Showing posts with label Investing. Show all posts

Yeah it is an attempt at understanding how important is Understanding Culture in picking up Stocks? Sounds bizzare, doesn't it? I bet we wont feel so, if we were to look at this at a deeper level.

Consider this, Coca Cola, Gillete some of the gems in the crown of Warren Buffet. These are not only good companies but also companies which are a part of American Culture. Put in Simple words, to Americans water and soft drinks are almost similar.Shaving everyday again is a part of their culture. Sounds silly isnt it? Well believe me, it is not so easy and understanding this seemingly easy but rather difficult facet of Investing is in my opinion a key to the monumental success of Warren Buffet. Once you have got this in place, you start zeroing in on the companies which operate in that sector and then all your valuation principles come into play.


Now, this process will help you in picking companies which can give you consistent returns over a long period of time regardless of the economic conditions, thus forming the foundation of your portfolio.

OK now to Indian Context, what are the companies I can think of which form a part of Indian Culture? Too hard as the country is extremely culturally diverse. However if this Organization is made into an Institution, I will be the first person to go ahead and get a stake for myself.

This Organization employs about 14,000 people, runs Universities, manages thousands of acres of assets and rakes in around 100 million US dollars and above all manages the activities of the most temple, which is the most visited in the world. In case if you have still not got it, it is none other than TTD(http://en.wikipedia.org/wiki/Tirumala_Tirupati_Devasthanams).

If at all anything the recent crisis have made more people to turn to this place with the hope that God(if there is one?) will bail them out of the crisis. Hope TTD is listening :)

Well on a serious note, lets start our homework and hope to hit on something which can form the bedrock of our portfolios. It could be anything from a Beer Company( the changing demographics might make it a reality) to a Hospital ( the amount of Junk Food and Unhealthy life style) to a Fast Food Joint or of all a company which supplies clean drinking water ( don't be surprised if that happens :) )

"Down and Out" said my friend on the phone. I got really worried and asked him "Why, whats wrong?". He said he was very sad over the stock markets and was wondering how many years would it now take for him to recover his capital?

I said to myself when i had my Pita Bread with Falafel and Vegetables. Yummy it was. Just as delicious as the Pita Bread and Falafels is the opportunity that we are now being presented with.

Billions and Billions of dollars of Investor Wealth wiped out and there seems to be more pain in the offing. Markets have corrected (?) from a high of 21k to 10k levels and going by the intensity of the downward move, i think it can be safely assumed that we have not yet seen the Bottom.

Global Financial Crisis, has taken India along with it and in fact it had done more damage to Indian markets than it has done to the US markets. Warren Buffet once said ,If one did not have the capacity to see his stock beaten down into half without losing his composure, one must avoid the Stock Markets.

Speaking of Buffet's wealth itself has gone down by $10 Billion USD thanks to the recent crash/ correction. But he seems unperturbed, in fact he has gone on record saying that this is the time to "BUY", and he has actually bought into Goldman Sachs.


So what should we do here in India? Follow the God Of Investing? Well, predicting the bottom is not an easy task, but i would stick my neck out and say that the market has more downside left and we can consider buying after that.

What if u have not sold out of the market when the market hit a high of 21k? Well, as it stands nothin much can be done since u cannot sell out now. But maybe its time for u to analyze why u held on to them in the first place without selling them. Did u join the rally at the last stages? Did u feel tempted and hence held on to the stocks hoping for more upside? Or Did you fool urself by saying to urself that u were a long term Investor and held on to the stocks, while the reality was that you were greedy and held on to them for more profits.

Whatever mite be the reason, treat this as a lesson handed out. The lesson? " Dump your greed and your Stocks when the valuation overtakes the growth rate". Financial Markets have never been a place for the Weak hearted and it is only during times such as these that the truth is felt.

Stop feeling bad, get the learning and Happy Investing.

History has repeated itself and as usual, this time too it the items on the takeaway menu remains the same. So will take it at least this time around? Time alone can answer that. So whats the takeaway?

Oops i forgot to mention the subject, its the recent crisis in the Financial Markets.

Investing is all about controlling the two demons "Greed" n "Fear" and unfortunately the "Expert Investment Bankers" never controlled the former and forgot about the latter, In the quest for hefty pay packets, Investor care was forgotten and the market became a place where the "Bigger Fool Theory" was played out. And when it ended the Investors became the biggest fools.

The Investors(?) too need to be blamed (not to that extent though) for not really understanding the underlying business and getting allured by higher Returns that were promised by these "EXPERTS".

The Investing public clearly needs to understand an important point "There is no such thing called as Short Term Safe n High Return. Returns and Risks are Directly Proportional and the more the return the greater the risk. And coming to time frame Risks are far greater if one takes a short term view as Emotions play an important role in the short term"

Now moving on to the other aspect called Leveraging: It is a tight rope walk. Not only the firms but the Investing Public were also guilty of Over Leveraging.Now Leveraging during a Bull Market looks to be a fantastic strategy, but as soon as the market turns bad the Excessively Leveraged will be the worst hit. So Make sure when Leveraging that you are adequately covered with cash to handle any crash.

Now all the aforementioned lessons are not something new. They are as old as the Rocks. Every crash has thrown up the same lessons, but yet we tend to forget them which reminds me of Bernard Shah's saying "If history repeats itself, and the unexpected always happens, how incapable must Man be of learning from experience."

Surprise, Surprise!!! The Country which symbolized "Free Markets" and embraced "Capitalism" as a way of life is now doing the unthinkable. Yeah, they are going the socialist way...

The woes brought about the problem of excess liquidity and greed has now forced the American Govt to take over many of the Financial Major companies. For record, they now own around 80% of AIG, have bought in all the problematic assets of Bear n Stearns, and they own the biggest mortgage firms of America Freddie n Fannie, and they have recently pumped in 247 Billion USD to bail these firms out the liquidity crunch.

Yeah u r reading it right, Add to this the fact thy ey have fixed floor prices for the stocks of Financial companies, prohbited Traders from shorting the stocks of some 699 financial companies!!! this country is now truly turning socialist.



The solution to the problems caused by the issue of Excess Liquidity seems to be Inject more liquidity into the system. US govt has spoken of a 700 Billion Dollar rescue plan and one strongly feels that even this wont be of any help unless the Fund Managers are not going to be monitored and questioned for taking decisions without evaluating the risks or taking decisions for personal gains fully knowing the risks involved.

So where does US go from here? By the looks of it,it seems that we have not seen the end of this problem, for the problem seems to be so deep rooted. US needs to save, go through a period of real consolidation where u are not going to have great results reported by companies, less sales and stuff but there seems to be no other permanent way out. Start Saving Uncle Sam.

P.S:The only silver lining for US in this whole episode is the fact that there is still no country which can substitute the US as the Consumption Giant, now that means all the other countries are trying desperately to keep the US afloat so that their own interests are protected. Constituting 40% of the Global GDP the US is still the Engine of the World Economy, notwithstanding the fact that its Debts are humongous to say the least.

It was all Roses, not long ago, 22k,25k all seemed possible. Most of the experts spoke about India's great economic development, India as a superpower. Decoupling theory, was the latest fad. Everyone spoke about Decoupling effect and how India was insulated from the rest of the world particularly the US. Reasons were given to the people to Justify the BULL RUN which the market was then.

Cut to present and the markets have corrected by more than 35% and now most of the experts are attributing it to Rising Crude, Weakness in Global Makets, US economic slowdonwn. Dunno how suddenly India has got Coupled again. Rupee is hitting lows after lows and suddenly everything looks bleak and experts are warning us for Tough times and a bear market.

Well, Anyone who has been following these experts on a daily basis will now mostly be in a mentally unstable condition. Politicians pale in comparison when it comes to speaking in different voices. General Public must be very confused.

So what is actually the reality and what can be expected?

Here is my analysis( Oops ppl must have got fed up of this word) or take on this whole thing.

To Begin with, Yes India is indeed decoupled to a great extent from the rest of the world and it is not like a China or a Taiwan or for that matter even a Japan all of which are export dependent, India has got a huge middle class consumer population which is 30 million strong. Add to this the fact that Rural population has not yet developed, if they are provided with a platform to grow into even Middle Class,India would have a Colossally big Domestic Market.

It is also true that India is growing and growing at quite a pace.

However India's Stock Markets are not decoupled from the rest of the World. For that markets Indian Stock Markets is Decoupled from Indians. Yes, thats the truth with around 70% of India' s household savings lying in Banks in the Form of Fixed Deposits and Savings and only around 5% in the Stock Markets, our own market is actually decoupled from us.

Add to this the fact that Pension funds are also not allowed to Invest in Equity markets, we have a scenario, where our economy to a great extent is dependent on Ourselves, but our markets are not. FIIs hold the remote for our market and the market dances as per their tune.

FIIs had loads and loads of money ( thanks to Fed ) to play with (thnks to P-Notes, which allowed and encouraged them) and they took the markets to dizzying heights in a jiffy, Cometh Sub Prime crisis, cometh Liquidity crunch and they are now selling left, right and centre to shore up their balance sheets, which are in a state of Hemorrhage.

Reuters report puts the current losses at 400 Billion Dollars US and this is just half of he problem, add all the Personal Loan defaults and other consumer loan defaults that we can expect it to be in touching distance of a Trillion Dollars!!!!

Now our analysts are saying abt Crude, Inflation and other stuff, If i remember correctly when Sensex was at 21k Crude was more than 100 even then and RBI was warning of potential Inflation, Yet no one cared.

Now they have started again, Most of the Analysts are painting an all gloom report again.

Hmm, the way i see it, India is all set to grow, Favorable Demographics, Educated and skilled workforce and a huge Consumer Base, means that we have all the Ingredients ready. But this growth of 8+% on a consistent basis is not going to possible unless we sort out a few things(on which is going to be my next article). Till these things are sorted out, India will grow Despite the System and not because of the System, but one thing Growth is for sure and with the Economy growing can the Markets be far behind??

However as Bufet said " Markets are like Voting machine in the short term and Weighing machine in the long term", So have a long term perspective (2+ years advisable) and set ur goals( i have already written on this) and Happy Investing :)

My knowledge on Futures Trading is minsicule.Constructive criticism and alternate view points are most welcome.

Reams and Reams of Paper have been used up to paint a story of Oil Guzzling India and China as the main reasons behind the increase in the price of oil. If u have the habit of watching news channels then again ur opinion would not be any different. How True a Statement is it though?

Futures Market:

Introduction:

For benefit or readers who dunno what a Futures market is( guess most of them will be knowing about it). It is a place where an agreement is made between the parties to buy at a particular price on a Future date. To give an Illustration( am not happy with my definition), let say that u have 10 litres of oil with u, i need 10 litres for the next month, now i would want to secure my supplies for the next month and i am afraid that it might go up.So i enter into an agreement with u by which i agree to buy the oil at a price of say Rs 10 per litre( when the current market price is say Rs 8.50 paise per litre). Now if Oil shoots beyond Rs 10 i save my money and if it does not and goes down i lose my money.

Now what if i feel if the price of oil will go down to say Rs 6, i go ahead and make a sell agreement and sell Oil for say Rs 8 and if it comes to Rs 6 i go ahead and buy it back. Now my profit in this case will be Rs 2 per litre.

Time Bound Contracts:

All these contracts are time bound say 1 month, 2 months and these contracts can be extended, called as Roll Over in Futures market parlance. This extension cannot be beyond a particular time frame ( which i guess is 6 months or 1 year max).

Payment Terms:

There is no need to pay the entire amount when u enter into the contract. U need to pay only a percentage say 5 or 10% of the total contract. At the end of the contract if u want to buy the oil physically u can go ahead and pay the balance amount or if u want to make the transaction completely notional u go ahead and sell the contract and take the difference or pay the difference depending on whether u made profit or loss

Why Futures Market?

This market was originally evloved as a means to hedge ur portfolio against losses in the primary markets. Since these Futures are based on the primary markets they are also called as Derivatives.

Why about Futures Market here?

Futures which was originally conceived as something of a Hedge Tool, slowly became a Income generating option thanks to the brains in the Wall Street who managed to get as many commodities as possible under the gamut of Commodity trading.

Now the point to be noted is that none of the big Wall Street banks nor the Big shots who trade actively in Futures market actually take delivery of the stocks. They stick themselves to the notional buying and selling. Which means if there are more of such speculators who believe that Demand is going to go up and they pump money into the market, the price of Oil actually rises without even a single barrel beng bought or sold Physically(!!!)

What is Happening Now?

US through its mind blowing policies gave these speculators a great chance to have a field day, Everytime a bomb exploded in Bagdad or Saudi the price of Oil Shot up. Rather we can say that these speculators drove it up. India and China stories were used as camaflogues. When the prices went up the Oil Producing Nations thought of holding back supplies to increase profits,which gave the speculators reason to push the price again. More the prices went up the more these Oil Countries reduced to increase the supply, the more they did that the more the prices were pushed.

This vicious circle has resulted in Oil Trading at 145 Dollars per barrel (at the time of writing).

What needs to be done?

So what needs to be done? can we go ahead and ban the futures trading in Oil? Just because people are misusing it, it does not mean the system is bad. We need to fix the excesses of speculators.

The sad thing however is that it does not seem possible since the parties involved in this are Too Big for any rule to be applicable to them. So it seems like that the prices will continue to move up and we are in for some tough times.

P.S: It is not that these traders came into the scene all of a sudden, they have been there for years but it is just that they found the conditions conducive for them to ply their trade around, thanks to...Is there any need to mention the name???

A title which may drive away even the very few people who visit my blog, but I am not going to speak about the importance of Goal Setting like a Corporate Trainer. I am going to discuss about the importance of Goal Setting in the world of Investment.


People might ask, Why Investment? Certain happenings over the past month, month and a half have made me write this piece.

"Can i buy now or will the market go down further? Can i sell Infosys and switch over to Tata Steel now? Is the Realty Sector party over? Can i get into Pharma now? Can i sell my holdings and get into Short Term Bank Deposits? These are some of the questions that my friends ask me.

The only advice that I offer to them, Dear Friends Have a Goal?

Will having a goal alone suffice? No , The goal needs to be realistic. Look at Returns which can be made consistently on a year on year basis.

Understand that Risk and Returns are Directly proportional.

Have a Time Frame. Unless you have that you will never be able to apply the concept of Opportunity cost. Also the lack of a time frame will make u panic and make u take decisions which are mostly bound to be wrong rather than right.

Ex: Recently one of my good friend asked me, " Can i sell Infy and buy IDFC?

I said boss u first tell me whats the time frame u r looking at, if u are looking at a period of a week, then there is every chance that ur decision might backfire, If its a month then again there is a probability of u going wrong. So whats the time frame u r looking at?

I hope this example highlights the importance of having a time frame.

Once u have all this in place develop a feeling of contentedness. For unless that is in place U are not going to be at peace which will hamper ur growth.


I know it is easier said than Done for i have been struggling to implement all these things for years now without any g8 success. But life is all about Trying.

So Try, Try and Try Until You Succeed.