1. Money Management
and
Wealth Creation
By Kautilyans

2. Importance of Saving Money
• Earning cannot give financial security, saving
mostly does.

3. What state of mind would you prefer?

4. Saving and Wealth
• Saving always does not guarantee financial
security, but wealth does.

5. Power of compounding

6. Power of Compounding
Snow Ball Effect

7. Investments
Forgoing one now. For many in future.

8. Investments
Investment Speculation

9. Avenues of Investments
• Saving Account
• Fixed Deposits
• Commodities-Precious Metals, agricultural
commodities etc.
• Real Estate
• Bond
• Direct Equity and Equity Mutual funds

10. Two Villains for Wealth Creation
• Inflation
• Tax

11. The Only Saviour
Equity- The portion of the business that belongs
to the shareholder.
• You could choose to start your own company
and be the majority shareholder.
or
• You could invest in public listed companies as
a minority shareholder.

12. Majority Shareholder Mindset
• To invest money and time today for future
comfort.
• Loves making decisions on his own.
• Basically, an entrepreneur's mindset.

13. Minority Shareholder’s Mindset
• To invest money today for future comfort.
• Is happy playing the sleeping partner.
• Basically, a lazy bugger’s mindset!

14. Which Mindset is Better?

15. What is business?

16. Types of Products
Unique! Me too!

17. Unique Product makes a Franchise
Business
Has pricing power and produces high return on Invested
money

18. Me too Product makes a
Commodity Business
Competition curtails pricing power and hence generally low
return on invested money.

19. Antidotes to a commodity Business
Low-cost Producer And/or An Exceptional Manager
What the Image for low cost producer is depicting ?
Largest player has the advantage of scale.

20. Value Investing

21. Mind-set for Value Investing

22. Stock is not a piece of paper , but an
ownership stake in a Business

23. Owner’s Perspective

24. Have a long term view.

25. Stay within your circle of competence.

26. Do the ground work well.

27. Think in terms of Probabilities

28. Bet heavily when the odds are in your
favour.
9 The count is
still +12..(Ace)
Black Jack
Winner, Winner, Chicken
Dinner!

29. Have a Margin of safety.

30. Be Patient!

31. Investment Analysis Checklist
• Business Tenets
• Management Tenets
• Financial Tenets
• Value Tenets

32. Investment Valuation
Intrinsic Business Value is total of cash the
company is expected to generate over its life
time discounted today.

33. Behavioural Finance

34. Social Proof Bias
“If 50 million people say something foolish, it is still
foolish.”
~ W. Somerset Maugham

35. Social Proof Bias

36. Social Proof Bias
Newton and South Sea Bubble

37. Antidote to Social Proof
You are neither right nor wrong because the
crowd disagrees with you.

38. Availability Bias

39. Availability Bias
Facts –
As per a study done in the US, the chances of
a plane crash are roughly 6,000,000 to one, or
0.00002%
More people are killed every year by
drowning in swimming pools than those who
died in Flood.

40. Availability Bias
Reasons We Fall for Availability Bias
• Recent Activity
• Personal Experience
• Vividness

41. Ad on Website for Subscription
Check the following ad in the website of a magazine
about various subscription options -
• 1 year online subscription – Rs. 600
• 1 year print subscription – Rs1250
• 1 year online and print subscription – Rs1250
Which option you would select ?

42. Another Ad
Now which option would you choose?
• 1 year online subscription – Rs 600
• 1 year online and print subscription – Rs 1250

43. Results
Both options given to 100 Students and results
were :
In the First Case –
• Option A – 16 students
• Option B – 0 students
• Option C – 84 students
In Second Case –
• Option A – 68 students
• Option B – 32 students
Why is the behaviour so different?

44. Contrast Effect

45. Contrast Effect

46. Mere Association Bias

47. Mere Association Bias

48. Antidote of Mere Association Bias
• Measure people, things and situations on
their own merits and not because they belong
to a certain category or group.
• Experiences are context dependent. The same
experience with another context can produce
a different result.

49. Sunk Cost
Any cost out of which no benefit can be
expected.

50. Sunk Cost Fallacy
Ticket Price - Rs. 500
Presence of Audience as a % of movie time – 100%

51. Sunk-Cost Fallacy
I might as well continue dating someone bad
for me because I’ve already invested so much
in them.

52. Antidote of Sunk Cost Fallacy

53. Latticework of Mental Models

54. “To the man with only a hammer,
every problem looks like a nail.”

55. What is Mental Model ?
Model is a general rule developed through
experience, supported by proper theory.
You need multiple such models – because the
nature of human psychology is such that you’ll
torture reality to fit selective models.

56. Multi-disciplinary Approach
Be Krishna!
Not Arjun!

57. Mental Models
Mathematics - Probability, Compounding etc.
Psychology – Association, Process Vs Outcome etc.
Accounting – Earning, Depreciation etc.
Economics – Opportunity Cost, Supply &
Demand etc.
Engineering – Feedback loops, Breakpoint etc.
Physics – Momentum, Critical Mass etc.
Biology – Evolution, Neuro Network etc.

58. How to earn Mental Models ?
Be a Shameless Learning Machine !!!