which is considered to be very risky, in comparison with its expected return. One example of an often speculative stock is a penny stock.One example of an often speculative stock is a penny stock.

Large Cap Large Cap > 5.0 billions > 5.0 billions Dow 30 / S&P 500.Dow 30 / S&P 500.

Medium Cap: Medium Cap: Between 1.0 billion – 5.0 billions. Between 1.0 billion – 5.0 billions.

Small Cap: Small Cap: < 1.0 billions: < 1.0 billions:

Note: some small cap companies are future Intel & Microsoft. However, some small company goes out of Note: some small cap companies are future Intel & Microsoft. However, some small company goes out of business. business.

Type of StocksType of Stocks

Page 20: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

In economics, inflation is a rise in the general In economics, inflation is a rise in the general level of priceslevel of prices of goods and services in an economy over a of goods and services in an economy over a period of time.period of time.

When the general price level rises, each unit of currency buys fewer goods and services. A chief measure When the general price level rises, each unit of currency buys fewer goods and services. A chief measure of price inflation is the inflation rate, which is the percentage change in a price index over time. of price inflation is the inflation rate, which is the percentage change in a price index over time.

Inflation can cause adverse effects on the economy. For example, uncertainty about future inflation may Inflation can cause adverse effects on the economy. For example, uncertainty about future inflation may discourage investment and saving. Fixed nominal payments unadjusted for inflation in the monetary discourage investment and saving. Fixed nominal payments unadjusted for inflation in the monetary medium of exchange as a result of the implementation of the Historical Cost Accounting model will medium of exchange as a result of the implementation of the Historical Cost Accounting model will widen the real salary gap between those with fixed payments for constant real value salaries and those widen the real salary gap between those with fixed payments for constant real value salaries and those with inflation-adjusted payments for constant real value salaries. High inflation may lead to shortages of with inflation-adjusted payments for constant real value salaries. High inflation may lead to shortages of goods as consumers begin hoarding them out of concern their prices will increase in the future.goods as consumers begin hoarding them out of concern their prices will increase in the future.

The overall general upward price movement of goods and services in an economy, usually as measured The overall general upward price movement of goods and services in an economy, usually as measured by the by the Consumer Price IndexConsumer Price Index and the and the Producer Price IndexProducer Price Index. . Over time, as the cost of goods and services Over time, as the cost of goods and services increase, the value of a dollar is going to fallincrease, the value of a dollar is going to fall because a person won't be able to purchase as much with because a person won't be able to purchase as much with that dollar as he/she previously couldthat dollar as he/she previously could. While the annual rate of inflation has fluctuated greatly over the . While the annual rate of inflation has fluctuated greatly over the last half century, ranging from nearly zero inflation to 23% inflation, the Fed actively tries to maintain a last half century, ranging from nearly zero inflation to 23% inflation, the Fed actively tries to maintain a specific rate of inflation, which is usually 2-3% but can vary depending on circumstances.specific rate of inflation, which is usually 2-3% but can vary depending on circumstances.

InflationInflation

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by June of 1922, inflation was at an annual rate of 4% by September 22% and by December, 68% Then it by June of 1922, inflation was at an annual rate of 4% by September 22% and by December, 68% Then it really took off: in March 1933, it hit 285%, then 765% in June, 1,500,000% in September, and finally really took off: in March 1933, it hit 285%, then 765% in June, 1,500,000% in September, and finally 152,221,670,000% in December.152,221,670,000% in December.

At the end of 1990, Argentine inflation was more than 1,000% a year. In 1991, Argentina declared that it At the end of 1990, Argentine inflation was more than 1,000% a year. In 1991, Argentina declared that it was relinquishing control over its own monetary policy. No more printing money.was relinquishing control over its own monetary policy. No more printing money.

Hyper Inflation (Germany & Argentina)Hyper Inflation (Germany & Argentina)

Page 22: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

When the inflation rate slows down (decreases, but remains positive), this is known as When the inflation rate slows down (decreases, but remains positive), this is known as disinflationdisinflation

A general decline in prices, often caused by a reduction in the supply of money or credit.A general decline in prices, often caused by a reduction in the supply of money or credit.

Deflation can be caused also by a decrease in government, personal or investment spending.Deflation can be caused also by a decrease in government, personal or investment spending.

The opposite of inflation, deflation has the side effect of increased unemployment since there is a lower level of The opposite of inflation, deflation has the side effect of increased unemployment since there is a lower level of demand in the economy, which can lead to an economic depression.demand in the economy, which can lead to an economic depression.

Declining prices, if they persist, generally create a Declining prices, if they persist, generally create a vicious spiral of negatives such as falling profits, closing factories, vicious spiral of negatives such as falling profits, closing factories, shrinking employment and incomes, and increasing defaults on loans by companies and individualsshrinking employment and incomes, and increasing defaults on loans by companies and individuals . . 

To counter deflation, the Federal Reserve (the Fed) can use monetary policy to increase the money supply and To counter deflation, the Federal Reserve (the Fed) can use monetary policy to increase the money supply and deliberately induce rising prices, causing inflation. Rising prices provide an essential lubricant for any sustained deliberately induce rising prices, causing inflation. Rising prices provide an essential lubricant for any sustained recovery because businesses increase profits and take some of the depressive pressures off wages and debtors of every recovery because businesses increase profits and take some of the depressive pressures off wages and debtors of every kind.  kind. 

Deflation in economics is a persistent decrease in the general price level of goods and services only when annual Deflation in economics is a persistent decrease in the general price level of goods and services only when annual inflation is below zero percent resulting in an increase in the real value of money - a negative inflation rate.inflation is below zero percent resulting in an increase in the real value of money - a negative inflation rate. Inflation Inflation destroys real value in money. Deflation creates real value in money. Alternatively, the term deflation was used by the destroys real value in money. Deflation creates real value in money. Alternatively, the term deflation was used by the classical economists to refer to a decrease in the money supply and credit; some economists, including many Austrian classical economists to refer to a decrease in the money supply and credit; some economists, including many Austrian school economists, still use the word in this sense. The two meanings are closely related, since a decrease in the money school economists, still use the word in this sense. The two meanings are closely related, since a decrease in the money supply is likely to cause a decrease in the price level.supply is likely to cause a decrease in the price level.

Cure for deflation? (The Printing Press):Cure for deflation? (The Printing Press): Comments from current Federal Reserve Chairman Ben Bernanke years Comments from current Federal Reserve Chairman Ben Bernanke years before he was Fed chief offer support for economist’s arguments. In his famous address on fighting deflation in 2002, before he was Fed chief offer support for economist’s arguments. In his famous address on fighting deflation in 2002, Mr. Bernanke said the Fed wouldn’t run out of ammunition to influence prices, even after cutting interest rates to Zero: Mr. Bernanke said the Fed wouldn’t run out of ammunition to influence prices, even after cutting interest rates to Zero: “The U.S. government has a technology, called a printing press that allows it to produce as many U.S. dollars as it “The U.S. government has a technology, called a printing press that allows it to produce as many U.S. dollars as it wishes at essentially no cost”.wishes at essentially no cost”.

DeflationDeflation

Page 23: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

The depression had devastating effects in virtually every country, rich or poor. International trade The depression had devastating effects in virtually every country, rich or poor. International trade plunged by half to two-thirds, as did personal incomes, tax revenues, prices, and profits.plunged by half to two-thirds, as did personal incomes, tax revenues, prices, and profits.

The The Great DepressionGreat Depression was a worldwide economic was a worldwide economic downturndownturn starting in most places in starting in most places in 19291929 and ending and ending at different times in the 1930s or early 1940s for different countries. It was the largest and most important at different times in the 1930s or early 1940s for different countries. It was the largest and most important economic depression in modern history, and is used in the 21st century as an example of how far the economic depression in modern history, and is used in the 21st century as an example of how far the world's economy can fall.world's economy can fall.

The The Great DepressionGreat Depression originated in the United States; historians most often use as a starting date the originated in the United States; historians most often use as a starting date the stock market crashstock market crash on October 29, 1929, known as on October 29, 1929, known as Black TuesdayBlack Tuesday. The end of the depression in the U.S . The end of the depression in the U.S is associated with the onset of the is associated with the onset of the war economywar economy of of World War IIWorld War II, beginning around 1939. , beginning around 1939.

Cities all around the world were hit hard, especially those dependent on heavy industry. Cities all around the world were hit hard, especially those dependent on heavy industry.

Construction was virtually halted in many countries.Construction was virtually halted in many countries.

DepressionDepression

Page 24: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

Economists offer two principal explanations for why stagflation occurs. Economists offer two principal explanations for why stagflation occurs.

First, stagflation can result when an economy is slowed by an unfavorable supply shock, such as an First, stagflation can result when an economy is slowed by an unfavorable supply shock, such as an increase in the price of oil in an oil importing country, which tends to raise prices at the same time increase in the price of oil in an oil importing country, which tends to raise prices at the same time that it slows the economy by making production less profitable. This type of stagflation presents a that it slows the economy by making production less profitable. This type of stagflation presents a policy dilemma because most actions to assist with fighting inflation worsen economic stagnation policy dilemma because most actions to assist with fighting inflation worsen economic stagnation and vice versa. and vice versa.

Second, both stagnation and inflation can result from inappropriate macroeconomic policies. For Second, both stagnation and inflation can result from inappropriate macroeconomic policies. For example, central banks can cause inflation by permitting excessive growth of the money supply, and example, central banks can cause inflation by permitting excessive growth of the money supply, and the government can cause stagnation by excessive regulation of goods markets and labor markets; the government can cause stagnation by excessive regulation of goods markets and labor markets; together, these factors can cause stagflation. Both types of explanations are offered in analyses of the together, these factors can cause stagflation. Both types of explanations are offered in analyses of the global stagflation of the 1970s: it began with a huge rise in oil prices, but then continued as central global stagflation of the 1970s: it began with a huge rise in oil prices, but then continued as central banks used excessively simulative monetary policy to counteract the resulting recession, causing a banks used excessively simulative monetary policy to counteract the resulting recession, causing a runaway wage-price spiral. runaway wage-price spiral.

John Maynard Keynes wrote in The Economic Consequences of the Peace that governments printing John Maynard Keynes wrote in The Economic Consequences of the Peace that governments printing money and using price controls were causing a combination of inflation and economic stagnation in money and using price controls were causing a combination of inflation and economic stagnation in Europe after World War I. Europe after World War I.

Stagflation was also a very serious macroeconomic problem in the 1970s. In contrast to central bank Stagflation was also a very serious macroeconomic problem in the 1970s. In contrast to central bank responses to the oil price spike of the 1970s where similar policies were pursued on both sides of the responses to the oil price spike of the 1970s where similar policies were pursued on both sides of the Atlantic, the 21st century began with America going one way to fight recession and Europe going the Atlantic, the 21st century began with America going one way to fight recession and Europe going the other way to fight inflation.other way to fight inflation.

StagflationStagflation

Page 25: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

In economics, the term In economics, the term recessionrecession generally describes the reduction of a country's gross demestic product generally describes the reduction of a country's gross demestic product (GDP) for at least two quarters.(GDP) for at least two quarters.

The usual dictionary definition is "a period of reduced economic activity", a business cycle contraction.The usual dictionary definition is "a period of reduced economic activity", a business cycle contraction.

Inflation is bad; deflation, or steadily falling prices, is much worseInflation is bad; deflation, or steadily falling prices, is much worse . . Even modest deflation can be Even modest deflation can be economically devastating, as Japan has learned over the past decadeeconomically devastating, as Japan has learned over the past decade. To begin with, falling prices cause . To begin with, falling prices cause consumers to postpone purchases. Why buy a refrigerator today when it will cost less next week? consumers to postpone purchases. Why buy a refrigerator today when it will cost less next week? Meanwhile, asset prices are failing, too, so consumers feel poorer and less inclined to spend. As we know Meanwhile, asset prices are failing, too, so consumers feel poorer and less inclined to spend. As we know from the last chapter, when consumers stop spending, the economy stops growing.from the last chapter, when consumers stop spending, the economy stops growing.

The United States-based National Bureau of Economic Research (NBER) defines The United States-based National Bureau of Economic Research (NBER) defines economic recessioneconomic recession as: as: "a signifiant decline in [the] economic activity spread across the economy, lasting more than a few "a signifiant decline in [the] economic activity spread across the economy, lasting more than a few months, normally visible in real GDP growth, real personal income, employment (non-farm payrolls), months, normally visible in real GDP growth, real personal income, employment (non-farm payrolls), industrial production, and wholesale-retail sales.“industrial production, and wholesale-retail sales.“

““Nothing to fear but fear itself” – Franklin Delano Roosevelt’sNothing to fear but fear itself” – Franklin Delano Roosevelt’s

RecessionRecession

Page 26: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

““The amount of interest you want depends on weather you want to eat well or sleep well.”The amount of interest you want depends on weather you want to eat well or sleep well.”

Wall street journal: “Bonds let you sleep at night but at a price.” Over that period, a portfolio of 100 Wall street journal: “Bonds let you sleep at night but at a price.” Over that period, a portfolio of 100 percent stocks earned an average annual return of 12.9 percent; a portfolio of 100 percent bonds earned a percent stocks earned an average annual return of 12.9 percent; a portfolio of 100 percent bonds earned a relatively meager 5.8 percent average annual return over the same period.relatively meager 5.8 percent average annual return over the same period.

The stock portfolio lost 26.5 percent of its value in its worse year; the bond portfolio never lost more than The stock portfolio lost 26.5 percent of its value in its worse year; the bond portfolio never lost more than 5 percent of its value in a single bad year. Similarly, the stock portfolio had negative annual returns eight 5 percent of its value in a single bad year. Similarly, the stock portfolio had negative annual returns eight times between 1945 and 1997; the bond portfolio lost money only once. The bottom line; Risk is times between 1945 and 1997; the bond portfolio lost money only once. The bottom line; Risk is rewarded.rewarded.

  Return Risk

Small Cap Stock 12.40% 33.40%

Large Cap Stock 11.00% 20.20%

Government Bonds 5.50% 5.80%

Treasury Bills 3.90% 3.20%

Assets AllocationAssets Allocation

Page 27: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

Age: Mid-Twenties Lifestyle : Fast, aggressive. With a steady stream of earnings, capacity for risk is fairly high. Need discipline of payroll savings

to build nest eggs.

5%

20%

65%

10%

CASH (5%): money-market fund orshort term bond fund (Averatematurity 1 to 1.5 years)

BONDS(20%): Zero-coupon treasurybonds, no-load high-grade bond fund.Some Treasury inflation protectionsecurities(5% or portfolio).*

STOCKS (65%): two-thirds in U.S.stocks with good representation ofsmaller growth companies, one-thirdinternational stocks, includingemerging markets.

REAL ESTATE(10%): portfolio ofREITs.

Age: Mid TwentiesAge: Mid Twenties

Page 28: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

Age: Late Thirties to Early Forties. Lifestyle : Midlife crisis. For childless career couples, capacity for risk is still quite high. Risk options vanishing

for those with college tuitions looming.

5%

25%

60%

10%

CASH (5%): money-market fund orshort term bond fund (Averatematurity 1 to 1.5 years)

BONDS(25%): Zero-coupon treasurybonds, no-load high-grade bond fund.Some Treasury inflation protectionsecurities(5% or portfolio).*

STOCKS (60%): two-thirds in U.S.stocks with good representation ofsmaller growth companies, one-thirdinternational stocks, includingemerging markets.

REAL ESTATE(10%): portfolio ofREITs.

Age : Late ThirtiesAge : Late Thirties

Page 29: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

Age: Mid-Fifties Lifestyle : Many still reeling from college tuitions. No matter what the lifestyle, this age group must start thinking about

retirement and the need for income protection.

5.00%

37.50%

50.00%

12.50%

CASH (5%): money-market fund orshort term bond fund (Averatematurity 1 to 1.5 years)

BONDS(37.50%): Zero-coupontreasury bonds, no-load high-gradebond fund. Some Treasury inflationprotection securities(5% of portfolio).*

STOCKS (60%): two-thirds in U.S.stocks with good representation ofsmaller growth companies, one-thirdinternational stocks, includingemerging markets.

REAL ESTATE(12.50%): portfolio ofREITs.

Age: Mid - FiftiesAge: Mid - Fifties

Page 30: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

Age: Late Sixties and Beyond. Lifestyle : Enjoying leisure activities but also guarding against major health costs. Little or no capacity for risk.

10.00%

40.00%35.00%

15.00%

CASH (10.00%): money-market fundor short term bond fund (Averatematurity 1 to 1.5 years)

BONDS(40.00%): Zero-coupontreasury bonds, no-load high-gradebond fund. Some Treasury inflationprotection securities(5% of portfolio).*

STOCKS (35.00%): two-thirds in U.S.stocks with good representation ofsmaller growth companies, one-thirdinternational stocks, includingemerging markets.

REAL ESTATE(15.00%): portfolio ofREITs.

Age : Late SixtiesAge : Late Sixties

Page 31: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

“ “The size of my pie compared to my neighbor’s- is an important determinant of our utility.”The size of my pie compared to my neighbor’s- is an important determinant of our utility.”

Which Scenario would make you happier? Which Scenario would make you happier?

Relative WealthRelative Wealth

Page 32: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

The income figures represent real purchasing power. Your income in Option (A) would command a The income figures represent real purchasing power. Your income in Option (A) would command a house 10% larger than the one you could afford in Option (B), 10% more restaurant dinners and so on. house 10% larger than the one you could afford in Option (B), 10% more restaurant dinners and so on.

By choosing World B, you had give up small amount of absolute income in return for a large increase in By choosing World B, you had give up small amount of absolute income in return for a large increase in relative income.relative income.

You would be richer in Option (A);you would be less wealthy in Option (B) but richer than everyone You would be richer in Option (A);you would be less wealthy in Option (B) but richer than everyone else.else.

Survey found majority of Americans would choose option (B). In other words “Relative income does Survey found majority of Americans would choose option (B). In other words “Relative income does matter”.matter”.

Relative WealthRelative Wealth

Page 33: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

Consumers are Engine of Economy. Consumer spending is corner stone of Economy.Consumers are Engine of Economy. Consumer spending is corner stone of Economy. Consumer spending depends on Hrs wages & Salary + Employment.Consumer spending depends on Hrs wages & Salary + Employment. Net disposable income = Income – Tax – Inflation Adjustment.Net disposable income = Income – Tax – Inflation Adjustment. Three sources of money.Three sources of money.

Wages & SalaryWages & Salary Borrowing (i.e. Auto loan, Credit card loan, Home loan, Applicant loan)Borrowing (i.e. Auto loan, Credit card loan, Home loan, Applicant loan) Income on investment. (i.e. Dividend, Rent)Income on investment. (i.e. Dividend, Rent)

Money goes out (SSI)Money goes out (SSI) SpendingSpending SavingSaving Investment.Investment.

% Spending

15.00%

20.00%

70.00%

-5.00%

Capital

Government

Consumers

Import - Export

Number of Van Haussen Shirts are sold

  2005 2006 2007

1st Qtr 4,000 4,200 4,400

2nd Qtr 4,100 4,400 4,600

3rd Qtr 4,300 4,600 4,900

4th Qtr 4,800 5,200 5,600

Consumer SpendingConsumer Spending

Page 34: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

The gross domestic product (GDP) is one of the The gross domestic product (GDP) is one of the measures of national income and inputmeasures of national income and input for a given for a given country'scountry's economyeconomy. G. Good & service produced by nation.ood & service produced by nation.

GDP is defined as the total GDP is defined as the total costcost of all of all completed goodscompleted goods and services produced within the country in a and services produced within the country in a stipulated period of time (usually a stipulated period of time (usually a 365-day year365-day year). It is sometimes regarded as the sum of profits added at ). It is sometimes regarded as the sum of profits added at every level of production of all every level of production of all finalfinal goods and services produced within a country in a stipulated goods and services produced within a country in a stipulated timeframe.timeframe.

I must make two important qualifications. I must make two important qualifications.

First, what we care about is real GDP, which means that the figure has been adjusted to account for First, what we care about is real GDP, which means that the figure has been adjusted to account for inflation. In contrast, nominal figures have not been adjusted for inflation. If nominal GDP climbs inflation. In contrast, nominal figures have not been adjusted for inflation. If nominal GDP climbs 10% in 2002 but inflation is also 10%, then we haven’t actually produced more of anything. We 10% in 2002 but inflation is also 10%, then we haven’t actually produced more of anything. We have just sold the same amount of stuff at higher prices, which has not made us any better off. Your have just sold the same amount of stuff at higher prices, which has not made us any better off. Your salary has most likely gone up 10 % but so has the price of everything you buy. It’s the economic salary has most likely gone up 10 % but so has the price of everything you buy. It’s the economic equivalent of swapping a $10 bill for ten $1 bills. It looks good in your wallet, but you are not any equivalent of swapping a $10 bill for ten $1 bills. It looks good in your wallet, but you are not any richer. richer.

Second, we care about GDP per capita, which is a nation’s GDP divided by its population. Again, Second, we care about GDP per capita, which is a nation’s GDP divided by its population. Again, this is necessary to prevent wildly misleading conclusions. India has a GDP of $427 billion while this is necessary to prevent wildly misleading conclusions. India has a GDP of $427 billion while Israel has a GDP of $97 billions. Which is the richer country? Israel by far. India has nearly a billion Israel has a GDP of $97 billions. Which is the richer country? Israel by far. India has nearly a billion people while Israel has only six million; GDP per capita is Israel is $16,180 compared to only $440 people while Israel has only six million; GDP per capita is Israel is $16,180 compared to only $440 in India. Similarly, if a country’s economy grows 3 percent in a given year but the population grows in India. Similarly, if a country’s economy grows 3 percent in a given year but the population grows 5 percent, then GDP per capita will fall. The country is producing more goods and services, but not 5 percent, then GDP per capita will fall. The country is producing more goods and services, but not enough more to keep up with a population that is growing faster.enough more to keep up with a population that is growing faster.

Gross Domestic Product (GDP)Gross Domestic Product (GDP)

Page 35: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

A mutual fund is a professionally managed type of A mutual fund is a professionally managed type of collective investment schemecollective investment scheme that pools money from many investors that pools money from many investors and and investsinvests it in it in stocksstocks, , bondsbonds, short-term , short-term money marketmoney market instruments, and/or other instruments, and/or other securitiessecurities. .

The mutual fund will have a The mutual fund will have a fund managerfund manager that that tradestrades the pooled money on a regular basis. the pooled money on a regular basis.

Currently, the worldwide value of all mutual funds totals more than $26 trillion.Currently, the worldwide value of all mutual funds totals more than $26 trillion.

Three type of mutual fundsThree type of mutual funds

Open-end funds: Open-end funds: collective investmentcollective investment which can issue and redeem shares at any time. An investor can purchase which can issue and redeem shares at any time. An investor can purchase shares in such funds directly from the mutual fund company, or through a shares in such funds directly from the mutual fund company, or through a brokeragebrokerage house. house. Unlimited number of Unlimited number of shares.shares.

Unit Investment Trusts (UITs) : is a form of Unit Investment Trusts (UITs) : is a form of collective investmentcollective investment constituted under a constituted under a trusttrust deed deed

Closed-end fund: Limited number of Closed-end fund: Limited number of sharesshares. New shares are rarely issued after the fund is launched; shares are not . New shares are rarely issued after the fund is launched; shares are not normally redeemable for normally redeemable for cashcash or or securitiessecurities until the fund liquidates. until the fund liquidates.

Load fundLoad fund Entry feesEntry fees Exit feesExit fees

No Load fund.No Load fund.

Manager are smart, well educated, experience, knowledge, honest.Manager are smart, well educated, experience, knowledge, honest. ButBut they are competing with each other. When one they are competing with each other. When one buys a stock and another sells it.buys a stock and another sells it.

Mutual FundsMutual Funds

Page 36: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

“Where return is concerned, time is your friend but when cost is concerned, time is your enemy.”

Following are different types of investment cost.Following are different types of investment cost. Management FeesManagement Fees Sales personSales person Operating costOperating cost Advertisement costAdvertisement cost Broker’s commissionBroker’s commission TaxTax Lawyers / Estate PlanningLawyers / Estate Planning Tax account Tax account

The more the broker & Manager take, the less the investor makes.The more the broker & Manager take, the less the investor makes.

Performance comes & goes but cost goes on forever.Performance comes & goes but cost goes on forever.

Two great enemies of investor are:Two great enemies of investor are: Expense Expense EmotionEmotion

Uncertainty is a enemy of stock market.Uncertainty is a enemy of stock market.

35 Years (1970 – 2005): 350 Mutual funds.35 Years (1970 – 2005): 350 Mutual funds. 210 (60%): 210 (60%): Gone out of business.Gone out of business. 140 (40%): 115 (82%): 1% below market venture.140 (40%): 115 (82%): 1% below market venture. 25 (18%): 1% above market venture.25 (18%): 1% above market venture. 1% above market venture ratio: 1:141% above market venture ratio: 1:14

Under normal circumstances, it takes between 20-800 years to statistically prove that a money manager is skillful. Under normal circumstances, it takes between 20-800 years to statistically prove that a money manager is skillful. For each big success, there must also be a big failure.For each big success, there must also be a big failure.

Venture Capital, are those who put the first at risk capital into new entrepreneurship business. (i.e. Micorosoft, Venture Capital, are those who put the first at risk capital into new entrepreneurship business. (i.e. Micorosoft, Google, Youtube)Google, Youtube)

Number of Year(s)

% (Active Manager would expected to outplace

the index)

1 Year 24%

5 Years 15%

10 Years 9%

Over 25 Years 5%

Over 50 Years 2%

Mutual FundsMutual Funds

Page 37: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

A hedge fund is a private A hedge fund is a private investment fundinvestment fund open to a limited range of professional or wealthy investors. open to a limited range of professional or wealthy investors.

High net worth ( > 1.5 million)High net worth ( > 1.5 million) Total Asset – Debt = Net worth.Total Asset – Debt = Net worth. Commit > 1.0 million Commit > 1.0 million

This provides them with an exemption in many jurisdictions from regulations governing short selling, This provides them with an exemption in many jurisdictions from regulations governing short selling, derivative contracts, leverage, fee structures and the liquidity of interests in the fund.derivative contracts, leverage, fee structures and the liquidity of interests in the fund.

A hedge fund will typically commit itself to a particular investment strategy, investment types and A hedge fund will typically commit itself to a particular investment strategy, investment types and leverage levels via statements in its offering documentation, thereby giving investors some indication of leverage levels via statements in its offering documentation, thereby giving investors some indication of the nature of the fund.the nature of the fund.

Hedge FundHedge Fund

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Initial public offering (IPO), also referred to simply as a "public offering", is when a company issues common stock or Initial public offering (IPO), also referred to simply as a "public offering", is when a company issues common stock or shares to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, shares to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded.but can also be done by large privately-owned companies looking to become publicly traded.

Institutional Investor gets very large allocation & Time sensitive information.Institutional Investor gets very large allocation & Time sensitive information.

80% of the IPOs are found to be under performed after 5 years.80% of the IPOs are found to be under performed after 5 years.

SpeculationSpeculation A man in their life time should not speculate two timesA man in their life time should not speculate two times

When they can not afford.When they can not afford. When they can.When they can.

What Games played by Management, Corporation, Underwriter, Analyst?What Games played by Management, Corporation, Underwriter, Analyst?

Underwriter:Underwriter: AnalystAnalyst

Strong buyStrong buy BuyBuy HoldHold SellSell IPOIPO

Company:Company: Names : Names :

Ship building – Marine SystemShip building – Marine System Zinc Corporation – Space Mineral DivisionZinc Corporation – Space Mineral Division Lock Company – Profective Service Division.Lock Company – Profective Service Division.

P/E 6 P/E 6 P/E 20 P/E 20 Merger – AcquisitionMerger – Acquisition

IPO (Initial Public Offering)IPO (Initial Public Offering)

Page 39: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

““A man who knows the price of everything and the value of nothing.” - Oscar WildeA man who knows the price of everything and the value of nothing.” - Oscar Wilde

Two important investment theories:Two important investment theories:

Firm Foundation TheoryFirm Foundation Theory: Any financial asset likes a stock or real estates like a piece of property has : Any financial asset likes a stock or real estates like a piece of property has an an intrinsic valueintrinsic value. The condition in the market either keeps the price below the intrinsic value or . The condition in the market either keeps the price below the intrinsic value or above the intrinsic value - it rarely remains at or around the intrinsic value. This position offers the above the intrinsic value - it rarely remains at or around the intrinsic value. This position offers the investor a choice - in case, he/she is able to buy the stock or the real estate below its intrinsic value, investor a choice - in case, he/she is able to buy the stock or the real estate below its intrinsic value, he/she shall make profits when the price goes above the intrinsic valuehe/she shall make profits when the price goes above the intrinsic value

Intrinsic value = Careful analysis of present condition and future prospect.Intrinsic value = Careful analysis of present condition and future prospect. When market prices fall below this firm foundation of intrinsic value, A buying opportunity arises.When market prices fall below this firm foundation of intrinsic value, A buying opportunity arises.

Castle in the air TheoryCastle in the air Theory: Investor concentrates on psychic values. The Castle-in-the-Air Theory digs : Investor concentrates on psychic values. The Castle-in-the-Air Theory digs deep into another aspect of investing behavior. It tries to resolve and understand the deep into another aspect of investing behavior. It tries to resolve and understand the psychic valuespsychic values and behavior of the group of investors. This theory was made popular in 1936 by John Maynard and behavior of the group of investors. This theory was made popular in 1936 by John Maynard Keynes, a famous economist (as also an investor) and the theory propose that the investors try to Keynes, a famous economist (as also an investor) and the theory propose that the investors try to build a sort of castles in the air and think of the probable price rise in the future than estimating the build a sort of castles in the air and think of the probable price rise in the future than estimating the intrinsic values of stocks. Once the investor has estimated this, he/she tries to beat the crowd by intrinsic values of stocks. Once the investor has estimated this, he/she tries to beat the crowd by building positions in the preferred stocks before the crowds (read other investors) start buying those building positions in the preferred stocks before the crowds (read other investors) start buying those stocks and the price surges ahead.stocks and the price surges ahead.

Professional investor prefer to devote their energies not to estimate intrinsic value, but rather to Professional investor prefer to devote their energies not to estimate intrinsic value, but rather to analyze how the crowd of investor is likely to behave in the future. analyze how the crowd of investor is likely to behave in the future.

During period of optimism, they tend to build their hopes into castle in the air.During period of optimism, they tend to build their hopes into castle in the air. For investor as a whole, return decrease as motion increase.For investor as a whole, return decrease as motion increase.

Investment TheoryInvestment Theory

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Bubble arise Bubble arise positive feedback loop: positive feedback loop:

A bubble starts when any group of stocks, in this case those associated with the excitement of the A bubble starts when any group of stocks, in this case those associated with the excitement of the internet, begin to rise. The updraft encourages more people to buy the stocks, which cause more TV internet, begin to rise. The updraft encourages more people to buy the stocks, which cause more TV and print coverage, which causes even more people to buy, which creates big profits for early and print coverage, which causes even more people to buy, which creates big profits for early internet stockholders. The successful investors tell you at cocktail parties how easy it is to get rich, internet stockholders. The successful investors tell you at cocktail parties how easy it is to get rich, which causes the stocks to rise further, which pulls in larger and larger groups of investors. But the which causes the stocks to rise further, which pulls in larger and larger groups of investors. But the whole mechanism is kind of Ponzi scheme where more and more credulous investors must be found whole mechanism is kind of Ponzi scheme where more and more credulous investors must be found to buy the stock from the earlier investors. Eventually one runs out of greater fools.to buy the stock from the earlier investors. Eventually one runs out of greater fools.

During a bubble buyers are everywhere then, suddenly, they disappear, waiting, watching, delaying, During a bubble buyers are everywhere then, suddenly, they disappear, waiting, watching, delaying, reluctant to buy assets that others might not. That buyers will disappear in a bubble is predictable, what is reluctant to buy assets that others might not. That buyers will disappear in a bubble is predictable, what is never predictable is the timing. In his 1933 inaugural address, President Franklin Roosevelt said “the only never predictable is the timing. In his 1933 inaugural address, President Franklin Roosevelt said “the only thing we have to fear to fear itself”. Yes. But the return of fearful buyers is just as unpredictable as the thing we have to fear to fear itself”. Yes. But the return of fearful buyers is just as unpredictable as the timing of their disappearance.timing of their disappearance.

Investment TheoryInvestment Theory

Page 41: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

Productivity is the efficiency with which we convert input into output.Productivity is the efficiency with which we convert input into output.

Economy growth is not everything Economy growth is not everything

What about Quality of life?What about Quality of life? PollutionPollution EqualityEquality HealthHealth

An amount of good & service he/she can produce in an hr. An amount of good & service he/she can produce in an hr.

Freer a nation is the richer & healthier population. Freer a nation is the richer & healthier population.

Base single major of heath is a society is a life expectancy.Base single major of heath is a society is a life expectancy. Quality of Medical careQuality of Medical care Infant MotilityInfant Motility

Freest people are not only richest but healthiest.Freest people are not only richest but healthiest.

Detroit auto worker does it take 2000 hrs vs. 200 hrs to make cars?Detroit auto worker does it take 2000 hrs vs. 200 hrs to make cars?

More productive we are, richer we are.More productive we are, richer we are.

Iowa farmer if produce 30 Brussels of corn on one acre of land vs 300 Brussels of corn on one acre of land..Iowa farmer if produce 30 Brussels of corn on one acre of land vs 300 Brussels of corn on one acre of land..

I can calculate the motion of heavenly bodies, but not the madness of people.I can calculate the motion of heavenly bodies, but not the madness of people.

Productivity growth depends on investment – in physical capital, in human capital, in research and development, and Productivity growth depends on investment – in physical capital, in human capital, in research and development, and even in things like more effective government institutions. even in things like more effective government institutions.

ProductivityProductivity

Page 42: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

Our legal, regulatory, and tax structures also affect productivity growth. High taxes, bad government, Our legal, regulatory, and tax structures also affect productivity growth. High taxes, bad government, poorly defined property rights, or excessive regulation can diminish or eliminate the incentive to make poorly defined property rights, or excessive regulation can diminish or eliminate the incentive to make productive investments. Collective farms, for example, were a very bad way to organize agriculture. productive investments. Collective farms, for example, were a very bad way to organize agriculture. Social factors such as discrimination, can profoundly affect productivity. A Society that does not educate Social factors such as discrimination, can profoundly affect productivity. A Society that does not educate its women or that denies opportunities to members of a particular race or caste or tribe is leaving a vast its women or that denies opportunities to members of a particular race or caste or tribe is leaving a vast resource fallow. Productivity growth also depends a great deal on innovation and technological progress, resource fallow. Productivity growth also depends a great deal on innovation and technological progress, neither of which is understood perfectly.neither of which is understood perfectly.

Skilled workers in American have always earned higher wages than unskilled workers; that difference has Skilled workers in American have always earned higher wages than unskilled workers; that difference has started to grow a remarkable rate. In short, human capital has become more important, and therefore started to grow a remarkable rate. In short, human capital has become more important, and therefore better rewarded, than even before. One simple measure of the importance of human capital is the gap better rewarded, than even before. One simple measure of the importance of human capital is the gap between the wages paid to high school graduates and the wages paid to college graduates. College between the wages paid to high school graduates and the wages paid to college graduates. College graduates earned an average of 40% more than high school graduates at the beginning of the 1980s. Now graduates earned an average of 40% more than high school graduates at the beginning of the 1980s. Now they earn 80% more.they earn 80% more.

Technology makes smart workers more productive while making low-skilled workers redundant. ATMs Technology makes smart workers more productive while making low-skilled workers redundant. ATMs replaced bank tellers; self-serve pumps replaced gas station attendants; automated assembly lines replaced bank tellers; self-serve pumps replaced gas station attendants; automated assembly lines replaced workers doing mindless, repetitive tasks.replaced workers doing mindless, repetitive tasks.

ProductivityProductivity

Page 43: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

Computers and sophisticated robots now assemble the major components of a car- while creates high-paying jobs for Computers and sophisticated robots now assemble the major components of a car- while creates high-paying jobs for people who write software and design robots while reducing the demand for workers with no specialized skills other people who write software and design robots while reducing the demand for workers with no specialized skills other than a willingness to do an honest day’s work.than a willingness to do an honest day’s work.

We are more productive. The day is not any longer, but what we can get done in twenty-four hours has changed We are more productive. The day is not any longer, but what we can get done in twenty-four hours has changed dramatically. “Making money takes time, so when we ship, we are really spending time. The real cost of living isn’t dramatically. “Making money takes time, so when we ship, we are really spending time. The real cost of living isn’t measured in dollars and cents but in the hours and minutes we must work to live”measured in dollars and cents but in the hours and minutes we must work to live”

America is rich because Americans are productive. We are better off today than at any other point in the history of America is rich because Americans are productive. We are better off today than at any other point in the history of civilization because we are better at producing good and services than we have ever been including things like health civilization because we are better at producing good and services than we have ever been including things like health care and entertainments. The bottom line is that we work less and produce more. In 1870, the typical household care and entertainments. The bottom line is that we work less and produce more. In 1870, the typical household required 1,800 hours of labor just to acquire its annual food supply; today, it takes about 260 hours of work. Over the required 1,800 hours of labor just to acquire its annual food supply; today, it takes about 260 hours of work. Over the course of the twentieth century, the average work year has fallen from 3,100 hours to about 1,730 hours. All the while, course of the twentieth century, the average work year has fallen from 3,100 hours to about 1,730 hours. All the while, real gross domestic product (GDP) per capita- an inflation adjusted measure of how much each of us produces, on real gross domestic product (GDP) per capita- an inflation adjusted measure of how much each of us produces, on average-has increased from $4,800 to $31,500. Even the poor are living extremely well by historical standards. The average-has increased from $4,800 to $31,500. Even the poor are living extremely well by historical standards. The poverty line is now at a level of real income that was attained only by those in the top 10 percent of the income poverty line is now at a level of real income that was attained only by those in the top 10 percent of the income distribution a century ago. As John Maynard Keynes once noted, “In the long run, productivity is everything.”distribution a century ago. As John Maynard Keynes once noted, “In the long run, productivity is everything.”

In India per capita GDP $480.00 per Year.In India per capita GDP $480.00 per Year.

Will our children be better off than we are? Yes, if they are more productive than we are, which has been the pattern Will our children be better off than we are? Yes, if they are more productive than we are, which has been the pattern throughout American history. Productivity growth is what improves our standard of living. If productivity grows at 2 throughout American history. Productivity growth is what improves our standard of living. If productivity grows at 2 percent a year, then we will become 2 percent richer every year. Why? Because we can take the same inputs and make 2 percent a year, then we will become 2 percent richer every year. Why? Because we can take the same inputs and make 2 percent more stuff. (Or we could make the same amount of stuff with 2 percent fewer inputs.) One of the most percent more stuff. (Or we could make the same amount of stuff with 2 percent fewer inputs.) One of the most interesting debates in economics at the moment is whether or not the American economy has under gone a sharp interesting debates in economics at the moment is whether or not the American economy has under gone a sharp increase in the rate of productivity growth. Some economists, including Alan Greensan, have argued that investments in increase in the rate of productivity growth. Some economists, including Alan Greensan, have argued that investments in information technology have led to permanently higher rates of productivity growth.information technology have led to permanently higher rates of productivity growth.

ProductivityProductivity

Page 44: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

CapitalCapital

Capital: is the engine of growing free market economy. Increase capital makes improvement in the labor force. Capital: is the engine of growing free market economy. Increase capital makes improvement in the labor force. Financial Capital Financial Capital Human (i.e. knowledge and know how, invention, hope & entrepreneurship technology, skill, value & Human (i.e. knowledge and know how, invention, hope & entrepreneurship technology, skill, value &

honesty, Creativity)honesty, Creativity) Physical (i.e. Factory, plan, computer, building etc)Physical (i.e. Factory, plan, computer, building etc)

Why average US worker earn 5-10 times more per Hr than worker in Mexico. ?Why average US worker earn 5-10 times more per Hr than worker in Mexico. ? False: higher minimum wedge.False: higher minimum wedge. True: American worker are 5-10 times more productive on job than average Mexican worker.True: American worker are 5-10 times more productive on job than average Mexican worker. Two great enemies of investor are:Two great enemies of investor are:

Expense Expense EmotionEmotion

Cost of Investing:Cost of Investing: More the manager & brokers take less the investor makes.More the manager & brokers take less the investor makes. Following are different types of investment cost.Following are different types of investment cost.

Management FeesManagement Fees Sales personSales person Operating costOperating cost Advertisement costAdvertisement cost Broker’s commissionBroker’s commission TaxTax Lawyers / Estate PlanningLawyers / Estate Planning Tax account Tax account

Performance comes & goes but cost goes on forever.Performance comes & goes but cost goes on forever. Where return is concerned, time is your friend but when cost is concerned, time is your enemy.Where return is concerned, time is your friend but when cost is concerned, time is your enemy. Investment Return (earning growth plus yield) 9.5%Investment Return (earning growth plus yield) 9.5% Market Return (includes speculative return*) 9.6%Market Return (includes speculative return*) 9.6% Why foreigners are willing and able to finance to US growth.?Why foreigners are willing and able to finance to US growth.?

Page 45: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

Effective Government InstitutionEffective Government Institution Effective government institutions : To grow and prosper, a country needs laws, law enforcement, courts, basic Effective government institutions : To grow and prosper, a country needs laws, law enforcement, courts, basic

infrastructure, a government capable of collecting taxes – and a healthy respect among the citizenship for each of these infrastructure, a government capable of collecting taxes – and a healthy respect among the citizenship for each of these things. These kinds of institutions are the tracks on which capitalism runs. They must be reasonably honest. Corruption things. These kinds of institutions are the tracks on which capitalism runs. They must be reasonably honest. Corruption is not merely an inconvenience, as it is sometimes treated; it is a cancer that misallocates resources, stifles innovation, is not merely an inconvenience, as it is sometimes treated; it is a cancer that misallocates resources, stifles innovation, and discourages foreign investment.and discourages foreign investment.

Bad policy makes people to leave, not to live.Bad policy makes people to leave, not to live.

Government is working against people not for people.Government is working against people not for people.

Good Government Good Government Good Policy Good Policy Good Economy. Good Economy.

World Bank – 150 six broad measure of governance.World Bank – 150 six broad measure of governance. AccountabilityAccountability Regulatory burdenRegulatory burden Rules or LawsRules or Laws CorruptionCorruption Better government Better government better development better development Outcome Outcome

• Higher per CapitalHigher per Capital• Lower Infant mortalityLower Infant mortality• Higher literacyHigher literacy• Life expectancyLife expectancy

Fiscal PolicyFiscal Policy: Fiscal policy uses the government’s capacity to tax and spend as a lever for prying the economy from : Fiscal policy uses the government’s capacity to tax and spend as a lever for prying the economy from reverse into forward. If nervous consumers won’t spend, then the government will do it for them – and that can create a reverse into forward. If nervous consumers won’t spend, then the government will do it for them – and that can create a virtuous circle. While consumers are sitting home with their wallets tucked firmly under the mattress, the government virtuous circle. While consumers are sitting home with their wallets tucked firmly under the mattress, the government can start to build highways and bridges. Construction workers go back to work; their firms place orders for materials.can start to build highways and bridges. Construction workers go back to work; their firms place orders for materials.

Monetary Policy (FOMC)Monetary Policy (FOMC): Where does the Fed drive this extraordinary power over interest rates? After all, : Where does the Fed drive this extraordinary power over interest rates? After all, commercial banks are private entities. commercial banks are private entities.

Page 46: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

Size of GovernmentSize of Government: Government spending in America is roughly 20% of GDP, which is low by the standards of the : Government spending in America is roughly 20% of GDP, which is low by the standards of the developed world. Government spending in Britain is roughly 40% of GDP. In Japan, it is over 45%; in France and developed world. Government spending in Britain is roughly 40% of GDP. In Japan, it is over 45%; in France and Sweden it is over 50%.Sweden it is over 50%.

Budget Deficit/SurplusBudget Deficit/Surplus: A budge deficit occurs when the government spends more than it collects in revenues and a : A budge deficit occurs when the government spends more than it collects in revenues and a surplus is the opposite. If the economy slips into recession, then tax revenues will fall and spending on programs such surplus is the opposite. If the economy slips into recession, then tax revenues will fall and spending on programs such as unemployment insurance will rise. This is likely to lead to a deficit; raising taxes or cutting spending during a as unemployment insurance will rise. This is likely to lead to a deficit; raising taxes or cutting spending during a recession will almost certainly make it worse.recession will almost certainly make it worse.

Raising CapitalRaising Capital: One of the fascination things in life, particularly in America, is that we can spend large sums of : One of the fascination things in life, particularly in America, is that we can spend large sums of money that don’t belong to us. Financial markets enable us to borrow money. Sometime this means that Visa and money that don’t belong to us. Financial markets enable us to borrow money. Sometime this means that Visa and MasterCard indulge our eagerness to consume today what we can not afford until next year; more often- and more MasterCard indulge our eagerness to consume today what we can not afford until next year; more often- and more significant to the economy – borrowing makes possible all kinds of investment. We borrow to pay college tuition. We significant to the economy – borrowing makes possible all kinds of investment. We borrow to pay college tuition. We borrow to buy homes. We borrow to build plants and equipment or to launch new businesses. We borrow to do things borrow to buy homes. We borrow to build plants and equipment or to launch new businesses. We borrow to do things that make us better off even after we have paid the cost of borrowing.that make us better off even after we have paid the cost of borrowing.

Sometimes we raise capital without borrowing; we may sell shares of our business to the public. Individuals, firms, and Sometimes we raise capital without borrowing; we may sell shares of our business to the public. Individuals, firms, and government need capital to do things today that they could not otherwise afford; the financial markets provide it to government need capital to do things today that they could not otherwise afford; the financial markets provide it to them- at a price. Modern economies can not survive without credit.them- at a price. Modern economies can not survive without credit.

Excessive regulation goes hand in glove with corruption. Government bureaucrats throw up hurdles so that they can Excessive regulation goes hand in glove with corruption. Government bureaucrats throw up hurdles so that they can extort bribes from those who seek to get over or around them.extort bribes from those who seek to get over or around them.

The interest rate is really just a rental rate for capital, or the “price of money”. The Fed controls America’s money The interest rate is really just a rental rate for capital, or the “price of money”. The Fed controls America’s money supply. We will get to the mechanics of that process in a moment. For now, recognize that money is no different from supply. We will get to the mechanics of that process in a moment. For now, recognize that money is no different from apartments: The greater the supply, the cheaper the rent. The Fed moves interest rates by making changes in the apartments: The greater the supply, the cheaper the rent. The Fed moves interest rates by making changes in the quantity of funds available to commercial banks. It’s supply and demand – with the Fed controlling the supply.quantity of funds available to commercial banks. It’s supply and demand – with the Fed controlling the supply.

The determination whether interest rates need to go up, down, or stay the same – are made by a committee within the The determination whether interest rates need to go up, down, or stay the same – are made by a committee within the Fed called the Federal Open Market Committee (FOMC), which consists of the board of governors, the president of the Fed called the Federal Open Market Committee (FOMC), which consists of the board of governors, the president of the Federal Reserve Bank of New York, and the presidents of four other Federal Reserve Banks on a rotating basis.Federal Reserve Bank of New York, and the presidents of four other Federal Reserve Banks on a rotating basis.

Political independence is crucial if monetary authorities are to do their jobs responsibly. Evidence shows that countries Political independence is crucial if monetary authorities are to do their jobs responsibly. Evidence shows that countries with independent central banks – those that can operate relatively free of political meddling – have lower average with independent central banks – those that can operate relatively free of political meddling – have lower average inflation rates over time. America’s Federal Reserve is among those considered to be relatively independent.inflation rates over time. America’s Federal Reserve is among those considered to be relatively independent.

Page 47: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

grew rapidly by relying on a well-trained, educated, hard-working, and conscientious labor force.grew rapidly by relying on a well-trained, educated, hard-working, and conscientious labor force.

Human Capital: Human capital is what makes individuals productive, and productivity is what determines Human Capital: Human capital is what makes individuals productive, and productivity is what determines our standard of living. He has written “These so-called Asian tigers grew rapidly by relying on a well-our standard of living. He has written “These so-called Asian tigers grew rapidly by relying on a well-trained, educated, hard-working, and conscientious labor force.”trained, educated, hard-working, and conscientious labor force.”

The Asian tigers, the all-star team in the economic development league, made their economic ascent with The Asian tigers, the all-star team in the economic development league, made their economic ascent with government spending in the range of 20 percent of GDP.government spending in the range of 20 percent of GDP.

The United States and all of Europe lie outside the tropics; most of central and south America, Africa, and The United States and all of Europe lie outside the tropics; most of central and south America, Africa, and Southeast Asia lie within.Southeast Asia lie within.

Tropical weather is wonderful for vacation; why is it so bad for everything else? The answer, according Tropical weather is wonderful for vacation; why is it so bad for everything else? The answer, according to Mr. Sachs, is that high temperatures and heavy rainfall are bad for food production and conducive to to Mr. Sachs, is that high temperatures and heavy rainfall are bad for food production and conducive to the spread of disease. As a result, two of the major advances in rich countries, better food production and the spread of disease. As a result, two of the major advances in rich countries, better food production and better health, can not be replicated in the tropics.better health, can not be replicated in the tropics.

Asian TigerAsian Tiger

Page 48: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

A Digression on Exchange ratesA Digression on Exchange rates

When countries begin trading with one another, currencies must be exchanged at some rate. If an ounce When countries begin trading with one another, currencies must be exchanged at some rate. If an ounce of gold is worth $35 in American and 350 francs in France, what is the exchange rate between the dollar of gold is worth $35 in American and 350 francs in France, what is the exchange rate between the dollar and the franc?and the franc?

If some bundle of everyday goods costs $25 in the United States, and the same bundle of goods costs 350 If some bundle of everyday goods costs $25 in the United States, and the same bundle of goods costs 350 rubles in Russia, then we would expect $25 to be worth roughly 350 rubles. This is the theory of rubles in Russia, then we would expect $25 to be worth roughly 350 rubles. This is the theory of purchasing power parity, or PPP.purchasing power parity, or PPP.

First, governments have at least some control over their exchange rate.First, governments have at least some control over their exchange rate.

Second, that exchange rate can have a profound effect on the economy.Second, that exchange rate can have a profound effect on the economy.

A weak dollar makes import more expensive for Americans. A weak currency is good for exporters and A weak dollar makes import more expensive for Americans. A weak currency is good for exporters and punishing for importers.punishing for importers.

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Overvalued CurrenciesOvervalued Currencies: :

Government policies affect exchange rates. As economics like to put it, the most basic decision is “To Government policies affect exchange rates. As economics like to put it, the most basic decision is “To float or not to float.”. “Floating” is just an insider’s way to saying that the value of a currency is allowed float or not to float.”. “Floating” is just an insider’s way to saying that the value of a currency is allowed to go up or down based on market forces. Floating currencies such as the dollar or the euro or the yen, to go up or down based on market forces. Floating currencies such as the dollar or the euro or the yen, fluctuate by the second as they are traded on the foreign exchange markets. Banks and brokerage houses fluctuate by the second as they are traded on the foreign exchange markets. Banks and brokerage houses buy and sell huge quantities of dollars every day at whatever rate is dictated by supply and demand.buy and sell huge quantities of dollars every day at whatever rate is dictated by supply and demand.

In the process, they enrich themselves and crush their export industries. Here is what happens. Suppose a In the process, they enrich themselves and crush their export industries. Here is what happens. Suppose a Nigerian exporter sells a product in the United States for $1000. Based on purchasing power parity, he Nigerian exporter sells a product in the United States for $1000. Based on purchasing power parity, he should be able to swap that $1000 for roughly 50,000 nairas. Nope. Instead, he is forced by the should be able to swap that $1000 for roughly 50,000 nairas. Nope. Instead, he is forced by the government to convert the dollars into nairas at the official government exchange rate. Thus, he is paid government to convert the dollars into nairas at the official government exchange rate. Thus, he is paid 25,000 nairas – half of what is really due him. How many business can thrive when the government is 25,000 nairas – half of what is really due him. How many business can thrive when the government is essentially expropriating a large chunk of revenue? The government, on the other hand, is getting dollars essentially expropriating a large chunk of revenue? The government, on the other hand, is getting dollars on the cheap. They can use the dollars to buy luxury imports. Or they can sell them on the blank market. on the cheap. They can use the dollars to buy luxury imports. Or they can sell them on the blank market. Corrupt officials get rich buying dollars for 25 nairas and selling them for 50. Any official overvaluation Corrupt officials get rich buying dollars for 25 nairas and selling them for 50. Any official overvaluation is a punishing tax on exporters – a tragic policy given the importance of exports in the development is a punishing tax on exporters – a tragic policy given the importance of exports in the development process.process.

Page 50: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

Dutch DiseaseDutch Disease

Effects of abundant natural resources as “Dutch Disease” after observing the economic effects of an Effects of abundant natural resources as “Dutch Disease” after observing the economic effects of an enormous North Sea natural gas discovery by the Netherlands in the 1950s. The spike in natural gas enormous North Sea natural gas discovery by the Netherlands in the 1950s. The spike in natural gas exports drove up the value of the dutch guilder, making life more difficult for other exporters. The exports drove up the value of the dutch guilder, making life more difficult for other exporters. The government also used the gas revenues to expand social spending, which raised employer’s social government also used the gas revenues to expand social spending, which raised employer’s social security contributions and therefore their production costs. The Dutch had long been a nation of traders, security contributions and therefore their production costs. The Dutch had long been a nation of traders, with exports making up more than 50 % of GDP. By the 1970s, other export industries, the traditional with exports making up more than 50 % of GDP. By the 1970s, other export industries, the traditional lifeblood of the economy, had grown far less competitive. One business publication noted, “Gas so lifeblood of the economy, had grown far less competitive. One business publication noted, “Gas so distended and distorted the workings of the economy that it became a mixed blessing for a trading nation.distended and distorted the workings of the economy that it became a mixed blessing for a trading nation.

Natural resources matter less than you would thinkNatural resources matter less than you would think: :

Israel, which has not oil to speak of, is a far richer country than nearly all of its Middle Eastern neighbors Israel, which has not oil to speak of, is a far richer country than nearly all of its Middle Eastern neighbors that have large petroleum reserves, Israeli GDP per capita is $16,000 compared to $7,000 for Saudi that have large petroleum reserves, Israeli GDP per capita is $16,000 compared to $7,000 for Saudi Arabia and $1,650 for Iran. Meanwhile, resource-poor countries like Japan and Switzerland have fared Arabia and $1,650 for Iran. Meanwhile, resource-poor countries like Japan and Switzerland have fared much better than resource-rich Russia. Or consider oil-rich Angola. The country takes in some $3.5 much better than resource-rich Russia. Or consider oil-rich Angola. The country takes in some $3.5 billion a year from its oil industry. What has happened to the people who might benefit from this reassure billion a year from its oil industry. What has happened to the people who might benefit from this reassure is the ground? Much of the oil money goes to fund a never-ending civil war that has ravaged the country. is the ground? Much of the oil money goes to fund a never-ending civil war that has ravaged the country. Angola has the world’s highest rate of citizens maimed by land mines. One-Third of Angola’s children Angola has the world’s highest rate of citizens maimed by land mines. One-Third of Angola’s children die before age five; life expectancy is forty-two. Large swathes of the capital have no electricity, no die before age five; life expectancy is forty-two. Large swathes of the capital have no electricity, no running water, no sewers and no garbage pickup.running water, no sewers and no garbage pickup.

Page 51: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

The Comparative advantage of workers in poor countries is cheap laborThe Comparative advantage of workers in poor countries is cheap labor: :

They are not more productive than American workers; they are not better educated; they do not have They are not more productive than American workers; they are not better educated; they do not have access to better technology. They are paid very little by Western Standards because they accomplish very access to better technology. They are paid very little by Western Standards because they accomplish very little by western standards. If foreign companies are forced to raise wages significantly, the there is no little by western standards. If foreign companies are forced to raise wages significantly, the there is no longer any advantage to having plants in the developing world. Firms will replace workers with longer any advantage to having plants in the developing world. Firms will replace workers with machines, or they will move someplace where higher productivity justifies higher wages. If sweatshops machines, or they will move someplace where higher productivity justifies higher wages. If sweatshops paid decent wages by Western Standards they would not exist.paid decent wages by Western Standards they would not exist.

In 1993, child workers in Bangladesh were found to be producing clothing for Wal-Mart and Senator In 1993, child workers in Bangladesh were found to be producing clothing for Wal-Mart and Senator Tom Harkin proposed legislation banning imports from countries employing underage workers. The Tom Harkin proposed legislation banning imports from countries employing underage workers. The direct result was that Bangladeshi textile factories stopped employing children. But did the children go direct result was that Bangladeshi textile factories stopped employing children. But did the children go back to school? Did they return to happy homes? Not according to Oxfam, which found that the displaced back to school? Did they return to happy homes? Not according to Oxfam, which found that the displaced child workers ended up in even worse jobs, or on the streets – and that a significant number were forced child workers ended up in even worse jobs, or on the streets – and that a significant number were forced into prostitution.into prostitution.

Bulls & BearsBulls & Bears

Bulls, Bears make money, Pigs get slaughteredBulls, Bears make money, Pigs get slaughtered

Bulls & Bears are like politician. They always keep on changing side. Bottom of bear market by Bulls & Bears are like politician. They always keep on changing side. Bottom of bear market by definition has to be the point of maximum bearishness. The new news does not have to be good. It simply definition has to be the point of maximum bearishness. The new news does not have to be good. It simply has to be less than bad than what has already been discounted.has to be less than bad than what has already been discounted.

““I can’t sleep, I can’t sleep I can’t deal with it.”.I can’t sleep, I can’t sleep I can’t deal with it.”.

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Gold Standard:Gold Standard:

The institution at the center of the global fight against poverty is the The institution at the center of the global fight against poverty is the

Washington-based World bank. “The Bank,” as it is known, was conceived after World War II at Bretton Washington-based World bank. “The Bank,” as it is known, was conceived after World War II at Bretton Woods, New Hampshire, at an international meeting of finance ministers. The goal of the meeting was to Woods, New Hampshire, at an international meeting of finance ministers. The goal of the meeting was to create a new international financial architecture. The Bank, which is owned by its 183 member countries, create a new international financial architecture. The Bank, which is owned by its 183 member countries, raises capital from its members and by borrowing in the capital markets. Those funds are loaned to raises capital from its members and by borrowing in the capital markets. Those funds are loaned to developing nations for projects that are likely to promote economic development. The World Bank is the developing nations for projects that are likely to promote economic development. The World Bank is the world’s welfare agency, then its sister organization, the International Monetary Fund (IMF).world’s welfare agency, then its sister organization, the International Monetary Fund (IMF).

REIT fund REIT fund (Real Estate Investment Trust)(Real Estate Investment Trust):: REIT fund REIT fund (Real Estate Investment Trust)(Real Estate Investment Trust): : Operate & Sell real estate.Operate & Sell real estate. Individuals can invest in REITs either by purchasing their shares directly on an open exchange or by investing in a Individuals can invest in REITs either by purchasing their shares directly on an open exchange or by investing in a

mutual fund that specializes in public real estate. An additional benefit to investing in REITs is the fact that many are mutual fund that specializes in public real estate. An additional benefit to investing in REITs is the fact that many are accompanied by dividend reinvestment plans (DRIPs). accompanied by dividend reinvestment plans (DRIPs).

Among other things, REITs invest in Among other things, REITs invest in shopping malls, shopping malls, office buildings, office buildings, apartments, apartments, warehouses and warehouses and hotels. hotels.

Some REITs will invest specifically in one area of real estate - shopping malls, for example - or in one specific region, Some REITs will invest specifically in one area of real estate - shopping malls, for example - or in one specific region, state or country. Investing in REITs is a liquid, dividend-paying means of participating in the real estate market.state or country. Investing in REITs is a liquid, dividend-paying means of participating in the real estate market.

Real Assets:Real Assets: HealthHealth MoralMoral Family ValueFamily Value ImageImage Dharma & PhilanthropyDharma & Philanthropy

Page 53: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

Trade makes us richer: Trade makes us richer: We trade with othersWe trade with others because it frees up time and resources to do things that we are better at.because it frees up time and resources to do things that we are better at.

Saudi Arabia can produce oil more cheaply than the United States can. In turn, the United States can produce corn and Saudi Arabia can produce oil more cheaply than the United States can. In turn, the United States can produce corn and soybeans more cheaply than Saudi Arabia. The corn-for-oil trade is an example of absolute advantage. When different soybeans more cheaply than Saudi Arabia. The corn-for-oil trade is an example of absolute advantage. When different countries are better at producing different things, they can both consume more by specializing at what they do best and countries are better at producing different things, they can both consume more by specializing at what they do best and then trading.then trading.

Trade creates losers: Trade creates losers: Trade, like technology, can destroy jobs, particularly low-skilled jobs. If a worker in Maine earns Trade, like technology, can destroy jobs, particularly low-skilled jobs. If a worker in Maine earns $14 an hour for something that can be done in Vietnam for $1 an hour, then he had better be fourteen times as $14 an hour for something that can be done in Vietnam for $1 an hour, then he had better be fourteen times as productive. If not, a profit-maximizing firm will choose Vietnam.productive. If not, a profit-maximizing firm will choose Vietnam.

Protectionism saves jobs in the short run and slows economic growth in the long run: Protectionism saves jobs in the short run and slows economic growth in the long run: America punishes rogue America punishes rogue nations such as Iraq by imposing economic sanctions. In the case of severe sanctions, we forbid nearly all imports and nations such as Iraq by imposing economic sanctions. In the case of severe sanctions, we forbid nearly all imports and exports. We cut off international trade as a punishment. Iraq is forbidden from trading what it does have, oil, for the exports. We cut off international trade as a punishment. Iraq is forbidden from trading what it does have, oil, for the things that it needs, which is basically everything else.things that it needs, which is basically everything else.

Trade lowers the cost of goods for consumers, which is the same as raising their incomes:Trade lowers the cost of goods for consumers, which is the same as raising their incomes:

Trade is good for poor countries, too: Trade is good for poor countries, too: Trade gives poor countries access to markets in the developed world. That is Trade gives poor countries access to markets in the developed world. That is where most of the world’s consumers are.where most of the world’s consumers are.

Trade paves the way for poor countries to get richerTrade paves the way for poor countries to get richer . Export industries often pay higher wages than jobs elsewhere . Export industries often pay higher wages than jobs elsewhere in the economy. But that is only the beginning. New export jobs create more competition for workers, which raises in the economy. But that is only the beginning. New export jobs create more competition for workers, which raises wages everywhere else. Even rural incomes can go up; as workers leave rural areas for better opportunities. There are wages everywhere else. Even rural incomes can go up; as workers leave rural areas for better opportunities. There are fewer mouths to be fed from what we can grown on the land they leave behind. Foreign companies introduce capital, fewer mouths to be fed from what we can grown on the land they leave behind. Foreign companies introduce capital, technology, and new skills. Not only does that mae export workers more productive; it spills over into other areas of the technology, and new skills. Not only does that mae export workers more productive; it spills over into other areas of the economy. Workers “learn by doing” and then take their knowledge with them.economy. Workers “learn by doing” and then take their knowledge with them.

Trade is based on voluntary exchangeTrade is based on voluntary exchange: Individuals do things that make themselves better off. : Individuals do things that make themselves better off.

TradeTrade

Page 54: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

Preferences change with income, particularly with regard to the environment: Preferences change with income, particularly with regard to the environment: Yet inadequate access Yet inadequate access to safe drinking water a problem easily cured by rising living standards – kills two million people a year to safe drinking water a problem easily cured by rising living standards – kills two million people a year and makes another half billion seriously ill.and makes another half billion seriously ill.

Democracy Democracy Economic growth in some one hundred countries over many decades found that basic Economic growth in some one hundred countries over many decades found that basic democracy is associated with higher economic growth. More advanced democracies, however, suffer democracy is associated with higher economic growth. More advanced democracies, however, suffer slightly lower rates of growth.slightly lower rates of growth.

CapitalismCapitalism is an economic ideology in which wealth, and the means of producing wealth, are privately is an economic ideology in which wealth, and the means of producing wealth, are privately owned and controlled rather than publicly or state-owned and controlled.owned and controlled rather than publicly or state-owned and controlled.

SocialismSocialism refers to a social organization advocating state or collective ownership and administration of refers to a social organization advocating state or collective ownership and administration of the means of production and distribution of goods, and an egalitarian society characterized by equal the means of production and distribution of goods, and an egalitarian society characterized by equal opportunities for all individuals and a fair or egalitarian distribution of wealthopportunities for all individuals and a fair or egalitarian distribution of wealth

CommunismCommunism in the Marxian sense refers to a classless, stateless and oppression-free society where in the Marxian sense refers to a classless, stateless and oppression-free society where decisions on what to produce and what policies to pursue are made democratically, allowing every decisions on what to produce and what policies to pursue are made democratically, allowing every member of society to participate in the decision-making process in both the political and economic member of society to participate in the decision-making process in both the political and economic spheres of life.spheres of life.

PopulismPopulism may involve philosophy urging social and political system changes or style deployed by may involve philosophy urging social and political system changes or style deployed by members of political or social movements competing for advantage within the existing party system.members of political or social movements competing for advantage within the existing party system.

Page 55: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

The most valuable natural resource in the twentieth first century is The most valuable natural resource in the twentieth first century is BrainsBrains. Smart people tends . Smart people tends to be mobile because where they go, robust economic actively will follow.to be mobile because where they go, robust economic actively will follow.

Venture Capital, are those who put the first at risk capital into new entrepreneurship business. Venture Capital, are those who put the first at risk capital into new entrepreneurship business. (i.e. Micorosoft, Google, Youtube)(i.e. Micorosoft, Google, Youtube)

Page 56: WE KNOW WHAT WE DONT KNOW Dr. Chittaranjan A. Patel (M.D.) 17741 Holly Court, Tinley Park, IL 60487 Phone # (708) 429-4720

DoDo Trade like commodities.Trade like commodities. If you do trade, trade losers, not winners.If you do trade, trade losers, not winners. Avoid heard behavior.Avoid heard behavior. Be aware of tips.Be aware of tips. Avoid over trading.Avoid over trading. Assess your capacity – RiskAssess your capacity – Risk