Showing posts from March, 2008

Book Review: The Accidental Investment Banker

While this book has been on the market for some time, I think it is worth highlighting.

Ponzi Schemes

Found this article on one of the blogs I regularly follow:

In December 1919 a certain Mr. Charles Ponzi of New York initiated an "investment" scheme in which he put up $150 dollars and got ten friends to do the same. He promised his friends a 50% return on their "investment" in 90 days. He then got a second set of friends, many times larger than the first, to put up similar amounts and promised them the same "return on investment" that he had promised the original group of "investors." With the money he collected from the second set of "investors," he paid the first set back their $150 dollars plus the promised 50% "return" ($75 dollars). Naturally, the original investors were thrilled and enthusiastically began promoting the scheme. The process was quickly repeated with the second set of "investors" - and rapidly mushroomed from there.

The intrigue was simplicity itself: give Ponzi money and in 90 days (and usually m…

Thriftville and Squanderville: A True Story

Thriftville and Squanderville: Our generation's greatest investor and thinker Warren Buffett came up with these names in an article in Fortune magazine October of 2003.

Excerpts from Warren Buffett's Shareholder Letters, Part 1

Making Acquisitions During Recessions

Pollution is Good Business for CCX Carbon Financial Instrument

Who knew dirty air could be such good business?

Sharp correction gives good value buys for investors

Another ET article that I felt was relevant:

The stock market is known to over react on the way up as well as down. So, it should come as no surprise that the market price-to-book value of many fundamentally-sound companies has slid to its lowest level in many years as a result of the recent turmoil.

An ET analysis reveals that 181 companies (with strong fundamentals) are currently trading at a discount to BSE-500 index average price-to-book value (PBV) of around 4.75. And stock prices of 70 companies are trading at a PBV of less than 2. Such a sharp correction provides good value buys for investors with a long-term horizon.

To give a fair picture, only those companies whose revenues and net profits grew at a CAGR of 15% or more in the past three years have been included in the study. Companies with a 3-year average return on capital employed of less than 15% and those with a market cap of less than Rs 50 crore have been excluded. Other than the PE ratio, the book value is anoth…

Volatile markets: Wealth managers advise HNIs to have assets in cash

An interesting article on the ET site:

Given the turmoil in the markets, global wealth managers are advising high net-worth clients (HNIs) to have at least 50% of their assets in cash, or cash-type, instruments, including short-term debt instruments. They are also advising HNIs to invest in select long short hedge funds and other structured products to take advantage of the volatile markets.

Says Societe Generale Private Banking, MD, global market manager, Indian subcontinent, Balakrishnan Kunnambath, “We are asking clients to have 50-55% of their investments in cash-type instruments (short-term debt and liquid investments) as against 30-35% last year. We are underweight on both equity and bonds.”

“We have advised clients to reduce their exposure to equity as we feel that the markets will be difficult for another six-to-nine months. In bonds, we have shortened the time period because of inflation and interest rates. Even on debt funds, we are advising clients to invest only on sh…

Visa IPO Should Offer Investors Positive Risk/Reward Benefit

The following is an abridged version of Vivek Kumar's original post on the Visa IPO. ••• Business Visa (V) operates the world's largest retail electronic payments network and manages the world's most recognized global financial services brand.

The Big Time US Bailout

The US Fed just decided to infuse the market with liquidity of nearly $200 billion, by accepting as collateral, mortgage backed securities (MBS). This is a "Term Securities Lending Facility", which is currently for a period of 28 days from March 27. What does this mean? First, this is not the US govt. buying the securities. No. It's lending on the BASIS of these securities for 28 days, and the risk and recoverability is still the responsibility of the owner. Second, this puts new money in the hands of people who own these mortgages and are probably having huge losses on them. The assumption is that the new money will allow them to lend more. I don't know about that. A 28 day reprieve? What if the fed doesn't roll it over after 28 days? And $200 billion is a lot of money. Third, this may be funded by AAA rated MBSes, but many of them are just junk in the guise of AAA, because of lousy rating by the agencies. What happens when these mortgages turn into default…

Traders bank on derivatives in volatile market

An interesting article in ET, worth taking note of.

For bond markets it could be second time lucky. Reserve Bank of India’s guidelines for interest rate futures have been received with much optimism from traders who are excited about the opportunity to take a leveraged view on interest rates.

This excitement is despite the fact that an initial attempt to launch the instrument in 2003 turned out to be a damp squib. One reason for the optimism is that RBI introduced the new norms after an intensive dialogue with market participants and industry bodies identifying factors, which prevented the instrument from taking off earlier.

The report, which was released a week ago, proposes to introduce derivatives which will be helpful in a market where interest rate volatility is the norm.
The central bank had launched over-the-counter interest rate derivatives such as interest rate swaps and forward rate agreements in 1999. However, even as IRFs were launched in 2003 by the National Stock…

The Credit Crunch Creeps Up on India

Credit problems in the U.S. and Europe have finally crept up on India, writes Chetan Ayha in Morgan Stanley's latest Global Economic Forum.

Playing The Commodity Craze

Note: This article originally appeared in the February 2008 issue of Registered Rep. magazine.

Indian Stock Prices and Earnings: Correlation or Refexivity?

A recent Morgan Stanley report makes this interesting point - shares prices and corporate earnings have a reflexive relationship. That share prices are correlated to earnings is old stuff, haven't someone quite state the reflexive bit.

The Impending Revolution in Production.

Just the other day I met some very interesting folks from the National Institute of Fashion technology and was quite enlightened to know about the various departments they have; Apparently there is design, textile and Production - which on explanation makes a lot of sense. There was a lot of talk about the budget and its infavourability to the textile industry, and how clusters such as Tirupur are going to be affected by it. Personally, I am not too sure. If you have heard the story, Tirupur, the cluster known for making garments is essentially setting up shops in Bangladesh so that they can produce the same quality at a much lower cost. So what value does the Tirupur cluster bring in? They are moving up the value chain in terms of design and innovation in new material. If you look back at some case studies, It’s kinda the same thing that happened with some clusters in Italy. They used to make a lot of stuff, and then the chinese and asian market started imitating and they were forced…

Defence Pensions: Worrying Signs

The total strength of the defence employees has risen from nearly 362,000 in 1960 to 1.3 million today. The defence pensions bill, which is over 50 percent of the central government’s pensions bill, has also risen exponentially since the 1960s. It has grown nearly tenfold from Rs. 1670 Crore in 1990-91 to Rs. 15,244 Crore in 2007-08; and is currently over two-thirds of the military salary expenses. The subterfuge of removing defence pensions expenditure from the overall military expenditure, in vogue since 1985, has turned the spotlight away from this issue.More than three percent of defence employees retire every year. The bulk of this group is of soldiers, who constitute 85 percent of the defence forces. There is an average in-service death rate of 1.2 percent for the defence employees, largely due to counterinsurgency operations. Early induction age and early retirement age implies a younger age cohort for 90 percent of the defence employees compared to their civilian counterparts.…

Liberalize the Education System or Fail.

These are some commonly agreed upon facts related to education. First, it is an investment and the benefits arise much after the costs have been paid. It therefore requires foresight and will, and also disposable resources. Second, it is a process which takes time. The time taken can be somewhat shortened if sufficient resources are available but it cannot be arbitrarily speeded up. Third, the level of education determines the future capacity to produce and be productive. Fourth, an appropriate education provides more benefits than it costs. Fifth, in our contemporary world of dynamism and rapid change, education is indispensable. Those facts and many others like them hold both at the individual level and the collective level. An economy cannot prosper without an educated population in just the same way that an uneducated person cannot. One good predictor of the success of an economy – which generally means that it is able to meet the requirements of its population in terms of producin…

ICICI Bank - More On Credit Derivatives

Found this further info on ICICI Bank's exposure:

Chanda Kochhar says a few interesting things in an interview with Mint: ... there are four things that have contributed to the $264 million figure: $69 million credit derivatives losses that have already been provided for by the bank, $20 million provided for in the books or our subsidiaries for similar losses, an estimated $70 million for further erosion in value in January and $100 million for investments by our subsidiaries. Interesting - they still maintain that they had provided $69 million (350 cr.) earlier, when it seems from their publicly available transcripts that they had only allocated 260-280 cr. Now they have allocated a further $170 million. That is around 680 cr. which should technically halve their net profit. Will have to wait and see. Considering that the spreads have dramatically increased since January - a further 10% if not more - chances are they will need at least $100 - $200 million MORE at the end of M…

How liquid are you??

A friend, whose blog I track regularly for his insights on stock markets and other related matters, published this article. Couldnt resist posting it on my blog as well :)

For how many months will your money last if all your sources of income stopped today? This is a question financial planners ask to figure out if you have an emergency cushion that can keep you going if your regular income sources dry up, without having to sell your family gold, art collection, property or equity.

Basic liquidity ratio = liquid assets / monthly expenses

The basic liquidity ratio (BLR) works out the number of months you can live off your cash and near cash assets if your source of income suddenly stopped up due to a job loss or an accident that causes disability. To calculate this ratio divide your ‘liquid assets’ by your monthly expenses. In ‘liquid assets’ include all that is cash or as near to cash as possible like the money you usually keep at home, the cash in all the savings bank deposits, the cas…

ICICI's Disclosure See-Saws

ICICI Bank is India's first financial organization to admit losses related to sub-prime crisis. It seems their disclosure has stirred a hornet's nest. Found this article quite relevant:

Statements from ICICI: Sep 2007: "..treasury income was Rs. 1.75 billion which was a decline over last year Q2 of Rs. 2.4 billion, a 27% decline that was mainly because of the mark-to-market impact on our credit derivative portfolio which was about Rs. 1.00 billion that we have taken at September 30th." Jan 2008: "treasury income for the [Q3] quarter of Rs. 2.82 billion is net of mark to market impact on our credit derivative portfolio of Rs.1.50 billion during the December 31 quarter, in addition to about Rs.1.20 billion that we have provided in September quarter. March 2008: "As of January 31, 2008, the mark-to-market negative on this portfolio due to movement of credit spreads was about $155 million [Rs. 600 cr.] of which $88 million [Rs. 350 cr.] had been provided for in…

You have more money to invest wisely

In his Budget speech, when Finance Minister P Chidambaram doled out a bonanza to four crore (40 million) farmers by announcing a loan waiver of Rs 60,000 crore (Rs 600 billion), a lot of urban Indians would have felt the jitters. Where would he get the money from? Would it mean more taxes or another surcharge? However, he had the urban middle-class in mind as well. Thus came a slew of measures like the hike in basic exemption limits, duty cuts for breakfast cereals, water purifiers and milk, clarification on incomes from reverse mortgage for senior citizens and even a higher deduction on insurance premiums paid for parents under section 80D. All in all, these are satisfying sops from the FM for the individual.The direct measures for one have enthused many. By hiking the basic exemption by Rs 40,000, Rs 35,000 and Rs 30,000 for male, female and senior citizens respectively, Chidambaram has saved them a lot of money. Says financial planner Sajag Sanghvi, "The income taxpayer, wi…

Why you must invest in global property

The first question which one asks today, when they see a global realty fund is...what about the subprime crisis? Well, the ING Global Real Estate fund does not invest in the US housing sector. Now that the basic fear has been put to rest, let's look at the other qualities of this fund. Launched in December 2007, ING Global Real Estate fund is an open-ended fund of funds that proposes to invest in global properties in 21 countries. This fund is benchmarked against the Citigroup World Property Index. It mopped up around Rs 218 crore (Rs 2.18 billion) in the new fund offering (NFO). Its net asset value (NAV), as on February 28, stands at 10.06. Globally the ING group is the world's largest real estate investment manager with assets under management (AUM) being close to US$145 billion.Real estate, as an asset class, has already provided phenomenal returns in the last few years, but now the going looks tough. The logic of investing in global real estate is to have an investment av…

8 key ratios for picking good stocks

The following 8 financial ratios offer terrific insights into the financial health of a company -- and the prospects for a rise in its share price.1. Ploughback and reservesAfter deduction of all expenses, including taxes, the net profits of a company are split into two parts -- dividends and ploughback.Dividend is that portion of a company's profits which is distributed to its shareholders, whereas ploughback is the portion that the company retains and gets added to its reserves.The figures for ploughback and reserves of any company can be obtained by a cursory glance at its balance sheet and profit and loss account.Ploughback is important because it not only increases the reserves of a company but also provides the company with funds required for its growth and expansion. All growth companies maintain a high level of ploughback. So if you are looking for a growth company to invest in, you should examine its ploughback figures.Companies that have no intention of expanding are unl…