Reading Book- Extraordinary Popular Delusions and the Madness of Crowds

Very apt time to read this book. Though written in 1841, nothing has changed in crowd behavior. I suppose following herd is hardwired in our brains. 

But you may wonder that all informations explosion would have changed us but I have serious doubts on that especially if you read works like Predictably Irrational. I have recently read a lot on Behavioral Economics and now have firm belief that all we read in our MBA classes like those beautiful theories on rational behavior does not even apply to lowest of animals let alone apply to most complex of all- Homo spines.

If wondering why I am writing about all this in blog on value investing and value stocks in India, reason is simple as on date I have all given up trying to find value stocks in Indian market. All these FII money is making this value definition absurd. All these crazy guys from defunct economies have target returns like 3-4% while to me in India just to beat inflation it has to 15% atleast( don't believe in government figures of 7-8%). So when I want returns of at least 25% from stocks (it has be atleast that to account for inflation and all scoundrels who go by name of promoter/ management in India) but these FIIs are happy with 3-4%. Someone has to give up and these FIIs run by Ivy league minted MBAs running(ruining may be closer to truth in long term)  other people's money to get rich themselves are on high and each riding after one another to pray at sensex. I have little hard earned money to invest so I give up and spend all time to read some great books. Even bought a Kindle. So happy reading till these idiots are over with ruining other people's money.

Happy reading....

Value Investors go on Holiday

Well again it is back to good times and there is optimism all around. I have been trying to look for some value stocks for last few months and it has become as really tough task. Even when I spotted something interesting, by the time I finished analyzing it ran up 20-30%.

So what to do these days. Just ignore this market, read some books, spend some time for other hobbies until we again hear some scandal about market or again financial news is filled with some crisis.

Can problem turn into solution?

Now that is rather silly heading for a blog focused on value investing. But these days I can't find a stock worth value so writing about markets and economy. Now these days every market seems to be booming and feel good factor is back. People are again talking about investing in a manner if not now, we may not get another chance. Not yet maniacal like in 2008 but air is now filled with expectation. One thing that seems to have changed is liquidity. Central Banks have lowered rates to all time lows and governments are spending without eye on revenues. This again has provide market with cheap money and whether it is going in to productive capital investments -NO. It is all going into speculation. So what is problem. Simple -something cheap is never valued. So cheap money will chase all kind of investments-even those with high risk and low return. This is exactly what happened in earlier collapse of financial markets. Cheap money was invested in poor real estate assets.

Now how a cause of problem be a solution to the same problem. We are living in fantasy world with all central bankers and governments patting one another for having saved us from crisis with their action. So you can cure drug addict by giving it more drugs. Oh! it will only provide some relief from symptoms with higher doses required every time but will it cure drug addiction.

Solution by governments and bankers of providing liquidity by fiscal incentives and loose monetary policies is exactly like giving more drugs to drug addict. It will solve problem for now but it will be bigger once effect of drug tapers off.

Sooner or later we have to take patient off drug and later we do will be more painful.

Corporate Salaries - Just rewards or Loot

Recently there is some discussions on high salaries paid to corporate executives and debate on regulating salaries. Corporates raised hue and cry on attempts to regulate but questions that shareholders need to ask whether these highly paid executives bring value to their ( yes their ) company.

One striking example in recent times is Sun TV Network. It paid its MD & Joint MD (Wife of MD), Salary of Rs.37.08crores(Rs.370.8million) each for Fy09. This is as good as 21.8% of entire year's profits. Wonderful super executives of India. Does anyone know value brought in for shareholders by these two. super-executives. If the company can fire these two it will immediately add 20 odd % to its bottom line and I don't think any harm to shareholders. You can get  better MD for that kind of job at 1-2crore. And if you read list of top earners in India, it will be full of controlling shareholder and their wives, sons, daughters, in-laws. I use word controlling shareholders, because in truth they are just that NOT owner as media of Page3 analysts will like us to believe and they are treated as owners by government also, which they are not.

After a phase of over regulation India has swung to other extreme. No regulation at all. And that has happened before institutions have been built like in US to counter these forces. We need a corporate democracy movement similar our voting democracy where we through out these Laloos, Mulayams, Paswans and Co after 5years. These promoter- owners running publicly listed companies as their proprietorship are no different from those looters of public money as they steal public wealth of shareholders. 

Greed is back

Last few months have seen remarkable change in sentiment. Suddenly everybody is talking about markets again and trying to guess next high. Not only stock markets, other markets like real estate, gold is showing same story. Just few months back world seemed to be so closer to doom at least financial world. Now what has changed? Well it has always been like that. We are now in season of greed after a bout of fear. How it affects us value investors? Life becomes difficult now as search for value gets difficult. There is hardly any asset class where you can find value. Just look at real estate, rental returns on my home is 2-3%. i don't understand why should I buy a house. Stocks have simply doubled or tripled in few months with out any increase in earnings or surety of growth. So these days I feel it is better to watch market from sidelines. Keep your buying list ready for one day this bubble will also burst and then you can buy on fire sale prices.

Great Indian Real Estate Scam in making

Now a days all newspapers are full of recovery in real estate prices and bottoming out. But this seem to method in this chorus as everybody is singing same song. All developers are launching page full of ads for new projects.

Some serious questioning-

1. What has happened to all the fancy projects launched in last 3 years? Is any of these near delivery?

2. If these realtors( including top5) have no money to complete projects launched three years back and are in near default to banks saved only by RBI's generosity in allowing debt restructuring to save banks, where is all the money gone?

3. No award for guess where money raised for new projects will go? to repay debt of banks and mutual funds who restructured their debt in Feb/March.

4. So how they will complete existing and new schemes?

5. DLF is coming with second phase of DLF Green in Delhi. Have they even put a stone in last six months in phase one, they so proudly declared to be sold out?

6. Affordable pricing ?? BIG nonsense. All projects located in god-forsaken locations where even ghosts will be scared to stay.

7. 30 mins from CP 10 mins from Delhi border. NOT by ROAD certainly? What about 1 hour traffic jam for free in between

7. How it happens that every project is just few kilometers from some dream Metro or Expressway? Somehow these developers have dreamed of 101 metros and expressways note seen by Government Planners

8. All ads advise you to buy or never? Interest rates rising soon. Prices will go up soon. If paper advice is not enough, there are international consultants thrown in- Like John Le Salle something kind all bunch of high sounding all knowing experts. Every body has got stake in this artificial boom. How you consultants earn bonus if no boom? How you private equity players get millions to invest if no boom? How you will repay debt to avoid bankruptcy if prices do not recover ? How all these banks and mutual funds avoid NPA if no boom? How you newspaperwallahas earn for page full of ads if no boom? And what will happen to job of those special realty correspondents these business papers hired in boom time?

DEAR Friends - WELCOME TO GREAT INDIAN ROPE SHOW.

QuiZ to end-

Harshad Mehta

CR Bhainsali

Ketan Parikh

...........................??

Good time to buy stocks

With news of recession all around, I again feel like buying something. One of stocks I feel particularly good value is CRISIL. It being a rating company, there is no reason for it having any less work. In fact its work should only increase due to implementation of Basel 2 norms under which banks will get its loan rated. Further credit lending by banks declined sharply, now corporates will be forced to come out with some public issues of debt. All this means increased income for rating agencies and Crisil being largest stand to garner maximum benefit. In fact it is already being reflected in its rising profits and thus resulting in lower P/E ratio. P/E has come down from range of 20-25 to less than 10 in last 12 months and with still good growth in profit, it looks a great buy in times of recession.