Archive for the ‘Investing tips’ category

Shankar Sharma: You are wrong!

September 1, 2008

“Sensible soundbytes” is an oxymoron. This is what a great author has said. So if most of you know what is a black swan, you know who I am talking about.

I normally do not watch much TV – except for Ramayan or Animal Planet with my daughter. However, I am many times under great pressure to watch the business channels – from friends in the media.

Yesterday, I believe, Mr. Shankar Sharma came on NDTV Profit and said “The index will not reach 100,000 – not in my life-time – and may not be in your life time too, and you are much younger than me.” Frankly, Mr. Sharma you look young, and maybe you are about 45 years of age. However, for our purposes may I please assume you are 50? May I also assume that you will live to the age of 72 years? i.e. we are talking about 22 years. May I also assume that India will grow and there will be inflation in India? i.e. we are talking of 6% growth + 6% inflation. That is we will get a growth of at least 12% p.a? I know about standard deviation, and I also know that we will not grow at this constant rate….however 12% over the next 22 years will happen.

On this assumption Mr. Shankar Sharma the index will grow as follows:

50 16,307
51 18,753
52 21,566
53 24,801
54 28,521
55 32,800
56 37,720
57 43,377
58 49,884
59 57,367
60 65,972
61 75,867
62 87,248
63 100,335
64 115,385
65 132,693
66 152,597
67 175,486
68 201,809
69 232,080
70 266,892
71 306,926
72 352,965

Jim Rogers says Bernanke should resign!

August 25, 2008

Jim Rogers (famous for: Biker and Quantum fund) in a free wheeling interview to MoneyMorning.com says some fearful things. Jim is too famous and has some

Indeed, the U.S. financial debacle is now so ingrained – and a so-called “Super Crash” so likely – that most Americans alive today won’t be around by the time the last of this credit-market mess is finally cleared away – if it ever is, said Rogers.

The end of this crisis “is a long way away,” Rogers said. “In fact, it may not be in our lifetimes.” During a 40-minute interview during a wealth-management conference in this West Coast Canadian city last month, Rogers also said that:

  • U.S. Federal Reserve Chairman Ben S. Bernanke should “resign” for the bailout deals he’s handed out as he’s tried to battle this credit crisis.

  • That the U.S. national debt – the roughly $5 trillion held by the public- essentially doubled in the course of a single weekend because of the Fed-led credit crisis bailout deals.

  • That U.S. consumers and investors can expect much-higher interest rates – noting that if the Fed doesn’t raise borrowing costs, market forces will make that happen.

  • And that the average American has no idea just how bad this financial crisis is going to get.

“The next shock is going to be bigger and bigger, still,” Rogers said. “The shocks keep getting bigger because we keep propping things up … [and] bailing everyone out.”

When Jim Rogers speaks…you listen!

Economist is predicting a weak rupee

August 8, 2008

Economist is too respected a magazine to ignore. It also takes a balanced view of things. Many times they are right, sometimes of course, they could be wrong. Here I am reproducing a part of an article where they have spoken about India. Here, the quote starts, the highlighting is mine.

“This year foreign capital has gone into reverse at the same time as India’s current-account deficit has widened sharply. Sharmila Whelan, an economist at CLSA, a brokerage firm, forecasts that India’s current-account deficit will rise to almost 4% of GDP in the current fiscal year, and to 5.5% next year. Not only is the trade deficit soaring, largely as a result of higher oil prices; the overseas earnings of Indian IT services companies (two-fifths of which come from the financial sector) are likely to shrink this year.

The nature of the capital inflows financing a deficit also matters. Foreign direct investment (FDI) is less volatile than speculative capital inflows. If we assume that net FDI continues at last year’s pace, then it would more than finance the expected current-account deficits in Brazil and Mexico this year. In contrast, net FDI might finance less than one-third of India’s deficit and only one-sixth of South Africa’s, implying that their currencies are more at risk. The rupee has fallen by almost 10% against the dollar since late last year. Ms Whelan forecasts that it will drop by another 9% by March 2009.”

Risk is : when it happens!

July 16, 2008

For many people understanding risk and preparing for the same is unheard of and non-existent. Here we are talking about a nice educated class of people who hold high positions and handle a lot of money.

Like a friend says “Risk for these organisations is the quality of people they have hired to look after risk”. One risk manager says that risk for these organizations arises from the fact that they have employed such poor quality risk managers (Oh, they have fancy designation right from Risk officer to Director, Risk!)

It might shock some readers to know that for a long time (no clue whether it is now rectified) Citibank had no director level representation for risk. Shocking, I should say.

But after spending 20+ years in the financial services industry, do I understand risk? Not really.

I pride myself in choosing clients with whom I will do business – Hdfc mutual fund, Hdfc bank, Kotak, Icici, ING, SBI, Templeton, Hdfc standard life insurance, Icici prudential, …etc. However in a weak moment I did one small assignment for a Real estate marketing company based in the suburbs of Mumbai. My bill was a small amount. However for the assignment done in April, I am still awaiting for my payment!!

My father in law had a fixed deposit in Shriram Transport finance. When it came up for renewal I suggested he withdraw the same and put it in South Indian Co-operative Bank Limited. My logic was if there is a group whose MF has been stopped by SEBI it cannot be a good place to keep a Fixed Deposit or buy a life insurance product.

However South Indian Co-operative bank closed down (my FIL, as a senior citizen has recovered most of his money) but Shriram group is doing well, prospering and is paying on time.

However my father in law has stopped asking me for advice!! Luckily whether it was with a real estate marketing company or with my father in law, both the risks were managable because of the size of the transaction.

Inflation: Is Gold a good buy?

July 11, 2008

There are many reasons to buy Gold and hold it. Of course tomorrow I can give you many reasons NOT to own gold also. One reason NOT to own gold is the recent phenomenon in its price. For example if you had invested in gold in 1980 (US $ 590) today it would be worth about US $ 1300! Not much if you consider inflation, is it? As against the sensex which has gone from 100 to about 13,500 (of course after touching 21000!). And the shares would have paid you nice dividends for holding the shares!

However the following are the reasons to own gold:

1. Global currencies are at an imbalance: US $ is not the only currency which is in bad shape. In fact currencies are today at quite an imbalance with each other. So if you do not know whether to hold your money in rupees, lira, yen, dollar, euro or pounds, choose gold. So clearly as much of cash you will keep in your portfolio is the amount of gold you should be having.

2. Investment demand for Gold is accelerating: yes too many people are touting this as a great hedge. And they prove this by doing a 3 year back testing. Fantastic. If you did a 10 year back testing, it will fail and fail badly.

3. Ben Bernanke is converting all the forest in the US into currency! The Gold system having failed, most Central Bank heads are printing too much of currency. Thankfully they cannot create gold.

4. Huge supply and demand gap: India and China will continue to buy gold, as will many other users!

5. Interest rates are more likely to decline, than rise, internationally, adjusted to inflation.

Tomorrow I will give you at least 5 convincing reasons not to buy gold.

Gold as a hedge in your portfolio works, but works over a very long period of time. If you buy gold because it has been going up it would be a wrong reason to buy. However, the fact is, it may still go up – but please stop expecting to get 36% CAGR, that will not happen, for sure.

Inflation risk and PPf!

June 26, 2008

It is customary for people to say “I do not take any risk in equity markets” all my money is in PPF. Let us look at what are the risks involved in investing in PPF.

First of all most of the people I meet today invest far, far more in a year than the max possible amount of Rs. 70,000 in a PPF account. If you do invest in PPF – say 70,000 in 4 accounts, you have Rs. 2.8 Lakhs invested over a long period of time, your risk is high. If this is a significant portion of your portfolio re-consider your portfolio allocation.

Secondly in a growing economy inflation is a real danger – and most people do not understand this risk. Why people do not understand this risk is of course innumeracy. It takes a complicated mind to understand simple things like compounding (inflation is negative compounding). If inflation stays at an average of 10% you are losing 2% per annum on your contribution to ppf alone!

Though strictly speaking there is not too much to worry about a soverign default, there is a serious risk that an ambitious finance minister will delay the return of your money. Let us say P Chidambaram decides to pay you in 10 instalments – yes alongwith interest, but…

So sorry for being a party pooper. If you have a 16 year view (or 20) put your money in a plan with say 90% of the money in equities and 10% in debt. Rebalance every 3-4 years. Surely you will outperform a PPf.

You can reach me at pvsubramanyam@gmail.com.

Financial planning and women

June 21, 2008

Women surely have some peculiar financial planning needs. We will not do too much in detail here – but suffice to say that some requirements are unique. Though most adult women I meet are married, I guess most of them will die alone – widowed, divorced, or not married at all. So at some stage if you are going to be alone, ensure that you know the basic. You may not know “goal setting” and “budgeting” but surely you should know how to withdraw money from the ATM.

One senior citizen I know gets bullied by her bank RM so she “invests” in instruments he chooses. His branch is right across the city and she spends Rs. 300 on a call taxi everytime she visits the bank. The bank RM has the temerity to tell her – you will not understand TDS so please get somebody along! When she took another senior citizen, he was also told the same thing. Never mind he is a retired Vice-President of a large family group who coolly sent an email to his bank chairman emeritus (who by the way was a family friend). The chairman pleaded inability to tame the “young turks”.

Let us remember one thing – whether you are a man or a woman we as a country are extremely senior citizen RUDE. Whether it is bankers, telephone companies, electricity companies – they behave very, very rudely with senior citizens. I wish I had the energy to start a movement for them like dignity foundation.