Saturday 27 August 2011

Collapse of the Dollar - A Mathematical Certainty???

Collapse of the Dollar - A Mathematical Certainty???

Take a look at this video:

The video presents a very interesting "Black Swan" moment.

After 2008, After Lehman Brothers, it is difficult to totally ignore the above video as something that's "Impossible".

Obviously, if something of that sort materialises in reality, the share markets will go into a tailspin. A true and total disaster. Globally. And, when the US catches a cold, all of us get a fever.

How do we prepare for it? Really speaking, we can't be fully prepared.

Some quick suggestions:

  • Review your Asset Allocation.
  • Ensure that at least a certain portion of your total assets are allocated to real assets rather than paper assets. Some potential ideas could include
    • Precious metals like Gold, Silver, Platinum, etc.
    • Agri-Commodities or companies that invest in Agri-commodities
    • Companies that derive a strong percentage of their revenues from domestic markets (Especially those who have taken large dollar loans, as when the dollar goes for a toss, repayment will become child's play)
    • Real estate in high growth economies like India, China, Brazil, etc. Certainly not in US, West Europe, etc.
  • Pray

As the video clip says,

  • While it is possible to ignore reality, it is impossible to ignore or escape the consequences of ignoring reality.

Take care!

Regards,

N


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Thursday 25 August 2011

High-risk Low Return Opportunities

High-risk Low Return Opportunities

All of you must have heard a lot about fly-by-night "blade companies" which promise extremely high returns and disappear after your friends invested their hard-earned money.

Some of you must have a first-hand experience with one or more of such companies from the past.

Typically, such companies offer returns which are too good to be true.

Often, indeed they are too good to be true! Simply because they are false!

To be more precise, when such companies offer "assured" returns significantly in excess of the kind of returns offered by bank deposits, you know that you should run from them at the first available point.

Taking this on a global plane, I'd invite you to take a look at the following yield curve that I got from the net:


If a finance company offers a return of anything over 14-15% per annum, I'll have grave doubts about whether I'll get my principal back!

When the yield of a sovereign nation scales levels of 30% and above per annum (as the above figure shows), essentially it indicates the high probability of soverign default.

When a company defaults, people who had invested their money in it and a few stakeholders like employees, suppliers, etc. suffer to a certain extent.

When a bank defaults, (like Lehman Brothers did in 2008) a lot more people suffer, because of the impact of "linkages". This is what so-called experts call a "systemic risk".

When an entire nation defaults, believe me, all hell is likely to break loose.

And the danger of highly indebted nations like Greece actually defaulting is increasing every day.

If something like that happens, all bets are off as to how the world markets would be impacted.

That's one of the reasons why traditional "safe" assets like Gold & Silver are going up so much these days.

Take care of your portfolio.

Regards,

N
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Tuesday 23 August 2011

Timing the Market - Quotable quote from Templeton

Timing the Market

John Templeton says: "I do not know anybody who knows anybody who has been able to time the market EVERY TIME!"

Regards,

N


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Friday 12 August 2011

Why Investing in Equity makes a lot of sense - Prashant Jain

Why Investing in Equity makes a lot of sense - Prashant Jain

Here's an absolutely delightfully written article on why Equity investments makes sense:

I especially liked the following lines:

  • And finally for the pessimist, if you don't believe that markets will perform over a reasonable time and if indeed that turns out to be true, then, it is even better for your long term wealth provided you are a saver. This is so because, the longer the markets stay low, the more is the money that can be invested in equities and therefore higher will be the wealth whenever the markets finally move. This is important, since nearly everyone in India is a saver!

Hope you find the time to read the whole article. This one is a gem. Don't miss it.

Regards,

N


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Sunday 7 August 2011

S & P Cuts US Credit Rating

S & P Cuts US Credit Rating

On July 19, 2011, I'd posted in these columns a short note:

In that post, I'd clearly mentioned, "Wonder when (not whether) the other major credit rating agencies are going to actually downgrade the AAA rating for USA???"

Apparently, I didn't have to wait for long. On Friday night (on August 5, 2011), after market hours in US, S & P dropped the bombshell. The USA is no more a triple-A economy.

As I'd mentioned in my earlier post, all bets are now off.

Optimistic Scenario:

  • If strong reformist measures are quickly announced by both US & Europe AND
  • If actual implementation of such measures quickly - very quickly AND
  • If strong financial empires led by folks who put big-time money behind their prediction that the world economy would go into a double-dip recession leading to an outright depression, Then & only Then
  • Things may stabilise and there can be a semblence of calm in the markets. In which case, we may end up with a sideways market with a gradual shift in financial power to the markets which are still somewhat stable and showing growth. Which could possibly be a positive for India. Obviously, all this would take time. In months, certainly not weeks.

Pessimistic Scenario:

  • If any of the elements of the Optimistic Scenario mentioned above does not play out, the result would naturally be utter chaos.

In addition, we can have chaos if one or more of the following events occur:

  • Crude Oil and / or Food Grain prices go crazy
  • Any of the "minor conflicts" erupts into a full-fledged war (which can be a diversionary tactic adopted by some crazy politicians somewhere in this globe) - Potential areas where such conflicts can erupt: Southern Europe (from among the PIIGS countries), West Asia (due to Oil), Indo-Pak border (due to Kashmir), the China Factor (conflicts due to border skirmishes with India or the problems in the South China Sea or border issues with Japan), the Korean problems, etc.
  • Many of the funds around the world which are "Compelled by their mandates" to invest exclusively in AAA rated securities may dump the US bonds and treasuries.

Virtually any of the above can result in all the above negative scenarios falling in place and occuring forthwith.

All I can say is:

  • The situation is fluid and complex at the same time
  • Any action by any of the players can have completely unintended consequences
  • More "negative unintended consequences" are likely than positive ones
  • There will certainly be violent swings in markets all over the world.

Take care and keep lots of your cash ready for some amazing buying opportunities in the months ahead.

Regards,

N


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Saturday 6 August 2011

More lies in dismal times

More lies in dismal times

On July 30, 2011, less than 10 days back, I had written this post:

At that time, I never realised that I'll get an amazing (or awful, depending on your perspective) example from the US Official Statistics so soon to prove my point about the reliability (or rather the lack of it) of official statistics. Especially during these dismal times.

The latest Jobs report for July from the Department of Labour claimed that the unemployment fell to 9.1% and that the economy ADDED 117000 jobs in July.

Strictly speaking, the above report is indeed factually accurate.

However, like any good mini-skirt, it hides the vital parts quite amazingly. The real truth appears just beneath the surface. When you go into the details. When you look at the fine print.

For further details, take a look at this write up from CNBC:

As always, whenever the source of your data / information is from the Official Babus from any corner of the world, take it with a nice pinch of salt!

Regards,

N


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Long-term Investing - Reality & Myth

Long-term Investing - Problems with the advice given by Financial Advisors
An occasional post in what, hopefully, would be a multi-part series on this subject

As the adage goes, never ask a barber whether you need a haircut. You know what reply you'll get. Even if you're bald!

In a similar vein, many financial advisors ranging from Share Brokers, Insurance Agents selling ULIPs, Mutual Fund distributors, etc. keep eulogising the benefits of Long-term Investing.

Considering their skill levels (At selling, not in the world of Personal Finance), they are quite pursuasive.

And use half-truths extensively. Occasionally, non-truths as well.

Some examples:

  • "Timing the market does not make you money. Time IN the market makes you money." - This is at best partially true. When your financial advisors quote this, ask them about returns generated by investing in
    • Nikkei ETFs of Japan over the past couple of decades
    • DOW Jones index between 2001 and 2011 - A full decade, no less.
    • SENSEX from 1992 to 2002 - A full decade, no less.
  • "If you miss out on the 'Top 10 / 50 / 100 days of market return, your overall returns will plummet by xxx percentage points" - They never tell you about how your returns would have increased by missing out on the 'Bottom 10 / 50 / 100 days of market return!
  • Untold truths about Equity Mutual Funds - Returns of Mutual Fund Distributors (not Your returns) depend on how long you hold your investments - Ask them about trail commissions. And ask yourself about why they ought to be getting any trail commission in the first place??? Imagine your reaction if your real estate broker whom you used to buy your house expects you to receive a certain percentage of the ever-increasing value of the house by way of brokerage as long as you continue to own that house!!! (This ought to be the subject for a separate post altogether. Do remind me to come up with one!)
  • Untold truth about your share broker - When you buy, you have to sell. As long as he keeps pressurising you to buy, he knows that his brokerage income from the eventual sale of such shares is virtually assured. Can't think of too many occasions when I (or any of my friends, relatives, colleagues, classmates, their uncles or their neighbours) bought any shares from one broker, but used a different broker to sell the same shares.

When people talk about the impossibility of "Market timing", they are indeed stating an obvious fact. However, does it mean that one just buys a share or a mutual fund and forgets about it? While there's a lot of clarity about "Buying", the same degree of clarity is, unfortunately, missing when it comes to "Selling".

I'm not against long-term investing. Far from it. In fact, I'm a guy who firmly believes in long-term investing. After all, other than real estate (where the ticket size is so huge that it is not a meaningful investing option for a vast majority of ordinary retail investors), equities are the only option to generate returns that beat inflation. Hence, obviously, when one invests in equities directly or through mutual funds, it is indeed essential to have a long-term time horizon in mind.

However, it is equally important to remember the actual objective - "To make money", and not to  "Stay Invested"!

One needs to keep in mind the above while going through the process of investing.

How does it translate into actual action while investing?

Watch this space for more inputs on the same.

Regards,

N


Long-term Investing - Reality & MythSocialTwist Tell-a-Friend

Friday 5 August 2011

Gyrating Markets - And what to do

Gyrating Markets - And what to do

Hi friends!

On January 23, 2011, I'd posted this entry on these very pages:

On January 24, Nifty closed at around 5740, Sensex closed at around 19,150.

On February 11, 2011, Nifty was around 5250 and Sensex around 17460. This was hardly a couple of weeks later.

And I had posted another entry on February 11, 2011:

Even though I was recommending "Buying", I clearly mentioned in the above post that the reasons mentioned in my January 23 post still remain quite valid. Just the fact that the prices have come down for those very reasons prompted me to recommend buying. And use the volatility to your advantage.

As luck would have it, the indices indeed moved right back up - all the way to around 5900 on the Nifty in April, later to 5350 in May, 5700 in June and 5200 in August 2011.

Each upward move and each downward move amounted to nothing less than 10% on an average - For the indices.

Along with that, the individual share prices zoomed up and crashed down like crazy. Often, the individual moves even among index heavyweights were much more than 10%.

Perhaps, the hard-core traders, professional technical analysts and perfect liars would be in a position to claim having moved in and out of stocks by timing the market perfectly.

The traditional "Long-term" investors who are supposed to "Buy & Hold" would have gone nowhere.

What are "relaxed investors" like you and me supposed to do in such wild times when the market does a perfect yo-yo???

Here are a few simple suggestions:

  • Identify the "Asset Allocation" for investing in equity shares
  • Identify a subset of the above as a "self-imposed limit" for active trading in shares (Nothing intra-day about it. Strictly delivery-based trading)
  • Identify a few individual stocks - Not more than a maximum of 7-10 companies
  • Identify "desired" buy levels and "desired" sell levels 
  • Whenever your preferred stock reaches your "desired" buy levels, buy that share right away, without bothering about whether it will go down further or not. After all, you want to accumulate that stock and you're willing to pay the current price.
  • Likewise, when your preferred stock reaches your "desired" sell levels, sell that share right away (to the extent of your original purchase value), without bothering about whether it will go up further or not. This would result in "Free Shares" being accumulated in your demat account. (For more details on accumulating "Free Shares", refer to my earlier post on the subject (Don't you like to have free shares? Read on to find out how you can accumulate the same!)
Execute the ideas given above, and relax in these crazy times.

Regards,

N


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Tuesday 2 August 2011

Green Initiative or "Cutting Corners" Initiative?

Green Initiative or "Cutting Corners" Initiative?

Many of you who happen to be shareholders of various companies would have received emails such as the one given below:

Sub: Service/dispatch of documents through email by 'XYZ Limited' - Request to register/update E-Mail addresses  Reg.

The Ministry of Corporate Affairs (MCA) vide it's Circular Nos.17/2011 and 18/2011 dated 21.04.2011and 29.04.2011 respectively, informed that, it has taken a 'Green Initiative in the Corporate Governance' by allowing paperless compliances by the Companies after considering Sections 2, 4, 5 and 81 of the Information Technology Act, 2000 for legal validity of compliances under the Companies Act, 1956 through electronic mode.

'Certificate of Posting' is one of the accepted mode of service for service of documents as per Section 53 of the Companies Act, 1956 and the Department of Posts has recently discontinued postal facility through the 'Certificate of Posting' vide their Circular dated 23.02.2011.

The MCA has clarified that, a Company would have complied with Section 53 of the Companies Act, 1956, if the service of document has been made through electronic mode, provided the Company has obtained e-mail addresses of it's members for sending the notices/documents through e-mail by giving an advance opportunity to every shareholders to register their e-mail address and changes therein from time to time with the Company. It is also clarified that, in cases where any member has not registered his e-mail address with the Company, the service of document etc., will be effected by the other modes of service as provided under Section 53 of the Companies Act, 1956.

As per the above circulars the Company may serve/dispatch the notice/documents (i.e Balance Sheet, Profit & Loss a/c, Directors' Report, Auditors' Report and Notice calling for the general meetings, etc.,) to the shareholders of the Company by way of electronic mode. Hence, we hereby request all the shareholders to register/update their e-mail addresses as per the detials given below to receive notices/documents through electronic mode and update their e-mail addresses from time to time. 

They claim that this is supposed to be a "Green Initiative" so as to save paper, avoid cutting trees, etc., "All in alignment with SEBI Approved Norms"

However, I find a few objectionable aspects to this whole "Green Initiative":

  • Why are they making "Email Copies" the default option? Whenever any change is proposed to be introduced, the "Status quo ante" ought to be the default option. Any proposed option to change should be sought to be implemented by obtaining a specific approval from the shareholder. I'm not aware of a SINGLE COMPANY that has made the "Physical Copy" the default option!

  • Is the real purpose to "Go Green" or to save some money? If the genuine purpose is to "Go Green", is there a single company which has transferred the money so saved to any of the following "reserves"?:
    • "Future Dividend Payment Reserve" which will be kept in a distinct fund which will not be used by the company for routine business operations
    • "Investor Education Reserve" - so that the funds will be used for investor education purposes
    • "Contribution to charities approved by shareholders Reserve" - which will be identified and approved by the shareholders at the AGM.

Wonder if any listed company will care to respond???

Regards,

N


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