Of camaraderie, Singapore & dreams...

So, we're done with P2! Yeah, believe it or not...40% of the program is over and as all of us danced our asses off in the end-of-period party last night, a rather queer song reminded us of this: Bon Jovi's 'Livin' on a Prayer...we're halfway there!"

Because incredible as it may seem, we really are! We are nearly hafway there and for portions of P1, I really was living on a prayer. The faces that I first saw seemingly yesterday are all nearly 4 months old now and I think we're all a bit taken aback at time's capriciousness. On a sadder note, a number of my friends are leaving; heading out to Fontainbleau over the Christmas break. While I will be there in a couple of months myself, it still marks the end of a mini-era. The era of our time together in Singapore. A time that at the monumental risk of repeating myself, has been the proverbial blink of an eye.

And what of Singapore, this setting of our congregation? A developed, super-clean mecca of prosperity in the heart of Asia? A place so uniform in its displacement that it lacks 'character'? A night-life full of ugly lady-boys and pretty girls? We all have our views...me, I've enjoyed being here thoroughly. Still, people make a place livable. They determine the memories you conjure up and this fundamental truth has always stood the test of time. No exceptions here. Everyone is amazing and friendly and the camaraderie that has developed was one of many personal reasons to seek out an MBA at this point in my life.

There will be other challenges in the coming months, not the least will be the business end of the job search. My ramblings on a proposed offer of a Put option by INSEAD on my tuition are unlikely to materialise, hence this subject will gain importance as we go along. Fo now though, I am going to kick my shoes off, lie back and dream! For its a wonderful thing is dreaming...

Here we go again...

In about 9 hours, I have my first exam of my second period at INSEAD. The course being "examined" is essentially Operations Management.

This was one course I was not really looking forward to when the period started, but one that got progressively more interesting as the 6 weeks passed. The course talks about various topics such as Capacity/Inventory economics, Queuing theory to resolve QoS/Cost trade-offs, Process Control Strategy and the like.

While it may sound a trifle abstract at first, its amazing in its applicability in virtually all facets of life. The course ended on a slightly philosopical note, with an interesting analogy...

Hedging yourself 'Microsoft' style...

All right, say you're an active investor in the equity or commodity markets. Your investment portfolio includes several growth and value stocks. You are contemplating an investment in a risky start-up and have no way of telling what your future returns will be like.

One way to reduce (hedge) your risk against drastic capital losses would be to purchase a PUT option on your stock. This would allow you to sell your stock at a pre-decided strike price upto a period of time, hence limiting any potential damage. Options are a form of derivatives. As the name suggests, Derivatives are financial instruments that derive their value from the underlying asset (stock, gold, oil, etc). Options, futures, swaps, forwards, etc are all types of derivatives and judicious use of these is an intricate field of its own.

Coming back to our investor, sounds like a great deal for him, n'est ce-pas? He gets to reap the benefits, without baring proportionate risk. Just a minute though. Who sells these options? And how does the game benefit them?

Indeed, corporations regularly put out options on their stock. During the 1990s, Microsoft regularly sold PUT options on its stock to investors. This meant that MS had an obligation to buy back its own stock at the pre-decided strike price, when its stock price fell below the strike price. This represented a loss to MS, again only if its stock fell below the strike price. Needless to say, its stock NEVER fell below the decided strike price.

What did happen though, is that for four years in the mid-1990s, MS earned $2 Billion just by selling Put options on its stock. Think about that! USD 2 BILLION in 4 years, and its not even their core business. MS earns revenue by selling software, for Pete's sake. Investors kept buying the options and MS kept outperforming market expectations.

Other than earning this capital, this move also paid huge returns to MS's shareholders. When a company sells Put options on its stock in huge volumes, it is a strong signal to the world that damn-it, our stock will NOT drop! It is a signal that our stock is currently under-valued. Capital gains inevitably follow and this stock appreciation is great news for all stakeholders.

All of this got me thinking. I wonder whether INSEAD will allow me to purchase a Put on my education. If, in 7 months time, I am jobless, they would have to 'buy' pack my tuition! Sound strange? Trust me, its only a matter of time...