Thursday, October 27, 2011

Why You Will Get High Returns during Recession?

The year that was has been stupendously bad for the equity markets,the real estate market,general business,European governments....well the list goes on.

Recent Vanguard research finds that since 1926, the average real returns of a hypothetical portfolio evenly balanced between stocks and bonds have been statistically equivalent regardless of whether the U.S. economy was growing or in recession.
"The calculations are complex, but the underlying rationale is rather straightforward," said Vanguard's chief economist, Joe Davis.

Just goes on to show that sometimes the 'herd mentality" approach doesnt work.In my 15years in the financial markets i have rarely found an investor who ever sat across my desk and wanted to invest when times were bad as they are now!

I have always been a strong advocate of investing regularly be it through SIPs or at frequent intervals and not shaking when you see your investments down 10-20%.What you should worry about are the fundamentals of the stock,the sector performance,management history and the sustainability of the business.

Rarely do I look at the PE ratio(i leave that to the real analysts),I would rather depend on PEG(relative to growth) and on the macro factors

 From the "Roaring Twenties" through the "Great Recession," a hypothetical portfolio with a 50/50 stock/bond balance was, on average, likely to enjoy remarkably similar real returns regardless of prevailing economic conditions:
Average annualized returns for a 50% stock/50% bond portfolio

My advice and I reiterate is to invest especially in the Indian equity markets where a 7-8% GDP growth and annnualized 12-14% corporate PAT growth for the decade can be expected unless Al Qaida lays its hands on a nuke,Mt Vesuvius explodes,remaining middle eastern potentates implode...

Those having the risk appetite should invest in quality midcaps that offer an upside potential of almost 50-70% per annum.Interested?

Friday, October 21, 2011

Dictators and the "Equity Affect"

So Gadhaffi has gone...finally and this will ring a lot of bells around the World.Gone are the days when the US propped up a Batista in Cuba and Marcos in Phillipines and sundry other tinpots in Africa and Latin America.having to fight the mujahideen the CIA created in Af-Pak belt is a good lesson.

Having strong men rule respective countries is easy for the politicians as they have to deal with one alpha personality.What is really does is hide the character of the majority of the country,its traditions and cultures.In the short term there might be confusion till the country finds an internal balance between its various regionisms!

Are we headed for a more egalitarian world.....the "Occupy Wall Street" movement shows that the people are tired of being ruled by representatives who seem to lose their heads and sense of responsibilty once they enter the legislature.It bodes well for the checks and balances that make the final difference to any policy.

Be it cloud computing,people's revolution,right to information or the global co-operation to trace unaccounted money...the 21st Century is turning out to be a century of change.From the enivornmentalists who till a decade were thought of as a idealistic dandys with stars in their eyes to those doing research on tech etc,there is a new found respect.

In this situation,the investors are in my mind in a better position to judge where to go and on what to do.Although there is a lack of depth to the Indian equity markets at the moment,I see no reason to doubt that growth will happen,even with government inertia the sheer pressure to create a PPP model that benefits the citizens as well as the public services will really push things along.

For now I would prefer to buy a Bharti(PE 26,PBv 3)-play on growth in Africa in telecom as well as their retail food business

Reliance(PE 13,PBv 1.6)-their presence across sectors,their zero debt status and the sheer power of their balance sheet(their budget is bigger than a state like Uttaranchal).One can also look at Larsen&Toubro.

I am a big believer that the fall in banking is overdone and Indian banks remain highly capitalized,their CAR being above 10% on average and the lack of banking in rural areas that form a vast catchment area.Axis Bank,SBI,PNB remain my top picks.

Invest when the bad news is flowing or you will invest at the top levels and any correction will demotivate you from equities.I continue to remain bullish on crude and bearish on Gold and Silver at the moment.

Monday, October 17, 2011

Return to Gunboat Diplomacy

The sabre rattling by China on Indian firm ONGC's pact to explore for oil in the South China Sea jointly with Vietnam has caused some discomfort to the Chinese on what they consider their own patch.Yet they press the Burmese to build roads and pipelines,they help the Pakistanis in Kashmir and they are building ports in Sri Lanka.

History - truly a magnificent record which shows that time moves on but countries and diplomacy Sikkim remains the same albeit more couched in legalese and verbose yet like the British sending in their naval gunships to back the East India company in the 19th century to fight the Maharajas!

What puzzles me is the lack of vigour of the Indian army to respond to the Chinese aggression in Sikkim,Arunachal,Ladakh.Does it lack the confidence in its own men and machinery?Its copybook Sun Tzu,encircle the enemy and test its defences,bluff and swagger and measure the response.

India is losing the resource and mineral war in Africa,it seems that even our own borders are not sacrosanct.Yet there is hope with this move by ONGC to explore the sensitivities of the Chinese in their back garden.

They have swallowed a country called Tibet and the Han chinese settlements have crushed the indigenous culture yet the world watches.I have spoken to so many who fled over the border into Nepal and then India and the tales are harrowing and brutal.Of a nation enslaved systematically and destroyed.Dharamshala stands testament to that.

Most countries are afraid of hosting the Dalai Lama,yet we live in the age of democrasy!

風 Swift as the wind
林 Quiet as the forest
火 Conquer like the fire
山 Steady as the mountain

It is said that if you know your enemies and know yourself, you will not be imperilled in a hundred battles; if you do not know your enemies but do know yourself, you will win one and lose one; if you do not know your enemies nor yourself, you will be imperilled in every single battle.

I too am a Sun Tzu fan,the 3rd largest Army in the world must stand up and be counted,because i am afraid that fighting the kashmiris and the maoists etc have softened the core and a battle is brewing which we will see within a decade.Will it be the Chinese?Or the Pakistanis backed by the chinese?