Note to all you texters: Capitalization is the difference between helping your Uncle Jack off a horse and helping your uncle jack off a horse!
You’re an electrician working at a mountain. There are 8 wires running from one side of the mountain to the other. The problem is that the wires are not labeled, so you just see 8 wire ends on each side of the mountain. Your job is to match these ends (say, by labeling the two ends of each
wire in the same way).
In order to figure out the matching, you can twist together wire ends, thus electrically connecting the wires. You can twist as many wire ends as you want, into as many clusters as you want, at the side of the mountain where you happen to be at the time. You can also untwist the wire ends at the side of the mountain where you’re at. You are equipped with an Ohm meter, which lets you test only the connectivity of any pair of wires (not resistance).
You are not charged [no pun intended] for twisting, untwisting, and using the Ohm meter. You are only charged for each helicopter ride you make from one side of the mountain to the other. What is the best way to match the wires?
You and a partner are to come up with a scheme for communicating the value of a hidden card. The game is played as follows:
* Your partner is sent out of the room.
* A dealer hands you 5 cards from a standard 52 card deck.
* You look at the cards, and hand them back to the dealer, one by one, in whatever order you choose.
* The dealer takes the first card that you hand her and places it, face up, in a spot labeled “0”‘. The next three cards that you hand her, she places, similarly, in spots labeled “1”, “2”, and “3”. The last card that you hand her goes, face down, in a spot labeled “hidden”. (While you control the order of the cards, you have no control over their orientations, sitting in their spots; so you can’t use orientation to transmit information to your partner.)
* Your partner enters the room, looks at the four face-up cards and the spots in which they lie and, from that information (and your previously-agreed-upon game plan), determines the suit and value of the hidden card.
Question: What is the foolproof scheme that you and your partner settled on ahead of time?
Solution can be found here. However I am still unclear what happens if 2 cards are of same value.
Issues like MOIL, where even on an application of 200 thousand, there was only 96% chance of getting 1 lot allotted to the retail investor makes me question the merit of an IPO application.
Traditionally I used a rule of thumb that 1.5k profit on 100k would be the bare minimum that I should be expecting. However yesterday I was trying to recalculate this figure. Here are the workings for 2L application size.
1. Lost Interest @ 8% for half a month. (usually it takes 12 days to get the refund and 18 day for the sales proceeds on the allotment. = INR 666/-
2. Closing of FD. Usually I park my excess funds in a FD scheme and liquidate them to apply for IPO and then after the allotment I have to reapply to a FD at a much lower rate. @1% = INR 2000/-
3. ASBA: If you are applying via ASBA the savings interest @3.5% = 291/- (profit)
So my cost of funds are: 2,375/-.
1. Risk Premium: The biggest risk in IPO market is that if one applies in a bad issue, he/she can expect a substantial allotment and then the IPO would open below the allotment price. However in case of a good issue, even a 2,00,000/- application does not guarantee allotment. As a rule of thumb, people investing in equity market expect a minimum of 15% return on investment (against 8% in FD). Hence the bare minimum risk premium would be 7% for 15 days or about 500/-
2. Management expense: An individual spends usually an hour researching about the issue, calling up friends to know their opinions, TV, newspaper, internet charges etc. Plus times spend in filling up the application and arranging for the funds. 100/- would be a reasonable compensation for this effort. (Please note this is to compensate you for the fact that some time is also spend researching the bad issues)
Total cost: 2,975/-
Please note that my biggest expense is the cost of breaking the Fixed Deposit. This would change from individual to individual
The reason why I am writing this post is that it in retrospect of issues like Punjab Sind etc. I believe that it might be advisable for me to stay out of Tata Steel FPO and other issues