Chaitanya Patel

Hindu Mythology associates all learning with Goddess Saaraswati….read on…

Many people know that Saraswathi (Saraswati) is the Goddess of Learning. Learning of course is important. On google you will find a lot of articles which say “what i learnt from Warren Buffet”, “what I learnt from Peter Lynch” or what I learnt from Rakesh Jhunjhunwala” or “what I learnt from Charles Munger” or “What I learnt from Vallabh Bhansali”. Good learning is always a nice thing, but is it enough?

Many people know that Hanuman is the Guru according to Hindu mythology (for the very philosophically minded, Hanuman caused the Atma (Sita) to join the Parmatma (Ram) – and that is the essence of Ramayana. So you need a Guru to teach you from the learnings of all the great people mentioned above. However is that enough?

Many people know – and many others may not know – that Parvati (Uma) is the Hindu Goddess of Wisdom. Wisdom is about doing what you know. This is the crucial link. Training, Learning is all fine – but for it to translate into action, you need wisdom. That is the crux.

So knowing that compounding creates wealth, living a simple life gives peace, tobacco free, alcohol free, stress free living gives peace is not enough.

Seeking a simple life, doing a simple sip (and sitting tight during turbulent times), having a term insurance, one credit card, IS ABOUT DOING all that you know. That will give you nirvana. So as Nike says, Just Do it.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

There have been a few parties worrying about crises stemming from ETFs, because they make it too easy for people to sell a lot of assets in a crisis.

I think that fear is overblown, but I don’t think it is non-existent, and I would like to use a bond ETF as an example of what could be possible.

Most bonds don’t trade every day.  Only the most liquid bond issues trade every day, and they form the backbone for pricing the bonds that don’t trade.

But how do you price a bond when it doesn’t trade?  It’s complicated, but let me try to explain…

When a less liquid bond actually has a trade, the bond pricing services take note of it.  They calculate the yield spread of the less liquid bond versus similar bonds (similar in industry, rating, maturity, currency, domicile, other features) that are liquid, and compare it to:

• where that yield spread was in the past
• where the yield spread is relative to other similar less liquid bonds that have recently traded
• where models might imply the yield spread should be, given other securities related to it (stock, preferred stock, junior debt, other bonds in the same securitization, etc.)
• where investment banks that make a market in the bonds are indicating they would buy or sell.

Now consider that the bond pricing services are doing this for all the bonds they cover every day, and in real time when the NAVs are made available for ETFs.  The bond pricing services attempt to create a set of prices for all securities that they cover that is consistent with the market activity in aggregate, adjusting at a reasonable speed to changing market conditions.  It’s complex, but it allows investors to have a reasonable estimate of the value of their bonds.

(Note: the same thing is done with illiquid stocks as a result of the late trading scandal in mutual funds back in the early 2000s for setting the NAV of mutual funds —  less liquid stocks have the same problem in a lesser way than bonds.)

The technical name for this is matrix pricing, which is a bit of a misnomer — multifactor pricing would have been a better name.  It works pretty well, but it’s not perfect by any means — as an example, you can’t take the calculated price and trade at that level — it is only indicative of where an uncoerced buyer and seller might trade on a normal day.  It may be a useful guide, though your broker making a market may disagree, which is part of the art of understanding value in the bond markets.

The Possible Problem

Now imagine an ETF with a relatively large amount of less liquid bonds in it, and a market environment where yield spreads are relatively tight, as it is now.  In such an environment, even the less liquid bonds may have their yield spreads relatively tight versus their more liquid cousins.  Now imagine that a relatively violent selloff starts in the bond market over credit issues.

If you were a bond manager at such a time, surprised at the move, but thought it would go further, and you wanted to lighten up on some of your positions, would you try to sell your liquid or less liquid bonds first?  Most of the time, you would sell the liquid ones, because it is relatively easy to get the trades done.  If the selloff is bad enough, it will be impossible to sell the less liquid bonds — practically, that market shuts down for a time.

But if there are very few trades of the less liquid bonds, what does the pricing service do?  Initially, it might rely on the old spread relationships, leaving the less liquid bonds with higher prices than they should have.  But with enough time, a few trades will transpire, and then the multifactor models will catch up “all at once” with where the pricing should have been.

For a time, the NAVs would be high relative to where the bonds actually should trade.  The unit creation/liquidiation process might not catch up with it, because the less liquid bonds are difficult to source, and there is often a cash payment in lieu of the less liquid bonds.  That cash payment figure could be too high in my scenario, leading to a rush to liquidate by clever investors sensing an arbitrage opportunity.

Now, would this be a catastrophe for the markets as a whole?  I don’t think so, but some investors could find the NAVs of their bond ETFs move harder than they would expect in a bear market.  That might cause some to sell more aggressively, but remember, for every seller, there is a buyer.  Someone outside the ETF processes with a strong balance sheet will be willing to buy when the price is right, because they typically aren’t forced sellers, even in a crisis.

Practical Advice

If you own bond ETFs, know what you own, and how much of the portfolio is less liquid.  Have a passing familiarity with how the NAV is calculated, and how units get created and liquidated.  Try to have a sense as to how “jumpy” investors are in the asset sub-class you are investing in, to know whether your fellow investors are likely to chase market momentum.  They may cause prices of the ETFs to vary considerably versus NAVs if a large number of them take the same action at the same time.

Know yourself and your limits, and be willing to hold or add when others are panicking, and hold or sell when others are too optimistic.  If you can’t do that, maybe hand it over to a financial advisor who stays calm when markets are not calm.

Till next time…

 

Wealth creation is a much bigger and broader goal than say ‘children’s education funding’ or ‘retirement planning’ – those are sub goals – of course.

So every big goal is met by doing a lot of small steps – here are some of those steps. Not saying they are ENOUGH, but saying that it is a good beginning.

1. Look for a good fund manager: the importance of a good fund manager is rarely brought out by the financial press. There is just too much emphasis on costs. Hdfc ULIP (when I bought it) had the lowest amc charges – of just 0.8% – however the benefit of low charges was lost by poor fund management skills. I pay a much higher brokerage than you do (and there are at least 3 brokerage houses willing to do it FREE for me). Frankly, as an investor, I could not and need not care about the brokerage rates AT ALL. The quality of advice that I get makes it worth while.

2. Having said point number 1, make sure that among the good fund managers (I mean the amc, not the individual) make sure that the costs are reasonable. Too much should not be lost in the premium of good fund management!!

3. Start Today: this has been said so many times, that it does not need any explanation. Just pick up the phone and call, or go online and invest. NOW.

4. Automate your investing: SIP – again enough has been said. Do not get distracted by value sip and variable sip…and all such concepts. You do not need to tweak it. Pick a fund, pick a date, pick an amount – and DO it, not today, NOW. This article can wait, your investment cannot.

5. Find areas in your expenditure that can be cut – so that you can increase the SIP amount – even if you can improve by Rs. 300 per month, DO IT – every drop counts.

6. Hdfc and Icici mutual funds allow you to do a RISING sip – so you could charge with Rs. 5000 a month and sign up to increase it by Rs. 500 every year…just see how comfortable it would be to increase. If you are confident, increase by Rs. 1000 a year – your comfort level is necessary.

7. Start doing all this with a friend and open an account with www.myiris.com, or www.valueresearchonline.com, or www.moneycontrol.com or ….just start tracking your expenses and your wealth accumulation. TODAY, now.

8. See if you have some surplus from time to time – if the answer is yes, your SIP amount needs to be jumped up.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Today you are going to learn some valuable lessons of stock market trading from experiences of a person who traded in stock markets for 1.5 yrs and failed miserably during those 1.5 yrs. This person is no one else, but myself Background Let me share my story they Sometime in June 2007, I got recruited in Yahoo from campus placements. I was 23 yrs old, fresh into job and had...

The post How I failed into stock trading and 4 amazing things you can learn from my experience appeared first on Jagoinvestor - Personal Finance Blog.

This is just sharing of some personal experiences – I would be happy if you learn from this…

Long ago (to be precise in the year 2000) I was doing an assignment for 2 of the most intelligent men that I have ever met. They were classmates, and were busy raising money for their business from the venture capitalists. One of the things that they were doing was setting up offices all over the country, because they had told their fund providers ‘we will set up 100 shops in 5 months’ or some such amazing bull, and were racing against time.

One of the geographies that I was handling was Delhi. Delhi is an amazing place and if you have gone from Mumbai, the pricing could be shocking.

We were recruiting GRADUATES – strictly we did not require anything more than that, but yes the salary on offer was about Rs. 2500 to about Rs. 4000 depending upon experience. We got tons of MBAs who had come – and we had no clue how to deal with them.

Typically these guys would ask for Rs. 8000 to Rs. 9000. I got disturbed and turned to the ‘supplier’ in anger. He said ‘Sir this is Delhi, if he says 9000, you can offer Rs. 3000, and he will accept that. I was stunned. I found that the same thing worked when we spoke to the potential landlords (remember we needed 20 offices all over Delhi?).

Cut to 2014. Trying to buy a decent house in a Mumbai suburb. Most of the land lords in one particular society are from the North – Delhi and further north. These people have all bought these houses in 1994 for prices ranging from 15 to Rs. 30 lakhs, and many are up for sale. The prices that they quote has NOTHING to do with reality. However they have no problems / issues if you quote a figure far far below their quote.

The whole thing in RE is very amusing. One house in 3 levels (about 2000 s ft usable area) is available for Rs. 1.8 crore – and another house about 900 meters away is available for Rs. 9 crores (quoted figure). Another plot is available for Rs. 1.4 crore – again about 1 km away.

Quoted prices have very little connection to the prices at which recent deals have been done!! Why does this happen?

– In RE there is just no way how you can know the recently concluded prices. The best deal according to confirmed sources are at Rs. 1.5 crores about 6 months ago. The best quote is for Rs. 1.6 – and on the negotiating table he was down to Rs. 1.55 crores. Fair enough – the last deal happened about 1 year ago.

HOWEVER, for exactly a similar flat there are people asking for Rs. 2 crore.

One bungalow deal was done for Rs. 5 crore – the best offer now is for Rs. 9 crore :-).

– the sellers are in Delhi – and they think that Mumbai will pay any price for a property. Completely untrue, no deals have happened in the past 6 months!

– sellers have tremendous holding power – they are not in a hurry to SELL.

-buyers have a choice – newer buildings are available at a lower (much lower) price

– tremendous amount of misinformation prevails there, and there is a crying need for creating data capturing websites.

– surprised why websites like www.hdfcrealty.com and www.hdfcred.com are not doing this job. In a crowded space they just do not stand out.

– most of the websites are infested by brokers, and that is a big pain.

– there are no exclusive ‘only direct users’ website making a mockery of RE intermediation

– there is a crying business need, wake up businessmen who are looking for a nice scale able business model…

 

 

 

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

The CME futures contracts on the S&P 500 index comes in two flavours – the big or full-size (SP) contract is five times the E-Mini (ES) contract. For clearing purposes, SP and ES contracts are fungible with a five to one ratio. The daily settlement price of both contracts is obtained by taking a volume weighted average price of both contracts taken together weighted in the same ratio.

Yet, according to a recent SEC order against Latour Trading LLC and Nicolas Niquet, a broker-dealer is required to maintain a net-capital on the two contracts separately. In Para 28 of its order, the SEC says that in February 2010, Latour held 333,251 long ES contracts and 66,421 short SP contracts, and it netted these out to a long position of 1,146 ES contracts requiring a net capital of $14,325. According to the SEC, these should not have been netted out and Latour should have held a net capital of $8.32 million ($4.17 million for the ES and $4.15 million for the SP). This is surely absurd.

It is not as if the SEC does not allow netting anywhere. It allows index products to be offset by qualified stock baskets (para 10). In other words, an approximate hedge (index versus an approximate basket) can be netted but an exact hedge (ES versus SP) cannot be netted.

PS: I am not defending Latour at all. The rest of the order makes clear that there was a great deal of incompetence and deliberate under-estimation of net capital going on. It is only on the ES/SP netting claim that I think the SEC regulations are unreasonable.

Financial advisor designations and Equity valuations – there are so many of them that you put all together, you can create an alphabetic soup.

And life comes a full circle for me. When I started life (a few moons ago in the ‘80s) as a Chartered Accountant, I naively thought and believed that people invested to get returns. Working on that assumption, we made research reports for clients (imagine, they paid for the reports!!). Here we would compute the “Dividend per share” as a ratio to the price paid for the share. The contention being that the only thing of interest to a retail share holder is the dividend. It is only the promoter who can use the cash in a technology company to buy an infrastructure company – why then should it matter to the retail shareholder? Or an infra company to set up a technology company!!!

Then the best ratio was PDR (price dividend ratio). Terms like “how many years of dividend will be required to recover the price – in terms of dividend alone” were numbers which were prominently put in the report. A blue chip meant a company with a AAA rating for its debt instruments and a 10-year increasing dividend track record (15 years if the client was more than 60 years of age). Dividends, is what mattered.

However, we were told we were too conservative and we should at least use “PER” – after all management knew “how much to re-invest, and how much to pay out”. We succumbed and accepted “PER”.

Then we got an opportunity to do the brand valuation of Mr. Ramesh Chauhan’s soft-drink business – we used archaic systems like “number of years of sustainable super normal profits” – and the final price was very close to the “theoretically arrived at price”.

Then we were told forget earnings, after all how much interest a company pays, the amount of depreciation, the taxation, and the amount of money capitalized is after all a view. So the earnings prior to all these “opinions” is far more important. Surely, it took a little while before we understood the word “EBIDTA”. A few meetings were attended without picking up the courage or guts to ask “what is EBIDTA” – fearing the suited MBAs sitting in plush conference rooms. However, our research reports contained this new fangled valuation tool. We succumbed and accepted EBIDTA despite the fact that it did not look far away from the sales figure.

Then we were told, we were “not being practical” and we should actually look at the “Sales to Market capitalisation” ratio. So being practical, again we succumbed. Meanwhile Harshad had made the “asset replacement theory” very popular and we all applauded it. It made a lot of sense that if it costs Rs. 13,000 crores to set up a chemical based film manufacturing plant and the market capitalisation of the company was only Rs. 1300 crores, it was a great buy. Some of us did not see the world going to digital photography that is all.

Then came the mother of all valuations – “Eye-balls and hits valuation”. Here we were told “how many people come to the site” and how many “feet fell” were the basis of valuation. We baulked, but being ‘practical’ people we succumbed.

We were told if websites were set up by doctors, Tamilians, Mumbaikars, iyers, senior citizens, lions club members, all their members would one day buy all their requirements form their websites. All of them forgot the tamilian mumbaikar iyer senior citizen doctor who was a lions club member.

Unfortunately he bought only one toothpaste a month, one television a decade, one sofa in 20 years.

The index cheered us along all the way. When we started the valuation game (oops sorry!) there was no index. Then it got constructed, it was at 100, then 500, then 5000, then 21,000. Then it came down slowly, sharply, and finally to 8900. Then it inched up to 10,000.

Now its younger brother, the Nifty is near 10,000. A far cry.

Now in a class room they ask me things like “Dividend-yield”, “why is dividend pay-out ratio” important. I seriously do not know, what to tell these kids.

 

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

How to reject a stock?

You will generally find ten tips to select the next ten bagger, but not many write on how to reject stocks.

The problem of abundance

A typical well diversified portfolio tends to have 15-20 stocks (anything more does not reduce risk any further).  Let’s assume that the holding period is 2-3 years per stock. So in effect one needs to find and replace 5-7 stocks per year in the portfolio.

We have around 5000+ companies listed in the stock market and a selection of 10-12 stocks means that you will reject 4990 stocks (if you were able to have a look at all the companies each year).  That is around a 99%+ rejection rate. Even if you were to play around with the number of stocks you can analyze each year and the number you end up selecting, I cannot envisage a scenario where you will reject less than 95% of the stocks you review.

Finally a corollary to my point –The main problem is that we are not limited by choice, but by time and effort.

Building the framework
At the risk of oversimplication, I would say a long term investor is looking at high rates of return for a long period of time. Putting it quantitavely, I would say that I am looking at a CAGR of 26% per annum for 3-5 years or longer if possible.

-          The company operates in an industry with above average growth rate which means that the industry is growing atleast at 15%+ rates (higher than the GDP).

-          The company is able to earn a high rate of return on capital (atleast 15% or higher) for a long period of time (sustainable competitive advantage)

-          Company is led by a competent and ethical management

-          The company is selling at reasonable valuations

Easier to reject stocks

You must have noted that I have omitted a lot of factors which go into selecting a winning stock and that’s precisely my point. Selecting a profitable stock is a complicated Endeavour and one can write books on it and still not cover all the points needed to identify a profitable idea.

So let’s look at how we can select stocks to lose money

-          The company operates in an industry which is in a terminal decline (fixed line telephony) or is highly cyclical, commodity in nature and with very poor return on capital (metals, sugar, airlines etc)

-          The industry is subject to a lot of change (regulatory, competitive or technological) which causes several companies to fail or loose money due to sudden change in the competitive scenario (telecom, mining etc)

-          The company is managed by an unethical and incompetent management (do you need examples here?? – just look around )

-          The stock is purchased at high valuations in a cyclical industry right at the peak of the business cycle. To add insult to injury, the company is managed by an unethical and incompetent management. This combination of factors is guaranteed to loose atleast 50-60% of your capital if not more

Is it comprehensive and works 100% of the time?

Of course, this list is not comprehensive. I can come up with a lot of additional points, but I can say that these broad criteria can be used to eliminate a lot of companies at the first glance.

My counter point is – Do you really want to search for a needle in a haystack when there are often gems lying around? If your idea of fun is to find that nugget of gold in a pile of manure, then welcome to my world. I have engaged in it often and the results are not great compared to the effort put in. In addition if you are not a full time investor, then it makes all the more sense to focus your limited time on good opportunities.

The benefit of my mistakes

The list I have shared is not something I have just dreamed up while sipping coffee. I did a small exercise of listing of my failures for the last 15+ years and found a few common threads among all of them.  If I boil it down, it comes down to the four points listed above.

Let me make another bold claim – if you want to lose 90% of your money, buy a highly cyclical and commodity type company at high valuations at the peak of the business cycle and run by an incompetent and crooked management. You will be guaranteed this result. How do I know – I tried it a few times and have never failed to loose my shirt (and other garments!)

----------------
Stocks discussed in this post are for educational purpose only and not recommendations to buy or sell. Please contact a certified investment adviser for your investment decisions. Please read disclaimer towards the end of blog.

30-35 years back, my uncle got selected in IIM Ahmadabad but unfortunately due to financial constraint he was not able to join. Then he dropped plan of higher studies & joined some PSU at junior level. Few years back his son got selected in good US University but he was not in a position to fund that through his savings.

But things have changed

Many people want to study further but are unable to do so because of the fees. Higher education and professional degrees are becoming very expensive. Many banks and financial institutions therefore provide education loans for this purpose. The best aspect about education loans is that most institutions allow you to start the repayment instalments after you complete the course for which you have taken the loan or start working.

My uncle funded his son’s education through loan – now my cousin is working & comfortably repaying the loan.

Compare Education Loan

You need to compare the loans available in the market on many factors before you decide the best one for you. Let us compare some popular education loans -

Features	Credila (HDFC Bank)	IDBI Bank	Punjab National Bank	State Bank of India
Details	- The borrower will get an Indian rupee denominated loan deposited in any bank account in India.   – It covers tuition money, living expenses, purchase of equipment for studies and fare equivalent to one economy class return ticket if it is a different country of study	- There are different loans available depending on whether it is a vocational/non-vocational or whether the applicant falls under the financial inclusion program or is physically challenged.   - Loans for Executive programs are also available. It covers tuition expenses, purchase of equipment and books for studies, travel expenses if education is to be had abroad and insurance premium if insurance is mandatory.	- Loans are available for graduation, post graduation courses, vocational courses and part-time job oriented courses for Indian nationals.   – It covers fees, purchase of equipment and books, travel expenses, study tour costs and project expenses.   – Margin money is required for loan amount greater than Rs. 4,00,000 up to the extent of 5% for studies in India and 15% for studies abroad.	- Different types of loans are available depending graduation and post graduation courses, diploma courses and vocational training.   - It covers fees, purchase of equipment and books, travel expenses, study tour costs, project expenses and the cost of a two-wheeler up to Rs. 50,0000   - Margin money is required for loan amount greater than Rs. 4,00,000 up to the extent of 5% for studies in India and 15% for studies abroad.   - There is a 1% discount on the loan if interest is paid regularly starting from the moratorium period (the period when you are exempt from repayment.)
Rate of Interest	A floating rate of 14.25%	A rate from 11.25%-13.75% depending on type of loan.	A rate from 11%-14.25% depending on loan amount.	A rate from 11.75%-13.75% depending on loan amount.
Collateral	House, Flat, Agricultural land or fixed deposit can be used as collateral	- Collateral is not required for a loan amount < Rs. 4,00,000.    - Third party guarantee is required for loan amount from Rs. 4,00,000 to Rs. 7,50,000.   - Above that, collateral in the way of land, Bonds, bank deposit etc. is required.	- Collateral is not required for a loan amount < Rs. 4,00,000.   – Third party guarantee is required for loan amount from Rs. 4,00,000 to Rs. 7,50,000.   – Above that, collateral in the way of land, Bonds, bank deposit etc. is required.	- Collateral is not required for a loan amount < Rs. 4,00,000.   - Third party guarantee is required for loan amount from Rs. 4,00,000 to Rs. 7,50,000.   - Above that, collateral in the way of land, Bonds, bank deposit etc. is required.
Loan Repayment	Repayment instalments will begin as soon as disbursement of loan has begun.	Borrower needs to pay during the tenure of the course and post that up to 1 year or 6 months after getting a job whichever is earlier.	Borrower needs to pay during the tenure of the course and post that up to 1 year or 6 months after getting a job whichever is earlier.	Repayment will have to begin one year after completion of course or 6 months after getting a job, whichever is earlier.
Processing Fees	Rs. 5618 (For a Loan of Rs. 5,00,000)	No processing fees.	There are some charges levied as upfront fees for study abroad which is refundable and documentation charges are levied.	There is no processing fees or upfront charges. A refundable deposit of Rs.5000 will be charged for loans for education abroad.
Minimum and Maximum Amount	Rs, 1,00,000 to any amount deemed suitable by Credila.	- For studies in India, the maximum loan disbursed is Rs. 10,00,000 and for studies in abroad, the maximum loan amount is Rs. 20,00,000.   - Students availing loan for education in premier institutions can get higher amounts.	For studies in India, the maximum loan disbursed is Rs. 10,00,000 and for studies in abroad, the maximum loan amount is Rs. 20,00,000	For studies in India, the maximum loan disbursed is Rs. 10,00,000 and for studies in abroad, the maximum loan amount is Rs. 30,00,000

There are certain aspects that you need to remember while taking an education loan -

1. A co-applicant is compulsory. It can be parents, siblings or spouse and parents-in-law.
2. Default in payment will affect the credit score of the student on whose behalf the loan is taken and the co-applicant.
3. Most colleges/universities abroad ask for insurance. Therefore you should check if the loan covers that.
4. You can avail of tax benefits under section 80-E of Income Tax Act.
5. Public sector banks give a discount of 0.25% for female students.
6. The loan may not cover the entire expense of education abroad and so the student has to look at other avenues like savings, scholarship or part time job
7. If the student remains abroad even after the course is over, the bank will expect the co-applicant to repay the loan amount.
8. You should be ready with a backup plan in case the student does not get regular income even 1 year after the course.

There are more banks and financial institutions (apart from the ones mentioned here) that provide education loans that help people pursue their dreams of more education and higher education. Many have similar features to the ones mentioned above. You should compare the loans of the various criteria mentioned above and select the most appropriate one. Have you taken an education loan? Let us know your experience in using loans for education.

Amazing that we have an excess of Engineers, CAs, MBAs. So much so that many of them are doing the work which could be easily done by lesser graduates, or even by people who have passed class XII.

One can see disguised underemployment in the private sector as well as the public sector. Mostly people joining the public sector look for ‘job security’ and in case of girls even a passport to a good ‘groom’ from a good family!

Having said that the salary structure in SBI is today very attractive – and only the top MBA colleges can boast of such a start in salaries. In fact the 1 year MBA even in the top MBA institutes (sometimes) are not able to attract this kind of a salary (officers start on Rs. 840,000 per annum), and the clerks start on a salary of about Rs. 17,500 per month – about Rs. 200,000. However the job stability, ease of transfer to any part of the country, etc. attracts a bunch of people wanting such jobs.

The number of people who applied for the SBI job is about 1700 people for every job that was on offer!!

Amazing – in fact the numbers are not very different in the private sector banks, but since they do not conduct such an open exam, the numbers are not visible to us.

Here, read on

http://www.thehindubusinessline.com/industry-and-economy/banking/sbis-officer-clerical-posts-attracting-engineering-mba-graduates/article6446549.ece

 

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

There are many discussions in various forums (fora for the UK English fetish people!) about the logic in investing directly and not going through an agent.

Let us see what an agent is supposed to do:

– be able to articulate your goals

– tell you which goal is realistic and what is not

– choose the funds in which to invest and do the documentation.

Can you not do it yourself?

Of course you can. Depends on whether you have the inclination to do so. One prof in IIT who is a full time Physics professor does it. Three or four scientists I know do a brilliant job of direct investing in equities. One CEO of a very big engineering company used to do it till about 7 years ago. When he got a job in the corner office, he just does not find time, so it is now outsourced.

I know these people. They all have high IQs and a tremendous love for balance sheets. The CEO can talk about all industries as comfortably as he can talk about his own engineering company. Amazing analyzing skills – he is also from IIT, but much senior to Pattu and in a different stream!

DOES NOT MEAN EVERYBODY CAN DO IT.

Do it, if you have the following characteristics:

1. Willingness to do PRIMARY research based on data given by mutual funds.

2. Knowing to separate the wheat and the chaff in the mainstream media

3. Using past performance as a guide, FOR STYLE not for NUMBERS.

4. Understanding tax implications of switches, redemptions, etc.

5. WILLINGNESS to read a lot about mutual funds, investor behaviour, etc.

6. Ruthless performance appraisal (frankly this is the toughest thing to do.

I could just go on and on. So if investing is NOT your hobby (and you do not enjoy going through Subramoney.com or freefincal.com. If your hobby is travelling, running, cycling and photography, find time for all that.

My sister loves to plan trips – all her trips are well planned and well executed. I do not enjoy doing the planning. So when she plans a trip, I happily tag along. The alternative is to go to a travel agent and ask him to plan. For a fee, I am sure.

Trying to go direct because one prof. from IIT is doing it is ridiculous. It is like watching Ben Kingsley act and thinking that YOU have become Gandhiji. Even Ben was only acting.

 

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

I make no secret of the fact that I believe Shri Narendra Modi, the prime minister of India, is an honest, intelligent, dedicated, sincere and diligent man. I admire him immensely for who he is and what he has accomplished over his many decades as a politician. The set P = {p | famous politician p is honest, intelligent, dedicated, sincere, diligent} is small but non-empty. For all I know, the set P is exhaustively enumerated as P = {Narendra Modi, Arun Shourie}. But at the very least, I am certain that {Narendra Modi, Arun Shourie} ⊂ P. I indulge myself in the frivolity of using set-theoretic notations at the start of this piece only because I have a few serious points to make.

Modi, a man of substance

Shri Modi is also a very practical man, a realist, not some airheaded idealist. Starting from “humble beginnings”, he would not have reached where he is today without being supremely practical. Despite formidable, sustained, relentless opposition from every quarter — within and without his own party — opposition that would have broken even the most hardened politician, Modi prevailed and how. He survived an ordeal by fire that no other politician in India has ever had to face. That he triumphed in the war of Indian majoritarian electoral politics without compromising his principles attests to his character and determination. He is a leader par excellence of the nation because he is a nationalist. For him, the nation above all; for him, the national interest trumps all other interests.

People trust him because he is trustworthy. He has earned, and deserves, trust. Did I mention that I admire Shri Modi? For the record, let me state that I believe that among political leaders, I consider him to be the best India has in that regard. This is not a newly arrived realization. I have been beating that drum privately and publicly for years. Unlike many (who shall not be named) observers who have only recently jumped on the bandwagon, I have consistently been what in the vernacular is called a fan.

Modi, a vilified man

Shri Modi has been unfairly vilified by his enemies. Antonia Maino’s, aka Sonia Gandhi, the chairperson of the UPA, labeling of Modi as maut ka saudagar epitomizes that abuse that large sections of the main stream media gleefully indulged in for years. They carried on a relentless, vicious campaign of hate and falsehoods for over a decade.

Modi’s response to all that calumny? Work relentlessly, and be the best, longest-serving chief minister Gujarat has ever had. And then undertake a superhuman, punishing national election campaign to win the biggest win for the NDA and the BJP. In doing so, he defeated not just the UPA, the Gandhi-Maino clan, the Congress — but also the so-called “160 Club” and the “180 Club.” It was a victory that gave a fitting reply to the despicable Maino-clan and its legions of minions.

Not just at home, Modi’s enemies took their fight off-shore. In their campaign to malign the man, they plumbed unimaginably sordid depths. They invited foreign involvement in India’s domestic affairs and undermined India’s sovereignty. They impugned and sullied India’s judicial system by proclaiming Modi guilty even after the courts found no case against him.

Modi’s US visa

Shri Modi had traveled to the US prior to 2002 and therefore had to have a US visa. But in 2005, the US State Department revoked his visa. The details of why the US did that need not detain us here. The fact is that the US State Department declared him persona non grata, in essence saying “The US does not want Modi to set foot on US soil.”

For the record we must be clear that Modi’s visa was not refused. His visa was revoked. And after the revocation, Modi did not apply and therefore there can be no valid claim that the US refused a visa to Modi. And as far as I know, the US has not reversed that revocation. I don’t know the details. Besides the details don’t really matter for what I submit here.

It seems to me (and this is just my opinion) that if the US were to reverse the 2005 revocation of Modi’s US visa, it would be admitting that it had incorrectly held Modi responsible for a crime.

Uncomfortable but Pertinent Questions

Did the US State Department make a mistake? Is Modi entitled to an apology from the US? Can the US ever apologize to Modi? Will Modi overlook the ignominy that the US State Department exposed him to? Should Modi swallow his pride and overlook the insult? Is it proper for Modi to visit the US as the prime minister of India in light of the fact that he is not welcome in the US as a private citizen? Is it an insult to Modi alone or is it an insult to India?

Has the Indian government ever expressed its dissatisfaction that the US declared the elected chief minister of one of its states as a PNG? Indeed, was the UPA ever critical of the US government’s decision regarding Modi’s visa? Or was it happy to see its political opponent pilloried even at the cost of India’s international standing?

To my mind, these are reasonable questions that need to be asked and answered. These are also uncomfortable questions and reasonable people will may differ in their answers. I have voiced my opinion publicly (on twitter and I have been on record in a piece at IndiaFacts) that I would have preferred if Shri Modi were not to visit the US until the visa issue was resolved.

I am not a politician and I definitely don’t claim insight into the complex nature of international relations and foreign affairs. Most of all, I am entirely ignorant of what is called realpolitik, a term coined by Ludwig von Rochau, a German politician in 1853.

“The study of the powers that shape, maintain and alter the state is the basis of all political insight and leads to the understanding that the law of power governs the world of states just as the law of gravity governs the physical world.”

The Law of Power

The US is the most powerful nation on earth. It is powerful militarily and economically. Economic power is a necessary pre-requisite for military power. All other nations have to therefore pay tribute to the US. This is the law. The powerful make the rules of the game. A disconcerting realization perhaps but the truth of this is evident to even the most casual observer of international relations. Modi may be the most powerful man in India but India is not powerful relative to the US. One does not have to get a degree in foreign relations to recognize that.

The two superpowers of the contemporary world are the US and China. One may recall that a few years ago when the then US president Bill Clinton was planning a state visit to China, he was contemplating a stopover in India. The Chinese told him that he should feel free to visit India but he should visit China only when he is not encumbered by an Indian stopover. From one superpower to another. Clinton dropped the India of stopping in India and did his China visit.

Later, when Clinton visited India as the US president, he did stop in Pakistan (albeit briefly.) The Indian government had pleaded (if memory serves) that Clinton not visit Pakistan on that trip but he ignored that. That’s one superpower to a subservient nation.

India does not bat in the same league as China. China and India were in the same club around 1978. But after Deng Xiaoping took over, China raced ahead of India. China’s GDP is four or five times India’s, and given that its income has been multiples of India’s for some nearly 40 years, its wealth is many times that of India’s.

Power and Wealth

Wealth matters. The wealthy are different from the poor. The wealthy nations make the rules that other nations have to play by. It is an international matter. But — and here’s a point that I will never tire of stressing — the wealth of a nation is determined not internationally but domestically. Domestic rules of the game determine whether the nation is wealthy, and that in turn determines the international pecking order.

That the prime minister of the nation is compelled by his nation’s interest to go to a nation where he is not welcome as a private citizen speaks to its international standing. I cannot imagine a situation where a major US political leader would ever visit India were the situation reversed. Leave alone the US, I cannot imagine this for happening in the case of China — a nation much, much poorer than the US.

The law of power is like the law of gravity: it cannot be ignored. The laws of economics too cannot be ignored without penalty. Those who are poor cannot afford the luxury of pride. Hat in hand, one has to be a supplicant seeking favors from the rich and powerful. As Jean-Jacques Rousseau wrote in The Social Contract (1762), “To yield to force is an act of necessity, not of will; it is at best an act of prudence.”

An act of necessity, an act of prudence

The world sorts out the weak from the strong, it separates the dependent from the self-reliant. When it comes to individuals, the distinction between the weak and the strong is not entirely clear-cut. A favorite story relates to one of my heroes — the philosopher Diogenes of Sinope (c.412 BCE – 323 BCE) — and the Greek emperor Alexander (356 BCE – 323 BCE). Diogenes was his own man and led a life of such simplicity that he had practically no possessions. He kowtowed to no man or god. Alexander was much impressed by what he’d heard about Diogenes.

Diogenes was in Corinth when Alexander the Great sent word through a messenger asking Diogenes to come see him in Macedonia.

Diogenes told the messenger, “Go tell your emperor that Corinth is as far from Macedonia as Macedonia is from Corinth. So if your emperor wants to see me, he can come and find me here.”

That is an act of will, not an act of prudence born out of necessity. Diogenes didn’t care about how high and mighty Alexander was. He was a free man.

When Alexander heard that message, he got on his high horse and traveled all the way to Corinth. Diogenes was sitting in his tub in the town square, enjoying the sun. Dismounting, Alexander grandly declared that he would grant Diogenes anything he wished for. Diogenes said to Alexander, “I want you to stand aside. You are blocking the sun.”

The distance between Washington, DC and New Delhi

In the case of nations, the power structure can be more clearly identified than in the case individuals. Diogenes was clearly more powerful than Alexander. That Modi will to travel to Washington, DC should come as no surprise. Perhaps it is not an act of will but of prudence and necessity.

Necessity compelled because India is not rich and powerful. Let me get back to the core of my simple view of India’s economy. India is poor not out of necessity but out of choice. Nations choose, and in a sense that choice is much less constrained than choices that individuals face. External circumstances limit individual choices but for a large nation (defined as having a significant fraction of the world population and a large geographical extent), its prosperity is entirely self-determined. Of course, that choice is not directly exercised by the citizens but collectively the people decide whom they want as their leaders and these leaders in turn choose the policies that determine the nation’s prosperity.

The distance between New Delhi and Washington, DC is shorter than the distance between Washington, DC to New Delhi because India’s economic policies have sucked for decades — which was because Indian leadership has sucked — which was because Indian voters have sucked in their choices.

Domestic problems, domestic solutions

India has domestic problems, and international solutions cannot solve them. If your family life is in shambles, getting citations for excellence at the office is not going to do much good. Indeed, if you have domestic problems at home, you are much less likely to get very much done at work.

For my money, I would much rather that India gets its economic policies right. By that I mean, I think Shri Modi should give a lot more attention to fixing India’s economic policies than fixing India’s foreign relations. Projects are all well and good but they are often distractions from the major tasks.

For example, the Indian agriculture sector needs urgent attention. There are too many farmers and their income is too little — the two facts are of course related. The more farmers, the poorer the whole lot. This is true from any large country. To help the farmers, reforms are needed not just in the agricultural sector but in sectors that apparently don’t have much to do with agriculture — education, urbanization, labor laws, power and international trade. This is surprising to many. I can go into it another time.

I recently read a report that Modi has asked the manufacturers of soft-drinks (Pepsi and Coke) to include fruit juices in their fizzy drinks. Why? To help Indian farmers. I kid you not. That is not right. The problems that Indian farmers face is almost all entirely due to government policies. Changing government policies will help the farmers more than exhorting drinks manufacturers to alter their products to suit the needs of Indian farmers.

India needs change. One of the biggest change that India needs has been stated by Shri Modi — India needs the Indian government to get out of business. As long as the government is so deeply entrenched in business, India will not prosper economically. India will continue to be poor, and the Indian government will continue to be a “government of the poor” and that will lead to more poverty. And that poverty will see more foreign trips, hat in hand.

India needs a change of perspective, not missions to Mars.

See also:

1. I have a few posts on Diogenes the cynic, one of my all-time heroes. See this post from 10 years ago, Diogenes of Sinope, the Cynic.

The higher you go up the corporate ladder, the duller you become. And yet decision-making is concentrated at the top. FT columnist Lucy Kellaway quotes a graduate trainee on the subject:

The main thing that had struck him so far was that people seemed to get dimmer the higher they went in the organisation. His fellow trainees were almost all brilliant, he said, and people at the next level up were also pretty smart. But those 10 years older were pedestrian by comparison, while some of the partners seemed borderline moronic.

I asked if he had any explanation for this. He looked at me as if I were a moron too and said the reason was self-selection. Really smart people don’t stay at the institutions they have fought so hard to get into. The best leave within two or three years; the slightly less good stay a bit longer, and only the also-rans and the terminally unimaginative are in for the long haul. 

Kellaway rightly points out that success in a company has little to do with brilliance. A company values other things in people:

Rather than reward brilliance it prefers skills that graduates can’t see: good judgment, a nice way with clients, and an instinct for when to bite your lip. Even if today’s partners weren’t boring to start off with, they quickly learn to seem that way. 

So, there are strengths that people at the top bring to the table. The challenge is how to marry the analytical brilliance at the bottom with the sound judgement and rounded view that obtains at the top of a company. One thing that Kellaway highlights is that the two levels need to talk to each - and understand what the other is saying. The other thing, which I believe is important, is that decision-making must be truly participative. Don't leave decision making only to sound judgement; bring in the creative, disruptive types at the bottom as well. 

There are hardly a few ideal managers I met in my life. One of the most ideal managers are our wives/husbands ( if readers are married ). They work so hard to keep the house neat and clean and to keep it running.

In office ideal manager is one who does his/her job of keeping the team competitive as well as cooperative.

Here is what else an ideal manager does

 

• take the blame and transfer the credit
• praise in public and rebuke in private
• be fair to all team members in appraisal time and without any personal bias
• will keep his team in good humour
• learn how not to panic in tricky situations and also he will teach them to his members
• will stand up for his team member when he knows that they are right.
• coordinate and resolve the conflicts rather than playing upon them
•  mentor his team members
• ask his mentees to mentor new team members
• be flexible with personal issues of team members yet firm on the project objectives
• create backup of team members and also ask them to learn cross-functional things in addition to their own
• keep abreast of technological changes
• be willing to learn from his subordinates
• develop a leadership team below him which is ready to take over once he leaves the position
•  reward performance and advise improvements where he observes lack of it
• take up coordinator role where cross-team projects are involved

An ideal team manager in return for this will get following

1. A happy team satisfied with workplace
2. More retention, less attrition
3. Higher productivity
4. Willingness by team members to take initiatives
5. Team members owning up mistakes
6. Aspiration to emulate the team manager

Are you an ideal manager or do you know one ?

Image courtesy of iosphere at FreeDigitalPhotos.net

This is not a typical ‘event’! It is a series of complex steps and starts almost at birth.

From birth a kid sees money, plays with it, counts, realizes the power it has. My daughter once told me ‘I want notes, coins do not buy anything’ – just an observation I guess!

So right from the age of 4 you can start teaching the kid the value of money and what it does. Not that all parents take the trouble to do it. I have no clue but many parents refuse to share how money is earned, spent, taxes paid, charities made and INVESTED for a rainy day.

IF YOU DO NOT TEACH YOUR KID ABOUT MONEY, who will? Do you think school and college will? No, they will not.
So let us look at a person’s relationship with money and the role of the family.

Stage 1:
When you are about 8-10 years of age you have just started understanding money. You know what is the price of a house, the cost of a car, the cost of a loaf of bread and the cost of ice-cream. You know that your parents have had to slog to earn the money, to provide for a nice roof, put food on the table, pay your school fees, pay for vacations, – and generally for the day to day living. By now you have been told that the ATM which spews money whenever you want has to be filled by the hard work that the parents put in at the office.

By now you realise that the servant who comes home or the driver who drives the car are providing you services. You also realise that money is in short supply and has to be rationed. If you have sensible parents, they talk to you about money responsibly. If they are not sensible, they fight over money. It is time when you compare the people around you – and start making money judgements. You know that a person with a bigger car, house, vacation…..is considered to be rich!

At this time you are able to handle budgets and rationing of money. If you are told that you have a Diwali budget of Rs. 5000, you know that you can buy a dress for Rs. 4500 and Rs. 500 has to be spent on crackers! You have already asked for your first mobile phone and you did not like the budget of Rs. 8000 that your parents set for you. You have started realising the importance of budgeting, saving, etc. You are understanding words like inflation but are still too young to understand the implication of that word.

Stage 2: End of school to Completion of college education

You have finished school and wish to study further. You are now wondering who should be funding your education. Should you be taking a loan?
Should your parents support you?
Should your parents pay your full fee and board?
If they were to pay how do you plan to repay the loan?

Stage 3: (Just started earning…)
The next stage is when you have just started earning. The questions that you have to answer are:
Should you live with your parents?
If you do live with them should you pay rent? How much?

Should your parents subsidize your higher education? Like an MBA costing Rs. 2 crores?
How about paying them for food and other services?
Are your parents subsidising your expenses?
Will you be able to afford to live on your own?
Who will pay for your wedding expenses?
How should your wedding be celebrated? – a simple court marriage or a full blown Big Fat Indian Wedding?

Stage 4:

You are buying some asset –
Should you ask your parent to pay for a portion of that?
Should you take a loan for the asset?
Should your parent be a guarantor for the loan?
If you do take a loan from them will you pay interest? Will you repay the loan?

One sibling is milking the parent – almost dry – will you interfere and stop (and risk your parents ire too!!)?

Sure you are earning well, but if your brother did not eat out of your parent’s capital, your parents could fund an Ivy League education – so you are caught between the devil and the deep sea.

Stage 5:
You are now in your middle age, and you have grown up children in college
Do your parents need financial help?
Are they financially well off?
Do they need you to look after their finances?
Have their finances been well managed?
Are they in a position to comprehend the financial bombarding that must be happening?
Are they vulnerable to being cheated?
Do you need to forcibly look after their finances?
Do they have a will?
Are all their nominations in place?

Really the child-parent financial relationship is not ONE article but a series of articles! And each parent is different, as is each child.
Now all these questions have at least 3 sides – the child’s view, the father’s view and the mother’s view.
This is not simple.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

The post When Long-Term Thinking is a Terrible Idea appeared first on Safal Niveshak.

An instructor in introductory economics asks:

 

Should I invest in direct equities or should I invest in Mutual funds?

Should I invest through a SIP in mutual funds or should I time the market?

Even for people who have answered the question ‘should I invest in equities’ POSITIVELY, the above 2 questions are difficult to answer. In fact these questions flummox them.

I have a simple counter to this – and MY questions / dialog goes as follows:

Me: How long have you been in equity markets?
Reader: About 10 odd years, and my father also has some very small exposure to equities.

How has your performance been so far?
Kind of a mixed performance. I made money in some direct allotment like TCS (which I am still holding), I lost a bunch in Suzlon which I bought for Rs.104 a few years ago (still holding), Reliance (where I am not making any money for the past few years), …

That is all nice, but what is your percentage return on the investments made?
Sorry sir, I have not really calculated that.

Do you believe that you can time the market or do you buy whenever you have money?
I think I can time the market but I also think I will go wrong a few times – now and then.

Tell me were you buying equities in 2001, 2002, 2003 – or did you hide under the bed scared of the market?
Sir markets were in such a bad shape that I had kept my money in the bank, I actually started investing in 2005 when the indications were clear that the market had come out of trouble.

In 2009 my father was not well so I had to sell some shares to pay for his medical treatment – and the market was so low that I made a loss. So even my long term investments (Sir 3 years is long term no? My CA tells me that for equity shares long term is one year). Then I have again started investing in 2011. I bought some FMCG stocks which did very well, then I bought Pfizer which also did well and I sold off. I bought some Infra stocks – which have not done too badly, but not done too well either.

MY VIEW:

This person THINKS he can time the market, but of course he has not been able to. If you have been investing in 2001, 02, 03 – when everybody abandoned the market, it is an indication that you have been able to ‘time’ the market. I am using it in the context that YOU did not panic when others were panicking. In 2008 he HAD TO SELL HIS SHARES to pay for a medical emergency – sounds so so so stupid. For medical emergencies you should have medical insurance, AND an emergency fund.

This man withdrew from his equity shares because he was too lazy to withdraw from his LIC policies, or PPF. He did buy some pharma and some FMCG stocks – but he also bought some Infra stocks. Now intuitively it looks like infra will do well – but picking the best infra stocks (at reasonable prices) is very difficult, and one sees professionals struggle doing that.

If he had done a SIP in a multi cap fund from 2001 till today – increasing the amount slowly – annually, he would have a much stronger portfolio.

Timing the market sounds good – just like Santa Claus – both are part of folklore fiction.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Food prices have been under control and it’s possible a part of that is attributable to the FCI selling off stocks from its buffers.

While we still remain at 2x buffer needs (we are at nearly 600 lakh tonnes, when we only need 300), the attempt remains to sell off excess stock as seen from the graph above.

Excess Stocks (what’s above the buffer requirement) has been on a down trend and you can see it’s now the lowest in nearly three years:

It looks like the FCI has been told to rid itself of excess stocks of all kinds: wheat, rice and unmilled paddy:

This is really good news. Having excess buffer stock is of no real use. However, there will be a large purchase season coming up for rice (November) and hopefully we won’t go back to buying stuff in excess and storing it needlessly. We will have to buy of course, because of our silly policy of guaranteeing farmers a price regardless of how much quantity is produced, but we should at the same time dump the stocks in the open market to keep prices low.… (Read On...)

I have a nephew in college / high school and he had to say a few things about money:

1. I carry money to school, but never lend it to my friends: I am not sure whether I will get it back from them or not, so I do not lend it…..NINJA anyone?

His father is a banker. I told this kid we adults lend to people like Dr. Vijay Mallaya, Adag, Gmr, Gvk, etc. and have huge ‘Will never come back loans’ and these are euphemistically called NPA. I have no clue why they are called assets.

2. I buy things only at a sale: He has bought a second hand camera lens (Oh my God!), a bicycle and many small utilities from flea shops / websites. No credit card, he pays cash on delivery.

I told him adults buy shares only when prices are increased – they sell when prices fall. I showed him how individuals pour money in a rising market, but withdraw when it goes down. The mutual fund inflows flummoxed him, and he said ‘why does everybody not just do a SIP and forget what is happening in the market.

He wondered whether to learn finance from me. Adults as a specie was worrying him.

3. I do not stake my lunch money: He buys food at the school canteen. He does not risk that – keeps it in the school bag (not in his pocket). I told him adults put their next month’s EMI money in the share market…and wonder what to do if the FnO deal goes wrong.

4. He has invested in 2 funds (chosen by him with help from the net). Another colleague’s son came to me for investing – I asked him to do research. He vanished. Of course my friend is very rich and perhaps can afford it. My views are different though. I asked him how he chose the equity fund. He said very simple Large cap fund with the HIGHEST AUM – his explanation was many of the companies which he had heard about was present there! Also if so many people had invested it had to be good (come on kid was in 9th standard when he started this SIP). I do not know whether this is a good logic, but in the past 3 years he has been in Hdfc top 200 – not a poor performer! Yes he has no debt assets – ‘coz he has not reached the chapter on ‘asset allocation’ !

5. He has kept it simple – his dad is his fall back option! His portfolio has done well in the past few months – the kid has not panicked, not withdrawn, not stopped his 1k per month sip!

He hopes to be a crorepati before his age of 30 years. God bless.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

I was on Quora some days back when I came across an answer by Yuvraj Wadhwani on a thread called “How should a 22-year-old in India invest his/her money?” . It was such a beautiful answer and loaded with awesome advice to someone young to start their financial journey in life. I instantly contacted Yuvraj, if he would like to guest post his answer on Jagoinvestor and He replied back...

The post The shortest guide for a 22 yr old to start investing his money ? appeared first on Jagoinvestor - Personal Finance Blog.

Seth Klarman, a living legend in the Investment world, said in one of his newsletters, early this year:

Someday, financial markets will again decline. Someday, rising stock and bond markets will no longer be government policy – maybe not today or tomorrow, but someday. Someday, QE will end and money won’t be free. Someday, corporate failure will be permitted. Someday, the economy will turn down again, and someday, somewhere, somehow, investors will lose money and once again come to favor capital preservation over speculation. Someday, interest rates will be higher, bond prices lower, and the prospective return from owning fixed-income instruments will again be roughly commensurate with the risk.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

A few days ago the calculator king Mr. Pattabhiraman (of www.freefincal.com fame) did a post that Nifty could reach 10,000 in 12 months time, but it may not sustain.

I have no views of the market indices. In fact my broker and me keep looking at the market eps and market pe just to see the trend.

Fundamentally speaking I do not like the construction and the Nifty, so my benchmarks are NEVER these 2 indices – for example when I see my wife’s portfolio over a pretty long period it has beaten the index. My mother’s portfolio and my wife’s portfolio are in the growth mode – there is no withdrawal at all. So the better index to compare would be some kind of a multi cap TRI and not really the sensex / nifty.

What is the big problem with the Indian indices. They are both Market cap free float indices – as is what many indices in the world are. However when the market cap of the big psus are considered their MARKET CAP on full share capital is considered even though only a very small fraction of the company is really liquid. That is bias number ONE. It distorts.

When one owner controls such a huge chunk, the chances of insider trading / price manipulation are high.

So the big companies like Coal India, Ongc, OMCs, Ntpc, Nhpc, dominate the market. Reliance too is an energy player. WE have domination of the energy space in the indices.

Now comes the tough part. Energy is like any other commodity. It has its cycles – high for a short time and lows for long time. The companies have to make a LOT OF MONEY during the price peaks (profiteering is a dirty word for the commies who run our bureaucracy) so that they can handle the downside when prices are low. Our great government will NOT ALLOW THIS…when prices come down these companies will be told that they have to price as per market, but when prices go up, THEY WILL HAVE TO SURRENDER the gains to the consumer. Look at the E-auction of Coal India.

So an index which is manipulated so badly cannot really be a great benchmark. And I do not see the Sensex EPS going up too much – thanks to the commodity (energy) domination. You will all be able to beat the index  – for me that has never been the aim.

Every portfolio should be a combination of wealth creation, have enough liquidity, MEET INVESTMENT GOALS, and outlive the investor.

Beyond that, if it beats the market, it is just catering to the ego of the manager. Ignore the kick.

Remember, 10,000 is just a number, EPS is manipulated (legitimately by the government, illegitimately by the people running the companies), and PE ratio is a ‘feeling’. Ignore the 10k. Just invest.

 

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

The Chinese president came, saw but could not conquer. Much of the bonhomie that PM Modi exuded in Ahmedabad seemed to evaporate once the hard reality of the standoff on the borders began to sink in- and for the PM the timing must have been particularly galling.

Xi Jinping was, no doubt, hoping that he would get India to open up to Chinese investment in a big way, providing China with a useful means of diversifying away from Japan and East Asia, without having to address the border issue. It didn't quite work out. There is talk of $20 bn of Chinese investment happening but there is reason to be sceptical.

One should not be surprised at the outcome. Negotiations can yield a fair outcome only if it happens between equals or between a powerful entity and a less powerful one who is seen as a partner. Neither condition is fulfilled in India's case. China and India remain rivals on the Asia stage so far as India is concerned. China sees the rivalry as settled in its favour given that the Chinese economy is today five times India's and China is far more powerful militarily.

The only meaningful resolution that is possible on the border issue is that India accepts China's claims on the western border (Aksai Chin) while China concedes India's claims in the east (Arunachal Pradesh). This was the deal that Chou-en-Lai offered Nehru but it was rejected by the latter. Today, China is perhaps even warier about Tibet and hence about the status of Arunachal Pradesh which borders it. (Mao had famously said that the issue in the 1962 war was not so much the border as Tibet- he thought India was upto mischief under American instigation).

So, the "talks" on the border are bound to drag on until the gap between India and China is narrowed. This means India's growth rate must overtake China's and it must stay that way for, say, five years. India's economy is bound to accelerate and China's is bound to slow down. The cross-over point is probably three to four years away, which would place it at 2017/18. Five years from then would be 2022/23. It is in the decade 2020-30 that we can expect a resolution of the border issue- provided things don't blow up in our face before that. Going by most projections, this is the decade in which India finally begins to come into its own. The rivalry between India and China will intensify in the coming years no matter that the economic relationship deepens.

The military issue for India is how to counter a vastly more powerful neighbour which has the advantage of geography in the North (since China is positioned at a higher level in Tibet)? The Economist has an interesting article on how India's strategic thinkers see the Andaman islands as a useful counter:

Hawks in Delhi who are suspicious of Chinese long-term aims say bluntly that India and its friends will acquire some sway over China only once the Andamans are treated as a “chokepoint”, a place to disrupt Chinese trade in the event of any future confrontation. Four-fifths of Chinese oil imports go through the strait. Chinese naval strategists warn of Indian designs to drop an “iron curtain” there.

Accordingly, there has been a steady build-up of naval and other capabilities centred on the islands:

An air base that opened two years ago in Campbell Bay, Great Nicobar, has taken Indian military aircraft 300km closer than before to the Malacca Strait. Other airstrips are reportedly being built or lengthened to handle big aircraft, including the Hercules transport plane. Airfields for helicopters will follow. The navy wants to deploy drones to track passing ships. New coastguard stations serve a similar purpose. Regular naval exercises with neighbours are interspersed with big international training manoeuvres hosted in the Andamans and named “Millan”. The most recent involved 17 navies in a disaster-relief exercise meant to mark a decade after the 2004 Asian tsunami.

This makes sense because among the three arms of the defence forces, the navy is the one arm in respect of which India comes close to Chinese capability especially in respect of capability to operate in the Indian Ocean.India's build-up in the Indian Ocean will be welcomed by Japan and others in East Asia. Go round the Malacca Straits and you enter the South China Sea. A book review in the Economist highlights the extent of Chinese assertiveness in the South China Sea: China is laying claim to a stretch of rock and coral 1500 kms away from China's coast and just 107 kms from Malaysia's:

The Chinese nine-dash line is claimed also by Taiwan, as the descendant of the “Republic of China” whose mapmakers produced it. It sweeps through the “exclusive economic zones” asserted under UNCLOS by Brunei, Indonesia, Malaysia, the Philippines and Vietnam. The Philippines is challenging its legal validity. But even if it wins, UNCLOS cannot adjudicate on sovereignty over islands, rocks or shoals. And China will ignore it anyway.

America's famed 'pivot' towards Asia is dictated by this display of Chinese assertiveness and the need to counter it. Japan and East Asia are not quite equal to the task. The US may be stretched in undertaking this exercise alone. That's where India and Indian naval strength come in. The US has an interest in bolstering India so that it can be a more useful partner to itself. PM Modi must see this more clearly after the Chinese president's visit. The strategic partnership between India and the US, started by Vajpayee and continued by Manmohan Singh, will be carried forward by Modi although the last years of the Obama regime may not see the proper fructification of it. 

From my readers:

What are your thoughts on Pimco’s new strategy for its flagship fund?

This concerns me because its one of the few “safe” funds in my company’s 401k plan.

I haven’t heard anyone critique this and thought you’d be the best that I know of.

It seems to me that its a disproportional risk. And that due to its size could potentially cause problems.

 http://blogs.barrons.com/focusonfunds/2014/09/17/deriving-returns-at-pimco-total-return/

This is not a new problem with Pimco.  You can review these two articles here:

• PIMCO in Theory and Practice
• On a Concentrated Bond Market

Pimco has always used a lot of derivatives, though for marketing reasons some of their funds have fewer derivatives, even as Pimco tries to follow the same strategies.  You can view this three ways:

• It hasn’t had horrible effects in the past, so why worry now?
• We haven’t had the market event that would test the limits of this strategy yet, but can it really get that bad?
• Now that the bond market is more crowded, Pimco’s quantitative bond strategies have less punch.  They don’t have the same room to maneuver.  Like the London Whale, have they become the market?

I lean toward the last of these views.  When you manage so much money, it becomes difficult to wrench alpha out of the market because mispricings are limited, and it is difficult to keep your trades from moving the market.

You might want to split your “safe monies” in your 401(k) plan if you have other credible investments.  That said, the likelihood of a large disaster harming Pimco is small — but you could try to cover that risk by setting a relative stop loss where you would exit Pimco versus a similar maturity fund run by Vanguard.

Another letter:

I’m a fledgling portfolio manager and blog reader.  Would you care to comment on the bounce we’ve seen in Treasury rates this month? (28 bp on the 10-year month to date).  I just don’t get it.  I see global growth continuing to underwhelm, more monetary opiates out of Asia, persistent dovishness from the Fed and the arrival (?) of the Godot that has been ECB stimulus.  These circumstances plus ongoing geopolitical issues make me wonder why Treasury yields have not gone further down or at least held the line.  I know it might be mean reversion or a supply/demand phenomenon but do not feel qualified to say and would enjoy reading your perspective.

Separately, are you aware of any Readers’ Digest Condensed summaries of monetary policy in Europe since 2007?  My career is not so old and each time I read about their approach to sorcery I encounter yet another acronym of which I am ignorant.

Best and thank you!

Back when I was a corporate bond manager, and things were moving against me, I would do a few things:

• Seek out contrary opinion, and see if there was something I was missing.
• Go out to lunch for Chinese food, dragging my trading notebook, and a sheaf of research with me, and schmooze over the data while there was no Bloomberg terminal in front of me.

Now, my own current views are conflicted, because I view the global economy like you do.  There is no great growth anywhere.  Geopolitical events should lead to a Treasury rally, and sanctions should weaken growth prospects.  I’m still long a moderate amount of the iShares 20+ Year Treasury Bond (TLT), for myself and clients — it is difficult to see too much of a bear market with monetary velocity so weak.

That said, my recent 2-part series on the shape of the yield curve suggested that the curve shape was the sort where we often get negative surprises.  Despite the Fed’s confident mutterings that amount to little more than “Trust us!” the Fed has never been in a situation like this one and does not have the vaguest idea as to what it is doing.  They are proceeding largely off of untested theories that so far haven’t done much good or bad, aside from allowing the US Government to finance its deficits cheaply, thus cheating savers who deserve a better return on their money.

This is my thought: the slightest hint of tightening coming sooner moves the forward yield curve up, particularly in the 3-5 year region of the curve, but extending to 2- and 10-year notes as well.  But the questions remain how well growth holds up, how sensitive will the economy be to higher interest rates, and whether banks start genuinely lending against their expanded liabilities.

Personally, I expect rates to go lower after further growth disappointments, but I could be wrong, very wrong, so don’t be too bold here — scale into positions as you see opportunity.

Full disclosure: long TLT

 

Investors (let me not confuse you with savers, here, I am not making a distinction) – come in many forms. Those who have no appetite for variability (wrongly termed as risk) think cash is the safest form of investing.

Is it? well there are 3 things which destroy it:

Inflation

taxation and

time.

Over long periods inflation can (and will) destroy money that is kept in cash. Assuming cash means savings bank – you will get about 4% return on your money and on that you will end up paying 30% income tax. Ouch, it hurts. In an economy with inflation impacting you by about 12% p.a. this means your MONEY is de-growing at 10%. Give or take one or 2 years, your money will be destroyed in about 12 years time ASSUMING you do not withdraw at all.

What if the portfolio has say 70% bonds? Well bonds too will try to combat HEADLINE inflation – or the Wholesale prices. So at least say 70% of your portfolio will FIGHT (a losing) battle with inflation, so the run to zero will take a little longer – say 20 years time. Your portfolio will run to zero for sure.

What about a portfolio with about 30% in good quality equities (a.k.a Index). This portfolio should do well over a long period of time. Typically a pension plan or a child plan (having a 20-30 year view) has this combination. The equity portion makes sure that inflation is combated well and the equity provides for the growth. The assumption of course is that the 70% in debt is in bond funds / good quality bonds so that it provides stability and there is no market risk of the bonds.

What about a portfolio which has about 70% in equities and about 30% in debt instruments? This is the portfolio of Hdfc Prudence fund – and the universally classic asset allocation fund. 70% in high quality equity and 30% in good quality bonds. Why is this work being done by one fund? Simply because when the fund manager does the re-balancing instead of the client doing the re-balancing the portfolio by he himself.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.