Wednesday, 16 April 2014

Uncle Moneylal’s Confusion

Uncle Moneylal is a farmer in my village. He is having 20 cows with total investment of Rs 100,000 to raise them. So no doubt his investment per cow will be Rs 5,000. He wants to sell his cow in the market one year from now.
As per his estimation and research if he can wait one year he can sell his cow at Rs 8000 per cow so he knows his potential profit. But now he is worried that if anything goes wrong with his cows or say if any diseases breaks out before he sells then he won’t be able to get much money, he fears that he may lose even his investment amount at the time of selling if something goes wrong with his cows.

Also having doubt if he is selling now he will lose potential profit which he will be getting after one year if nothing goes wrong with his cows. His mind is full of greed of potential profit if he is selling now on the other hand he is full of fear in his mind regarding certainty of his cow’s health in good condition.

What should uncle Moneylal do in this situation? Should he sell now or should wait till he gets his potential profit on sells? Or Is there is any other alternative for him to protect his risk???


  1. Business is directly related with risk and where there is risk there is return. Being fear of risk nobody could conduct the business successfully. As, moneylal is fear of disease that will break out after one year, there is no certainty of that risk and that is his internal fear only. so, i strongly suggest him to wait for a year as he will gain potential profit, this is only the rule of business.
    Being fear of natural calamity after one year, no one can suicide now.

    1. I am not satisfied with your answer, is every business option acceptable? You have not submitted any criteria for assessment for returns andrisks form the business.

    2. You sounds much aggressive in terms of taking risk....Perhaps you are in that category of risk taker...uncle moneylal may not falls in your category... at one hand he is greedy of potential profit on the other hand he is full of fear of losing potential here one thing is clr that he wants the way in between of his greed and fear

  2. Simply opt for insurance policy that will cost around one percent of investment per year. This avoids the risk that he will have to loose even his investment and this is also an economic option. Nobody does business to suffer from loss, but s/he should avoid risks by using proper means.
    Investment does have some opportunity costs (In financial terms, it is called cost of capital). This is about 10% p.a. currently. As per the time value concept, the investment will become 110000 (100000*110%) next year. While the actual amount that he will be able to realize after one year is 160000 (20*8000).
    He is not sure that any diseases are sure to occur. A businessman can not take any decision depending upon mere doubts and fears neither on greed, it is all about calculations.
    Thus Moneylal Uncle is better to retain his investment in both way.
    DESCLAIMER: The opinion hereon is given disregarding any probable cashflows that might be possible as the case is silent about it.

    1. i like your insurance concept.. but your cost of insurance might be in unrealiastic assumption.....

  3. he is not conscious about prevention of diseases. This is a business risk, which should be minimized by using proper means such as proper veterinary treatment, feeding, creating favorable environment etc. So, he should focus on prevention of diseases of cows.
    He should consider operating costs as well as cost of capital and compare them with their rate of return. If the return is higher, retaining the investment is a favorable decision and vice versa.
    He is in fear only. In business, every sector has its own risks associated with it. So, the fear and greed only can not give conclusive decision.
    Thus, I recommend him to continue business with minimizing risks with some sort of prudence.