However organisations like IOC, Ongc, Air-India were really well run at some point in time. Air India’s murder was started by Ms. Indira Gandhi and continues till today. In the 1960’s Air India was a well run air line which was loved by many people in the WORLD, the Maharaja was a symbol which people would keep in their showcases, the food was great and JRD Tata was the Chairman. Of course the Tata group did not own the airline, it had a reservation policy and was part of what JRD Tata called the ‘Joint Sector’.

However the combined actions of Indira Gandhi and Morarji Desai effectively made it into a lousy airline.

Then came Jet Airways. Nobody was sure who owns it. Fingers of ownership were always pointed towards Dubai, Sharad Pawar,…and many others. One heard on the grapevine that the IPO was delayed to clean up the balance sheet…but nothing came out of it. The service by Jet Airways has always been excellent, the food good, the timings great….

However once they came into play the ministerial mis-managing of Air India was accelerated. Pilots went on strike, aircraft buying got delayed, revival package was delayed…..If Jet was allowed to run AI (with a view to increase the profits of Jet) they could not have done a better job!

So operation ‘Ruin Air India’ is working on full swing. The BJP is of course silent…well that is another story.

Similarly Ongc, Indian Oil, …the list is endless. I know of 2 brilliant people in Indian Oil who were asked to check an agreement that I O C was being asked to sign with Reliance. One clause (which got dropped luckily) was to cost I O C Rs. 200 crores.

Seeing all this one wonders…should my daughter work in the public sector and kow tow to the Babu or kow tow to the goon called ‘private business man’. I am happy that she has to make that choice, not me.

I am convinced that you can build a kind of permanent portfolio – but you need to be thick skinned, and deaf to all the noise around you. I have been told by many well wishers that Hero Honda is fully priced, Colgate will now not perform in the future, Hdfc does not now have the pricing power of the old, …blah blah  blah ad nauseum.

However it did not matter to me.

In fact there are some people who bought some of the shares I recommended but sold off as they were itching for action. My portfolio is dull and boring, but happily beats the index – and that is because of poor index construction, not my superior managing skills. Also my portfolio may not be as well balanced as some fund schemes – but neither do I report to trustees. I was SELLING Ashok Leyland @ 62-63 – when a media company was urging people to buy. Sugar prices are down, but sugar company share prices are high – to me this is enough FOR me to sell. Mahindra Holiday Resorts at 544 looked overpriced and at 440 will look attractive to buy…

And since there are no trustees for whom I have to prepare 40 page notes on why and what, I guess life becomes a little easier. You can use your gut feel to do further research.

And ah! from 18k…till today I am sitting on about 25% cash+ the dividends will start coming in from June-July….so at 14k…can put it to use.

Am I saying the market will come to 14k, NO. I am just saying that buying, selling, fully selling out, moving from the auto industry to the auto ancillary industry,….are all NOT CONTRADICTORY at all. And one can do all this while keeping your portfolio PERMANENT.

Here is somebody with a similar thought process

http://www.marketwatch.com/story/a-portfolio-for-all-seasons-2010-05-19

I agree. I would love to have a big global bank with aggressive growth plans in markets like Asia, Africa, …and other parts. So inspite of the fact that it is not exactly cheap, I think it is a good company in which to put my money, so I will subscribe.

What will happen?

Well companies wait for the leader – then the followers run in. So Sony, Samsung, LG, Hyundai, Nokia, Pepsi, Coke, McDonalds..not necessarily in that order will all want to issue IDRs. This is good because most of them have been subject to much tougher regulations and shareholder movements. So these companies may payout better, there may be some shares more favorably priced.

Am saying this because in our office we ran a dividend yield screen on a world wide portfolio (on Bloomberg) and only 2 Indian companies even came to our list – Ongc and J&K Bank.That was last week – since then Ongc has gone up. Not sure now! If Japan is a yield market, suddenly you might get Sony shares at say 3% yield or a Samsung at a lower p/e than an Indian company.

All this is good news for the media (more ads), merchant bankers (more mandates), brokers, bankers, INVESTORS – Indian companies will learn to treat you better.

And Samsung, LG, Sony, Coke, Pepsi, McDonalds, Hyundai, Volvo, ….may all give you discount coupons. L O L.

Who will buy these shares – retail investors like you and me. Mutual funds – maybe? big investors, …so suddenly there will be a market cap of US $ 1-2 billion. Not bad.

What does the investor get? Exposure to a foreign market which likes dividend yield. Foreign exchange risk – a 10% gain in the foreign market being wiped out by a 10% strengthening of the Rupee…welcome to the world of uncertainty. Again banks will sell you a foreign exchange risk cover…..the circle continues. It is a White Man’s world…

The answer is very simple. Merchant bankers are a nice small clique who also run PMS schemes. So when the ‘Investment Bank’ goes to get a mandate they flaunt their strength in:

a. The retail brokerage network that they have built

b. The HNI clients that they cater to and

c. The PMS services that they run.

Now all these activities actually become some kind of a backward integration for their brokerage business. Thus these clients are told – here is L&T a great company and at an attractive rate of 8.5%. Gilt is not far away at 8% – and for senior citizens there is the senior citizen yojana at 9%. Of course their own executives were busy filling up forms of Mahindra Finance which was at 9% not very long ago.

So if your PMS provider runs a full fledged business in other finance areas, you are likely to buy some of those lemons or violently churn your portfolio. If you must go to a portfolio management service what you should be looking for is:

a non broking PMS provider – whose only income is PMS fees. There are 3-4 such providers in Mumbai and you would be better off with them. One name which immediately comes to mind is Chetan Parekh of Jeetay Investments. However like all sensible people he does not offer ‘PMS’ at Rs 5 lakhs. Parag Parikh is also a PMS provider – but he perhaps runs some brokerage business as well.

In fact the financial planning business does not conflict with thePMS business. However as a planner it makes sense to stick to Index etf as a recommendation instead of pretending tobe able to find the next WIPRO or the next INFOSYS.

Let us leave that job to Vallabh Bhansali of Enam or Rakesh Jhunjhunwala of RARE to do it. Amen.

Markets are driven by 3 factors – Earnings of the companies, the future expectations (price-earning ratio) and the liquidity in the market. In the current market earnings are at their peak – the next couple of quarters is likely to see flat or slowing down of the earnings. This itself reduces the price expectation (or the p/e goes down) and the Greece problems might mean some FII money could get pulled down.

So the market is surely headed down, correct?

Well not so fast. What I told you in para 1 is known to everybody in the market – so you could argue that all this is already played out and therefore the market will remain stable. Difficult to say.

MY PERSONAL view is that some shares in my portfolio that I felt was overpriced and therefore I sold were – GMR Infra, Eid parry (sugar prices are softening), Mahindra Holiday Resorts (looked like a good buy at 340 and a good sell at 544), Hero Honda (needed money to fund Shivam Auto an auto ancillary), Cummins (at some stage in life you need to sell some shares – been holding it for 19 years, so sold a miniscule 200 shares), Dabur, Marico, (fmcg was fully priced??), Ashok Leyland (had a choice of holding on to Tata Motors or ALL, sold ALL), Kerala Ayurveda (If I did not know why I bought how can I tell you why I sold!!?? – but made a fantastic 30% return over a 2 year period, so no regrets), Idea, Themis Medicare (bought @ 188 sold @ 298 – bought because the fundamentals were improving, the p/e was not, SOLD because it went up too fast. Had thought it would reach 300 in a year’s time – it reached in a months time. Serendipity ??)

Shares which I felt was not yet fully ripe to sell, but might fall in the market – Cholamandalam Investment, Coromandel Fertilisers, Gillette, P&G, Colgate, Hindalco, Tata Steel, Hdfc, Bharti Airtel,  – cannot go against the sentiment.

Shares which there was no logic in holding but am still holding – Deccan Gold, Crest Animation – will surely fall, but no action to be taken perhaps purely on sentiment. Sad.

If you are in the mutual funds continue your SIPs – those people who continued their SIP in 2008 and 2009 are better off compared to those who shut it in 2008 waiting for the market to improve!

I do not know whether I am being old fashioned, but it is difficult to see the ‘packagers’ and fixers earning much more than the people who are creating the product. Of course it is the markets which decide whether Lalit Modi should earn more than Sachin Tendulkar, but just because you are a fixer name Jitendra Singh and you find the head of the medical council for fixing you cannot have 4 Mercedes Benz, …and other luxury items worth a few crores in your house. Come on, very few doctors in the country can afford one Merc! MBA education, Financial literacy, becoming a doctor,….need some rating system and the government to just go away from these fields taking their subsidy along with them. Let people pay and get good stuff. Last week I had dinner with a person who is waiting to sell a huge college with lots of land in prime Mumbai. At the price that people are willing to buy it, the fee for becoming a doctor will have to be $ 100,000 + ….so start preparing to pay high fees for your medical requirements!!

Her piece ‘So you think money is the cause of all evil?………..and the few pages following that are of course a classic.

Here I found a link for those fans…and those who are too …..to read the whole book….

http://www.capmag.com/article.asp?ID=1826

However, now I am being offered shares of Talwalkar (the fitness people) priced at a price-earning ratio of 44.

The logic?

Subra, itna gyan mat laga…simple theory hai. ‘The trend is your friend’. The trend that is being hawked to me is ‘These days (i guess it must be last few months) many shares are getting listed. Those companies which do not have any peer comparison are going up quite a bit.

Take a look at Mahindra Holiday Resorts, Cox and Kings, Jubilant Foods,….now Talwalkar which has no peer in the space will fall in the same line. So tal….will open at a premium.

Amazing sales technique. Am I applying? No idea. Have the forms, will decided on ASBA terms that is all…LOL.

Let me now share some broad themes that I have liked over the past 4-5 months. I have not been comfortable with the market levels nor the theories saying ‘Liquidity is driving the market’. So I started looking for companies which fell much more than what was warranted and had not yet recovered, companies which had made mistakes but corrected – but the market was refusing to accept the change in management stand. Fairly obvious these were not shares that were very visible to the media (thankfully).

The 3 companies that I found and bought were Essel packaging (bought at 41), Cholamandalam Investment and Finance (bought from 34 to 69), Themis Medicare (bought at 180). One more theory was to shift from auto to auto components – so went and added some Pricol (from 14 onwards), Shivam autotech (bought from Rs. 88)…funded partly by selling Ashok Leyland and Hero Honda. Why? Europe and US auto industry doing very well….

So far no regrets….!!

Companies where I have no clue what is happening but still in my portfolio (in somebody else’ s portfolio, I would have screamed!!), are Deccan Gold, Kerala Ayurveda, Crest Animation, Mukand Engineering, – however I keep selling these shares at a particular price and buying it back if it comes down. For example sold Kerala Ayurveda (partially) today ….may get a chance to buy it back.

Please note that at the time of writing I have all these shares in various quantities…but could sell, buy back, do delivery based ’shorting’…so please do not copy what I am doing. This is just a ‘vishesh tippani’ that I am doing. Could be completely wrong – have gone wrong ENOUGH  no. of times in the past.

Infosys: My investing guru asked me to buy it when this share was available at Rs. 100, I did not. Luckily for me met him again when the price was Rs. 300. I bought 300 shares. Then in a very short period it went to Rs. 700. I sold. Then did not buy Infosys again. Oh la la la!

Learning: Held on to Hero Honda from Rs. 40 till date, but sold a few shares in between. Holding period: 24 years +

Bharti Airtel: The same person asked me to buy this share at Rs. 80. I told him…Oh God I missed it at Rs. 30. He said you WILL tell me the same thing at Rs. 400. So I bought at Rs. 80 and sold at Rs. 1200. Why am I cribbing? Bought only 200 shares.

Mistake: Betting too little.

Learning: Really nothing. For me betting 10% of my net worth looks IMPOSSIBLE. However if a share grows to that level, I am comfortable holding on to it. Sounds stupid? Behavioural finance at work!!

Ask Parag Parikh what this means…ppfas will have the answers…

Gujarat Ambuja Cement: Bought at Rs. 18 held for 2-3 years sold at Rs. 40 or Rs. 50 (not sure)…maybe even Rs. 70. Mistake: Selling too early.

Financial Technologies: Same adviser asked me to buy it at Rs. 50. Ignored the advise. He sold 3000 shares at Rs. 2500. Nice lesson.

Satyam: Was asked to buy it at Rs. 30. Did not buy it. Reason: Did not like the broker who recommended it. He has never been trustworthy. Frankly no regrets.

DLF: At various prices many people asked me to buy it (even at Rs. 200 when it hit its low). Did not understand the balance sheet. Still do not understand land banks…no regrets though.

Missed all the KP shares – because they were in the portfolio of a mutual fund – most people who have been around long enough know which fund! No regrets, have my pants intact!

So many mistakes made – some cheap, some expensive, some not so stupid in retrospect!!

After saying so many things about my blunders, let me tell you the companies where I made some money too! Lest you think of me as a bumbling idiot…and let us see if there is a pattern.

The companies which earned my family nice money are Coromandel fertilizers, Hindalco, EID Parry, Tata Motors, Cummins, Tata Steel, Tata Power, Tata Investment corporation, Tata Tea, Tata Chemicals, Hdfc, Hdfc bank, Hindustan Oil Exploration, Carborandum Universal, Hero Honda, KCP, Areva, Reliance Industries, Indian Hotels, L&T, Grasim, Titan, Cholamandalam Investment and finance, Colgate, HUL, Gillette, P&G, Basf, Cadbury, Hoganas, Kodak, Biocon, Ntpc, Siemens, Lakshmi Machine Works, …please remember these shares were bought in the 1950s (before I was born), 1970s (Fera dilution), 1980s (Hero Honda is perhaps the youngest company in this list), – amazingly long holding period. The dividend income is sufficient to pay for the day to day expenses and right issues if any. Some of these shares were bought in an IPO and some in the secondary market..

Notice a pattern?

1. Barring a few all very, very focused companies.

2. Mostly in dull boring business. I did not make too much money out of Infosys, Biocon, TCS, Idea, Bharti Airtel, – largely my investments were too small. My fault.

3. Almost all the companies in the list are from ‘conservative’ houses – Tata, Birla, Murugappa, Hdfc - but the shareholder returns have been ‘aggressive’.

4. Other than 2-3 companies all other companies are very very high on ethics and corporate governance.

5. Only Cholamandalam’s activities were shareholder value destroying in the past 7-8 years, but now they are on a correction path (hopefully!). As a shareholder I did feel sad and unheard, but watched the ‘employee without a stake’ shatter value. Recently added some more shares to the portfolio.  

6. Kodak, ITw signode, Cadbury and Hoganas – were lost to a buy back. Surely will lose P&G, Oracle, Gillette, Basf, Ingersoll Rand, Mico to buy back, but now able to anticiapate this and am ready for it.

7. I added to these shares whenever I could. Can never forget this dialogue with my broker :
Broker: Buy 200 shares of Hindalco….(remember it was a Rs. 10 share)

myself: Oh, I alreay have it ..!!

Broker: (After a pause) I just checked with Mr. Aditya Birla (remember Kumar’s father?) he has no objection if you increase your holding by 200 shares”

So adding to my portfolio (when it is attractively priced) and selling when aggressively priced TO THE SAME SHARE has never been an issue. I have Tata power bought at Rs. 100 as well as Tata power sold at Rs. 1600+. It has never been an all or none kind of a game

hope there is a learning from all this…!!

Computer Point, Chokani International, Chimique Laboratories, Svadeshi Mills Limited, Shaan Interwell Ltd, Maikal Fibres, AMEI Power, Krishna Filaments. Collective value NIL. Cost price: A couple of lakhs in the 1990s.

So on an opportunity cost basis worth at least a million if not more…and like the Englishman says “One day if we can laugh at our mistakes……”

Well these are the costs of seeking alpha. These shares were bought because a cousin’s friend said it is a good buy. One was because a friend’s cousin said it is a good buy. One because the Chairman was buying (I got carried away by titles in my younger days – did not realise that if you create the company, YOU HAVE TO be the Chairman – after all nobody else will . One chairman used to call himself a partner of a big CA firm. He was actually only a Director. LOL.

One company was raided on the basis of information provided by his brother in law. There was Fera violation, Income tax violation, …the works.

One company Chairman laughed when I asked him if was in trouble. One month later he committed suicide. I have not mentioned his company name – his children are still around. Simple decencies for a guy who stole money from all and sundry but did big time charity (if u can call distributing stolen money charity).

The worst thing is not only I lost my money I also lost it for some of my friends, relatives, sister, father, cousins, ….naively believing alpha chasing is fine. I still find many people chasing alpha….now as the Englishman says ..”I hope I can laugh…..”