Investing is most intelligent when it is most businesslike - Benjamin Graham (1894-1976)
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Updated! Compilation on
Warren Buffett,
Rakesh Jhunjhunwala
& Charlie Munger
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A closer look at the sectors and companies that have strong prospects and are likely to fall less when markets decline.
Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised. - Warren Buffett
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Source: Business Standard
Labels: Market Overview, Market Strategy
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Please find Mr. Jhunjhunwala’s latest portfolio as on 31st December, 2006 here.
Labels: Rakesh Jhunjhunwala
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Pained by its recent fall, the Sensex may be wondering as in "Who moved My Cheese?" (Author: Dr.Spencer Johnson) unable to deal with the changes in its workplace! Suddenly, Sensex is not getting enough of P/E. Instead of PE expansion, which it was used to in 2006, it is now seeing PE contraction Sensex is not getting enough of P/E.
It is your EPS growth, dear Sensex! Your P/E is a slave of EPS growth expectations. Early 2006, the street started with an estimate of around 15% EPS growth for FY07, which was later raised to 20% by March 06 by some, which was further upgraded to as much as 25% by Dec. 06 and finally 28% by Feb 07.
In contrast, the street has started with an estimate of only 16%-20% EPS growth for FY08, which has since been downgraded to about 15% after the Budget. Now, even this 15% is at risk if:
Note that even after the 16% correction from the Feb 8 peak of 14652, your PEG (FY07PE upon FY08 EPS growth) is still stretched at 1.2. Your yield gap is still negative, dear Sensex, at 1.42% as your earnings yield 6.52% (841/12430) is lower than the 10 year bond yield of about 8%.
Yield-gaps do not lie, my dear Sensex, Valuation Guru, Aswath Damodaran vouches for that. The cheese has moved, dear Sensex. I am sorry to say this, but whatever cheese (PE) you have is also at risk of moving away. If your earnings growth slows down. That will be a double-whammy hit, because you will be hurt by twin impact of lower EPS and lower PE. Just as you benefited from the double-whammy impact of higher EPS growth and higher PE last year.
Pleasure follows pain. Pain follows pleasure. That's Nature's law, dear Sensex.
Source: Internet
The rally in the Sensex after last May’s meltdown conceals the fact that lots of stocks have been big losers and retail investors have lost a lot of money
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By Marc Faber
The feature most common to previous investment booms was that a bull market in one asset class was accompanied by a bear market in another important asset class. Precious metals soared in the 1970s, but bonds collapsed. Equities and bonds rose in the 1980s, but commodities tumbled.
In the 1990s, we had rolling bubbles in the emerging markets, but Japanese and Taiwanese equities were in bear markets while commodities continued to perform poorly. Finally, the last phase of the global high-tech mania (1995-2000) was accompanied by a collapse of the Asian stock markets and Russia, as well as a continuation of the Japanese and commodities bear markets. By the late 1990s, most emerging markets (certainly in Asia) were far lower than they had been between 1990 and 1994. In the 1990s, emerging markets grossly underperformed the US stock market
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Labels: Bear, Marc Faber
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It is being said that one factor behind the latest share price decline is funds raised in low interest yen and invested in global equities being sold off due to the BoJ rate hike and Chinese share price declines. This is the unwinding of so-called yen carry trades. During the global share price decline of spring 2006, it was said that the US housing bubble would burst and US personal consumption would slump badly. During the global share price decline of spring 2004, it was said that the China bubble would burst, or that US personal consumption would slump badly due to higher gasoline prices. Yen carry trades are exactly the same as these, in our view. In some ways, yen carry trades resemble daiko henjo (the uniquely Japanese corporate pension system), which became a reason to sell Japanese equities in spring 2003. There was also a great deal of interest generated at the time, mainly among foreign investors.
Yen carry balances range from ¥10trn to ¥20trn, according to our economics and market analysis team. To begin with, yen carry balances are impossible to calculate accurately. However, the market cap of global equity markets was approximately ¥6,000trn at end-2006. Therefore, if we look at this calmly, we can see that yen carry trades are virtually meaningless for global equity markets, regardless of whether the figure is ¥10trn or ¥20trn. Concerns about yen carry trades are likely to prove groundless, just like concerns about the bursting of the US housing bubble or China bubble. When groundless concerns appeared in the past and share prices fell, it almost always provided an excellent opportunity to buy.
If the biggest concern right now is unwinding of yen carry trades, this is providing an excellent buying opportunity
Labels: Heard on the street
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It seemed like just another day in November. But Vipul Shah (name changed) couldn’t believe his eyes. Staring at his trading terminal in his Fort office, Shah, a 45-year old BSE broker, simply couldn’t fathom why the State Bank of India counter was a flurry of action.
The stock was flat early on in the day, but had started firming up by noon and was up by 2% over its previous close-a decent enough move for a stock which figures among the key components in the benchmark indices. “Has there been some announcement, just check,?” he asked his chief dealer sitting a few paces away. But even a few telephone calls later, there weren’t any clues. No other frontline stock seemed to react. Yet the SBI stock had climbed another 2% percentage points over the next half an hour.
By the time it was up 5%, a spate of rumors explaining the rise and rise of the SBI scrip had gripped the market. The favorite one: the SBI Act was being amended to enhance the overall foreign investment ceiling in the stock. A few miles away, in the confines of a swanky dealing room of a foreign broking house at Nariman, a group of anxious dealers were nervously punching away at their dealing terminals. “How much more to go?” the chief dealer calmly asked of his boys. “Just 25,000 shares more boss,” was the answer.
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Investment guru Marc Faber, also known as 'Dr Doom,' enjoys extreme events in the markets like manias, panics and crashes.
A contrarian at heart, his monthly commentary on investment opportunities and market psychology across global markets in The Gloom Boom & Doom Report is widely read.
The Hong Kong-based investor is the author of books such as Tomorrow's Gold: Asia's Age of Discovery, which highlights future investment opportunities around the world. Marc Faber shares his view on the Indian equity market.
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By Manas Chakravarty - Business World
by Raj Nambisan – DNA Money
All liquidity starts in Japan, the world’s largest creditor country. When rates go up here, rates go up everywhere. — Jesper Koll, chief economist for Japan, Merrill Lynch
These nineteen words form the microcosm of the current global stock market mayhem. Jesper Koll was referring to the universal bogey called the yen carry trade. It’s a business where “trillions” of dollars are involved. “Trillions”, because nobody on earth has any idea how big a Frankenstein has been spawned by this vast and prolonged leverage.
Which brings us to the question, what are yen carry trades?
Since March 2001, Japanese interest rates have ruled at 0%. Leveraging the yen thus offered gains of about 300 basis points (“3%” in layman terms) on a platter to anybody wanting to earn.
Just borrow in yen, convert the money into dollars, buy US treasuries that yield about 4.5%, pocket the difference -- after deducting expenses including about 100 basis points in hedging cost.
A caveat is due here: to earn from US treasury bills, the yen/$ rate has to remain steady. But investing in high-yielding emerging market equities like India is far more lucrative.
Why have yen carry trades unraveled now?
The answer lies in the unexpected surge in growth in Asia’s largest - and the world’s second-largest — economy to 4.8%% in the fourth quarter of 2006. This figure may be raised to 5.1%, Koll told Bloomberg, because corporate investments surged 16.8%, the fastest increase since 2002, data released on Monday show. This growth forces the Bank of Japan to increase rates.
Look at it another way: for years, Bank of Japan has bankrolled the yen-carry trade across the globe and you know what Koll means.
The alarms started going off in the leveraged world when Japan first raised its interest rates to 0.25% on July 14, 2006. This was further raised by 25 basis points on February 21, 2007. The problem is, returns on carry trades move inversely to the appreciation in yen.
So, as a carry-trader, if you have borrowed in yen, you have two worries: you need to pay more by way of interest (when you borrowed, it was at 0% interest, now you have to cough up 0.5%), and your principal has suddenly bloated too (you borrowed in yen, converted the money into dollars and invested. With the dollar weakening against the yen, to pay back the principal, you need more dollars to get as many yens now).
On a mark to market basis, thus, a borrower ends up being worse off every minute he holds on to the trade. There are two exit routes available now - close out positions, take the loss, or hedge using swaps.
Another related development is that one-month deposit rates in Japan has risen 13 basis points to a six-year high of 74 basis points, according to Bloomberg data. Singapore-based Callum Henderson, head of currency strategy at Standard Chartered Bank, told Bloomberg this means Japanese money is definitely going home. “The spike in short-term Japanese rates will exacerbate the rally in the yen,” he said. The appreciation, thus, can feed on itself as the economy surges ahead.
Which brings us to the most important point, what would India’s exposure to yen carry trades?
It may be more than what analysts estimate, as the form of carry-trade varies. In October 2005, BusinessWeek estimated that more than half the money coming into Indian stocks from abroad is of Japanese origin.
An RBI spokesperson could not provide DNA Money disaggregated data on yen inflows on Monday. There is no data with Bank of Japan or the Bank of International Settlements on global yen carry trades, either.
Data in public domain show Deutsche Asset Management has raised nearly a billion dollars from Japan, for investment in India, beginning from December 2004, while Fidelity Investments has a $1.4 billion fund. In all, about half-a-dozen such mega funds exist in Japan.
Merrill Lynch Investment Managers and JP Morgan Fleming Asset Management have also raised monies.
The sums, thus, are difficult to quantify, but the form itself may give the extent to which India is exposed to the yen.
Some of the forms are:
This plus many other forms that we do not know of are leading to yen strength translating into weakness in Indian asset classes.
Has the world seen a yen carry trade unwinding earlier? Only once, in October 1998, which led to the spectacular collapse of Long Term Capital Management in the US. The Federal Reserve had to bail out US banks and brokerages then.
Courtesy: DNA Money
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One of the savviest observers of trends across different asset classes in the global markets, Marc Faber is an interviewer's delight. In June 1990, after serving as Managing Director of Drexel Burnham Lambert (HK), he set up his own business, Marc Faber Ltd, which acts as an investment advisor and fund manager. Dr Faber publishes a widely read monthly investment newsletter The Gloom Boom & Doom Report report, which highlights unusual investment opportunities. He is also the author of several books including the highly acclaimed Tomorrow's Gold — Asia's Age of Discovery, first published in 2002. This book highlighted the future investment opportunities around the world. Apart from being a prolific contributor to financial publications, he is also a regular speaker at various investment seminars across the globe, articulating his `contrarian' investment approach. In the past, he has been a scathing critic of the monetary policy of the US.
"In the next few months, we could get a severe correction in all asset markets. In a selling panic you should buy, but in the buying mania that we have now the wisest course of action is to liquidate. I am not a great buyer of assets now. We may be in a situation where consumer-price inflation comes back and will have a negative impact on the valuation of assets."
"First of all, I think it is unfortunate that in the last 10-20 years, the world has kind of moved to the American soul. That is if you ease monetary conditions, if you print money, you can solve all the problems of the world. If that was mainly true, Latin America would have become the richest continent on earth simply because they have been masters at printing money and at creating at the result of that hyperinflation. By printing money, you don't generate economic growth. Temporarily, you can generate continuation of spending patterns."
"In the American school, the downturn is postponed through monetary measure. In other words, the capacity that never gets cut back, because if you ease massively, you don't create an environment of the survival of the fittest, but you create an environment of the survival of the weakest. Even the weak market participants, continue to produce, especially if they go into Chapter 11, because then they don't have to pay any debt payments, and therefore, they can undercut the other. That is why the American school, in my opinion, in the current situation, has policies that will then lead to a prolonged recession at the later stage."
"As an investor, you need to buy a post office scale. When all the reports on a stock or sector are light, it means 'buy'. Conversely, when the weekly reports you receive on an industry add to several kilos then 'sell'! So, after all, brokerage research does have a very useful function but not through its content but weight."
Labels: Bear, Marc Faber
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China was only an excuse. The real issue is a rise in risk aversion and lower global liquidity
It all started with rumors swirling around at the Shanghai stock exchange. The Chinese market has been red hot, rewarding investors with returns of 130 per cent in 2006 and hitting new highs this year. Since the beginning of the year, however, fund managers started questioning whether the high valuations of Chinese companies were sustainable. The nervousness increased in early February, when a vice-chairman of the China National People’s Congress said that people should be wary of investing at current prices. Foreign investors in China and Greater China equity funds lost no time in cashing out, pulling out $627 million in the first week of February.
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China isn't the only country with an overheating economy and enormous domestic problems. Here's another I'd steer clear of for now -- despite its many attractions.
By Jim Jubak
Who's next?
It's only logical to wonder after the 9% plunge in China's Shanghai stock market led to a global sell-off on Feb. 27. That ended with the Dow Jones Industrial Average down 416 points on the day.
There are the usual suspects, of course:
But I've got another candidate: India.
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Editors' Note: Or has India's market already cracked from 14.5k to 12.8k?
