A doctor reading of the Sensex

Sensex: Dr I am not feeling too good the last few days.

Dr: I told you earlier not to get too drunk on those high altitude parties….after all you were flying at near 16000 feet and that can get quite heady…

Sen: What to do, had so many foreigners at the party and they were all so generous with their liquor that even the domestic passengers got into the mood…..

Dr.: But still, should one not be cautious, after all you are no longer so young….have been running at this pace for the past 4 years or more!

Sen: What to do, Doc, I also got carried away. There were so many Theme parties going on in the main deck- you know, like the Infrastructure party and the Capital Goods costume dance- my, was that colorful! Doc you should have been there, I tell you!

Dr: That’s just my point- with so many theme parties, you would even have gate crashers?

Sen: You bet. We had an aerial boarding by a big bunch of Hedge fund guys who came in with their own themes- called the MidCap Salsa. The belles were so exotic that many of us started flocking to that part of the deck and every one recalled the big score that we had all made about a year or so ago at the last Mid Cap Salsa- boy, what a ball that was! I still have hangovers from that, mind you.

Dr: That is just it, If you restrict it to one or two drinks, I always recommend that you stick to the Funda Merita cocktail where the drinks are sedate and none of those exotic stuff that give you such long term hangovers, but you never listen- you always want to run after those nubile Small Seductresses who are all high on that exotic cocktail Technical Tequila.

Sen: Grow up, Doc, that is really where the fun is! After all, who is in this game for the money? That is just an excuse! We are all here to have The Great Time!

Dr: No wonder, old timers were scoffing at all your recent shenanigans. They left you high and dry after the last Angioplasty that you got back in early 2007, remember?

Sen: Hah! And who is having the last laugh? Look at their plane, it is not even taking off yet and here we are kissing 16000 feet over the air

Dr: But what happened now, you took a bad fall didn’t you? Hurt your hip, fractured a leg maybe?

Sen: Yeah, it does hurt a bit all over, but hey, I will be back, that’s what all my friends say. In fact they are waiting for me to rejoin the party.

Dr: Umm, let me see….what band was playing the music when you slipped- I am sure it must have been that hot new band, Derivative Dudes!

Sen: Yeah, you are right. And boy, were they strumming that lead guitar like crazy- you know a week ago, the volumes of vibrations from the guitar hit a new high frequency? Man that was a party! I had lots to drink that night and piloted my plane even higher. But that’s where I hit a bloody air pocket.

Dr: Well, let me take a look.. Hmmm, this wound does appear a bit nasty but nothing that cannot be patched up by some good imported Band Aid. Do you think your firangi friends will be good for that?

Sen: Yes I do think they will. But not too sure about those gate crashing Hedgie chaps- they are pretty fair weather friends, you know. I think even the Dour Domestics music band should get a chance to play now that the Derivative Dudes seem to be on a bit of a slide.

Dr: Well, I have stopped that bleeding and put in some antiseptics. The wounds are surface ones yet but take care not to catch this new virus- its called the SubPrime Defaulta virus. It is particularly virulent right now in foreign shores. Maybe contagious and you should remain wary of your foreign friends. Don’t party with them too hard.

Sen: Thanks doc, that’s a big relief. Guess I will just take it easy for a couple of weeks now. Let this virus thingy blow over a bit and then get back to my normal stride.

Dr: Sounds good to me. Good bye then.


- Contributed by Dr. CK Narayan

Reality check on Realty

Owners of real estate expect real estate prices to go up and those planning to invest look for a correction. but what is forgotten is the value of real estate goes purely based on demand supply outpacing fundamental valuation techniques or parameters of Asset yield. Real estates is continuously getting priced with assumption of capital appreciation than actual yield which is distorting pries.

The article in the latest Economist well justifies the case of ballooning real estate in Mumbai.

A recent study by the IMF finds little evidence of housing bubbles in most Asian countries. Since 1999 house prices have risen more slowly than income in South Korea, Thailand and Hong Kong as well as China (see right-hand chart above).
In contrast, in America, house prices have risen three times as fast as real incomes. Standard Chartered, a bank, calculates that in relation to incomes, housing in South Korea, Taiwan, Hong Kong, Singapore and Thailand is now 37-58% more affordable than it was during the peaks of those markets in the 1990s.

Don't buy in Mumbai
The only Asian country where a bubble leaps out from these charts is India, where average prices have risen by 16% a year over the past four years, well ahead of average income. It is the only country where house prices have surged by more than in America. In Bangalore and Mumbai prices doubled during 2005 and 2006.
According to Global Property Guide, a research firm, equivalent apartments in South Mumbai now cost three times more than in Shanghai, and not much less than in Tokyo—even though Indian incomes are much lower. Looking ahead the question is no longer whether, but by how much, prices will fall. Property prices in Mumbai and Bangalore have already started to slip this year as mortgage rates have increased sharply.

Elsewhere in Asia, expect home prices to keep climbing. The rest of the world is experiencing its biggest housing bubble in history: never before have real house-prices risen so fast in so many countries. But Asia has yet to join the party.

Money: The Easist metric but not the Best

It is sad but true that owing to lack of good metric everything is getting measured by Money....Careers, Success, Philanthrophy, Artists etc

Money may not be the best metric but it is the easiest and more readily avaiable along with being standardized. It is difficult to ignore the metric......

George Soros on Money and reason why it is important

But my life is not about money. For me, money is a means to an end. I fo­cused on money in my career because I recognized that there is a ten­dency in our society to exaggerate the importance of money, to define values in terms of money. We appraise artists by how much their cre­ations fetch. We appraise politicians by the amount of money they can raise; often politicians appraise themselves by the amount of money they can make on the side. I have gained recognition, not because of my philosophy or my philanthropy, but because of my success in mak­ing money. The prevailing bias in favor of money and wealth is a good example of what I mean by fallibility.

To translate the concept of fallibility into operational terms and to sharpen the point, I will assert that all our mental constructs, with a few exceptions, are actually or potentially flawed. They may contain an element of truth, but that element is likely to be exaggerated to a point where it distorts reality.

Only buy and sell...

A comic strip published by a New York evening paper depicted, in the spring of 1946 at the height of the black market, the woeful experience of a lady who committed the blunder of opening a package she had purchased. The food in it was spoiled. Indignantly she rushed back to the store, “My dear lady,” exclaimed the clerk, “you opened the package? Good heavens! That’s not for eating. It’s for BUYING AND SELLING.”

So it is too with stocks. Many purchase them for selling, never looking inside. But if the market declines before they succeed in disposing of the package, the value of the contents suddenly acquires a new and decisive meaning.
- From the book Classics II: Another Investor's Anthology

When someone with experience proposes a deal to someone with money, too often the fellow with money ends up with the experience, and the fellow with experience ends up with the money.
-Warren Buffet in letters to the shareholders, 2006.

Wall street

““Wall Street,” reads the sinister old gag,” is a street with a river at one end and a graveyard at the other.” This is striking, but incomplete. It monist the kindergarten in the middle.”- Fredrick Schwed Jr., Where Are The Customers’ Yachts?

New Year - Investment ahead

WISHING U ALL A HAPPY NEW YEAR.

Key Learning’s from 2006:

Be ahead of the curve:

Real estate valuation is still being debated. Anybody who could understand the same and value the Land banks was a winner. While valuation of core real estate surged…. Many companies started unlocking value from their land holdings as well. While, for every good story their traded 2 hyped stocks. Value was made by the discerning investor.

We had been positive on the real estate sector. 

http://vikashmantri.blogspot.com/2006/06/real-estate-game.html

Blockbusters for 2006 were Unitech, Jai corp. 

Learn to invest in Growth stocks – When markets are trading at premiums, it is less likely to find value picks than growth picks. Also one need to adapt to changing valuations as while we look for absolute gains, valuations are relative. So it makes sense to invest in relatively cheap stocks instead for waiting for cheap stocks.

Some sectors are glamorous and so are valuations : The Lisiting of some of the Real estate and Emerging sectors (Naukri.com, Educomp colution, ENIL (Radio Mirchi)  saw glamorous valuations. Mainly because normal valuation models did not apply to these stocks, sectors were not understood and the possibility of making alpha gains.

Always invest before demergers - Case in point - Reliance, TV18, ZEE  Telefilms

Stocks are mispriced. Demerger unlocks value. Find good hidden plays and sit tight. Valuation thumb rule. Anything below 40% of assets with a slight potential of value unlocking is a good buy. But do not invest in pure holding companies.

Also in a growth market pick up stocks which have great management, show good execution and are no.1 players….. Bharti, ICICI Bank, EKC, AIA, Suzlon, ENIL etc.  

Sectors to watch out in 2007: Real estate (Value recognition to hidden plays)  , Media (Economy driven) , IT (Higher visibility).  NBFC (insurance (wow stock), housing finance, Auto loans, personal loans)

If some part of your portfolio is not in Gold. You are exposed to global risk. 

All above views are subject to hindsight bias.