However I am not for buying an IPO -EVER. Now LinkedIN was a company created in 2003 and it was doing well in 2008 and 2009. Who decided to do the IPO in the year 2011 instead of say 2007 or 2009? Well, it is the merchant banker and the management of the company.  So that is how the year 2011 was chosen.

Who priced LInkedIn at $ X instead of $ Y? Well again it is the same combination of the board of directors and the merchant bankers. Assume that they had done their home work and decided that this was a good price. Rather they thought this is the price at which the share will sell. If they felt it could sell at say 1.2X $, they would have priced it at that price.

How did the market decide to price it at 3X $? well we do not know. Does the cash flow justify it. Well that you will know ONLY WHEN YOU SEE THE FUTURE CASH FLOWS. Today to say it is over-priced or under-priced is of no use. Currently you are buying it on hope – and hope is not a good strategy!

In general just buying an IPO and hoping to make money in the days of smart (over smart?) management, rigged markets, aggressive merchant bankers and a rising market is a TERRIBLE time for IPO buying. IPO buying in a down market (if there is any company desperate enough!) is a far smarter idea. In the current market very few IPOs will leave you any money on the table.

Stay away from an IPO at least in the current situation, or you will be hit by a ‘buyers grief’…almost immediately on listing. There is a lot of research in the US about people not being able to make money on IPOs. In India there is no such research so I have no data to say what would have happened if you had put say Rs. 100,000 in each of all the IPOs and NFOs that came. I guess you would have horribly underperfromed the bank interest, forget the index or the better fund schemes.

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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

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Now the Athletic Federation of India wishes to withdraw support for 3 POPULAR EVENTS. Why does it want to withdraw support? BECAUSE PROCAM THE ORGANISER IS NOT PAYING ENOUGH RENT. The logic is simple – if you want my support, YOU have to pay me rent, or I will withdraw. Now is it a simple deal? Is it like market forces? If I do not wish to pay Rs. 500 for a cup of tea, I do not go to a 5* hotel.

NO with the AFI the deal is not so simple. AFI general secretary Lalit Bhanot has WARNED INDIAN ATHLETES against participating in the race. …if they do…they will be SUSPENDED. THEY will not be allowed to participate in the Common Wealth Games..”If the organisers earn more, they should give us more…says Bhanot”.

http://epaper.dnaindia.com/epapermain.aspx

If you have read Atlas Shrugged (I urge, implore, beg, request, threaten….you to do so if you have not read this book) you see these people who are the rule makers who put creativity at a discount and rule following at a premium. There are many companies like this too.

Not long ago to launch an international fund, there was a rule..that the amc should be atleast 10 years old. To launch international operations the airline had to be 10 years old. NO achievement criteria, just age (oops).

Similar for a company to be in the Index the only criteria is ‘market capitalisation’ – which means when everybody is buying realty, DLF will be in the index. If everybody is buying IT, Satyam will be in the index. However a brilliantly managed chain of boutique hotels WILL NEVER BE in the index. All telecom companies will be in the index, if things were fine Reliance Power (without any installed capacity) would be in the index .

There is a vested interest bias. So the regulator says ‘Pension funds should invest only in the Index’ ….rent seekers all.

If you are a small runner let us all run the Mumbai marathon…damn the AFI.

And do you know how easy it is to manipulate the ‘regulators’? They can pass an order which says how much you can produce, at what price you can sell, to whom you can sell, and how it is unfair to sell to YOUR OWN CUSTOMERS at a lower price, how you should sell to a ‘poor competitor unmindful of the ‘poor competitor’ being the 3rd richest man?

Do not believe it? Read on…http://epaper.dnaindia.com/epapermain.aspx

if you find this article difficult to believe…welcome to the REAL world..and you thought the world was fair? L O L> ROFL > ROFL again and again…

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Star Plus is perhaps the greatest cricket expert who has never played for India. Since they know everything about the game, they should be made the non playing captain of the team. Every ball bowled, every word spoken, every catch taken – and of course dropped, every injury is analysed threadbare.

Conclusion: Indian bowlers bowled badly from the Bangladesh score of 51/5 to 220/8. I have no clue how such an analysis is relevant – for get whether useful.(1st day 2nd Test)

Based on some hear say, some notes, some scribbling, Times Now has concluded that Sehwag group and Dhoni group are at loggerheads. That brings us to players like Yuvraj and Harbhajan Singh – both have very poor track records, at least of late. Their job is simple – keep their place in the team (Yuvraj has a batting avg. of 34 vs. 50+ for the other top batsmen). One in a while they do something, but their income (@ Rs. 50 crores) remains intact thanks to the sponsorship. Everybody is happy. God bless.

Now take this stupid media obsession to the mutual fund industry. Jokers keep saying 3 months performance is not good, one year performance is not good – all this makes for good trp but i have no clue about how it helps the retail investor. No great attempt is made to select a good scheme. Forget ‘survival bias’ I have invested only in 2 fund houses (which have survived!!) and in only 4-5 schemes over the past 10 years. No NFO, no IPO, no mid cap, small cap or …any thing dished out by the mutual fund industry. Surely for a couple of quarters (if not more) Franklin India Blue Chip, Hdfc top 200, hdfc equity, prudence, franklin Prima, hdfc capital builder, Templeton Equity Income  fund, hdfc growth fund, templeton growth fund…- surely my dad has got decent returns – beating the index by a nice margin. However quarter on quarter i have no clue whether they were ranked no. 1 or no. 2

http://www.subramoney.com/book-written-by-me/

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some of the things that i wish to tell my client, but cannot!

1. When I asked you to sell (index 21000) you said ‘it will go to 25,000. Later on you say “You did not say it strongly enough”. Man, you are a genius!

2. Every time I ask you to increase the SIP amount you say you cannot. Yet every 6 months you ask me “when can I retire”. Hey Jerk you cannot retire. Simple.

3. If all the experts on tv are put together you will get your great “Investment confusion plan”. Please print it and implement it. It can make a great reality show.

4. At no time I can be sure you trust me. Surely the sex appeal of a ‘……….” bank employee I cannot provide. Sorry.

5. We advisers deal with money. That sadly means older people. So our enthusiasm is higher if you are younger and attractive. However the best advise is for the people with bigger cheques. Sorry!

6. Most advisers do not have an adviser. They are just too incompetent!!!

7. When an adviser says you need to have Rs. 5 crores for retiring, he/ she means Rs. 10 – 12 crores. The extra amount is for the stupid things you will do with your money while investing!! If you do not  ‘s#$%w’ around with your portfolio, you will need less!

8. If you really cannot afford my fee I will waive it. But goodammit! you are coming to me for investing!!! You cannot be poor can you?

9. Upwards of 90% of advisers do not have a written financial plan. After all Goldman Sachs believes ‘advise’ is for selling, not adhereing.

10. When we meet we agree that bad advisers should be reported – but…..you know how it goes. Where do we start?!

11. When it comes to one family member cheating another MANY of us turn a blind eye….

12. Just because I do not charge you on a per hour basis, it does not mean you can take your phone calls in my room during our meeting!

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“When looking for a fund look for a fund with ‘consistent’ out-performance – especially over long periods of time”.

This myth is so popular, that people who recognise may even lynch me. What is wrong with this is not too many investment advisors know how to compare funds over long periods of time. It is convenient to take a calendar period – quarter, half year or even annual. It could be sheer calendar trick! Just a luck of the fall of the dice as Taleb would have called it (Ok, ok he hates dice as an example). The skill is to compare funds with various dates – say 14th Jan 08 to 13th Jan 09. Picking some random dates and running your screens can stun you from your illusion of saying “I have invested in ABC fund which has been an outperformer for the past 5 years…or some such s*^%t comment that people make. Consistency in a company performance or a fund performance is almost impossible to achieve. I have sat on companies over long periods of ‘underperformance’ – still with an amazing index beating, inflation beating performance including the dividends paid out. Top of mind are Hero Honda, ITC, Colgate…Surely there are long – pretty long periods – when these shares have under performed the index. However their absolute performance along with the split, bonus and dividends over say 20 years + is heart warming!

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Frankly I have no clue. Neither has anybody else. That is the truth. But let us have some fun. If the market were to close at the same level as March, 06 (11280) it would have to go up from 9708.50 (mar 09 closing) by 16%, if it closes at 13072 (march ’07 closing) it will have to go up by 34% and if it has to go to 15644 (mar, 08 closing) it has to go up by 61%.

Funny right? It came down only (oops I know it hurts) by only 37% in FY 09 – and to recover that it has to go up by 61% – very very unfair.

But who said life (or mathematics) is fair?

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Let us say you invested when the index was 21000 and you expected 20% p.a. return. Then the market tanked to 8000, and so did your portfolio – now what do you do? The author says just wait – till you get your 20% return i.e. till the index reaches 25000 and then sell. However it may take say 5 years to reach there – and your returns would be nowhere near your targetted return.

So what do you do? I do not know the answer. The author has not said what to do.

Let us say you invested when the index was 18000 then it went to 21000 – and you had got your 20% return – would you have really sold now or watched some expert on tv say ‘market will go to 25000′ and therefore you stayed on. On the way back you see 21k, 18, 14k, …etc.

So what do you do? I do not know the answer.

You are 24 years of age and you have started a SIP – and at your age of 27 the market is in a raging bull market.

So what do you do? I do not know the answer

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1. What will happen to the market in the next 12 months?

2. When will the market reach 21000 again? (they mean Sensex)

3. Is the fall over? Will it start rising again? When?

Frankly I feel like telling them – “I do not know, and frankly I do not care”. However when I have introduced myself as a CA, ex-member of NSE, etc. THEY ASSUME I am lying! That is the benefit of speaking the truth. People do not believe you! But that is the truth. How much money of mine will be in equities is a matter of my asset allocation, not where the Index is as of today. If I require money for my daughter’s education, it is about 12 years away. I frankly do not see any big outlay before that date.

However I have decided to predict the markets. It takes a brave man to predict knowing that “predicting is risky, especially if it is about the future” – Mark Twain (when in doubt say Mark Twain or Oscar Wilde, it does not matter!). Another interesting quote regarding forecasting is “forecasting is like driving a car blindfold with directions from a passenger who is looking out of the back window” – Werner De Bondt.

The S&P and DJ are too much weighted on the financial services. If a financial services giant (who does not clients sleep) whose shares are quoting at US $ 1.2 a piece sells 40% stake to anybody at current prices it could about 10 years of hard work to generate a meaningful EPS. Also if some of its customers get intelligent (I am betting against this) it may not be able to sell products with 70% upfront commission…so the S&P at 550 may not be impossible!

The amount of ‘paper money’ that the financial services generated in the USA is far too high – 30% of the Index – that will be a killer. Excess printing of notes, attractive bond yields (inspite of inflation worries), flight to safety, etc. money may currently be exiting some stocks and entering some other stocks!

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For me, principles are not negotiable. It does not change whether the index is at 21000 or 8000. You just have to live by them. If you went to a friend’s house and found Rs 50k lying unattended would you pick it up? That is the question you need to answer. You will not do certain things – immaterial of whether somebody is watching or not. However at 12am if you can take a ‘short cut’ – which is a ‘no entry’ there is a good chance that you will take it. Hoping there is no policeman to see what you are doing. However, if you are speeding into that ‘no entry’ road…and there is a truck coming in from the other direction…..need I say more?

There was an interesting research in US regarding being ethical. There was no clear conclusion that ‘being unethical’ made more money.

So my conclusions are as follows:

If you are unethical in your dealings, one day you will be caught. If you are caught when youa re 22 years of age, you are lucky – you can re-think your career. If you are caught at 85 years you are lucky – your career is anyway over. However if you are caught at age 45 you are neither here nor there! Ketan Parikh, Harshad Mehta, Ramalinga Raju, R Subramaniam (Subhiksha) all of them are sufferring because they were caught at what they thought was the peak of their career. There are enough and more ‘Subhiksha’ stories on the net – right from his alumni members, his ex-employees, his current employees, vendors, customers, etc. have written about him!

Take the case of Ketan Parekh. He came from a family of good repute. His grandfather and father used to be consulted for settling disputes amongst brokers in their time. He was rich. Seriously rich. However his machinations made sure his father went to jail – at least for a day. I do not wish to name a few of his family members who are now not allowed to come into India – one of them was a kid when I was in school. His father in law had to plead with the court to go abroad for treatment for KP’s kids illness. If there is a riches to sadness story, here it is. KP was from a rich family, was qualified as a CA, could have earned enough without any of his fantasy plans. Many people may not know, but he has paid a very high price for all that he has done – and socially he is ruined. God bless him.

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