The Wisdom of Finance: Discovering Humanity in the... (PDF) (2024)

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ContentsTitle PageContentsCopyrightDedicationEpigraphAuthor’s NoteIntroductionThe Wheel of FortuneRisky BusinessOn ValueBecoming a ProducerNo Romance Without FinanceLiving the DreamFailing ForwardWhy Everyone Hates FinanceAfterwordAcknowledgmentsNotesIllustration CreditsIndexAbout the AuthorConnect with HMH

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Copyright © 2017 by Mihir A. Desai

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All rights reservedFor information about permission to reproduce selections from this book, writeto [emailprotected] or to Permissions, Houghton Mifflin HarcourtPublishing Company, 3 Park Avenue, 19th Floor, New York, New York 10016.www.hmhco.comLibrary of Congress Cataloging-in-Publication Data is available.ISBN 978-0-544-91113-0Illustration credits appear on page 215.Excerpt from “Two Tramps in Mud Time” from the book The Poetry of RobertFrost edited by Edward Connery Lathem. Copyright © 1969 by Henry Holt andCompany, copyright © 1936 by Robert Frost, copyright © 1964 by Lesley FrostBallantine. Used by permission of Henry Holt and Company, LLC. All rightsreserved.

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Cover design by Brian MooreCover illustration: Archimedes’ Lever, courtesy of the Kislak Center for SpecialCollections, Rare Books and Manuscripts, University of PennsylvaniaeISBN 978-0-544-91120-8v1.0517

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ToTEENA, MIA, ILA,andPARVATI

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Money is a kind of poetry.—Wallace Stevens, Adagia in Opus Posthumous

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AUTHOR’S NOTEThis book is not about the latest study that will help you make money in thestock market or that will nudge you into saving more. And it’s not about theoptimal allocation of your retirement assets.This book is about humanizing finance by bridging the divide between financeand literature, history, philosophy, music, movies, and religion.This book is about how the philosopher Charles Sanders Peirce and the poetWallace Stevens are insightful guides to the ideas of risk and insurance, and howLizzy Bennet of Pride and Prejudice and Violet Effingham of Phineas Finn aremasterful risk managers. This book looks to the parable of the talents and JohnMilton for insight on value creation and valuation; to the financing of dowries inRenaissance Florence and the movie Working Girl for insight on mergers; to theepic downfall of the richest man in the American colonies and to the Greektragedies for insight on bankruptcy and financial distress; and to Jeff Koons’scareer and Mr. Stevens of Remains of the Day for insight on the power and perilof leverage.In short, this book is about how the humanities can illuminate the central ideasof finance. But this book is also about how the ideas of finance providesurprising insight on common aspects of our humanity.So, this book is also about how understanding insurance can help us makesense of and confront the disorder of the world; how understanding the capitalasset pricing model can allow us to realize the value of relationships and thenature of unconditional love; how understanding value creation can help us livea meaningful life; how understanding bankruptcy can help us react to failure;and how appreciating theories of leverage can teach us about the value ofcommitments.For readers unfamiliar with, but curious about, finance, this book attempts tooutline the main ideas of finance without a single equation or graph—and onlywith stories. I’m always struck by how intimidating finance is to many of mystudents. There’s a reason for this—some people in finance want to intimidateother people. By attaching stories to the ideas of finance, previously intimidatingmaterial will hopefully become accessible and fun. For concerned citizens oraspiring professionals, finance has never been more important—and ignoranceof it has never been more costly. At a minimum, when someone you know startsgoing on about options, leverage, or alpha generation, you’ll know what they’retalking about.

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talking about.For students or practitioners of finance, this book allows them to revisit thebig ideas of finance in a fresh, different way. Many practitioners of finance I seein my classroom were taught finance in a mechanistic way that has led to afragile understanding of the fundamental ideas. When I probe them for theunderlying intuitions, their understanding of the formulae helps little, and theycan struggle to relay the conceptual underpinnings of what they do. By seeingthese same ideas in a completely different way than you’re used to, you willdeepen your understanding and, most importantly, your intuitions.For those readers engaged in finance deeply, the book holds one final promise.Your endeavors are routinely maligned today, and it can be difficult to makesense of one’s life when your work is characterized in such a negative way. Butthere is great value—and there are great values—in finance. By reconnecting tothat value—and those values—perhaps you can understand your life’s work as ameaningful extension of the values you hold dear. At the end of his poem abouta recreational woodchopper, “Two Tramps in Mud Time,” Robert Frost capturesvividly how important it is for us to understand our work and our lives as anintegrated whole.My object in living is to uniteMy avocation and my vocationAs my two eyes make one in sight.Only where love and need are one,And the work is play for mortal stakes,Is the deed ever really doneFor Heaven and the future’s sakes.Most ambitiously, this book endeavors to improve the practice of finance byrediscovering the humanity of the core ideas of finance. The demonization offinance is counterproductive, and regulation, while helpful, holds only limitedpromise for addressing the transformation of finance into an extractive, ratherthan a value-creating, industry. Perhaps we can all find our way back to a morenoble profession by enlivening the ideas of finance through stories thatilluminate our lives and our work.