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Canada Goose Jackets Suppose a mutual fund has 100 bonds that are liquid, where the true price (market price) is Rs 100. In addition, it has 100 bonds that are illiquid. The market does not give a reference price for the illiquid bond. If we tried to find out a prospective sale price, it would be Rs 50. canada goose outlet seattle Suppose the mutual fund claims that this bond is worth Rs 75. The true portfolio value is Rs 10,000 + Rs 5,000 = Rs 15,000, but the mutual fund claims the value is Rs 17,500. Suppose there are 100 units. In this case, the NAV should be Rs 150, but it is shown as Rs 175. Canada Goose Jackets

Over valuation destabilises rational investors. The rational investor knows that each unit is truly worth Rs 150, but if she redeems right away, before the mistake in the NAV calculation is corrected, she will get Rs 175.

When one unit runs at Rs 175, where does the excessive payment of Rs 25 come from? It comes from canada goose jacket outlet the investors who did not run. This is unfair, and it creates strong pressure to run.

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Suppose a mutual fund has been sold to investors under the false promise of it being a safe product. In this scenario, investors do not expect fluctuations in the NAV, and believe that their investments will canada goose outlet orlando be shielded from turmoil in the markets. If, for any reason, this expectation is belied, then investors may get spooked by sharp falls in the NAV. This may induce large redemptions.

In the US, there was a claim that the NAV of money market mutual funds would not drop below $1. This was termed ‘breaking the buck’. In 2008, canada goose outlet in chicago when the NAV did drop below $1, this caused panic and the flight of investors who had been told all along that the scheme would not break the buck.

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Therefore, when the first redemptions come in, the mutual fund will adjust by using cash and then it will adjust by selling the liquid bond. At first, things seem fine. But in time, the mutual fund will have to rebuild its cash buffer. It will have to get back to a more diversified and more liquid portfolio. For this, it is canada goose outlet store toronto going to have to sell the illiquid bond, and at that time the NAV will go down.

Channel 4: Systemic spillovers in an illiquid market

When large redemptions take place in even one or two schemes, at first they will use cash buffers and sell liquid instruments. But when they start selling illiquid instruments, this changes the price of those illiquid instruments. Now declines in prices hit the NAVs of all schemes that hold those instruments. Through this, large redemptions on a few schemes propagate into reduced NAVs (at future dates) across the entire mutual fund industry. Prediction: In periods of large inflows/redemptions, we will get a pattern of auto regression in the mutual fund NAVs across days, across the multiple funds that hold a pool of illiquid instruments.

Rational investors anticipate this phenomenon, and have an incentive to run when they see large redemptions in even a few mutual fund schemes (and vice versa).

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canada goose deals Overstatement of NAV; it is efficient to leave at a higher price. canada goose deals

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Sales of illiquid securities that are pent up; it is efficient to get out before those transactions hit the NAV.

canada goose Market impact by a few schemes under stress will ricochet into NAVs of other schemes and the problem will worsen; it is efficient to get out early canada goose.

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But how do we do this? There is a famous prayer we say during the High Holidays called “Unetaneh Tokef” which provides the three tools we can use to accomplish this: Teshuvah, Tefillah (prayer) and Tzedakah (good deeds).

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Great but easier said than done. How canada goose outlet parka do we actually say sorry? How do we make sure we mean it and that it’s not simply a performative token or gesture, but canada goose premium outlet rather a transformative act?

The late Rabbi Dr. Leo Jung summarized the great Maimonides’ approach to Teshuva and to securing forgiveness through “the 3 R’s”:

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These 3 R’s and Maimonides’ whole approach have a strong parallel in today’s Positive Psychology movement. If you’re familiar canada goose outlet winnipeg with the work of Tony Robbins, you may notice the overlap. Robbins, and others like him, stress the importance of taking responsibility as a vital key canada goose outlet toronto to happiness and empowerment. canada goose outlet near me When we stop blaming others and playing the victim, we are able to write our own story.

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The first step is to recognize that this is a narrative. The story may be true, but it is simultaneously your creation, so you have the power to change it.

The second step is to realize that you get something from this story and the thought patterns, modes of behavior and exchanges that this story fuels. You get an ego boost, you get to be right, or maybe even righteous. You get to be a victim. You get pity. You get energy from anger. Whatever it is, it’s something acknowledge it, and know that you are attached to it.

The next step is to ask yourself what you are giving up by engaging in this narrative. Are you missing out on true companionship with your roommate? Are you sacrificing real intimacy with your partner? Openness and warmth with your mother? Is the trade off worth it? Probably not. Recognize that.

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