Unreliable anecdote about George Soros

Unreliable anecdote about George Soros

And lessons for you and me!

Happened to come across (either on TV or on the net) an anecdote about George Soros. Am not sure about the veracity. However, it is interesting enough to produce the gist over here.

Standard operating disclaimer - This anecdote may or may not have happened. Am merely reproducing something interesting that I heard ... ... ...

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Some time ago, George Soros was interacting with the Finance Minister of an Asian "Tiger" economy, about the true worth of their currency. The FM disagreed with George's perception of what the currency was worth. The FM further said, "We'll defend our currency till the last dollar of our Forex Reserves!"

George asked the FM: "OK, Sir, how comfortable is your Forex reserves position as on date?"

The FM replied that it was quite comfortable and was in the region of "xx billion dollars".

George Soros thanked the FM, came out of his meeting, rang up his assistants back at his office and barked: "Go short on so-and-so currency to the tune of XX BILLION DOLLARS, right away!"

The rest, as they say, was history.

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While the anecdote may or may not have taken place, there is a crucial lesson for investors like you and me - Take a look at this quote from physics:

• "Give me a lever long enough, a fulcrum strong enough and I'll move the world" -Archimedes

People with deep pockets, like hedge funds, RBI, Federal Bank, large FIIs, Giants-sized Insurance companies, etc. can move the prices of an individual stock up or down almost to any extent through their own actions.

Small investors have a choice between:

• Getting caught on the wrong side of the trade (this can be through panic selling, panic buying or falling to the temptation of playing in the Futures & Options market)
• Making such volatility your friend. This can be by selling at unreasonably high prices (which are bound to be temporary) or buying at equally unreasonably low prices (which are also transient, though often last a bit longer)

Take care, and your wealth is bound to grow. 

Regards,

N

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And You Thought that Greece won't go Kaput!

And You Thought that Greece won't go Kaput!

I must give credit where it is due. I keep getting ideas on which articles to read from among the millions that keep cropping up on the web from the following sources:

• My favourite newspapers - Economic Times, Hindu, etc.
• My favourite blogs - Like Subramoney, Generational Dynamics, Parag Parikh, etc.
• My favourite web-sites like moneycontrol, ICICI Direct, Outlook Money, India Today, etc.
• My friends' emails
• My blog readers' emails

Sometimes, I give credit specifically, while at other times I don't - Not because I don't wish to, but because I genuinely forgot the original source.

Here's an excellent article that I was referred to by Subramoney Blog:

• Beware of Greeks Bearing Bonds!

It is indeed a long article, but even if you glance through it, you'll start wondering about when Greece will go bankrupt.

If you don't have the time or inclination to go through the whole of it, here are a few lines:

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In just the past decade the wage bill of the Greek public sector has doubled, in real terms—and that number doesn't take into account the bribes collected by public officials. The average government job pays almost three times the average private-sector job. The national railroad has annual revenues of 100 million euros against an annual wage bill of 400 million, plus 300 million euros in other expenses. The average state railroad employee earns 65,000 euros a year. Twenty years ago a successful businessman turned minister of finance named Stefanos Manos pointed out that it would be cheaper to put all Greece's rail passengers into taxicabs: it's still true. "We have a railroad company which is bankrupt beyond comprehension," Manos put it to me. "And yet there isn't a single private company in Greece with that kind of average pay."

The Greek public-school system is the site of breathtaking inefficiency: one of the lowest-ranked systems in Europe, it nonetheless employs four times as many teachers per pupil as the highest-ranked, Finland's. Greeks who send their children to public schools simply assume that they will need to hire private tutors to make sure they actually learn something. There are three government-owned defense companies: together they have billions of euros in debts, and mounting losses. The retirement age for Greek jobs classified as "arduous" is as early as 55 for men and 50 for women. As this is also the moment when the state begins to shovel out generous pensions, more than 600 Greek professions somehow managed to get themselves classified as arduous: hairdressers, radio announcers, waiters, musicians, and on and on and on. The Greek public health-care system spends far more on supplies than the European average—and it is not uncommon, several Greeks tell me, to see nurses and doctors leaving the job with their arms filled with paper towels and diapers and whatever else they can plunder from the supply closets.

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My own worries are:

• If Greece is going bankrupt, what is the REAL position of other countries?
• How do we know that there will be no contagion effect?
• If a simple Lehman can cause such global harm, imagine the impact of an entire nation (even a "small" one like Greece) going bankrupt!
• What will happen if some of our Communist friends go on a tour to Greece - The ideas that they will get on subsidies, social welfare expenses, pension commitments, etc. will go a long way to jeopardise the India Growth Story!

Guess that we must all have a very strong Plan B in place for the wellbeing of our portfolios. Here's a few suggestions:

• Increase your allocation to fixed income products as a percentage of your overall asset allocation - Give a preference to relatively safe stuff like those "quasi-guaranteed" by the Government (like fixed deposits with public sector banks).
• Stay away from Futures & Options, unless your portfolio is worth a few hundred crores (in which case you can affort to lose a couple of crores here and there)
• If possible, stay away from short-term investment in shares (for any period less than 6 months) - Unless of course, you happen to realise that your shares have gone up significantly within that period - in which case SELL and keep your profits with you. Not as paper profits which may evaporate if the share prices crash again.
• Have a core portfolio of blue chip shares and highly rated equity mutual funds which you're willing to hold for a decade and beyond, even if in the intervening period they plummet and crash like a house of cards and stay at low levels for a couple of years. The very real India Growth Story will take care that your investments reap a rich harvest by that time
• Have a "Satellite Portfolio" of shares which you use for medium-term (6 months to 3 years). This should be your "Trading portfolio". For this part of your portfolio, you must be nimble-footed, and keep booking profits regularly. More important, keep very strict stop losses to ensure that your capital does not get wiped out.
• Have a significant amount in cash and cash equivalents. This would come in handy to buy shares at ridiculously low levels as and when a sudden, violent and deep crash comes along due to local or global factors.

Stay safe with your hard-earned money!

Regards,

N

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Dhaka recovers, and how!

Dhaka recovers, and how!

Take a look at this short video clip:

• Reaction to the sharp recovery of 15% in a couple of hours - The Dhaka Scenario!

The scary thing is that a vast majority of all those millions of individual investors are:

• Borrowing money from the banks to "invest"
• Buy / Sell based on "Tips"
• Believe that the Government of Bangla Desh should and would actually go around ensuring "Good returns" in the stock market.

We all know only too well that money has never been made in the stock market by investors with such behaviour patterns. The sooner they realise, the better it is for them!

Regards,

N

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Violence in Dhaka due to Stock Market Crash

Violence in Dhaka due to Stock Market Crash

Interesting, indeed, though a bit ridiculous!

• Dhaka Stock Market crash results in violence in the streets!

Wonder when investors will realise that share prices can go up or down.

• Both due to fundamentals / technicals
• and due to speculative activities / scamsters.

You've got to be prepared for all that if you're interested in market returns.

After all, Dhaka market went up by around 80% in 2010, before crashing by 15-20% in the current crash.

Hence, an investor had invested $ 1000/= in late 2009, it would have become around $ 1800/= in 2010, before reducing to around $ 1500/= now. All numbers are, of course, approximations.

If the markets have been going up and down due to valid economic reasons - whether fundamental or technical, there is nothing much to complain and there ought to be no justification for such violence.

If, however, the markets have been manipulated, we must think of a few simple questions before coming to conclusions about any imagined justification for the violence:

• If you're worried about manipulations, who forced you to invest your hard-earned money in the supposedly manipulated stock markets?
• If indeed the markets are manipulated, they must have been manipulated on the way up and on the way down. If you were happy to keep quiet earlier, there's no reason to crib about it now!
• Even if markets have been manipulated, you've still generated far better returns than any fixed deposit in any bank - by miles. You have no reason to weep over the supposed opportunity loss.
• If you are a speculator trying to make a quick buck, obviously, you're "one of those speculators" and should be willing to lose money as much as you're happy when you're making super-normal profits
• If you're a long-term investor, you ought not to worry - What has gone down today will go up tomorrow. You should only be bothered about the kind of rates that prevail when you're eventually planning to sell your shares. In any case, a disciplined asset-allocation approach would have ensured that you would have booked at least partial profits when the markets went up by 80%. If you feel that the shares have fallen to unrealistically low levels, you can use that money now to buy back more of the same shares that you sold.

Moral of the story:

Any violence supposedly due to the stock market crash in Dhaka is certainly not due to the crash. It is only due to some other reasons, which I'm presently unaware of.

• Perhaps some kind of local politics.
• Or a desire to have a holiday.
• Or a desire to motivate the powers-that-be to intervene in the markets so as to get the bull run going.
• Or a wish to aggrevate the crash further so as to buy the very same shares at even lower prices!

Regards,

N

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Policy of "Variable Pay" For Denial of Insurance Claims

Policy of "Variable Pay" For Denial of Insurance Claims

For a change, I've got a query and am not expressing my thoughts and views in this post:

Do our Insurance companies (especially Life & Health Insurance providers) have a policy to reward their claim-processing employees, agents, etc. with any kind of variable pay, incentive, commission, etc. based on the number of / percentage of / value of claims that are actually denied / rejected / refused.

In other words, is there an incentive for the people processing insurance claims to actually refrain from settling those claims using some excuse or the other?

If anyone knows the answer to the above query, I'll be delighted to know.

Better still, if someone has already compiled a list of insurance-company-wise data on the above query, that would be of immense value both to me and to the regular readers of this blog.

Thanks in advance!

Regards,

N

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