Finance has a reputation problem: Mihir A Desai
"Finances need to be repaired. The reputation of finance is problematic because of the events we have witnessed over the past two decades," says Professor Mihir A. Desai.
How to repair finance's reputational problems? From the perspective of the professor, who teaches Finance, Taxes, and Business at Harvard, there is a problem of appreciation:
"The book tries to demystify finances so that people can understand them; that is, to leave aside the indicators and graphs, to explain them through history. I want people to appreciate ideas about finance without using graphs or equations.
Harvard professor Mihir A. Desai believes that, instead of trying to decipher complexities, finance can be explained by historical anecdotes.
The text connects finance with history, literature, and philosophy. Through anecdotes, it explains concepts such as risk, value, and production. The narrative can be placed in the Industrial Revolution or in the year 2000.
"The objective was to explain and humanize the great ideas about finance," he says in an interview with Forbes Mexico.
Risk, for example, is generally conceived as the possibility of loss, and not as the variability of yields, an error when deciding whether to invest or not.
"Most investors have a rough idea about risk. But it overlooks other important ideas: it must consider the context of the investment [and] the human capacity to manage it. That's what determines the possibility of a return," he explains.
Understanding the relationship between investment, risk, and returns is one of the most difficult tasks for those with a first approach to finance.
"Financial education is a huge problem for countries around the world. Finance is essential to most important decisions: education, retirement... Many people are intimidated by finance, but it is more dangerous for them to miss the opportunity to understand it".
His text uses characters like Hitler, Koons or the CEO of US Airways. However, Mihir A. Desai believes that, rather than the figure of triumph or failure, the most significant lesson in finance is often misunderstood.
"The randomness of markets indicates that you cannot easily separate luck and skill, and only on very long horizons can you tell if you are lucky or skillful. The central lesson of finance is that of humility. Luck is a dominant force in society and life, and we must attribute many of our results to luck, rather than to ourselves".
The author of The Wisdom of Finance reserves a space in his text to explain that the stories do not have precise attributions from the sources and yet each chapter has its references, in order of appearance, cited in the final section; the reader can even find suggestions for a more academic approach to the subjects.
"In writing the text, I suppressed a series of academic instincts to make reading easier. Suggestions for further reading are intended to guide interested readers to original sources or texts that can give them a deeper insight," he says.
Source: Forbes Mexico