Kicking the Predictions

719px-WC-2014-Brasil.svgBrazil 2014 is finally here – after a 4 year long wait. Interestingly, almost all the predictions out there seem to be pointing towards a Brazil victory. Here are some of the predictions I have come across on the internet:

  • Goldman Sachs: Brazil
  • Elo Ratings:  Brazil
  • A Brazilian s/w engineer called Andrew Yule using his logistic regression model: (not surprisingly) Brazil
  • Prof David Dormagen (Berlin University): Brazil
  • ING: Spain
  • UBS: Brazil
  • EA Sports: Brazil
  • Roo the Psychic dog: England
  • Nelly the elephant: TBD
  • Bloomberg: Brazil
  • Stephen Hawking (OMG!): Brazil

Why watch then? :)

 

 

Accuracy and Precision

Are accuracy and precision the same thing? They are certainly used interchangeably. Accuracy is telling the truth while precision is telling the same thing again and again.

Here’s something I created based on what I have been reading lately. If you are in the bottom left quadrant, you are inaccurate and imprecise in your work, your investments or in your life, you are basically wasting your time and resources. If you focus on one area or strength or specialization and shut everything else, you may move along arrow #1. This is a path of standardization of processes, doing one thing and doing it repeatedly. You’ll be quite predictable but if your area of specialization is not well chosen, you’ll be far away from winning big. Then a focus on the problem statements you’re trying to solve or the way you spend your time may lead you on path #3 and take you extremely close to the truth and quite predictably too. You get into the habit of winning and you win repeatedly.

On the other hand, if you want to escape wasteland by taking path #2, you would essentially continue to multitask and continue to be curious and exploring but with better tools, techniques and processes. Paths #2 and #3 are the avenues for invention and process improvements, of changing the game. paths #1 and #4 are about repeatability and efficiency.

If this is worth your time, do examine a topical issue that you may be mulling over using this lens – maybe it will be worth your time after all!

accurate precise

Your Paths to Success in your Career

This is how some people plan their careers:

snakes1

This is what actually happens:

snakes 2

snakes 3

Can Fin Homes and Gruh Finance

Some time during the last few days have been spent in looking up housing finance companies that lend to the growing lower income urban population of India. According to a report by the Technical Group (11th Five Year Plan) on Estimation of Urban Housing Shortage, there is a whopping 99.9% shortage of affordable housing for the economically weaker sections of India. The folks who maybe just have one bank account, are aware of insurance but mostly aren’t insured, aren’t required to pay taxes and may not be very educated are the customers of this industry. Gruh, CanFin, Repco, LIC Housing, Dewan, Sahara etc are names that come to mind. First the names that were discarded:

  • LIC Housing Finance – the recent scam related newsprint is yet to dry so dropped.
  • Repco – still cheap but risky given their higher gross NPAs as compared to some of the other companies here
  • Dewan Housing – Ok, so DLF sells its stake in its insurance jv with Prudential since its not core to the real estate company. How come insurance becomes core to low income urban housing finance? The fact that the Big Bull bought a big chunk of Dewan doesn’t change my view, whatever the opportunity cost turns out to be. Also Dewan’s NPAs have been cyclical whereas those of Gruh have smartly trended down with time. And then once upon a time there was a tale of two brothers
  • Sahara – full page ads don’t swing it for me…
  • others – Indiabulls housing, GIC etc: didn’t bother.

The two that slipped through and have managed to wedge into my consciousness:

  • Gruh Finance: story is sterling silver; pedigree is great; performance has been stellar. expanding at a very measured pace. have systematically reduced gross NPAs and increased net interest margins. Their apparently clinical risk management discipline is borne by the fact that their current gross NPAs are around 50 basis points of their outstanding loan assets – clearly showing the benefit from the risk modeling experience of HDFC. What amazes me is that they have just c 517 employees across their 134 odd retail offices – unless of course I got that wrong. Question is – is this is a good price to buy? Maybe I will buy a very small quantity to ensure I continue tracking it and will take it on from there in terms of deciding a larger commitment.
  • Can Fin Homes – I like this tiny South Indian company. Promoted by Canara Bank, it may perhaps have an image of a slow moving, non-aggressive, sarkari company. Their price by book is around 0.8 (as compared to around 1 for Dewan and a nice 8 – 9 for Gruh).

Chartistically speaking, while Gruh seems to have broken out of its resistance that was established at the start of 2013, Can Fin is getting close to it’s resistance level of 180. So I wouldn’t bite unless the prices come down. The problem is the high opportunity cost of sitting out of these opportunities if the expected corrections don’t happen. I think I am being greedy for no reason…

The Rising Tide

NASDAQ CompositeWill the US market ever pause and think? It’s been rising continuously since 2009 with maybe 4 – 5 good sized corrections thrown in for the sake of good order. I think it’s important for its own sake that the market stops and gives us a nice juicy correction. No one for sure knows when it’ll happen, but a significant correction does look probable one day or the other (as probable as the death that awaits us!). This seemingly parabolic rise (y = a * x^2) of the NASDAQ Composite since the past 4 years requires energy for sustenance – which we know has provided by the various strains of the QE program till now. The second chart here is telling – it compares the rise of the NASDAQ composite with our desi NIFTY (the latter quoted in USD) – i.e. the DEFTY vs IXICDEFTY. It’s important to compare against the DEFTY since the fx related variances are removed. Stating the NIFTY in USD is also important to see the impact that the QE has had on the emerging submerging world. The QE has effectively ‘exported’ inflation to the emerging world.

Here’s a link to an article that inter alia contains a beautiful chart on the QE program and explains how the QE now seems to be becoming quite the drag on the US GDP and long term rates than before. So is it a good idea to prepare for the inevitable and be in cash?

Barry Ritholtz discusses a perplexing slice of affluent Americans’ wealth pie that’s worrying them: cash! Are they worried because there is a raging bull market in equities next street? Or are they worried because earnings of companies are increasing? Since when did that become a cause for worry? While I am not an affluent American by any stretch of imagination, this does apply in my case as well. :) I am way too much in cash these days than what the doc prescribed. Yes, I know I am losing money by the minute and I am aware of things like fixed income and its ilk (fixed maturity plans, tax free bonds, etc.) but somehow I have not been able to move myself to lighten my burden. It’s like a sack of sand with a hole at the bottom. The burden does get lighter given the hole called inflation. I have even been called by the “relationship deer headlightsmanagers” of the bank I use and have been lectured on the demerits of keeping cash in the portfolio. To my credit, I listened patiently. But haven’t acted on the tip!

Is being a deer that’s stuck in the headlights a bad thing? I guess it is. Searching for an idea that could be a good use for the cash I have. Waiting for Godot, it seems I am.

SCI, BDI and my Luck Index!

This has been a pretty good trade and I guess it’s time to unwind now. I am never good with breakouts and get extremely edgy at the top – it runs counter to how many momentum people think and act but I think I suffer from vertigo. This is lucky cause I had no clue what the Shipping Corporation of India (SCI) has been doing or is about to do. I later on realized that they are in the doldrums and are getting rid of their “Black Pearl” and their attempts to raise prices are getting whooped by competition. No wind in their sails, so to speak. The pearl bit is not off the mark given that SCI is in danger of losing its “Navaratna” status – whatever it means. I am no Jack Sparrow. I entered when I happened to see the Baltic Dry Index (BDI) spike up at end Sep. I had no clue about the differences between spot contracts and forward contracts rates and the billing mix for SCI. All that wisdom comes in hindsight!! In this case it has been pure luck. :)

BDI and SCIBDi technical from ycharts

The BDI technical chart (via ycharts.com) looks overbought to me. I may be wrong and I guess breakouts are all about RSI remaining in elevated levels, but when you get some gains on pure luck and nothing else, I don’t believe in “letting the profits run”. ;)

Abundance!!

 

passion skill job

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