tag:blogger.com,1999:blog-165740382024-03-13T04:52:13.304+05:30Value-Stock-PlusInformed Investing!toughieehttp://www.blogger.com/profile/02759275828341278190noreply@blogger.comBlogger889125tag:blogger.com,1999:blog-16574038.post-5141254581262078992008-06-20T19:30:00.005+05:302008-06-23T20:48:20.062+05:30Site Moved!<div style="text-align: center;"><span style="color: rgb(0, 0, 0);font-size:100%;" class="203444911-16092006" ><span style="color: rgb(255, 0, 0);font-family:times new roman;" ><span style="color: rgb(255, 0, 0);font-size:130%;" ><u> <strong>Please Note:</strong></u></span></span></span>
<span style="color: rgb(0, 0, 0);font-size:100%;" class="203444911-16092006" ><span style="color: rgb(255, 0, 0);font-family:times new roman;" ><span style="color: rgb(255, 0, 0);font-size:130%;" ><u><strong></strong></u><p><u><strong> </strong></u><strong style="font-weight: 400;">The new home for this blog is at</strong></p></span></span></span>
<span style="color: rgb(0, 0, 0);font-size:100%;" class="203444911-16092006" ><span style="color: rgb(255, 0, 0);font-family:times new roman;" ><span style="color: rgb(255, 0, 0);font-size:130%;" ><p><strong style="font-weight: 400;"></strong></p><p><strong style="font-weight: 400;"> <a href="http://www.valuestockplus.net/"> </a></strong></p><p><strong style="font-weight: 400;"><a href="http://www.valuestockplus.net/"> http://www.valuestockplus.net/</a></strong></p><p><strong style="font-weight: 400;"></strong></p></span></span></span>
<span style="color: rgb(0, 0, 0);font-size:100%;" class="203444911-16092006" ><span style="color: rgb(255, 0, 0);font-family:times new roman;" ><span style="color: rgb(255, 0, 0);font-size:130%;" ><p><strong style="font-weight: 400;"> This page will </strong><strong>NOT</strong></p></span><strong style="font-weight: 400;"><span style="color: rgb(255, 0, 0);font-size:130%;" > be updated. Please visit the above mentioned site.</span></strong></span></span>
<span style="color: rgb(0, 0, 0);font-size:100%;" class="203444911-16092006" ><span style="color: rgb(255, 0, 0);font-family:times new roman;" ><strong style="font-weight: 400;"><span style="color: rgb(255, 0, 0);font-size:130%;" ><p> -- Toughiee</p></span></strong></span></span>
<span style="color: rgb(0, 0, 0);font-size:100%;" class="203444911-16092006" ><span style="color: rgb(255, 0, 0);font-family:times new roman;" ><strong style="font-weight: 400;"><span style="color: rgb(255, 0, 0);font-size:130%;" ><p> Founder & Editor,</p></span></strong></span></span>
<span style="color: rgb(0, 0, 0);font-size:100%;" class="203444911-16092006" ><span style="color: rgb(255, 0, 0);font-family:times new roman;" ><strong style="font-weight: 400;"><span style="color: rgb(255, 0, 0);font-size:130%;" ><p> Value-Stock-Plus blog</p></span></strong></span></span>
<span style="color: rgb(0, 0, 0);font-size:100%;" class="203444911-16092006" ><span style="color: rgb(255, 0, 0);font-family:times new roman;" ><strong style="font-weight: 400;"><span style="color: rgb(255, 0, 0);font-size:130%;" ><p><a href="http://www.valuestockplus.net/"> www.valuestockplus.net</a></p></span></strong></span></span>
<span style="color: rgb(0, 0, 0);font-size:100%;" class="203444911-16092006" ><span style="color: rgb(255, 0, 0);font-family:times new roman;" ><strong style="font-weight: 400;"><span style="color: rgb(255, 0, 0);font-size:130%;" ><p>June 20, 2008</p></span> </strong></span></span></div>toughieehttp://www.blogger.com/profile/02759275828341278190noreply@blogger.comtag:blogger.com,1999:blog-16574038.post-18247331671243110042008-06-04T18:35:00.001+05:302008-06-04T18:38:32.887+05:30The real reason why oil prices are rising<div dragover="true" style="text-align: justify; font-family: times new roman;">by M R Venkatesh - rediff.com
</p><p>
By now it is becoming too obvious that the United States is playing the oil game all over again. And this is the desperate gamble of a country whose economy is neck deep in trouble.
</p><p>
Given this scenario, managing prices of oil is central to the US economic architecture. Expectedly, this gamble has been played in a great alliance between the US government, US financial sector and the media.
</p><p>
I have earlier written about:
<ul><li>The impending collapse of the US dollar on account of the inherent weakness in the US economy caused by its structural weakness as reflected in the sub-prime crisis;</li><li>The repeated softening of the interest rates in the US that has the potency to kill the US dollar; and</li><li dragover="true">How the fall in the US dollar suits the US corporate sector, especially its omnipotent financial sector.
</li></ul>Naturally, since the past few years, the US financial sector has begun to turn its attention from currency and stock markets to commodity markets. According to The Economist, about $260 billion has been invested into the commodity market -- up nearly 20 times from what it was in 2003.
</p><p>
Coinciding with a weak dollar and this speculative interest of the US financial sector, prices of commodities have soared globally.
</p><p>
And most of these investments are bets placed by hedge and pension funds, always on the lookout for risky but high-yielding investments. What is indeed interesting to note here is that unlike margin requirements for stocks which are as high as 50 per cent in many markets, the margin requirements for commodities is a mere 5-7 per cent.
</p><p>
This implies that with an outlay of a mere $260 billion these speculators would be able to take positions of approximately $5 trillion -- yes, $5 trillion! -- in the futures markets. It is estimated that half of these are bets placed on oil.
Readers may note that oil is internationally traded in New York and London and denominated in US dollar only. Naturally, it has been opined by experts that since the advent of oil futures, oil prices are no longer controlled by OPEC (Organization of Petroleum Exporting Countries). Rather, it is now done by Wall Street.
</p><p>
This tectonic shift in the determination of international oil prices from the hands of producers to the hands of speculators is crucial to understanding the oil price rise.
</p><p>
Today's oil prices are believed to be determined by the four Anglo-American financial companies-turned-oil traders, viz., Goldman Sachs, Citigroup, J P Morgan Chase, and Morgan Stanley. It is only they who have any idea about who is entering into oil futures or derivative contracts. It is also they who are placing bets on oil prices and in the process ensuring that the prices of oil futures go up by the day.
</p><p>
But how does the increase in the price of this oil in the futures market determine the prices of oil in the spot markets? Crucially, does speculation in oil influence and determine the prices of oil in the spot markets?
</p><p>
Answering these questions as to whether speculation has supercharged the demand for oil The Economist, in its recent issue, states: 'But that is plain wrong. Such speculators do not own real oil. Every barrel they buy in the futures markets they sell back again before the contract ends. That may raise the price of 'paper barrels,' but not of the black stuff refiners turn into petrol. It is true that high futures prices could lead someone to hoard oil today in the hope of a higher price tomorrow. But inventories are not especially full just now and there are few signs of hoarding.'
</p><p>
On both counts -- that speculation in oil is not pushing up oil prices, as well as on the issue of the build-up of inventories -- the venerable Economist is wrong.
</p><p>
<span style="font-weight: bold;">The finding of US Senate Committee in 2006</span>
</p><p>
In June 2006, when the oil price in the futures markets was about $60 a barrel, a Senate Committee in the US probed the role of market speculation in oil and gas prices. The report points out that large purchase of crude oil futures contracts by speculators has, in effect, created additional demand for oil and in the process driven up the future prices of oil.
</p><p>
The report further stated that it was 'difficult to quantify the effect of speculation on prices,' but concluded that 'there is substantial evidence that the large amount of speculation in the current market has significantly increased prices.'
</p><p>
The report further estimated that speculative purchases of oil futures had added as much as $20-25 per barrel to the then prevailing price of $60 per barrel. In today's prices of approximately $130 per barrel, this means that approximately $100 per barrel could be attributed to speculation!
</p><p>
But the report found a serious loophole in the US regulation of oil derivatives trading, which according to experts could allow even a 'herd of elephants to walk to through it.' The report pointed out that US energy futures were traded on regulated exchanges within the US and subjected to extensive oversight by the Commodities Future Trading Commission (CFTC) -- the US regulator for commodity futures market.
</p><p>
In recent years, the report however pointed out to the tremendous growth in the trading of contracts which were traded on unregulated OTC (over-the-counter) electronic markets. Interestingly, the report pointed out that the trading of energy commodities by large firms on OTC electronic exchanges was exempted from CFTC oversight by a provision inserted at the behest of Enron into the Commodity Futures Modernization Act in 2000.
</p><p>
The report concludes that consequential impact on account of lack of market oversight has been 'substantial.'
</p><p>
NYMEX (New York Mercantile Exchange) traders are required to keep records of all trades and report large trades to the CFTC enabling it to gauge the extent of speculation in the markets and to detect, prevent, and prosecute price manipulation. In contrast, however, traders on unregulated OTC electronic exchanges are not required to keep records or file any information with the CFTC as these trades are exempt from its oversight.
</p><p>
Consequently, as there is no monitoring of such trading by the oversight body, the committee believes that it allows speculators to indulge in price manipulation.
</p><p>
Finally, the report concludes that to a certain extent, whether or not any level of speculation is 'excessive' lies entirely in the eye of the beholder. In the absence of data, however, it is impossible to begin the analysis or engage in an informed debate over whether our energy markets are functioning properly or are in the midst of a speculative bubble.
</p><p>
That was two years back. And much water has flown in the Mississippi since then.
</p><p>
<span style="font-weight: bold;">The link to the spot markets</span>
</p><p>
Now to answer the second leg of the question: how speculators are able to translate the future prices into spot prices.
</p><p>
The answer to this question is fairly simple. After all, oil price is highly inelastic -- i.e. even a substantial increase in price does not alter the consumption pattern. No wonder, a mere 3-4 per cent annual global growth has translated into more than a 40 per cent annual increase in prices for the past three or four years.
</p><p>
But there is more to it. One may note that the world supply and demand is evenly matched at about 85 million barrels every day. Only if supplies exceed demand by a substantial margin can any downward pressure on oil prices be created. In contrast, if someone with deep pockets picks up even a small quantity of oil, it dramatically alters the delicate global demand-supply gap, creating enormous upward pressure on prices.
</p><p>
What is interesting to note is that the US strategic oil reserves were at approximately 350 million barrels for a decade till 2006. However, for the past year and a half these reserves have doubled to more than 700 million barrels. Naturally, this build-up of strategic oil reserves by the US (of 350 million barrels) is adding enormous pressure on the oil demand and consequently its prices.
</p><p>
Do the oil speculators know of this reserves build-up by the US and are indulging in rampant speculation? Are they acting in tandem with the US government? Worse still, are they bordering on recklessness knowing fully well that if the oil prices fall the US government will be forced to a 'Bears Stearns' on them and bail them out? One is not sure.
</p><p>
But who foots bill at such high prices? At an average price of even $100 per barrel, the entire cost for the purchase of this additional 350 million barrels by the US works out to a mere $35 billion. Needless to emphasise, this can be funded by the US by allowing it currency printing presses to work overtime. After all, it has a currency that is acceptable globally and people worldwide are willing to exchange it for precious oil.
</p><p>
No wonder Goldman Sachs predicts that oil will touch $200 to a barrel shortly, knowing fully well that the US government will back its prediction.
</p><p>
And, in the past three years alone the world has paid an estimated additional $3 trillion for its oil purchases. Oil speculators (and not oil producers) are the biggest beneficiaries of this price increase.
</p><p>
In the process, the US has been able to keep the value of the US dollar afloat -- perhaps at an extra cost of a mere $35 billion to its exchequer!
</p><p>
The global crude oil price rise is complex, sinister and beyond innocent economic theories of demand and supply. It is speculation, geopolitics and much more. Obviously, there is a symbiotic link between the US, the US dollar and the oil prices. And unless this truth is understood and the link broken, oil prices cannot be controlled.
</div>toughieehttp://www.blogger.com/profile/02759275828341278190noreply@blogger.comtag:blogger.com,1999:blog-16574038.post-72700370942999559422008-06-01T19:07:00.002+05:302008-06-01T19:09:20.905+05:30New Blog!<h1 style="text-align: center;" class="title">
</h1><h1 style="text-align: center;" class="title"><span style="font-size:100%;"><a href="http://newswithoutfuse.blogspot.com/"> News Without A Fuse!</a></span></h1><div style="text-align: center;"><span>A blog which rips apart unwanted news from various websites. Be Smart! Avoid Crap!</span>
</div>toughieehttp://www.blogger.com/profile/02759275828341278190noreply@blogger.comtag:blogger.com,1999:blog-16574038.post-83291332994259087782008-05-31T15:14:00.003+05:302008-05-31T15:21:39.191+05:30How to think like J.P. Morgan?<div style="text-align: justify; font-family: times new roman;"> A young and pretty lady posted this on a popular forum:
<p></p><p>
<span style="font-weight: bold;">Title: What should I do to marry a rich guy?</span>
</p><p>
I'm going to be honest of what I 'm going to say here. I'm 25 this year. I'm very pretty, have style and good taste. I wish to marry a guy with RM500k annual salary or above. You might say that I'm greedy but an annual salary of RM1M is considered only as middle class in KL. My requirement is not high. Is there anyone in this forum who has an income of RM500k annual salary? Are you all married? I wanted to ask: what should I do to marry rich people like you? Among those I've dated, the richest has a RM250k annual income and it seems that this is my upper limit. If someone is going to move into a high cost residential area in Mont Kiara, RM250k annual income is not enough.
</p><p>
<span style="font-weight: bold;">I'm here humbly to ask a few questions:</span>
1) Where do most rich bachelors hang out?
2) Which age group should I target?
3) Why most wives of the riches is only average-looking? I’ve met a few girls who don’t have looks and are not interesting but they are able to marry rich guys.
4) How do you decide who can be your wife and who can only be your girlfriend?
</p><p>
<span style="font-weight: bold;">Ms. Pretty</span>
</p><p>
<span style="font-weight: bold;">Here's a reply from a fund manager:</span>
</p><p>
<span style="font-weight: bold;">Dear Ms. Pretty,</span>
</p><p>
I have read your post with great interest. Guess there are lots of girls out there who have similar questions like yours. Please allow me to analyze your situation as a professional investor. My annual income is more than RM500k, which meets your requirement, so I hope everyone believes that I’m not wasting time here.
</p><p>
From the standpoint of a business person, it is a bad decision to marry you. The answer is very simple, so let me explain. Put the details aside, what you're trying to do is an exchange of "beauty" and "money". Person A provides beauty and Person B pays for it, fair and square. However, there's a deadly problem here, your beauty will fade but my money will not be gone without any good reason. The fact is, my income might increase from year to year but you can’t be prettier year after year. Hence from the viewpoint of economics, I am an appreciative asset and you are a depreciative asset. It’s not just normal depreciation but exponential depreciation. If that is your only asset, your value will be very worrisome 10 years later.
</p><p>
By the terms we use in KLSE, all trading has a position. Dating you is also a “trading position“. If the trade value drops we will sell it as it is not a good idea to keep it for long term. The same goes with the marriage that you wanted. It might be cruel to say this but in order to make a wise decision any assets with great depreciative value will be sold or "leased". Anyone with over RM500k annual income is not a fool; we would only date you and will not marry you. I would advice that you forget about looking for clues to bag a rich guy.
</p><p>
Hope this reply helps. If you are interested in “leasing" services, do contact me.
</p><p>
<span style="font-size:100%;">signed,</span><span style="font-size:100%;"></span></p><p>
<span style="font-weight: bold;font-family:times new roman;font-size:100%;" > J.P. Morgan</span></p><p><span style="font-weight: bold;"></p><p>Source: The Internet</span>
</p></div><p style="font-family: times new roman;"></p><p style="font-family: times new roman;"></p>toughieehttp://www.blogger.com/profile/02759275828341278190noreply@blogger.comtag:blogger.com,1999:blog-16574038.post-51159397776526146352008-05-26T15:27:00.001+05:302008-05-26T15:29:59.356+05:30They're wrong about oil<div style="text-align: justify;">by George Soros<p></p><p>
Rip up your textbooks, the doubling of oil prices has little to do with China's appetite</p><p>
Anatole Kaletsky
</p><p>
Just as the credit crunch seemed to be passing, at least in the US, another and much more ominous financial crisis has broken out. The escalation of oil prices, which this week reached a previously unthinkable $130 a barrel (with predictions of $150 and $200 soon to come), threatens to do far more damage to the world economy than the credit crunch.
</p><p>
Instead of just causing a brief recession, the oil and commodity boom threatens a prolonged period of global “stagflation”, the lethal combination of high inflation and economic stagnation last seen in the world economy in the 1970s and early 1980s. This would be a disaster far more momentous than the repossession of a few million homes or collapse of a couple of banks.
</p><p>
Commodity inflation is far more lethal than a credit crunch for two reasons. It prevents central banks in advanced economies from cutting interest rates to keep their economies growing. Even worse, it encourages the governments of developing countries to turn their backs on global markets, resorting instead to price controls, trade restrictions and currency manipulations to protect their citizens from the rising costs of energy and food. For both these reasons, the boom in oil and commodity prices, if it lasts much longer, could reverse the globalisation process that has delivered 20 years of almost uninterrupted growth to America and Europe and rescued billions of people from extreme poverty in China, India, Brazil and many other countries.
</p><p>
That is the bad news. The good news is that the world is not as impotent as is often suggested in the face of this danger, since soaring commodity prices are not the ineluctable outcome of some fateful conjuncture of global economic forces, but rather the product of a typical financial boom-bust cycle, which could be deflated - especially with some help from sensible political action - as quickly as it built up.
</p><p>
The present commodity and oil boom shows all the classic symptoms of a financial bubble, such as Japan in the 1980s, technology stocks in the 1990s and, most recently, housing and mortgages in the US. But surely, you will say, this commodity boom is different? Surely it is driven by profound and lasting changes in global supply and demand: China's insatiable appetite for food and energy, geopolitical conflicts in the Middle East, the peaking of global oil reserves, droughts caused by global warming and so on. All these fundamental points are perfectly valid, but they tell us nothing about whether the oil price will soon jump to $200, stay at $130 or fall back to $60 next month.
</p><p>
To see that these “fundamentals” are all irrelevant, we have merely to ask which of them has changed in the past nine months. The answer is none. The oil markets didn't suddenly discover China's oil demand nine months ago so this cannot explain the doubling of prices since last August. In fact, China's “insatiable” demand growth has decelerated. In 2004 it was consuming an extra 0.9 million barrels a day; in 2007 it was consuming just an extra 0.3 mbd. In the same period global demand growth has slowed from 3.6 mbd to 0.7 mbd. As a result, the increase in global demand growth is now well below last year's increase of 0.8 mbd in non-Opec production, according to Mike Rothman, of ISI, a leading New York consulting group.
</p><p>
Why, then, are commodity prices still rising? The first point to note is that many no longer are. Rice, wheat and pork are 20 to 30 per cent cheaper than they were two months ago, when financial pundits identified Asian and African food riots as the first symptoms of a commodity “super-cycle” that would drive prices much higher. And the price of industrial commodities such as lead, zinc and nickel, supposedly in short supply a year ago, has now dropped by 40 to 60 per cent. In fact, most major commodity indices would already be in a downtrend were it not for the dominance of oil.
</p><p>
But oil is the commodity that really matters and surely the latest jump in prices proves that demand really does exceed supply? Not at all. In the late stages of financial bubbles, it is quite normal for prices to become completely detached from economic fundamentals. House prices in Florida and Spain kept rising even after property developers built far more homes than they could possibly sell. The same thing happened in credit markets: mortgage securities kept rising even while banks created “special purpose vehicles” to acquire vast “inventories” of bonds for which there were no genuine buyers - and dozens of similar examples can be cited from the bubbles in internet stocks and Japan. Similarly, the International Gold Council reported this week that gold demand for commercial uses and investment fell 17 per cent in January, just as the gold price surged through $1,000 for the first time.
Now consider the situation today in oil markets: the Gulf, according to Mr Rothman, is crammed with supertankers chartered by oil-producing governments to hold the inventories of oil they are pumping but cannot sell. That physical oil is in excess supply at today's prices does not mean that producers are somehow cheating by storing their oil in tankers or keeping it in the ground. All it suggests is that there are few buyers for physical oil cargoes at today's prices, but there are plenty of buyers for pieces of paper linked to the price of oil next month and next year. This situation is exactly analogous to the bubble in credit markets a year ago, where nobody wanted to buy sub-prime mortgage bonds, but there was plenty of demand for “financial derivatives” that allowed investors to bet on the future value of these bonds.
</p><p>
In short, the standard economic assumption that supply and demand drive prices is only a starting point for understanding financial markets. In boom-bust cycles, the textbook theory is not just slightly inaccurate but totally wrong. This is the main argument made by George Soros in his fascinating book on the credit crunch, The New Paradigm for Financial Markets, launched at an LSE lecture last night. In this book Mr Soros explains how financial bubbles always start with some genuine economic transformation - the invention of the internet, the deregulation of credit or the rise of China as a commodity consumer.
</p><p>
He could have added the Netherlands' emergence as a financial centre triggering Tulipmania or Britain's global dominance as a naval power before the South Sea Bubble of 1720. The trouble is that these initial perceptions of a new paradigm tell us nothing about how far financial prices will adjust in response - will Chinese demand drive oil prices to $50 or $100 or $1,000?
</p><p>
Instead they can create a self-fulfilling momentum of rising prices and an inbuilt bias in the way that investors interpret the world. The resulting misconceptions drive market prices to a “far from equilibrium position” that bears almost no relation to the balance of underlying supply and demand.
</p><p>
The people who tell you that commodity prices today are driven by “economic fundamentals” are the same ones who said that house prices in Britain were rising because of land shortages. The amazing thing is that just months after losing hundreds of billions in the housing and mortgage bubbles, investors and governments around the world have reverted to the discredited fallacy that financial markets always reflect economic reality, instead of the boom-bust cycles and misconceptions that George Soros's book vividly describes.
</p><p>
<span style="font-weight: bold;">Additional Reading:</span></p><ul><li><a href="http://seekingalpha.com/article/78264-commodities-prices-speculation-exposed">Commodities Prices: Speculation Exposed</a><span style="font-weight: bold;">
</span></li></ul></div>toughieehttp://www.blogger.com/profile/02759275828341278190noreply@blogger.comtag:blogger.com,1999:blog-16574038.post-28149119912995704292008-05-04T17:45:00.000+05:302008-05-04T17:46:44.944+05:30Investment Nuggets by Benjamin Graham<p style="text-align: justify; font-family: times new roman;"> </p><div style="text-align: justify; font-family: times new roman;"> </div><p style="text-align: justify; font-family: times new roman;"> <em style="">Benjamin Graham</em>, the stock market investor and economist, was the only investing legend who ignored the subjective aspects of equity analysis. </p><div style="text-align: justify; font-family: times new roman;"> </div><p style="text-align: justify; font-family: times new roman;">Graham was never interested in meeting managements and knowing what they were capable of doing or not doing. All he saw and studied were hard core numbers -the Balance Sheet. He wanted to buy cheap and under valued assets. Graham had also always stressed the diversification mantra. He professed that investors should buy companies when the current situation is unfavourable, the near-term prospects poor and the low price fully reflects the current pessimism.</p><div style="text-align: justify; font-family: times new roman;"> </div><p style="text-align: justify; font-family: times new roman;">Graham advised investors to keep their equity exposure within 75 per cent of their net assets. For the more adventurous investors, a 100 per cent exposure to equity could be considered in case the investor met the following guidelines:</p><div style="text-align: justify; font-family: times new roman;"> </div><p style="text-align: justify; font-family: times new roman;"> <em style="">Keep enough</em> cash to take care of 12 months of your family expenses. </p><div style="text-align: justify; font-family: times new roman;"> </div><p style="text-align: justify; font-family: times new roman;"> <em style="">Do not</em> panic and sell stocks but actually buy more stocks of solid stable companies as prices continued to slide during the bear markets.</p><div style="text-align: justify; font-family: times new roman;"> </div><p style="text-align: justify; font-family: times new roman;"> <em style="">You understand</em> and are able to differentiate between hope and hype.</p><div style="text-align: justify; font-family: times new roman;"> </div><p style="text-align: justify; font-family: times new roman;">Below are his few quotable quotes:</p><div style="text-align: justify; font-family: times new roman;"> </div><p style="text-align: justify; font-family: times new roman;"> <em style="">“While enthusiasm may be necessary for great accomplishments elsewhere, on Wall Street it almost invariably leads to disaster.” </em> </p><div style="text-align: justify; font-family: times new roman;"> </div><p style="text-align: justify; font-family: times new roman;"> <em style="">“The fact that other people agree or disagree with you makes you neither right nor wrong. You will be right if your facts and your reasoning are correct.”</em> </p><div style="text-align: justify; font-family: times new roman;"> </div><p style="text-align: justify; font-family: times new roman;"> <em style="">“Confronted with the challenge to distil the secret of sound investment into three words, we venture the motto, Margin of Safety.”</em> </p><div style="text-align: justify; font-family: times new roman;"> </div><p style="text-align: justify; font-family: times new roman;"> <em style="">“Many sceptics, it is true, are inclined to dismiss the whole procedure (chart reading) as akin to astrology or necromancy; but the sheer weight of its importance in Wall Street requires that its pretensions be examined with some degree of care.”</em> </p><div style="text-align: justify; font-family: times new roman;"> </div><p style="text-align: justify; font-family: times new roman;"> <em style="">“Individuals who cannot master their emotions are ill-suited to profit from the investment process.”</em> </p><div style="text-align: justify; font-family: times new roman;"> </div><p style="text-align: justify; font-family: times new roman;"> <em style=""> “Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble... to give way to hope, fear and greed.”</em> </p><div style="text-align: justify; font-family: times new roman;"> </div><p style="text-align: justify; font-family: times new roman;"> <em style="">“The chief losses to investors come from the purchase of low-quality securities at times of favourable business conditions.”</em> </p><div style="text-align: justify; font-family: times new roman;"> </div><p style="text-align: justify; font-family: times new roman;"> <em style="">“The individual investor should act consistently as an investor and not as a speculator. This means…that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money’s worth for his purchase.”</em> </p>toughieehttp://www.blogger.com/profile/02759275828341278190noreply@blogger.com6tag:blogger.com,1999:blog-16574038.post-75846347643418963952008-05-03T18:22:00.002+05:302008-05-03T18:25:07.325+05:30‘Returns dip as motion rises’<div style="text-align: justify;">Warren Buffett hasn't got around to writing a book detailing his investment philosophy till date. But, he does outline his investment philosophy in the letters he writes to the shareholders of his company, Berkshire Hathaway, every year. The nuggets of wisdom these letters offer are for investors at large to understand and remember.
</p><p>
In one such letter, for 2005, he wrote, "Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of a genius. But Sir Isaac's talents didn't extend to investing: He lost a bundle in the South Sea Bubble, explaining later, "I can calculate the movement of the stars, but not the madness of men." If he had not been traumatised by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases."
</p><p>
This is a basic law investors forget as markets keep going up. During a bull run, investors tend to look at the returns in the recent past and assume that future returns will be identical. They mistake probability for certainty and pump in more money into the stock market. And when the market falls, there is great pain.
</p><p>
In the letter for 2000, Buffett wrote, "The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money.
</p><p>
After a heady experience of that kind, normally sensible people drift into behaviour akin to that of Cinderella at the ball. They know that overstaying the festivities... will eventually bring on pumpkins and mice.
</p><p>
But they nevertheless hate to miss a single minute of what is one helluva party... During a bull run, stock markets offer astonishing returns in a short period of time as compared to other investments. This helps in attracting more money into the stock market and so the markets keep going up.
</p><p>
<span style="font-weight: bold;">But is this really good for potential investors?</span>
</p><p>
Well, Buffett had already answered this in his 1997 letter. "A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves. But now for the final exam:
</p><p>
<span style="font-weight: bold;"></span>
If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall... Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices."
</div>toughieehttp://www.blogger.com/profile/02759275828341278190noreply@blogger.com0tag:blogger.com,1999:blog-16574038.post-32211475038060072352008-04-26T23:29:00.001+05:302008-04-26T23:31:00.043+05:30Hunt for The Bottom!<div style="text-align: center;"><a style="font-weight: bold;" href="http://www.moneycontrol.com/mccode/news/marketnews/news_inter.php">Interviews & Videos on CNBC</a>
</div>toughieehttp://www.blogger.com/profile/02759275828341278190noreply@blogger.com0tag:blogger.com,1999:blog-16574038.post-62610203107864048842008-04-07T19:18:00.001+05:302008-04-07T19:30:07.676+05:30What happened to India story?<div style="text-align: justify;"><span style="font-weight: bold;">Unfortunately, the Indian market is one of the worst performers even among emerging markets</span>
<p></p><p></p>
by Manas Chakravarty and Mobis Philipose
<p></p><p></p>
Most stock markets across the world have bounced back pretty sharply after the panic caused by the Bear Stearns Companies Inc. collapse. The Dow Jones Industrial Average hit a low of 11,650 on 17 March and it’s up 8.2% from there. The MSCI World index is up even more, gaining 8.9% between its closings on 17 March and 4 April.
<p></p><p></p>
Many traders believe the measures taken to bail out Bear Stearns and the expansion of the collateral acceptable to the US Federal Reserve to include mortgage-backed securities marked a watershed in the markets. The credit markets have certainly pulled back from the brink. In the US, the spread between mortgage-backed securities and treasurys has narrowed from 200 basis points (bps) on 12 March, before the Bear Stearns bailout, to 170 bps. An index of investment-grade bond spreads, which was 190 bps on 12 March, is down to 111. 30-year fixed mortgage rates have come down from 6.13% to 5.88%. Yields on safe haven two-year treasurys have also dropped. Sure, spreads are still very high, but at least they’re going down.
<p></p><p></p>
The improvement in the credit markets sparked a rally on Wall Street and in most other markets. Risk appetite too has bounced back, evident from the fact that the MSCI Emerging Markets index is up 15% since its close on 17 March. While some of that could be on account of the rally in commodities and crude oil, even the MSCI EM Asia index is up 10%, more than the rise in the MSCI World index. As fund flow tracker EPFR Global points out, “Asia ex-Japan Equity Funds enjoyed their best week of the year in early April, absorbing a net $599 million (Rs2,396 crore), as investors found some value in China and continued to commit fresh money to Taiwan in the aftermath of the 22 March presidential election. China and Taiwan Country Funds took in $377 million and $191 million, respectively, while Singapore Country Funds absorbed another $110 million.”
<p></p><p></p>
Unfortunately, the Indian market is one of the worst performers even among emerging markets. MSCI India is up a mere 3.4% since 17 March. Indonesia, which is down 1.2% since 17 March, is the other market left out of the rally. Incidentally, both countries have recently seen a spike in inflation.
<p></p><p></p>
One reason for the Indian market’s underperformance could be relatively high valuations. That’s also seen from the fact that although the MSCI China index is up since 17 March, the Shanghai Composite index is actually lower since that date. High price-to-earnings markets are not in favour.
<p></p><p></p>
Perhaps it’s because the MSCI India index has outperformed the emerging markets index over the last five boom years—its annualized growth rate has been 35.28% compared with 27% for the MSCI EM index and 24.19% for EM Asia. But if we are to pay now for better performance in the past, the question is: wasn’t the outperformance supposed to be a reward for higher growth and for the great India story?
<p></p><p></p>
</div>toughieehttp://www.blogger.com/profile/02759275828341278190noreply@blogger.com7tag:blogger.com,1999:blog-16574038.post-2077183732624775992008-03-18T15:00:00.003+05:302008-03-18T15:05:43.033+05:30Who should you trust your money with?<div style="text-align: justify;">by Vijay L Bhambwani - DNA
</div><p style="text-align: justify;"></p><p style="text-align: justify;">
It pays to remember some home truths about the market
</p><p style="text-align: justify;">
Over the last couple of days, I heard some mutual fund heads talking on television about the current “compelling valuations” in the stock market and how investors should just buy and sit tight for a couple of months.
</p><p style="text-align: justify;">
But when they were specifically asked what they themselves were buying, there was no clear answer forthcoming. Which brings me to the question, what / who / when should you trust with your money? My answer is simple —- yourself!
</p><p style="text-align: justify;">
It is not that the people voicing their opinion in the public domain are dishonest. They just have to be wrong to make you poorer. They may also (more often than not ) omit to mention a few important facts (the valuations are compelling but I am not buying yet!). When it comes to survival, it is usually to each his own. History has recorded for posterity that humans have eaten their dead kith and kin in wars and other extenuating circumstances to survive.
</p><p style="text-align: justify;">Why should the markets be any different?
</p><p style="text-align: justify;">
What are the markets anyway? Markets are a collection of all the emotions of the participants put together. Greed, fear, compassion and cruelty included. When it comes to self preservation, even murder is allowed by the courts in certain circumstances. Big-ticket players routinely lead retail players to slaughter houses. Cold bloodedly and calculatively. Books have been written on the subject, talk shows conducted by the dozens but retail players have yet to learn that lesson.
</p><p style="text-align: justify;">
Going further, I have found that Indian markets are a lot more volatile compared with their developed counterparts as the participation has a higher component of emotions in the combination of intelligence and emotions. It should be the other way around, actually, because markets are mathematical, unemotional and unforgiving. Why should you be emotional? Why fight the markets in times of adversity and treat a losing trade as an ego slight?
</p><p style="text-align: justify;">
Factually speaking, we are all susceptible to a feeling of vulnerability during taxing times. We seek someone to hold our hands during trying times and tell us that “all will be well”. We seek strength in numbers - in the fact that we are not alone in our belief of buy & hold. Unfortunately, the markets are readying us for mass murder.
</p><p style="text-align: justify;">
Before you lose any more money in the markets, I suggest reading an excellent book -<span style="font-weight: bold; font-style: italic;">The Faber Report, by David Faber. </span>The world-renowned CNBC US anchor warns investors against relying too much on voices in the public domain.
</p><p style="text-align: justify;">
Faber has written very boldly —- dates, events and names of analysts, fund managers and managements who have (mis) advised investors in the media and taken contrarian positions in the market to profit from their crooked actions in doublequick time.
</p><p style="text-align: justify;">
He also propagates the idea of upgrading one’s own skills to become self-reliant in the market place —- an idea that I totally agree with. Sometimes, our analysis seems to point towards an unpleasant development emerging in the markets.
</p><p style="text-align: justify;">
Expert / public opinion seems to be pointing towards a reverse case scenario. Who do you trust? The answer is, both. Keep an eye on what is being said but keep doing your own due diligence. Sure, you may go wrong. At least you know you have yourself to blame. But do not form a habit of running away from bad news because it is unpalatable. In financial markets, pain is not in adversity but in the denial of that adversity’s existence.</p><p style="text-align: justify;">Legend says ostriches bury their heads in sand when confronted by predators. While studies have shown no proof of this, the analogy is pertinent: they just become easy meat. Legend also has it that Red Indians kept their ears to the ground to hear the hoofs of horses carrying in white settlers. Maybe it’s time you started keeping your own ears to the ground rather than relying on “borrowed” ones.
</p><p style="text-align: justify;">
After all, who can protect your wealth better than you yourself?</p>toughieehttp://www.blogger.com/profile/02759275828341278190noreply@blogger.com2tag:blogger.com,1999:blog-16574038.post-83223597146369881822008-03-06T10:28:00.000+05:302008-03-06T10:29:51.744+05:30A tsunami of liquidity<div style="text-align: justify;">Source: Mint
</div><p style="text-align: justify;"></p><p style="text-align: justify;">
We’ve heard a lot about how the credit crunch in the Western financial markets is affecting liquidity. Huge losses have punched a hole in the balance sheets of US and European banks and till such time they are able to repair their net worth, their ability to lend will remain impaired. That has hurt liquidity. But there’s a flip side to the story.
</p><p style="text-align: justify;">
High oil prices have led to windfall gains by oil exporters. That money has to go somewhere. So far, what seems to be happening is that countries in the Persian Gulf region that have their currencies pegged to the dollar, are seeing a big rise in inflation as their central banks mop up dollars and release the local currency into their money markets. Foreign exchange reserves held by these countries are rising.
</p><p style="text-align: justify;">
Moreover, the magnitude of the rise in dollar gains is truly staggering. According to a research note from Morgan Stanley, A Petrodollar Tsunami Warning by Stephen Jen and Charles St-Arnaud, the market value of annual cross-border oil flows is around $2 trillion (Rs80 trillion), evenly split among Gulf Co-Operation Council (GCC), non-GCC and non-Opec oil exporters.
While part of the oil receipts—Morgan Stanley’s estimate is 10%—will be invested by these countries within their borders, in infrastructure and the like, the bulk of the windfall will find its way into global financial markets. The note says that about half of it is likely to be invested by sovereign wealth funds, with the rest being direct investments in financial assets. The note ends with the dramatic flourish: “A tsunami is coming.”
</p><p style="text-align: justify;">
At the moment, much of the money is going either into US bonds or, through sovereign wealth funds, into US financial institutions. But with the slowdown in the US and a falling dollar, it makes sense to diversify holdings. Indian markets should benefit, just as Indian engineering firms are already profiting from the boom in West Asia.
</p>toughieehttp://www.blogger.com/profile/02759275828341278190noreply@blogger.com0tag:blogger.com,1999:blog-16574038.post-34917577322448841622008-03-05T11:02:00.004+05:302008-03-05T18:21:05.238+05:30Benjamin Graham on Mr. Market<span style="font-family:times new roman;">Common stocks have one important investment characteristic and one important speculative characteristic. Their investment value and average market price tend to increase irregularly but persistently over the decades, as their net worth builds up through the reinvestment of undistributed earnings. However, most of the time common stocks are subject to irrational and excessive price fluctuations in both directions, as the consequence of the ingrained tendency of most people to speculate or gamble.</span>toughieehttp://www.blogger.com/profile/02759275828341278190noreply@blogger.com0tag:blogger.com,1999:blog-16574038.post-38077629393663910062008-02-25T21:16:00.007+05:302008-02-25T21:21:58.075+05:30Risk!<div style="text-align: center;"><span style="font-size:100%;"><span style="font-style: italic;font-family:lucida grande;font-size:130%;" >"A lot of times, the risk of investing is the lowest when the perception of risk is the highest.”</span><p></p><p>
-- Mr. Sandip Sabarwal, CIO, JM Mutual Fund.</p>
</span></div>toughieehttp://www.blogger.com/profile/02759275828341278190noreply@blogger.com0tag:blogger.com,1999:blog-16574038.post-34847590620737406472008-02-23T13:58:00.011+05:302008-12-11T00:02:34.923+05:30Markets: Valuations still not low enough?<span style="font-weight: bold;">Source: Mint</span><div style="text-align: justify;"><span style="font-size:100%;"></span><p></p><p>
<span style="font-size:100%;"><span style="font-weight: bold;">High valuations seem to be taking a toll on the Indian market.</span></span>
</p><p></p><p>
<span style="font-size:100%;">The Indian market has been one of the worst performers this year, with the Morgan Stanley Capital International (MSCI) India index down 15.9% year to date as on 21 February, while the MSCI Emerging Markets index is down just 7.3%. Moreover, most emerging markets have seen a smart bounce this month, with the result that the MSCI Emerging Markets index is up 6.1% (as on 21 February) compared with a decline of 1.8% in the index for India in February. In fact, India is one of the <span style="font-style: italic; font-weight: bold;">very few emerging markets that is not in positive territory this month.</span></span>
</p><p>
<span style="font-size:100%;">What could be the reason? A recent research note from Goldman Sachs Group Inc. says that the Indian market's valuation is still too high and it trades at a 50% premium to the region on the basis of forward price-earnings (PE) multiple.</span>
</p><p>
<span style="font-size:100%;">More significantly, Goldman Sachs believes that "India's pricing implies an expectation of 18% EPS (earnings per share) compound annual growth compared with mid-single digits for most other markets and 13% for China." Interestingly, current consensus estimates are for a re-acceleration of earnings growth of above 20% in fiscal 2010.</span>
</p><p>
<span style="font-size:100%;">The consensus price-earnings multiple for MSCI India is around 19, which makes it important that growth continues to be high. Except for utilities and materials, most other sectors still assume growth higher than their PE multiples. Jeff Hochman, director of Technical Research at Fidelity International, London, has in a recent note argued that India's PE to growth ratio is at 1.39, the same as the world average.</span>
</p><p>
<span style="font-size:100%;">China's is 1.03, Japan's 1.79, but the most overvalued market is the US, which has a PE to growth ratio of 5.12, according to Hochman. Data such as this was behind the now-unloved view that money would flee the distressed credit markets of the West for emerging Asia's more salubrious climes.</span>
</p><p>
<span style="font-size:100%;">Independent research outfit BCA Research Inc. says <span style="font-weight: bold; font-style: italic;">"there is a mountain of US investable cash sitting on the sidelines, earning an everdwindling rate of interest."</span> When and where will this cash get deployed? While it's unlikely that the markets will go up before light is seen at the end of the credit market tunnel, the cash mountain will ensure that risky assets go up very sharply once the fear ends.</span></p><p style="font-weight: bold;">Recommended Readings:</p><ul><li><a href="http://www.bcaresearch.com/public/story.asp?pre=PRE-20080218.GIF">Record U.S. Cash Reserves: Waiting To Be Deployed, But When?</a> - BCA Research</li><li><a href="http://webcompilationster.googlepages.com/TechnicalAnalysis-Fidelity.pdf">Technical Analysis in the Investment Process</a> - Jeff Hochman (Fidelity)</li><li><a href="http://webcompilationster.googlepages.com/IndiaStrategy180208-GS.pdf">India: Off with the froth; stay underweight</a> - Goldman Sachs Portfolio Strategy</li></ul><span style="font-weight: bold;">Heard on the Street (Rumour):
</span><ul><li><span style="font-weight: bold;">Is bear cartel keeping market on the edge?</span>
<p></p><p>
With the Budget less than a week away, there is no dearth of conspiracy theories. One such theory is that a group of powerful investors, which includes some hard-nosed foreign institutional investors, is trying to keep the market subdued so that there is no adverse proposal in the Budget as far as the stock market is concerned.
</p><p>
This could also probably set the base for a strong rally even if the Budget is largely capital market neutral. The cartel in picture was said to be dumping heavyweight banking stocks and infrastructure stocks on Friday.
</p></li></ul></div><span style="font-weight: bold;">My Comment:</span>
<ul><li>Looking at the markets, I feel, Indian markets have <span style="font-style: italic; font-weight: bold;">"decoupled"</span> from US...but on the downside! :) lol<p></p><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhlMFxPYGwtBaI5Zrw6iXP8ZXeoad2c0s6vMYF9uclDQcgANR4IqqRf0rIyypEopxkoUpTIXsGBs-jJbEfDJuVu-utonIZaJY9yAXOSTNwMtJtTVCyRjPkrGhXqKPcx90nzQHLmNg/s1600-h/z.png"><img style="margin: 0px auto 10px; display: block; text-align: center; cursor: pointer;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhlMFxPYGwtBaI5Zrw6iXP8ZXeoad2c0s6vMYF9uclDQcgANR4IqqRf0rIyypEopxkoUpTIXsGBs-jJbEfDJuVu-utonIZaJY9yAXOSTNwMtJtTVCyRjPkrGhXqKPcx90nzQHLmNg/s400/z.png" alt="" id="BLOGGER_PHOTO_ID_5170130809076333938" border="0" /></a></li></ul><p></p><p></p>toughieehttp://www.blogger.com/profile/02759275828341278190noreply@blogger.com0tag:blogger.com,1999:blog-16574038.post-87908770084671478662008-02-18T13:35:00.001+05:302008-02-18T13:38:02.957+05:30Blame yourself every time a market expert fails you<div style="text-align: justify;">The Sensex has fallen by 10.8% since the beginning of this year. Experts who till two months back saw no wrong with the up and away Sensex, and were predicting it will continue to go up, can now be seen on news channels saying “I told you so” on the fall.
</P><P>
Fact is, most of them really don’t know what they are talking about.
</P><P>
As Fred Schwed Jr writes in Where Are the Customers’ Yachts? or A Good Hard Look at Wall Street, “Deep thinking continues to be, as ever, mostly second guessing.” The book was first published in 1940, and remains relevant even today. Schwed writes, “But is it surprising that no one of them is ever quite right? The best explanation is that some of them don’t know what they are talking about; and those who do know, don’t tell all they know, or don’t permit themselves to believe all they know.”
</P><P>
So, why try and predict something that is largely unpredictable?
Well, there are several reasons. For one, “It seems that the immature mind has a regrettable tendency to believe as actually true that which it only hopes to be true. In this case, the notion that the financial future is not predictable is just too unpleasant to be given any room at all in the Wall Streeter’s consciousness. But, we expect a child to grow up in time... This, however, is asking too much of the romantic Wall Streeter - and they are all romantics, whether villains or philanthropists. Else, they would have never chosen this business, which is a business of dreams. But the ultimate dream they almost never shed: that there is a secret, meaningful and predictable, in the rise and fall of financial enterprises - that a “close study” of this and that will prove something; that it will tell the initiate when there will be a rally and give the speculator a better than even chance of making a killing,” writes Schwed.
</P><P>
Also, most investors like to know where the stock market is headed to. And this is where the so called “stock market” experts come in, to fulfil an inherent need.
</P><P>
Schwed writes, “For one thing, customers have an unfortunate habit of asking about the financial future. Now, if you do someone the signal honour of asking him a difficult question, you may be assured that you will get a detailed answer. Rarely will it be the most difficult of all answers - “I don’t know.””
</P><P>
And at times, the “cock and bull” story these experts come up with is largely to generate more business for firms they work for. “On the economic side there is no denying that the more financial predictions you make, the more business you do and the more commissions you get. That, we all know, is not the right way to act at all. But I doubt if there are many, or any, Wall Streeters who sit down and say to themselves cool, “Now let’s see. What cock-and-bull story shall I invest and tell them today”... The broker influences the customer with his knowledge of the future, but only after he has convinced himself,” writes Schwed.
</P><P>
The other kind of prediction maker is the chartist or the technical analyst, as they are popularly known these days.
</P><P>
Schwed writes, “He arms himself with a chart (the simplest sort of graph) which depicts the ups and downs in price of the market as whole or of a commodity. This he studies, well away from the news ticker. It is his claim that he can discern in this jagged pattern of behaviour, which reproduces itself, and that certain of the peaks, valleys, and wobbles tell him when it about to do it again.”
</P><P>
A chartist essentially bets on the fact that history will repeat itself. “When the student peers, however closely, at a graph of the Dow-Jones averages, for instance, all he sees for certain is a history of past performances clearly and conveniently depicted. That one can, by examining the line drawn already, make a useful guess on the line not yet drawn, must be predicated on the hypothesis that “history repeats itself.” History does in a vague way repeat itself, but it does it slowly and ponderously, and with an infinite number of surprising variations,” writes Schwed.
And this is where the problem lies. History repeats itself too slowly, whereas chartists most times are trying to predict where the markets are headed month on month and at times even for a shorter period. And that is why a lot of them trading on their own money, do go bust.</P><P>
“It is the popular feeling in Wall Street that chart readers are pretty occult professors, but that somehow most of them are broke. A busted chart reader, however, is never apologetic about his method - he is, if anything, more enthusiastic than the solvent devotee you may run across. If you have the bad taste to ask him how it happens that he is broke, he tells you quite ingenuously that he made the all too human error of not believing his own charts. This naïve thought comforts him; he doesn’t mind so much losing his money, but it would have been more than he could stand to lose his faith in his beloved chart system,” writes Schwed.
</div>toughieehttp://www.blogger.com/profile/02759275828341278190noreply@blogger.com0tag:blogger.com,1999:blog-16574038.post-89769823298892089022008-02-13T19:17:00.005+05:302008-02-13T19:38:21.457+05:30A 'Must Read' Article<div style="text-align: justify;"><span style="font-family:times new roman;"> The Bespoke Investment Group under their B.I.G. Tips column had a brilliant article out today. </span>
<p></p>
<span style="font-family:times new roman;"> Here's is their text. Please be sure to read all the way through. </span>
<p></p>
<span style="font-weight: bold;font-family:times new roman;" > A Review of the Headlines: </span>
<p></p>
<span style="font-family:times new roman;"> A recent review of the daily headlines on the front page of the NY Times' business section </span>
<span style="font-family:times new roman;"> highlights a relatively downbeat envirornment in the market and the economy. Regarding the consumer, things remain bleak. As the headlines illustrate, Nordstrom's will be put 'to the test', 700 jobs will be cut by Saks and weak sales are causing a 78.7% decline in earnings at Ford and an idling of 16 plants at GM. In the housing sector, as real estate woes worsen, homebuilding activity has plummeted to levels which are the lowest since 1982. </span>
<p></p>
<span style="font-family:times new roman;">In the credit markets and on Wall Street, junk bonds are at record lows as defaults keep rising. As a result capital levels at banks are at uncomfortably low levels. In an effort to cut costs banks have had to deep-six the dividends and sell off assets to spruce up their books. There has aso been a wave of layoffs among the maor brokers and Citi has had to raise capital at costly terms to win over investors. </span>
<p></p>
<span style="font-family:times new roman;">Regarding the Fed, while they now see the potential for weakness in the economy, they were late to recognize it. In fact, in the early stages of the credit crisis, instead of responding to the weakness in the economy they put their emphasis on inflation. </span>
<p></p>
<span style="font-family:times new roman;"> However, now that the Fed has recognized the problem, many commentators believe the ailing banking system may be less able to aid in a recovery. To many, the question is not if, instead they are hoping for a 'friendly recession'. Even President Bush has commented that the "United States may be near a recession". With the Fed easing monetary policy, and the ECB maintaining its hawkish stance, markets are worried by the fall of the dollar causing commodities to rally, especially oil rising 6.6% in one day. Rising commodities have stoked inflation fears and nobody wants that blast from the past: Stagflation. </span>
<p></p>
<span style="font-family:times new roman;"> Concerning the market, Microsoft is launching a bold new game plan but the bear market is back. Will it be Gentle Ben or Real Grizzly? </span><p></p>
____________________________________________________________________<span style="font-family:times new roman;"></span><p></p>
<span style="font-family:times new roman;">Sounds like a grim picture doesn't it? However you should know that all the headlines just quoted were from the period between September and November of 1990!!!!! </span>
<p></p>
<span style="font-family:times new roman;"> The S&P 500 bottomed at around 295 in that period before surging to over 415 in early 1992. </span>
<p></p>
<span style="font-family:times new roman;"><span style="font-weight: bold;">Moral: </span>
Don't let the press stop you from buying when the news is bad but share prices are fabulous. In a supply and demand market you can only get the best buys when others are desperate to sell.
<p></p><p>
<span style="font-weight: bold;">Source: GuruFocus</span>
</p></span><p></p></div>toughieehttp://www.blogger.com/profile/02759275828341278190noreply@blogger.com1tag:blogger.com,1999:blog-16574038.post-50216205621082157062008-02-11T19:40:00.000+05:302008-02-11T19:58:03.660+05:30Does Everyone Lose in a Crash?<div style="text-align: justify; font-family: times new roman;">It’s quite common to hear someone grumbling about how much money they lost on a stock, but did you ever stop to think where that money went? </div><p style="text-align: justify;font-family:times new roman;">In contrary to popular opinion, that money is far from lost. In fact, that money was won by a professional trader who profited from the stock’s decline! Sophisticated traders such as these are called the “<span class="link">smart money</span>” because they profit regardless if the market is crashing or booming. The smart money wins most of the money lost by the “<span class="link">dumb money</span>”, or the “average joe” amateur investor. By learning how to trade like the smart money, you can profit tremendously in any type of market. Let’s learn the differences between the two types of traders:</p><div style="text-align: justify; font-family: times new roman;"> </div><p style="text-align: justify;font-family:times new roman;">According to the National American Securities Administrators Association, more than 70% of traders will lose nearly all their money! This is solid proof that the majority of traders and investors are dumb money. </p><div style="text-align: justify; font-family: times new roman;"> </div><p style="text-align: justify;font-family:times new roman;"><strong>What is the Dumb Money Doing Wrong? </strong></p><div style="text-align: justify; font-family: times new roman;"> </div><p face="times new roman" style="text-align: justify;">First and foremost, the dumb money act as a herd or mob. This group exhibits very little individual decision making. This is exemplified by how the herd follows the financial news so religiously. The financial news is a severe lagging indicator. This is because reporters only report after the fact. It is so silly that people actually think they will gain knowledge that will allow them to have “the edge” in the markets. This isn’t possible because millions of other competing investors are watching the same news! The news is notoriously bullish right before a bear market and bearish right before the market starts soaring. </p><div style="text-align: justify; font-family: times new roman;"> </div><p face="times new roman" style="text-align: justify;">Another dumb money tactic is to take investment advice from their broker or advisor. Brokers make money from commissions, not from investment performance. They just want their clients to trade frequently to generate more commissions. Additionally, these brokers tell all of their clients the same information, which means you have absolutely no edge over the competition. </p><div style="text-align: justify; font-family: times new roman;"> </div><p face="times new roman" style="text-align: justify;">The dumb money make investment decisions based on their emotions, rather than solid information. This group will buy stocks based on glamour. For example, in the dot com boom, investors would buy any stock that was a “dot com”, regardless if it had earning or a business plan. The crowd tends to gain a gambling mentality when “playing the market”. They act upon “hunches” and tips, which never work. </p><div style="text-align: justify; font-family: times new roman;"> </div><p face="times new roman" style="text-align: justify;">This same group consistently buys stocks late into a bull market. The smart money <span class="link">accumulated</span> tech stocks in the early 1990’s, when many investors didn’t even own a computer! By the late 1990’s every investor was buying tech stocks, and this is when the market crashed. Sadly, the markets are set up so that the second the dumb money gets the gist of the game, the rules are changed. This is because the markets are <span class="link">zero-sum</span>, where for every winner there must be a loser. </p><div style="text-align: justify; font-family: times new roman;"> </div><p face="times new roman" style="text-align: justify;"><strong>What is the Smart Money Doing Right?</strong></p><div style="text-align: justify; font-family: times new roman;"> </div><p face="times new roman" style="text-align: justify;">If the majority of traders and investors lose, then doing the opposite is a winning strategy. This is precisely is how the smart money trade. The smart money wait for a time when the dumb money is most vulnerable to losing. In most cases, this would at the top of a bull market when the dumb money is foolishly raving about how “stocks will never drop” and how “we are in a <span class="link">new economy</span>”. Whenever the majority of investors are euphoric about the market, it is guaranteed to drop! At this point, the smart money liquidates their stock positions and shorts the market, anticipating the coming bear market. </p><div style="text-align: justify; font-family: times new roman;"> </div><p style="text-align: justify; font-family: times new roman;"><span class="link">Shorting</span> the market is a process which allows a trader to profit as the market crashes. It is exactly the opposite of buying a stock. As most investors are entering the poorhouse, the people that short in a market crash become extravagantly wealthy. Jesse Livermore shorted stocks and made $100 million in the stock market crash of 1929!</p><div style="text-align: justify; font-family: times new roman;"> </div><p style="text-align: justify; font-family: times new roman;">The smart money rarely pay attention to the financial news media because they know that they can’t gain valuable information from something that everyone is watching. Hypothetically speaking, if profitable news media was available, investors would quickly trade upon it, immediately eradicating any competitive advantage. The smart money have their own top secret forecasting systems, however. These systems have rare information that allows the smart money to have an edge over the masses. </p><div style="text-align: justify; font-family: times new roman;"> </div><p style="text-align: justify; font-family: times new roman;">The smart money never act upon their emotions for trading decisions. The smart money buy and sell based on what the market and their trading systems are dictating. For example, when the markets have been crashing for a while, stocks become <span class="link">undervalued</span>. This is the best time to buy, as the market will start to rally in the near future. The dumb money is always most fearful at this perfect buying point. This is exactly when the smart money accumulate stocks. If they relied on their emotions, however, it certainly wouldn’t seem like the best time to be buying stocks. </p><div style="text-align: justify; font-family: times new roman;"> </div><p style="text-align: justify; font-family: times new roman;">By learning to do the opposite of the crowd, you can become highly prosperous in the financial markets. So next time you hear of someone who lost their shirt in the market, think of the person that profited handsomely!</p><p style="font-weight: bold;">A View: ‘Dumb’ Money v/s 'Smart' Money</p><p>
</p>Speculation in stock markets has decreased its effectiveness as market volatilities decline. Thus, it makes speculation less successful. The relatively low returns of hedge funds in the past two years, for example, suggest the diminishing returns for speculative capital. Wave-like market movements have become a new source of speculative profits. A typical example is the current bull market in gold. The market is full of bullish calls and speculation concerning massive buying by Middle Eastern oil money and central banks. When the market inevitably corrects, the smart money, as tends to be the case, will get out first. We are seeing the same dynamic in other markets.<p></p><p style="text-align: justify; font-family: times new roman;"> </p><p>‘Dumb’ money can be characterized as slow money. When a market takes off, it is initially cautious and only jumps in near the top as greed overcomes fear. On the way down, it hopes for a turnaround and pulls out when fear overpowers greed.</p><p>
</p><p style="text-align: justify; font-family: times new roman;">‘Smart’ money, by contrast, is essentially characterized by an investment strategy that takes everything with a ‘pinch of salt’ and has ‘stop-loss’ discipline in a downtrend. But, ‘smart’ money can exist only when there is sufficient ‘dumb’ money. As ‘smart’ money keeps taking money away from ‘dumb’ money, the current equilibrium will not be sustainable in the long run; however, quantifying the timeframe for this is problematic: the current global economic status quo may last for two years, five years, or 10 years. It is anybody’s guess. A shock that frightens away the ‘dumb’ money is the most likely candidate to end the current equilibrium. An outbreak of a contagious disease on a global scale, exposure of a massive financial fraud, unrest among the under privileged could upset the applecart.
</p><p style="text-align: justify; font-family: times new roman;">Source: <a href="www.stock-market-crash.net/zero-sum.htm">Site</a> & Value-Stock-Plus Archives </p>toughieehttp://www.blogger.com/profile/02759275828341278190noreply@blogger.com0tag:blogger.com,1999:blog-16574038.post-89108062276671467252008-02-05T14:07:00.000+05:302008-02-05T14:09:05.163+05:30Analysts as entertainers<div style="text-align: justify; font-family: times new roman;"><span style="color: rgb(44, 44, 44);" class="bodyd">“I still wasn’t convinced, until Bob whispered in my ear what I would make in the first year. It was about three times what I was paid at Bell Labs. I stopped protesting so loudly. He then said “And that’s for being right just 51% of the time,” Andy Kessler recounts in his book, Wall Street Meat - My Narrow Escape from the Stock Market Grinder. Kessler was a rank outsider on Wall Street, having come in as a semi-conductor analyst.
<p></p><p>
</p></span><span style="color: rgb(44, 44, 44);" class="bodyd">Now, what exactly is the role a stock analyst fulfils? At a very basic level, an analyst is supposed to have an opinion on the stock that helps investors make a decision whether to invest in that particular stock. But it is not as simple as that.
<p></p><p>
</p></span><span style="color: rgb(44, 44, 44);" class="bodyd">“Companies report earnings once a quarter. But stocks trade about 250 days a year. Something has to make them move up or down the other 246 days. Analysts fill that role. They recommend stocks, change recommendations, change earnings estimates, pound the table - whatever it takes for a sales force to go out with a story so someone will trade with the firm and generate commissions,” writes Kessler.
<p></p><p>
</p></span><span style="color: rgb(44, 44, 44);" class="bodyd">And what does it take to become an analyst on the Wall Street? “Let’s start with the basics. First, there are absolutely no qualifications whatsoever for an analyst job. I’ve always thought that a monkey could do the job, and many do. There are very few analyst training programs, and no obvious way to get a job as an analyst. Most are in the job by accident, as I certainly can attest to.” he writes.
<p></p><p>
</p></span><span style="color: rgb(44, 44, 44);" class="bodyd">Over time, Kessler was able to form an opinion on analysts in the business. “By watching other analysts in action, I figured out there were three types of analysts. There are: 1) those who know somebody in their industry, 2) those who know their industry and 3) those who don’t know anybody or anything. Lots of analysts had industry contacts - perhaps CEOs who they were buddies with or someone in the CFO’s office who was feeding them information.”
<p></p><p>
</p></span><span style="color: rgb(44, 44, 44);" class="bodyd">So, how do analysts who really do not know their industry survive? As Kessler writes “Though I was starting to be right on my stocks, I was increasingly convinced it didn’t matter. I looked around the research department, and noticed that very few analysts were right about anything. The job of an analyst has more to do with impressing everyone they come in contact with, and less to do with stocks. At one meeting I had with Fred Kittler, a portfolio manger at JP Morgan, he paused, looked me in the eye and said, “You realise, you are not in the analysis business, you are in the entertainment business.”</span></div>toughieehttp://www.blogger.com/profile/02759275828341278190noreply@blogger.com2tag:blogger.com,1999:blog-16574038.post-1355691878530643882008-01-28T19:33:00.000+05:302008-01-28T19:38:12.287+05:30Some Quotes on "Prediction"<div style="text-align: justify;">"The worst market crisis in 60 years " - George Soros
</div><p style="text-align: justify;"></p><p style="text-align: justify;">
"We've long felt that the only value of stock forecasters is to make fortune tellers look
good. Even now, Charlie and I continue to believe that short-term market forecasts are
poison and should be kept locked up in a safe place, away from children and also from
grown-ups who behave in the market like children." - Warren Buffett
</p><p style="text-align: justify;">
"Forecasts may tell you a great deal about the forecaster, they tell you nothing about the future" - Warren Buffett
</p><p style="text-align: justify;">
"We ignore outlooks and forecasts... we're lousy at it and we admit it... everyone else is lousy too, but most people won't admit it." - Marty Whitman
</p><p style="text-align: justify;">
"Guesses - just so we're clear - are merely expressions of prejudice." - Michael Crichton
</p><p style="text-align: justify;">
"Economists make predictions because they're asked, not because they know." - John K. Galbraith </p>toughieehttp://www.blogger.com/profile/02759275828341278190noreply@blogger.com0tag:blogger.com,1999:blog-16574038.post-67768968743709059602008-01-28T17:50:00.000+05:302008-01-28T17:52:51.823+05:30When are the bulls actually bears?<div style="text-align: justify;">by John Authers
</p><p>
Bulls and bears have been duking it out for centuries. There will always be those who think the market is going up and those who expect it to go down.
</p><p>
The current incarnation of that debate, of course, rages over whether the developed world is sliding into a recession. The bulls say such fears have been overdone, creating a buying opportunity. The bears, who are suddenly in the ascendant, point out that if things pan out as badly as they have done at times in history – and the world has gone three decades without a severe recession – then things could get much worse.
</p><p>
As with any interesting debate, both sides have a point. However, there is another dimension to the battle between bulls and bears which does not bring in the economy. Are we in a bull market or a bear market, and how do we know?
</p><p>
Conventional wisdom is that the bursting of the internet bubble ushered in a brief but savage bear market. That ended, depending on which index you look at, either in late 2002, or in 2003. All seem to agree that a new bull market started in earnest once the US and its allies had launched the invasion of Iraq in March, 2003. With the S&P 500, and the MSCI World index last year finally beating the highs they had made in 2000, any argument on this topic appeared to be at an end.
</p><p>
However, there is an intriguing case to be made that we are in fact still lodged in a secular bear market.
</p><p>
That argument has received a big boost from the events of the last six months. And the economy has nothing to do with it.
</p><p>
Stock market cycles are not to be confused either with economic cycles or earnings cycles (although they interact with both in interesting ways).
</p><p>
Instead, the governing theory of Ed Easterling, head of Crestmont Research in Dallas, is that markets follow secular bull and bear cycles. These are determined by peaks and troughs in price/earnings ratios. To avoid confusion with economic and earnings cycles, which markets tend to discount, the key price/earnings (P/E) ratios for this task are cyclically adjusted, taking the multiple of prices to average earnings over the preceding 10 years.
</p><p>
Viewed this way, stock markets look more expensive than if we simply look at the multiple of the latest year’s earnings.
</p><p>
But the argument goes further than that. According to Easterling, a secular bull market is a period of generally rising P/Es that multiply growth in earnings per share, and give investors an above-average return. A secular bear market is the opposite: a period of falling P/Es that offset earnings growth and provide below average returns.
</p><p>
These market cycles are longer than economic cycles, and very much longer than corporate profit cycles. By his estimation, we are now in the fifth secular bear cycle since 1901. This uses the (rather limited) Dow Jones Industrial Average, for which constant historical data is available, but it is unlikely that findings for the more robust S&P 500 would be significantly different.
</p><p>
We may have further to fall in this episode than in earlier bear cycles. Previous bear cycles started in 1901, with a P/E (as cyclically adjusted) of 23; in 1929, with a P/E of 28; in 1937, with a P/E of 19; and in 1966, with a P/E of 21. In all bar one, multiples had fallen by more than half by the time the cycle came to an end.
</p><p>
The current bear cycle began in 2000, with a P/E of 42. So on this analysis, we started this decade at historically irrational valuations. Multiples need to get back at least into the teens before a secular bull market can start (and we are currently at a P/E of about 26).
</p><p>
It is also easy to be tricked by a succession of positive years – at one point there were three “up” years in a row during the 1966-1981 bear market, or by new highs, as happened last year.
</p><p>
There was a similar event in 1972, when the P/E multiple hit 18, and the Dow hit a new high. Volatility was very low – exactly as was the case during the first half of last year – and, as it turned out, the market was primed for a new, savage round of sell-offs.
</p><p>
If there is an external driver for these cycles (beyond investors’ animal spirits), it is inflation. Higher inflation will require investors to demand lower earnings multiples. Japanese-style deflation, where reducing prices put long-lasting downward pressure on profits, also pushes down multiples.
</p><p>
The economy is certainly not unimportant, as a slowdown in activity will make it harder for companies to make profits. But this analysis suggests that the current great preoccuption with the risks of a recession is misplaced – at least from the perspective of investment in stocks.
</p><p>
According to Easterling’s calculations, the average annual return on the Dow during bear cycles was minus 4.2 per cent during the 20th century, while the average during bull cycles was 14.6 per cent. Meanwhile, GDP growth was actually slightly higher during bear cycles (6.9 per cent) than bull cycles (6.3 per cent).
</p><p>
Rather, investors should be more concerned with the debate over inflation. Some fear stagflation, others see a risk of Japan-style deflation, but break-evens in index-linked bond markets suggest the market still broadly believes these risks are under control. That suggests the recent sell-off could be overdone.
</p><p>
Markets should also worry about earnings. The profit cycle is well established, and if corporate profits were to decline this year that would be quite in line with historical experience.
</p><p>
Sell-side analysts’ estimates still imply a strong rebound for earnings by the end of the year.
</p><p>
Finally, there should be a realisation that the bizarre event of this decade is not the recent return of volatility. Rather, it was the recovery that started in 2003.
</p><p>
Possibly due to the flood of cheap money from the Federal Reserve, this arrested the fall in stock prices at a point when multiples had still not got down to the levels normally needed before a strong recovery can start.</div>toughieehttp://www.blogger.com/profile/02759275828341278190noreply@blogger.com0tag:blogger.com,1999:blog-16574038.post-35124821476146760872008-01-22T22:39:00.000+05:302008-01-22T22:41:47.254+05:30Mr. Market and You!<div style="text-align: justify; font-family: times new roman;font-family:times new roman;"><span style=";font-size:100%;color:red;" ></span><span style="line-height: 1.4em;font-size:100%;" >"An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return.' This was how Benjamin Graham defined 'investment'. And rightly so! At these times, when the markets are witnessing high levels of volatility, it becomes an ardent need for stockbuyers to understand this difference between a speculative activity and investment. It requires just a misguided step for investor to turn his investment venture into a speculative misadventure. </span></div><p style="text-align: justify; font-family: times new roman;font-family:times new roman;"> <span style="line-height: 1.4em;font-size:100%;" >In this regard, Graham's parable of 'Mr. Market' stands in good stead. This is, probably, one of the best metaphors ever created for explaining how stocks can become mispriced. Through this parable, Graham asks investors to imagine a non-existing person called Mr. Market <i>who is your</i> (investor's) <i>partner in a private business. He appears daily and names a price</i> (stock quotation) <i>at which he would either buy your interest or sell you his</i>. Now, despite the fact that both Mr. Market and you have stable business interests, his quotations are rarely so. At times, he falls so ecstatic that he sees only the favourable factors affecting business. And this is the time he would name a very high buy-sell price because he fears that if he does not quote such a high price, you would buy his interest in the enterprise and rob him of imminent gains. </span></p><p style="text-align: justify; font-family: times new roman;font-family:times new roman;"> <span style="line-height: 1.4em;font-size:100%;" >And then there are times when this very Mr. Market is so depressed that he sees nothing but trouble ahead for both business and the world. These are the occasions when he would name a very low price, as he is terrified that if he does not do so, you would burden him (sell him) with your interest in the business. </span></p><p style="text-align: justify; font-family: times new roman;font-family:times new roman;"> <span style="line-height: 1.4em;font-size:100%;" >Now, Graham says that <i>if you were a prudent investor or a sensible businessman, you would not let Mr. Market's daily communication determine your view of the value of your interest in the enterprise. You may be happy to sell out to him when he quotes you a ridiculously high price, and equally happy to buy from him when his price is low. But at the rest of the time, you would be wiser to form your own ideas of the value of your holdings, based on full reports from the company about its operations and financial position</i>. </span></p><p style="text-align: justify; font-family: times new roman;font-family:times new roman;"> <span style="line-height: 1.4em;font-size:100%;" >What Graham tells investors through this parable of Mr. Market is that they should look at market fluctuations in terms of the Mr. Market example. They should make these fluctuations as their friend rather then their enemy. This means that they should neither give in to temptations that rising markets bring with them nor should they think of doom when the markets are falling incessantly. </span></p><p style="text-align: justify; font-family: times new roman;font-family:times new roman;"> <span style="line-height: 1.4em;font-size:100%;" >Coming back to the abovementioned definition of an investment operation, investors need to have a long-term (two to three years) perspective when making their investment decision. Only then would the promised safety of principal and an adequate return accrue to them. Now, the term 'adequate return' typically varies from investor to investor. A high-risk investor would demand a high return from his investment from the extra bit of risk he is taking. On the other hand, a low-risk investor would settle for a relatively lower return. Having said that, in a rising market, expectations tend to be on the higher side without a fundamental premise. Here is where 'Mr. Market' could mislead you. If you believe that 15% per annum is an 'adequate return', then stick to that irrespective of whether it is a bull market or a bear market. Otherwise, you are changing i.e. risk profile is changing, which is not required. </span></p><p style="text-align: justify; font-family: times new roman;font-family:times new roman;"> <span style="line-height: 1.4em;font-size:100%;" >As Graham says, '...in the short term, the market is a 'voting' machine whereon countless individuals register choices that are product partly of reason and partly of emotion. However, in the long-term, the market is a 'weighing' machine on which the value of each issue (business) is recorded by an exact and impersonal mechanism.' Happy investing! </span></p><p style="text-align: justify; font-family: times new roman;font-family:times new roman;"> <span style="line-height: 1.4em;font-size:100%;" >Note: Characters in <i>italics</i> are quotes from Benjamin Graham. </span></p>toughieehttp://www.blogger.com/profile/02759275828341278190noreply@blogger.com0tag:blogger.com,1999:blog-16574038.post-39793695856827984162008-01-21T10:57:00.000+05:302008-01-21T11:07:10.528+05:30Stock valuations are not about earnings alone<div align="justify">Listing of subsidiaries, re-rating of peers within a sector and news of private equity deals are among the factors that can transform the valuation picture.
by Srividhya Sivakumar - HBL
</div><p align="justify"></p><p align="justify">
Healthy growth in corporate earnings, rising institutional interest and ample liquidity have been the main drivers of high stock prices over the past three years. Conventional parameters apart, the recent re-rating of stocks has also been driven by other factors. Companies are valued not just for their core businesses but also for other strengths that have the potential to add value to core operations. Here are a few such triggers investors need to take note of:
</p><p align="justify">
<strong>Listing of subsidiaries </strong>
</p><p align="justify">
With the primary market in spate, companies seeking to hive off a new business for subsequent listing stand to receive an attractive valuation for the new business that isn’t captured in the company’s books. The listing of a subsidiary by an existing company has more often than not delivered value to the holding company. Consider Reliance Energy.
</p><p align="justify">
Since the filing of the draft prospectus of Reliance Power (early October-07), Reliance Energy has returned about 76 per cent, while the Sensex appreciated by only 10 per cent. Pantaloon Retail, following the announcement of the listing of Future Capital Holding (late September-07), its 78 per cent subsidiary, spurted 40 per cent between the date of announcement and that of the IPO, outpacing the 20-per cent rise in the Sensex.
</p><p align="justify">
The price surge in HEG and Rajasthan Spinning and Weaving Mills (RSWM) can be traced to similar factors. Given their rather indifferent valuations, news of the potential listing of Bhilwara Energy, their commonly-held subsidiary, drove their stock prices to new heights.</p><p align="justify">
HEG more than doubled and RSWM appreciated more than 150 per cent in just two months while the Sensex managed a piffling 6 percent rise only!
</p><p align="justify">
Going by these trends, investors looking for potential upsides should watch for proposed listings of subsidiaries by companies such as ICICI Bank (planned listing of ICICI Securities and ICICI Ventures), M&M (Club Mahindra) and L&T (L&T Infotech).
</p><p align="justify">
Tracking the draft prospectuses of these arms on the SEBI site and looking into the potential valuations of these new companies may help investors time their investments in these stocks. One caveat here is that valuations would hinge on the sector leanings of the subsidiaries
concerned.
</p><p align="justify">
<strong>Peer re-rating </strong>
</p><strong><p align="justify">
</strong>Had you invested in Tata Power three months ago, you would now be sitting on profits of over 70 per cent on the investment, thanks to the high-profile Reliance Power IPO. In the same three-month window, other power stocks such as Torrent Power, JP Hydro, NTPC and CESC have turned in double-digit returns, a rare phenomenon in the sedate power sector. This bout of re-rating was prompted by the Reliance ADAG group’s decision to list Reliance Power.</p><p align="justify">
The spate of new listings in the brokerage/financial space in recent times — Motilal Oswal Financial Services, Religare Enterprises and Edelweiss Capital has had a trickle-down effect on listed brokerage firms, such as India Infoline and Geojit Securities, IL&FS Investment Managers, and so on. The price investors were willing to pay for Motilal’s offer also pegged up the valuations for holding companies with unlisted broking businesses — such as Kotak Mahindra Bank and Indiabulls.
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The mega public offer of DLF also had a similar impact on its realty peers. Given that most IPOs today enjoy strong investor appetite, a new listing usually contributes to a fresh discovery of the prices investors are willing to pay for the growth prospects of the business.
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In this context, the price action in peer group companies of Emaar MGF (DLF), Oil India (ONGC), Wockhardt Hospitals (Apollo Hospitals and Fortis Healthcare) and Titagarh Wagons (Texmaco), among the many in line for initial offers, bear close watching in the weeks ahead.
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<strong>Private equity deals </strong>
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The private equity party in India has just begun; nonetheless, PE deals have altered the price discovery mechanism of our markets. For instance, Eton Park Capital’s acquisition of a 5 per cent stake in Reliance Capital for Rs 500 crore had valued the latter at about 13 per cent of its assets under management. This valuation was quite liberal when compared to the values earlier accorded to Reliance Capital’s asset business and thus drove a re-rating of comparable AMCs, such as Birla Sun Life.
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Birla’s AMC business is housed with Aditya Birla Nuvo, the flagship company of this group. The Aditya Birla Nuvo stock gained 30 per cent from the time of this deal.
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Similar benchmarking was also used to drive an expansion in price-earnings numbers of several listed broking companies, which attracted private equity deals in good number over the past year or so.
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Valuation ‘gaps’ between two firms in a similar business have been swiftly bridged. This underlines the fact that investors are increasingly willing to bet on businesses and stocks if they are available at cheaper valuations in a bull market, rather than try and justify standalone absolute valuations for a business.
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Nonetheless, it might not be such a great idea to invest blindly in companies that have attracted PE money. While most such companies have generated profits for shareholders, investors may be better off tracking the company fundamentals before taking the plunge.</p><p align="justify">
For instance, while Nagarjuna Constructions returned about 85 per cent after the Blackstone deal, Gokaldas Exports, despite a similar private equity deal, has delivered only about 7 per cent.
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<strong>Investment books </strong>
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Prolonged bull markets, such as the current one, tend to soak up the supply of stock candidates that are available at good “value”. This may explain the trend among market participants to unearth hidden sources of “value” in a company’s asset base or balance-sheet that could add a few rupees to the company’s intrinsic worth.
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The market value of investment books of companies (the value of securities/stakes held by the company as a part of its trade or non-trade investments) have been drivers of re-rating for stocks such as Tata Investment Corporation, Ramco Industries, Rallis India, IDFC, and many others. Consider Ramco Industries. The stock price shot up by a whopping 33 per cent in the last one month on discovery of a valuation mismatch; its investment book value per share was higher than the market price.
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Arguments on similar lines may partly explain the surge in stock prices of companies such as Tata Investment Corporation, LMW, Dewan Housing and IDFC, to name a few. For instance, in Tata Investment Corporation, the value of its investment book would stand at about Rs 841 per share at current market prices; LMW’s investment book would be valued at about Rs.64 per share.
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However, the caveat here is that though the market value of the investment book may be much higher than the book value, it must be capable of value unlocking through a sale of those shares at market price. Companies that do not actively manage their equity portfolios and cross-holdings between group companies may not lend themselves to such unlocking. Moreover, the market value of the investment book too is directly related to the state of the stock market and any meltdown could lead to a swift mark-down in values.
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<strong>Beware the black swan </strong>
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</strong>More often than not, while such triggers have made stocks outperform the broad market till now, they may not continue to do so. Investors should primarily base their investment decisions on a company’s core business fundamentals.
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The Bajaj Auto demerger is a case in point. Contrary to the general market sentiment that demergers are good for shareholders, the stock crashed by about 13 per cent after the terms of the demerger were announced; the stock continues to languish despite a bull market. Investors expecting value discovery for Bajaj’s insurance business were caught off-guard on disclosure of a call option at a nominal price with its insurance partner, Allianz.
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This came as an unpleasant surprise to market participants who were pegging up Bajaj’s insurance business at about Rs 600-1000 per share. Such damp-squib occurrences are rare but they prove that investors may be better off going by stock fundamentals for long-term investments.
</p>toughieehttp://www.blogger.com/profile/02759275828341278190noreply@blogger.com0tag:blogger.com,1999:blog-16574038.post-69801122902769402132008-01-19T15:02:00.000+05:302008-01-19T15:05:09.249+05:30The "Decoupling Thesis" plunges over the cliff<div align="justify">Friday’s steep fall took the Sensex down 10.3% from its high of 21,206 points reached on 10 January. The speed of the fall has been unnerving but then, so far, we in India have scarcely been affected by the carnage going on in the world equity markets. </div><div align="justify"></p><p>
If a bear market is defined traditionally as a 20% drop from a market peak, then global markets are perilously close to it. The MSCI indices of nine markets in the developed world are trading at 15-19% off the levels they were at three months back. That includes Japan, down 17.6%, and Singapore, down 17.4%, (data for three months to 17 January). The MSCI World index is down 14%.</div><div align="justify"></p><p>
Emerging markets haven’t escaped the sell-off. The MSCI Emerging Markets index is down 13.58%, but if you calculate the index from the peak reached on 31 October last year, it’s lower by 15%. The Far East countries have fared even worse, with the MSCI EM Far East index down 18.5% in the three months to 17 January. In the middle of this bloodbath, the Indian market has so far been the exception, with MSCI India up 3.46% in the three months to 17 January, although Friday’s dive would have sent us into negative territory. Malaysia, up 4.2% over the same period, is the only other Asian market in positive territory. MSCI China has fallen 26%.</p><p></div><div align="justify"> </div><div align="justify"><a href="http://www.livemint.com/2008/01/18205253/THE-DECOUPLING-THESIS-PLUNGES.html?atype=tp">Click here</a> for the full article.</div>toughieehttp://www.blogger.com/profile/02759275828341278190noreply@blogger.com0tag:blogger.com,1999:blog-16574038.post-91301611128245848182008-01-12T12:37:00.000+05:302008-01-12T12:44:01.283+05:30'Guru of Wall Street gurus' bets on value investing in Indiaby Sanat Vallikappen - DNA Money
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Cheap, ugly, obscure and otherwise ignored: these are characteristics in companies that Professor Bruce C Greenwald of the Columbia Business School looks for when he makes an investment decision. Being one of the leading proponents of value investing, a paradigm of investing pioneered by Columbia University's Benjamin Graham and David Dodd in their 1934 text, Security Analysis, it's no surprise that Greenwald likes such companies.
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Value investing, as the term suggests, works on the assumptions that the market is inefficient, and involves buying companies whose stock price appears cheap when viewed against its fundamental intrinsic value. For a lay Indian investor, who has been in the middle of a secular bull-run right from April 2003, and who has since seen everything he touches turn to gold, Greenwald may come across as rather conservative.
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However, Greenwald feels his strategy would best fit the Indian investor. "When Indians plan for their kids, and their kids' kids, that's very long-term planning. Value investing is about planning for the very long term, maybe 30 years," he says. But will it work in India, where every stock is on overdrive and does not exhibit the characteristics that compel Greenwald to invest. "There is always something, somewhere that will look underpriced, and therefore attractive," says this academic, who has been described by the New York Times as "a guru to Wall Street's gurus."
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"It does not work for a company that is doing extremely well, and whose stock price gives you lottery ticket-type of returns," he says. Rather, he says his approach to investing works for companies that have a good management, the industry in which it operates has large entry barriers, has a geographic competitive advantage, captive customers and economies of scale, but whose share price may not have taken any or some of these into account. "An investor like Warren Buffett would like such a company," says Greenwald.
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"When you buy a stock, you buy it presuming that it's undervalued. But in the same transaction, there is someone else selling it, thinking it's overvalued. One of you have to be wrong," he says. Again he advocates value investing to be the key to make you be on the right side of the transaction. "Strikingly and disproportionately successful investors have shown this," he says, adding that one of the prominent aspects of value investing is that it does very little by way of forecasting.
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Greenwald feels that growth investing, in which investors put money into companies that exhibit above-average growth, even if the share price looks stretched, is riddled with a problem. "A company has to invest to keep growing. It needs to pay the people who pay for that investment. Growth is good only if earnings on the new assets being produced with fresh investments are more than the cost of producing those assets," he says.
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For the lay investor, the value approach, which uses all information from the balance sheet and organises information by rank from reliable sources, may be a tough nut to crack because of the lack of access to such information, and their inability to calculate intrinsic value. For Greenwald, it would be enough if professionals (read mutual fund managers) in India adopt this approach, and pass on its benefits to retail investors in their funds.
</p><p></p>toughieehttp://www.blogger.com/profile/02759275828341278190noreply@blogger.com0tag:blogger.com,1999:blog-16574038.post-25380297029184391542008-01-11T20:20:00.000+05:302008-01-11T20:24:56.174+05:30Some Indian Shares Offer Shelter from Volatility<div style="text-align: justify;"> </div><p style="font-family: times new roman; text-align: justify;" class="times">By Krishna Pokharel - WSJ
</p><p style="font-family: times new roman; text-align: justify;" class="times">Looking to booming India as a haven from the world's skittish stock markets in 2008? If so, here are three sectors -- and three stocks -- that analysts say are poised to outperform this year: infrastructure, consumer goods and education.</p><div style="text-align: justify;"> </div><p style="font-family: times new roman; text-align: justify;" class="times">Although India's surging economic growth is projected to slow somewhat this year as the effects of tighter monetary policy are felt, there is widespread confidence here that the expansion will continue even with a slowdown in the U.S. According to a recent report by U.K.-based accounting and consulting firm Grant Thornton International, Indian businesses are the most optimistic among the 34 economies surveyed about the prospects for increased profitability and exports and about the economic outlook in 2008.</p><div style="text-align: justify;"> </div><p style="font-family: times new roman; text-align: justify;" class="times">India's stock market, steadily on the rise since 2005, therefore still has a lot going for it, analysts say. In the first days of 2008, when the major world markets have been buffeted by fears of a recession in the U.S., the Bombay Stock Exchange's 30-stock Sensitive Index, or Sensex, added 2.6% on top of its 47% jump last year. The index hit a new high Tuesday, closing at 20873.33, and fell yesterday 3.55 points, or 0.02%, to 20869.78 after hitting a record high of 21113.13 in intraday trading.</p><div style="text-align: justify;"> </div><p style="font-family: times new roman; text-align: justify;" class="times">Among analysts, Lehman Brothers, for example, projects the Indian stock market will grow by 18% to 20% in 2008. Macquarie, too, predicts double-digit percentage gains and has a year-end target of 24000 for the Sensex.</p><div style="text-align: justify;"> </div><p style="font-family: times new roman; text-align: justify;" class="times">But within the broader market, many analysts see the infrastructure and consumer-goods sectors as set to perform particularly well. Education-related companies could also emerge as hot stock picks, some analysts add.</p><div style="text-align: justify;"> </div><p style="font-family: times new roman; text-align: justify;" class="times">Infrastructure is seen getting a boost from increased government spending and private investment in power generation, telecommunications, roads, ports and airports. The government late last year projected total infrastructure investment of about $500 billion over the next five years, 2.3 times the total projected to have been invested in the sector in the preceding five years.</p><div style="text-align: justify;"> </div><p style="font-family: times new roman; text-align: justify;" class="times">Nipun Mehta, director and chief executive of Mumbai-based Unitis Tower Wealth Advisors, is bullish on the infrastructure sector in general and likes Punj Lloyd in particular.</p><div style="text-align: justify;"> </div><p style="font-family: times new roman; text-align: justify;" class="times">Punj Lloyd is an engineering and construction outfit that builds and designs facilities such as transport systems, nuclear-power plants and pipelines. It is India's second-largest engineering company by sales, after Larsen & Toubro, and has recently entered real-estate development and shipbuilding.</p><div style="text-align: justify;"> </div><p style="font-family: times new roman; text-align: justify;" class="times">"Punj [Lloyd] has a healthy order-book position and is expected to have consistent profitability over the next few years," Mr. Mehta says.</p><div style="text-align: justify;"> </div><p style="font-family: times new roman; text-align: justify;" class="times">Mr. Mehta's target price for Punj Lloyd stock in 2008 is 700 rupees (almost $18). Shares closed yesterday at 545.65 rupees, down 2.85 rupees.</p><div style="text-align: justify;"> </div><p style="font-family: times new roman; text-align: justify;" class="times">Unitis said it doesn't have an investment-banking relationship with Punj Lloyd, but declined to clarify its share-ownership position.</p><div style="text-align: justify;"> </div><p style="font-family: times new roman; text-align: justify;" class="times">Consumer-goods companies are also expected to perform better in a stock market that may be more volatile this year. Their shares were hit in 2007 by margin squeezes as they cut the prices of their goods, but analysts say that when there are concerns over market volatility, Indian consumer-goods stocks generally give more solid returns than do manufacturing stocks.</p><div style="text-align: justify;"> </div><p style="font-family: times new roman; text-align: justify;" class="times">A lagging sector last year, consumer-goods stocks have been among the top performers on the Bombay exchange in the early going this year. In 2007, with sector indexes like realty and banks surging by 73% and 60%, respectively, a key consumer-goods index rose by just 19%. This year so far, the consumer-goods sector is up 7.2%.</p><div style="text-align: justify;"> </div><p style="font-family: times new roman; text-align: justify;" class="times">Tobacco and tobacco-products producer ITC, based in Kolkata, is a favorite of T.S. Harihar of Karvy Stock Broking in Hyderabad. He argues that institutional investors' interest, and buying, will be centered on "defensives" -- stocks that are more stable in periods of volatility, especially consumer goods and pharmaceuticals. This adds up to richer valuations for such companies, Mr. Harihar says.</p><div style="text-align: justify;"> </div><p style="font-family: times new roman; text-align: justify;" class="times">At the same time, Mr. Harihar believes ITC's stock could get a lift from spinning off businesses such as retail and e-marketing from its core business of cigarettes. The company hasn't disclosed any restructuring plans, however.</p><div style="text-align: justify;"> </div><p style="font-family: times new roman; text-align: justify;" class="times">"We believe that the brand equity of ITC and the hidden value in its retail and e-Choupal business [an online information and marketing portal for farmers] is yet not captured in its price," says Mr. Harihar. His target price for ITC stock in 2008 is 350 rupees, which would represent a 54% gain from its Wednesday closing price of 227.95 rupees.</p><div style="text-align: justify;"> </div><p style="font-family: times new roman; text-align: justify;" class="times">Karvy doesn't have an investment-banking relationship with ITC or own the company's shares.</p><div style="text-align: justify;"> </div><p style="font-family: times new roman; text-align: justify;" class="times">The stock-market wild card could come from an intriguing new sector on the Indian market: education. Some analysts think it is about to take off, with the burgeoning middle class giving priority to better schooling for their children.</p><div style="text-align: justify;"> </div><p style="font-family: times new roman; text-align: justify;" class="times">Gurgaon-based Educomp Solutions is one of the few listed education companies on the Bombay exchange, and a key pick for Ketan Karani at Kotak Securities in Mumbai. India's young population and rising middle class are willing to pay more for career-enhancing education, which is expected to make the commercial education sector increasingly lucrative.</p><div style="text-align: justify;"> </div><p style="font-family: times new roman; text-align: justify;" class="times">Because education-as-a-business is now emerging as a key theme in India, Educomp could continue to be a good opportunity to get in early: "It's a niche play right now," Mr. Karani says.</p><div style="text-align: justify;"> </div><p style="font-family: times new roman; text-align: justify;" class="times">Mr. Karani notes that Educomp is the leader in the sector and was one of the top performers on the Bombay exchange in 2007, with its shares soaring more than five-fold to 4,750.45 rupees. The stock closed at 4,360 rupees yesterday.</p><div style="text-align: justify;"> </div><p style="font-family: times new roman; text-align: justify;" class="times">Despite Educomp's strong performance last year, Mr. Karani has an 11,000 price target on the company for 2008, up more than double from its current level. He sees the company's stock rising to 20,000 rupees over the next three years.</p><div style="text-align: justify;"> </div><p style="font-family: times new roman; text-align: justify;" class="times">Kotak doesn't have an investment banking relationship with Educomp, or own its shares.</p><p style="font-family: times new roman; text-align: justify;" class="times">Source: WSJ</p><div style="text-align: justify;"> </div><span style="text-decoration: underline;"></span>toughieehttp://www.blogger.com/profile/02759275828341278190noreply@blogger.com0