Why Finance?

Why I chose to be in Finance & answering the existential question: does my work have meaning & add any value?

I was helping write a college SOP for one of my best friends who is applying for a Masters in the US. His SOP had some stuff about what Finance meant to him so that got me thinking the same for myself. I wrote a text to him editing some of his stuff & adding my inputs but I figured this would make a good blog post because it is something worth jotting down in print.

Origins

I suppose we should start from the beginning. My earliest memory of the stock market being a thing is like maybe since I was 6 or 7. I used to watch the news because sometimes that is all we had on TV & being a kid you watch what you can because lots of free time. There was no internet or phones. The news anchor would talk about markets & some indices like Sensex (I thought it was like a stock for a long time haha). I never really knew what it meant of course. Above my dad's store is a stock broker. I remember my dad being actively investing in equities, boasting about profits & me just not really caring. Looking back you realize my dad was also addicted to the gambling habit one may form when speculating. After all, it is appealing to be able to make easy money right? So yeah I remember flashes of all this until 2008 when I was 10. We know what happened. The GFC wiped out markets & Indian markets were no different. Dad suffered severe losses, people around our store who used to visit the stock broker had sad faces. News raved on about recessions & doom & end of the world. It was grim. But it got me interested. What the hell was going on? What is this thing that wipes out people's money when it was making so much money before? I remember asking my mom: Someone must be making money right? If all these people are losing it, someone must be making it? (I was wise okay). Mom did not know the answer but she agreed that probably.

Career Choice

Now to be clear I did not make up my mind post GFC to be in finance. It was just something interesting that I occasionally checked out. I wanted to do other fancy stuff like Astrophysics, Software development, Cyber Security etc. But life happens & I chose to study Finance & Business in college. I just found that I enjoyed the accounting class more & low & behold: the speculation. Now let's be real: Speculation is just another word for Gambling & I am not ashamed to admit it. Every young kid thinks they can do this better than all who failed. And I was no different. I enjoyed it. Borrowed some money from dad, started trading in 2018, wasn't good at it. But I kept trying to learn. I knew this was something that interested me & I could be good at. Whether I am actually good at it is something I still don't know. Still learning & going.

The Why?

Finally let's ponder on the why? There's 2 ways to look at this:

1. The simple & easy answer of course is money. I am in a finance job now because I want a stable salary which lets me enjoy life. The other reason is of course one I mentioned before: there is fun in speculation of asset prices. My job now does not allow this, but you can still be intellectually involved & be close to the action. You can still manage your investments in a regulated way & try to juice out some extra returns. It is fun, it is gambling, it is whatever.

2. However I can go meta with this. As I have matured, I have developed an appreciation of the field & the financial system as I have learnt more & more of the plumbing. On the outside it may all look like gambling & speculation & of course that part is true, but not the entire answer. The main purpose is capital flows. The phrase "Finance is the life blood of business" is true. Finance allows businesses to raise capital for their ventures. It helps drive investments into productivity, helps raise capital from investors & use resources to generate output to make human life better. It helps investors & savers mobilize their savings into something good for society & be rewarded for it. Investors & businesses connect across borders now, finance people help intermediate these & manage this capital flow. Is it chaotic? Yes. Is it perfect? No, it has lots of flaws. Yet here we are, having achieved so much & Finance played a big part of it. You just have to look around, I don't need to start giving examples because I cannot do this justice with some limited examples

The existential question

I think I pretty much describe this above in point 2 above but sometimes you see finance people have this existential crisis. Am I doing something that matters? This is not real, I am contributing nothing. It is a valid thing to think. So expanding on point 2 above, all of us are just a small cog in the huge plumbing. Sure individually what we do may not be that important, but together we help facilitate the flow of capital. Even if our role is small, we are helping something get done & in return of course we are getting to take care of ourselves & our family. Again, I am not saying all of this is perfect, but for the large part it works. You may think you are not contributing much & there is no meaning, but such is life. People get rich & ahead in life all the time by doing far lesser, by maybe going viral on the internet, catching a lucky break for a job, better connections etc. The game is the game & you only have yourself to play it. Not everything has to have purpose or a deep meaning. Not everything has to make sense. The existential question is wrong! Life is not fair. In fact my controversial opinion is that being in this field for speculation only if also fine. You help take risk in the system & provide liquidity. You help price discovery by making bets. This actually helps good businesses get better access to capital & bad businesses go away. Again, I realize this is not always true, but it plays out like this in the long run.

This is why I am in this. This is the sum part of all that keeps me here & will continue to keep me here. The core reason of course is the speculation bit & I am not going to pretend to be better than this, but there is more to the game to appreciate & enjoy. Update: I came across this write up by the excellent Kris Abdelmessih on Finance Guilt:

https://moontowermeta.com/finance-guilt/ I recommend you read it entirely but the main point is simple & much better put than I did above & I will copy paste the main points-

Speculator = efficient risk pooler who understands correlation

Efficient risk allocation = lower cost of capital for primary investment

Primary investment>growth

By pooling risk, we can underwrite giant human endeavors with the risk spread out tolerably.

Financial innovation is matching a hedger with the most efficient holder of the risk. It’s matching risk-takers who need capital, with savers who are willing to earn a risk premium.

You're bearing risk that others don't want to bear. You're not communicating with them, you're not convincing them to offload their risk to you, nothing. They're doing trades they need to do, and you're there letting them do those trades at a slightly better price. That's a helluva valuable service.

Another write up here by again an excellent Brent Donnelly: https://50in50.substack.com/p/week-50-three-existential-questions

I will write the main points but recommend reading the above 2 links in full:

"So the first thing you need to do once you start making money is come to terms with it. It’s OK. Capitalism divides up the money in really weird ways. Place kickers in the NFL make millions of dollars every year. Kim Kardashian is rich for being a celebrity by being a celebrity. Mr. Beast is 1000X richer than the best teacher in the world. Life isn’t fair. Get over it."

"rading on its own does not offer a path to meaning, no matter how much money you rake in. Financial freedom is one facet of happiness. Most research shows true happiness comes from: Health, relationships, family, friends, and a feeling of purpose.

While it might feel like your P&L ups and downs are a matter of life and death — they are not. Traders spend way too much time thinking about P&L and money and all the things it might mean to them. Focus on trading when you are at work and focus on relationships and activities you love when you are not."

"The meaning of your life is whatever you decide it to be. But don’t decide on money. If you think the meaning of life is to make as much money as possible, you will never be happy.

The meaning of my life is to love my wife and grow and learn and teach and spend time with my kids and spend time with my friends and write books. That’s my meaning. You need to find your own."

"Think about your meaning of life and figure out how to use trading to move towards it. Trading doesn’t have to be the source of meaning. It can be the grease that allows the wheels of meaning in your life to turn freely. It can be the thing that gives you financial freedom and mental peace so you don’t have to worry about paying the rent. It can move you to the middle of Maslow’s hierarchy of needs, but it can’t take you higher."

"Even if you believe that trading has no societal value, you can use trading as a means to a greater end. Trading can give you the intellectual stimulation you need and it can give you enough money to provide the freedom of choice to do those things that will give your life meaning. It’s not the money or the trading that have meaning, it’s what you do with the freedom and opportunity they provide.

Decide the meaning of your own life. Then move in that direction by taking massive, courageous action every day."