Buying Property

Some time back Sushanta had asked me to write something about buying property. As luck would have it I was contemplating buying a house in Mumbai at around that same time, but dropped the idea. Not because the price was outside my comfort zone but mainly due to the fact that it clashed with my firm belief to buy houses only after they are nearly complete. I haven’t purchased any house which is “under construction” or “proposed construction” till date. I personally know of friends and colleagues who have been stuck with housing loans where they have started paying the interest component on the loan but the building is far from getting completed. This is the worst possible situation one can be in since the principal stands as it is and you only service the interest component. Many young families give in to the lure of booking property the moment it is conceived on the drawing boards of the architects since these are usually offered at a discount to the current market prices prevailing in the locality. The rate in one of Mumbai’s suburbs where I stay is c 10,000 /per sq feet ( ~1 lakh /sq.m ~USD 2,500/sq.m) and in this particular case I was being offered a flat @ 8,000 psf which would get ready in end 2012. The builder would have to be paid in installments (as and when the plinth, slabs, etc.) get ready. The builder is well known, location of the property is sexy and the future piece was being offered at a discount of 20% to current prices. I would effectively be giving a loan to the developer. Assumming that prices in that area escalate by 10% per annum (they have actually compounded up ~15%  in the past couple of years), it would mean a completion price of c 12,000 psf. I pay 8,000 today and get back 12,000 in 2 years time! I would effectively be lending money to the builder at > 22%! (It’s actually greater than 22% since I would paying for the flat in installments). Makes you wonder what kind of loony builder is this? Well, not quite for I think that Pareto’s rule applies in the housing construction acitivity as well. Close to 80% of the actual costs of a building are incurred during the last 20% of the construction acitivity. Fittings, lifts, floor work, workers wages, permits etc. are what consume up a lot of cash but are needed much later – therefore the builder enjoys the float till that time.

Anyways, given my personal situation I figured out that I’d have to take out a loan for 50% of the amount ( = 4,000/-). and shell out an interest @ Rs. 40 psf. Moreover there is always a chance that the builder over leverages himself and is unable to complete a project (or cuts corners). Idea dropped – I would be happy to deploy that capital in the capital markets and expect a modest 15% annualised return instead. At least I’d have near instant liquidity and can always withdraw in case the need for a house becomes a painful obsession later.

Here’s my two cents worth regarding home buying: 

  1. Decide if you want to rent or buy. pre-tax rental yields are in the range of 2% – 4% in the suburbs of urban India (my hunch). Which means its a pretty stupid business to let out flats which logically means that it must be quite smart to rent. But young families need to build assets and there’s tremendous social pressure to own a house, and therefore we feel the need to move down the list.
  2. There are three main things that one should consider when buying property. These are A) Location, B) Location and C) Location.
  3. Stay within your means. Do not extrapolate salaries into the future and do not overextend in the present. Who knows the tide might just turn and all outsourced jobs might get sucked back into the countries of their origin.
  4. Do not buy property which you cannot touch and see. Period. The risk of promises being broken is high.
  5. If you are a young family and are renting it – then buy a house subject to above 4 constraints.
  6. If you are a young family and are staying with your parents and have no house of your own – then buy (again subject to points 2 – 4 above)
  7. If you are any kind of family and already own houses (my category) buy your next one at outright cash as far as possible and only for portfolio diversification. Which means you’d already have mountains of wealth in other asset classes (not my category!). Unless of course, you can afford the additional leverage.

Taking point 7 forward, I’ve never been too much of a fan of the adage, “make money on Wall Street and bury it on main street”. Many of the visitors to my site would never have made enough money on Dalal Street anyways.

In case you get stuck at point 1 above and keep staying in rented places (many people I know do this), then please ensure that the notional excess of cash at hand is deployed wisely. Hard nut to crack for most. Especially for young Indians whose parents come from the boring mileau of the license raj and Hindu rates of growth. The earning generation’s distinguishing identity seems to be today’s conspicous consumption habits. If you have the fortitude to resist the temptation of “keeping up with the Junejas” and deploy the money in (>> inflation) longer term, boring occupations, then please – do drop off the list at point 1 itself.

An extension of point 2 above is a heads up: just because you have to buy a house, do not pick one up in too remote location/city however attractive the price would be. The risk of buying houses/land in remote cities and localities is that prices remain stuck for ages and the trigger may not come in the current generation (i.e. yours). Can you say with certainty where your kids will be once they are old enough to understand website posts like this? And that they will not curse you for buying assets which they have no interest in at all.

Another problem many non-native families to Mumbai (or any other city for that matter) face is their aversion to taking up residence at the periphery of the city center or further away from their workplaces. It may be difficult forgoing easy accessibility of all the interesting sights and sounds and tastes but the outwardly radial move is well worth it – you save money. Beyond a certain point the convenience factor of being in the center of the city is taken for granted and the irritation of staying in an outpost starts to wane. Logic would dictate that a cannily chosen outpost would appreciate faster than a much discovered nerve center. Something like mid-caps vs. large caps.

Does that mean that I do not personally prefer being long on property (other than the one where I reside)? I do – that’s the reason why I’ve sunk in some amount of money in Godrej Industries Ltd. (though not directly into Godrej Properties)

World Badminton Championship

Saina Nehwal has won her first two matches and plays 6th seed Shixian Wang tomorrow. Shixian Wang comes into the quarter finals beating Jie Yao, the 11th seed in a slightly more emphatic style. So lets see if Saina can enter the semis. The other quarter final to watch tomorrow is between Hongyan Pi (5) and Xin Wang (3). The winner of this match will clash with the winner of Saina vs. Shixian in the semi final.

Meanwhile current world number one, Yihan Wang is out of the tournament. [update 8PM IST, 27Aug: She’s out of the tournament. Toobad – but I think she was outclassed well and truly in 34 minues flat]

BTW, I made one observation about tags and google searches and hits on websites. It’s quite surprising that not a single soul has stumbled upon my website through google using the search phrase “Saina Nehwal”. So I ran a quick analysis on what search topics have been most successful in diverting traffic to my website and the result was quite an eye opener. Other than searching for me, people who spend their time looking for fairness creams and pani puris are more likely to come up to my site as compared to people looking up John Abraham’s butt or Katrina Kaif. Or Saina Nehwal for that matter. I felt quite let down since the whole purpose of writing about that man’s butt was to get more iballs. I thought about it for a couple of minutes and then guessed what must be amiss with my logic.

It’s the thing about statistical long tails and probabilities. Since Saina, Katrina and butts are much written about the chances of my humble ramblings on them getting shown up early enough in Google search rankings is miniscule. But since the likes of pani puris, fairness creams and IFCI sit on the long tail, the chances that my website will get picked up, if someone is looking up on these topics is high. It runs counter to common logic – that write about hot topics and you’ll get noticed more. Niche positioning. I am amazed at the kind of people that my writing resonates with – imagine being patronised by someone who is interested in “fairness creams for Muslim boys”! Or surfers  concerned if eating “pani puris will cause blindness”.

Some time back I had read a very insightful book called “The Long Tail: How Endless Choice is Creating Unlimited Demand” by Chris Anderson. The book talks about the growth of niche markets and specialist sales on the internet. So taking a leaf from this book and applying the conjecture developed above, I guess the key to getting more and different people to look at my website is to use many many tags (Napster, Amazon, eBay use the limitless potential of online store to stock up an enormous array of merchandise) and tags that are off center. If this post sounds like a pathetic lament to increase the traffic on my site as opposed to writing what really interests me and my core group of readers, then you hear right. Screw it. I dont care how many new sets of feet trample my online space. I will write what I want to write.

Economic Hit Men and Various Bonds

Rishab asked me to write something about infrastructure bonds which I do later in this post but before that something about the fascinating world of economic hit men (cool phrase, right?).


Just finished reading the book “Confessions of an Economic Hit Man” by John Perkins. Fuck. What a book. I’m not referring to the writing style (which is good) but the content – a detailed narrative of the ‘corporatocracy’ of the US and the role that “Economic Hit Men (EHM)” played in it. This represents the latest form of imperialism that has played about and for almost all of us, nearly the only one during our lifetimes.

The Boston Herald newspaper likened it to something like a conceptual love child of James Bond and Milton Friedman (Nobel Prize economics laureate and advisor to Ronald Reagan). And that is exactly how I felt as I turned the pages – I kept playing and re-playing the storylines of the latest Bond films in my mind. I don’t watch much movies so Bond films are the only flicks that I can relate to in this context. Please read the book (you must) and if you can suggest some other movies (other than “The Panama Deception“) that resonate with the theme please do let me know.

John Perkins now writes about a lot of stuff on his website but I think that this book will always remain his magnum opus. In a nutshell, this is what is the core theme that Perkins talks about, of the post Jimmy Carter US:

– As the US became more and more powerful, its apetite for natural resources grew larger and larger. It’s hinterland, being as rich as it is, was never going to be enough for this world leader which has 765 (!) vehicles per 1000 people. In comparision, China is at 128 and India is just about at (ha ha ha) a dozen (though it is touted to become the larest car market by 2030)!

– So the US has always wanted to look outside its borders (just like every previous empire building state has done in the past) to secure it’s supply lines.

– But new methods were needed in the post WWII, Bretton Woods era.

– So US interests would identify countries rich with natural resources and with possibly non-democratically elected governments. The phrase ‘US interests’ is used deliberately here since it would later allow for a possible detraction and an escape route to denial and a possible high moral ground.

– Pocket the leaders of such nationalities and send in a team of consultants to the country (these would NEVER be on the payroll of the US Government)

– Cook up statistics and IRR and all assorted crap about a development plan and come up with an investment plan.

– Get the Bretton Woods sisters (the IMF and the World Bank) to provide loans. ‘Engineer’ things such that work contracts (construction activity mostly) were always awarded to US companies. Ensure that such countries remain indebted.

It talks about the assasinations of President Aguilera of Ecuador and President Torridos of Panama. Then about the US invasion of Panama (Dec 1989) to extradite President Noreiga done despite severe international opposition and violation of internal law. Air strikes on a country as threating as Panama? The book notes that the then President George H. W. Bush was under pressure to shed the wimpy image that the US media was heaping upon him. It also questions if killing thousands (though US media reported far far less) to remove one man accussed of drug trafficking, racketeering and money laundering is anti wimpy. The book says that Noreiga was negotiating with the Japanese to build a second canal in the Panama. What was interesting for me to read is that another anti-EHM, Saddam Hussein was castigated by the US for violating international law when he decided to strike Kuwait less than a year of the Panama invasion! I guess we have different laws for different states. But this time I guess Bush was able to shed his wimpy image and see his popularity ratings soar to 90% amongst the Americans and get more international support since Saddam himself was quite a dark guy. I was preparing for my board exams and seemed to miss much of this – who cares anyways when you are the most important point of your academic life. But when the twin towers were felled, I was very much hooked on to the news feeds. I talked about causality in my previous post – and now I wonder if we can see some causal relationship between today’s threat of terrorism on US soil and the policies of post Carter US. Just thinking. Hope no causality exists.

The lure of lucre and the power of world domination is understandable. The English practised their own form of ‘corporatocracy’ using the East India Company as their front. The Portguese did it though the Spanish conquistadors were more infamous and direct in their methods. I am sure even the Gupta empire in early India did it when it touched places like the Malay peninsula, Singapore, Ceylon, etc.

Whatever be the motivation and regardless of the official stand of the Government the book is a must read. It took immense resolve on the part of the author to write the book. Read it.


From cross border economic shenanigans that look like a lift out from Bond movies to real bonds closer home:

If you remember, the recent Union budget had the Finance Minister announcing the re-introduction of tax saving infrastructure bonds. I remember having picked up some tax saving infrastructure bonds issued by ICICI and IDBI during the period 2001-2003. To save tax. My salary was lower then than what it is now and therefore a penny of tax saved had greater marginal utility, though the opportunity cost was HUGE since the equity markets were shooting up like crazy, picking themselves up from the dot com destruction. Today the situation is different since according to me the opportunity cost has reduced (not too many bargains to be found in the secondary capital market). But regardless of that, saving taxes is a virtue which increases one’s take home pay.

IFCI has been the one first off the block in issuing these infrastructure bonds. Here is the term sheet of the issue. A lot of material can be found on the internet so I will not ham. Check out this post on finwinonline – it covers the topic well. I have the following observations:

  1. All should invest. Period. Currently there is no substitute to IFCI bonds today and this gives you an INR 20,000 additional deduction from your taxable income (Section 80 CCF). Invest till 20,000 unless you are unweight and/or love investing in fixed income instruments. You can invest more, but A) you’ll not get the tax benefit and B) the yield will not be mouthwatering.
  2. While the deadline is 31Aug’10 and you need to have a demat account to apply, no need to fret in case you still have not opened a demat account. Other similar issues will indeed follow but the question is will they be at par or under or higher? (in terms of interest offered on the bonds).
  3. Since India does not (yet) have a deep corporate bond market, the Finance Ministry has done good to institute a buy back option for the bond holders after the mandatory 5 year holding period. Presence of this exit option has definitely made these 10 year bonds quite attractive to investors.
  4. The other good bit is that since these bonds would be sold through the Bombay Stock Exchange (BSE), capital gains tax will apply on redemption (instead of the gains being taxed at the individual’s tax rate) and there will be no Tax Deducted at Source (TDS).
  5. The other important aspect about the issue is the generous waiver granted by the Finance Ministry of the necessity to procure and publish credit ratings of the issue/issuer as part of the issue. This is cool, right (sarcasm)? Is that why IFCI rushed in first off the block? So, according to me, you might not lose much in case you are a bit strapped for funds at the moment and are not apply to the IFCI issue. Also, I am not aware of the % of allocation in case the total retail appications are more than the bonds available. The reason for that is that A) you have a quota of INR 20,000 to fill; B) it is quite likely that local interest rates will rise in the near future; so C) even if you have other slightly stronger issuers (LIC, IFCI, IDBI, other NBFCs?) throwing out their paper, the dip in coupon induced by their stronger credit worthiness may be offset by the rising interest rates.
  6. Appopros my earlier post re IFCI (License to Bank, dt 5Jul2010), I guess I am in two minds now given this development. It may be possible that the banking license eludes IFCI. Some people are talking about the company selling out to a strategic investor. The Government of India has people on the board of IFCI and since extant shareholding issues are yet to be sorted out, I think the banking license trigger may not apply. While the position is 9.43% in the black for me, this is yet another instance where I’ve broken one of my resolves – to never put money on investment theories which have a digital event at the core of their persuasion.

Finally, the last word on the infrastructure bonds is the sense of equality it provides us common folk while our political leaders clamour for two successive salary hikes in two weeks – and get it as well. I think there is an outstanding demand by our leaders to make their salary tax free as well. If that happens, I know that I will puke on my pizza.

The Bond Bubble

The bubbling stories going around this week in the financial blogosphere have mostly centered on the heady climb of US treasuries. In fact the topic has been quite hot the past month but the din is getting louder now. Comparisions with the dot com bubble and the housing bubble have started doing the rounds. The yield on the 10 year US paper is currently around 1% now. Which means that if you freeze the frame today, it will take a hundred years for the interest component to add up and match the price you pay for such bonds today. The P/Es (inverse of yield) of the no-brick and no-mortar tech companies were also in the heady hundreds during 1999-00. I don’t have too much of a view since it’s all happening outside of our shores. The Small Investor writes about it here as also the links I’ve listed below: it’s important enough for us to pay attention since we have NOT decoupled ourselves from the west. It’s actually the FII money that’s driving up our local markets here. Hot money.

  • FT Alphaville on the conundrum that equity prices and bond price are now moving in step. i.e. UP!

Logically, I’d guess that the bond market is bigger, more liquid and less amenable to manipulation. So, if the bonds and the stocks are sending out conflicting messages, should one not trust the former?

However, are bond markets better predictors of the economy? I think not: since nominal GDP growth and interest rates are both driven by inflation. Correlation is NOT causality. It’s a mistake many make – if two lines A & B move in tandem, that does not necessarily mean that A and B have a causal relationship. There could be a third factor C which is driving both A & B. So, bond prices are ↑; equity markets are ↑; economic data (US) is ↔. Thats the confusion. 

  • A website called bond-bubble (what else!) has come up and the graph on it’s homepage is quite telling.

It shows the super steep rise of US public debt – almost a parabolic rise. To me this looks similar to the rise of the Chinese stock market. That looked parabolic as well ( y = 4 * A * x↑2) and it could not defy gravity. But can US debt come crashing down? Maybe – if the currency crashes.

  • That seems to be awesome news for the gold bugs! It makes the case that the bursting of the bond bubble will pave the way for a massive upsurge in gold prices. The article notes that the yellow metal shines brightest in three situations – “heightened economical/financial risk; outright inflation and/or deflation”. And therein makes the case for a coming Gold bubble! Marc Faber,  (who keeps telling people to buy gold) has been bearish on treasuries right through the start of April but no one seems to be listening.


This is making people like me (the “half informed”) even more nervous now. Ignorance is bliss – part knowledge is most painful. Anyways, the local markets are frothing on all the money that’s coming in from the US. The Fed there is busy buying up treasuries and sloshing money in their system (to buy the bonds, the Fed has to release money by paying whoever is holding bonds). They’re doing it by working their printing presses overtime spooking inflation. But I guess the game with inflation is that if you whack it too much too fast, the thing just snaps and the party careens towards deflation. I wish I had paid more attention during my economics classes. But to me it sounds logical that what comes in, goes out. So, this money will go back from where it came (at least in the interim). And all will fall down.

Though there is some more ground for the NIFTY to cover. That’s what the “experts” here are saying. The market isn’t fully stoned yet. It’s just started rolling the weed, maybe a few drags….let’s stop hallucinating. In 2008 so many of our local “experts” were shouting out that India is decoupled and that the housing bubble will not effect us. Even politicians had joined the chorous. De-coupled my moon. We are as joined to the US hip as our big bro in the vicinity.

Maybe I’ll be able to call the top.

Stop Losses

Many investors err when they end up throwing good money after bad. The temptation to average the costs down has weighed down on most of us. The problem with this tactic is that it works only when you have studied the underlying asset very very thoroughly. Most of us do not do this. Most of us are not equipped to do this. Most of us do not have the time nor the patience to do this. The other mistake that many investors make is that they get into a position without having pre-decided their stop losses. Or ignoring the stop losses when confronted with a losing proposition.

Almost all of us would have had someone in our extended family or friend circle who might have been badly mauled by the markets and would have consequently vowed never to return. It’s not their trades or the risky nature of the markets that did them in. It’s their lack of discipline. So many times we hear the refrain that markets are too risky. Actually, the market is not risky at all – it is the behaviour of the investor that is risky. The market never induces you to buy. This weekend when I was in Bombay, my mother told me about the losses that my father had totted up during his investing misadventures. Luckily for us (my brother & I) he did not sell off his losses, he just ignored them. And these shares (most of them cyclicals) passed on to us after his demise. And wow! The cycle turned in 2002/03 and how! Imagine riding Steel Authority of India Limited from 6 to42 in a period of 18 months. That hooked me for life. Till the losses tested me.

It does not matter when you buy, it’s when you sell that’s most important. This post is one amongst the various efforts on my part to understand the full meaning of this sentence as per my 5Aug resolution. One can get out of a position making a profit or else leave the table with a loss. Stop losses are signposts that help you decide when to sell if your trade does not work out the way you intended it to be. There’s no emotion involved, just hard nosed, dispassionate, stoic discipline. Statistically, mostly men/boys invest – so much so that investing might seem like a male thing to do. But successful investing is really quite machinistic and dull. Stick to one trading system, do not flip in and out. Stick to your stop losses. Write down/visualise your goals for each position. Maintain a trading journal recording your behaviour and why you did what you did kind of thing. Boring. Please read this cool article which talks about the 5 uncommon rules of the really wealthy traders to get some sense of how boring trading can get! Putting money in a bank fixed deposit or better still a ULIP can be so exciting! You’d get all the time in the world to party.

Sometime back I saw the movie Kites. Kabir Bedi, a powerful casino owner plays the father of Nick Brown who tells this to his revenge driven son when the woman whom he was to marry elopes with Hrithik Roshan:

“The true gambler is the one who knows when to get up from the table”

The other anecdote that comes to mind is from a job interview that I had conducted for a senior position in my company some time back. The candidate was trading on the prop account of some agency and among other questions I had asked him about his trading style and attitude towards stop losses. The guy said that he had never ever violated his stops. The two people who reported in to him had busted their stops one time each. I don’t care if this was just for the effect but inspiration strikes from the most unlikely of places. I have read quite a few books on trading, psychology of trading but when I met this “pretending to be in control” guy I thought that if this chap can do it, why can’t I. I’ve respected my stops ever since – hopefully it will become a habit.

This is important since stop losses can protect you even if you suddenly get whiplashed by a sharp correction. In fact its quite cool since you will quickly be in cash and hopefully will be able to redeploy and make more than what the stops cost you. Which brings me to important question: What should the ideal stop loss be?

The quantum of stop loss depends on what you expect from your investments and who you are. If you trade in and out intra-day (the post is not meant to be read by such people anyways) then your stop loss levels will obviously be extremely tight. Maybe 1% – 2%? There’s a lot of material on discussion forums and websites which points out to 2% being a good rule of thumb. But I feel that if one trades for longer periods, across multiple settlement periods a level of 5% is good enough. The volatility in Indian stocks is high enough to justify a 5% stop loss level. This point is important since if you are an infrequent trader then there is a danger of getting whipsawed if you put too tight a stop. Putting too tight a stop is like writing an annuity cheque to your broker. Your choice of stop loss ideally should be predicated by:

  • your risk appetite
  • risk in each individual position
  • volatility of the position
  • the amount of capital locked into the position
  • market conditions – if you want to go long in a bearish market, it’s absolutely essential to impose tighter stops.
  • time frame for the trade (discussed above)
  • Bravado (best if this reason be read and forgotten)

 Mental stops do not work. Period. I have done some conditional formatting and alerts on my trading spreadsheet and the annoying things keep popping up reminding me to cut my losses and run. You could have your own custom system, more sophisticated than mine, but do not do it only in the mind. It’s easy to overrule one’s mind.

This piece is obvisouly written for people like me. Casual traders. Folks that have a day job and who can afford to look at stock prices only a couple of times a week when the market is on and perhaps 3 – 4 times a week at night while the market sleeps. Folks who want to flog their investible surplus for some alpha instead of letting it rot in bank deposits. The Anirudh Sethi Report, which incidentally became the first site to link to my website has a cool example of how stop losses can be used to make money a la big game shooting. The lesson is almost like a Zen Koan. In fact, Zen masters would make awesome traders.

Reliance Industries Limited

The biggest sloth in recent times has been the Reliance Industries (RIL) stock. As the market (i.e. the NIFTY) traipsed on from 4,800 to 5,500 in a matter of 3 months (~15%), I have been licking my chops (no, I do not work in the chop shop) and have been generally sporting a nice spring in my step. But now I do not know how long my sunny demeanour will last for I have just about picked up a biggish position in RIL and am squarely on the path of Mukesh Ambani. It’s a trading call, unlike the Godrej Industries investment of mine. I feel quite sanguine about the Godrej depoyment, but not so about the RIL punt. The former has careened up 22% (weighted average returns) in 2 months for me and I will surely add to the position should the stock correct in the future. There was news and informed criticism of the US Fed’s solving of its debt related problems by adding on more debt. It definitely means that they’ll have loads of cash sloshing around in their backyard which they will want to deploy in high alpha economies. So some of it will come to India and that may take our local market higher on from here. But since this is hot money and the investment managers need to keep booking profits, sure enough and soon enough the market should correct. Will give some more cash to Mr. Adi Godrej to manage when that happens.

But coming back to flirt with RIL, I have gone long the stock (cash) and have also bitten a bite of the 30Sep 1040 call. There is next to no liquidity (as of now) on the Sep call and maybe the informed, knowledgeable pundits will shake their heads – but I feel that I have a story. I almost never get my options right – the brokerage charges are also too high for my liking and moreover you need to A) be understanding of the math behind how option pricing works in reality and B) be nimble enough to strike (both in and out) at the right moment.

Earlier, I had briefly written about the drowsiness in the RIL counter here and have been keenly watching this oily worm every other night. As you can see from the chart, it has slithered down to 970. The Bollinger Bands and the RSI seem to be giving a buy signal unless the stock is stuck in a downward channel. Then it would be akin to catching a falling knife. These technical indicators work best when the underlying is smugly oscillating in an escalating envelope. Anyway, I have my grip on my stop losses. If one fears or loathes getting wet, then one should not venture into the sea. But remember, only deep sea fishing gives the largest catch. I also scoured the internet to see some reason behing this very sleepy state of this behemoth – at least on the bourses. there are a few things happening (as listed below) but I do not know if they matter much. You may be aware of the old chestnut about the market being a voting machine in the short term.

  1. They’ve started pimping their pumps. They are selling at same rates as that of the PSU oil retailers. I remember some of my trips around Bombay – the Reliance pumps were always closed. The price decontrol announcement by the Government seems to have opened up the nozzles at private oil vendors like RIL and Essar Oil (have a position there as well). BTW, one comes across a very interesting string of letters when we read about fuel retailing trade lingo – DODO COCO CODO (Dealer Owned Dealer Operated – Company Owned Company Operated and Company Owned Dealer Operated). Notice the absence of DOCO.
  2. Maybe the stock has been moribund due to the announcement of RIL’s acquisition of shale reserves in the US? Perhaps the markets did not like it?
  3. The company is going to raise some money by selling off some of its treasury stock. Is that why the stock has been tied down while the rest of the market was inching up?
  4. I think the real reason has been the orchestrated downgrading of RIL by some domestic and international brokerage houses towards the end of July based on the realisation that the KG Basin may not be able to pump out as much oil and gas as what was expected/communicated by RIL. So it’s like the force of gravity acting on a balloon. Things seem to have reached a state where the forces of buoyancy (market rising) and the forces of gravity (broker downgrades) have been counterbalacing each other. Any trade is now a bet on what gives.

My personal take is that RIL is too complicated a business to understand. I do not know how many brokerage houses themselves understand it’s business thoroughly. But the brokerage community lives by its own code – one of them being a shared recognition in the importance of belonging. There’s tremendous security if the whole bunch believes in, talks about and does the same thing. While you are not better off, but most importantly you are not worst off either. In fact there has been a book called Zachs method of investing whose central tenet is to make investing decisions based on a statistical analysis of brokerage ayes and nayes.

STOP LOSS. DONT THROW GOOD MONEY AFTER BADNot that I can claim to “undestand” the companies that I invest in. You really have to be a senior member of the insider team to know it all. But since the trajectory of the Indian market has been upwards during this past decade, it would take a terribly unlucky bloke to lose money on the markets – on a longer term basis. For me one thing is clear – most of the experts who I lend my eyes to are saying (in print) that there seem to be no signs of the market having topped out in the intermediate term. The logic therefore is that if the market needs to move up and reach it’s intermediate top (before the hot money decides to leave our shores), RIL needs to perform. Hope I get lucky on these punts. Stop losses are my pillows.

Obama Speak

The US President is going around asking his fellow countrymen to produce more graduates and compete with the likes of India and China. These are good points to raise but then when this is accompanied by curbs on granting visas it begins to sound like rhetoric. All under the guise of protecting US borders! The border security bill will hike visa fees to $2,000 per applicant for companies that have fewer than 50% of its workforce as US citizens. Thats a cool $200 million bill for Indian software companies that rely heavily on “body shopping”. The standard line of the Indian industry has been a lament on the lack of the totalisation pact between the two countries. India has to contribute towards social security for the workers that it sends to the US – and if they return back to India, there is no possibility of a refund. I would welcome to hear something from Dr. Manmohan Singh on the issue. He is his usual quiet self.

While India remains preoccupied with flash floods, Kashmir, honour killings and the Commonwealth Games tamasha, China picked up the gauntlet and responded well by making outsourcing completely tax free if delivered from 21 cities. The Chinese have made no bones about the fact that they want to end India’s dominance in the sector. Should India not make a counter move to steal some foundries away from China?

India’s earlier responses sound quite pathetic to me. If the US politicians are ushering their wards back to school and hoping and helping their middle class to retain their sources of income, whats wrong with it? Cribbing about it and making it sound as if some grave injustice is being done against it is mooching. How would India feel if people across its eastern border arrived in hordes and stole away jobs? Some factions cannot even tolerate intra country movement of labour.

The rhetoric in the US however is also missing its mark. Senator Charles Schumer has called Infosys a chop shop. Its easy for the sound bytes to morph into an India/China hate undercurrent (if one does not exist already). Lou Dobbs, a popular media anchor, for instance has written a book on outsourcing and devotes much of his website to the phenomenon and how the American middle class is being killed. Is it? Don’t think so. Maybe going through a very tough phase. An important counterpoint to note is the indirect benefit that this can yield to the US.

It would be good for the US to note that the Indian middle class is gravitating towards more and more consumerism. People are seeing their incomes rise and are swiping their credit cards, buying second houses, ipods, etc. gleefully. This is allowing banks like BoA, Citibank etc to set up their shops in India. While such benefits selectively accrue to the Dells, Microsofts and BoAs of the world, the American middle class can certainly benefit. President Obama should also consider exhorting his masses to match imports (of services from China and India) with American exports to these countries. The oriental appetite for consuming intelligently designed goods and services in the occident will only grow. Americans would do well to understand one basic trait of most Indian middle classes – they are afraid to take risks. Innovation is rarely seen. While hordes of software junkies pound away at maintenance and basic software jobs, there is hardly any technological breakthroughs that emerge from this populous nation. The US has always thrived by managing risk and employing innovation which have set up a very strong financial acceptance to see capital freely flowing to fund ventures that are risky. Indians generally take the easy way out – outsourcing is one of them.

But these shifts and changes, as significant as they can be, happen slowly and the threat of the current American middle class losing its plot somewhere is indeed very real. And such Obama speak will found many takers and therefore votes. Whether the White House politicians actually act in earnest to plug the leak (which in my opinion they should not blindly do) is a different matter. Donations from many top industry groups may be funding the election expenses of these law makers.

In my opinion, its futile for the US (as a nation and culture) to fight outsourcing. Its perfectly logical and sane for the US society to agitate and therefore equally logical for the politicians to flog this sentiment for election victories. The US should focus on earning export dollars (USD should depreciate as years roll by) by tapping into the growing prosperity in China and India. India and China, on the other hand, should open up their economies further, slicing and selling off non-strategic assets to the highest bidders and generating more wealth in the process. Its a great lifetime to spend in the Indian and Chinese capital markets of today.

Cover his Butt

In case you missed this, one of the news item last week was the massive attempt to cover John Abraham’s butt. With an insurance policy of a 100 million rupees! The Deccan Chronicle carried a note about a policy being worked out to support his back, but I think they missed the object of the policy. Or maybe that newspaper is modest. John may have to pay quite a packet as premium considering that he seems to have suffered a minor muscle pull recently. Maybe the sprain was to his back muscle or maybe the largest muscle in his body itself was pulled. Why do we think of buying protection only when we have a close shave with calamity?

One buys insurance cover to protect an ‘ass’et which is income producing such that in any unfortune eventually, if the asset stops productive work, its owner or it’s beneficiaries can receive some consideration. This clearly means that John intends to truly work his posterior out in the coming future.

His butt sits right on the top of the Bollywood apex. Ouch! Must hurt a bit. Some time back (in 2008?) he was placed at No. 7 amongst the World’s Top Sexiest Men. He rounded up his performance by topping the honours in a poll of Asian men that was conducted by a leading British Asian weekly and said,

“From being among the top in the world to top in Asia is superb. The air is really nice up here”.

The air is nice up where, I wonder. Bipasha Basu, in an interview during the launch of her Fondaish fitness video gave us a marketing lession. Move over 4 Ps – you’ve been Pissing around for too long. The three Bs of Bollywood that now ring up Business are: Beauty, Bosoms and Butt. And Bips, if I may add a 4th B or maybe an even bigger B to complete the quadrant? But there was something more she confided to us: that the whole world has seen John’s butt, but the butt that not many know about and is also nearly up there in the eyeball grabbing, high butt stakes (so high that the air is really nice up there) belongs to none other than Shahrukh Khan. And what about Salman Butt and Ejaz Butt? They might just become greater batting sensations if they take up John’s lead. The oppositions’ wicketkeepers field of vision might get blocked and they will just not be able to see which way things are swinging. 😉

I don’t watch much Hindi movies. It’s not that I get repulsed by butts but just because that’s way ‘behind’ in my list of priorities. But I am aware of the apperance of the biggest B in the movie No Smoking. I also heard it reappeared in Kabir Khan’s New York? Saw the former – John played a character called K – a chain smoker trying hard to stub his butt! And of course, Dostana. Most male actors are bending backwards and seem more than eager to unbutton their low waisted trousers after John’s success. Laxmi, the goddess of wealth seems to be making a backdoor entry for these gentlemen. Salman Khan will do it in his forthcoming film, Wanted Dead or Alive. Imran Khan and Ranbir Kapoor literally sprung into Bollywood on their respective butts. But the pioneer himself seems to be impressed with Aamir Khan’s body instead.

“I’m never ashamed of talking about my body. Though at times I do feel like a meat shop”.

It seems a young girl once came up to John and offered to bite into his butt. John said that he took no offence since he has to respect his fans. And maybe it is to target such fans that PETA had come out with a campaign on vegetarianism when they showed a poster of John wearing a skirt made of spring onions and decked in red chillies and peas. PETA must have seen red when John went on to acquire all that beef. All this seems to be before they discovered Sherlyn Chopra!

But it’s a good thing. Such creativity on part of our general insurance companies (it would not come under health cover, would it?) is good. The risk managers at the lucky insurer will be watching John’s butt very closely indeed.

What about you? Are you adequately covered? Like our hero I hope you treat insurance as an expense ONLY and not as an investment vehicle. Maintenance of our houses and cars are expense line items. Life cover should not be treated any differently. There are so many of us, highly educated and wise who get trapped by the relentless and crafty marketing messages and buy money back, guranteed returns, premium return kind of insurance policies. These help to fatten the wallet of the insurance agents and advisors. Stay away. Insurance companies sell insurance. These people are experts at macabre things like statistically analysing death and doom and gloom and selling probabilities. That’s their core competence. They are not investment managers. Best is to DIY – construct a combo of a term plan (cheapest cover for your life) and a small, well reasearched portfolio of Mutual Funds (or an Exchange Traded Fund). You’ll do better.

That’s about life. Regarding health, I am not so sure. I did mention in my previous post that for me, health is not wealth, though a lack of the former can sap the latter. The trouble is that most of us feel that since we are anyways covered by our employers, we do not need additional health cover. This may work if the cover provided by your company is adequate enough. Health covers provided by companies are linked to seniority and salary of the employee concerned. But the probability of health issues cropping up does not depend on seniority of the employee concerned. In that case, you should take out some additional health cover to protect yourself and your family (via a family floater plan). The thing that I am not perfectly clear about is that unlike life insurance where longer term cover can be purchased, I am not sure if such long tenured health covers can be purchased. This might be due to the fact that the Indian health insurance industry is not able to construct reliable statistical tables re health and disease data. Also the fact that inflation in medical expenses is very high may be preventing insurers to offer much longer term health plans (10 – 15 years). This means that one has to keep renewing health covers.


Maybe you know all this but I can bet that you might just be undercovered. (I am not a peeping tom, but the odds are in my favour if you want to wager). You might have had John Abraham for company, but not anymore. Don’t remain naked. Cover up.


And BTW, in case you are wondering, the objective of this post was not to introduce more internet search friendly tags to trap unsuspecting eyeballs. If that were the case, I’d have used Katrina Kaif’s name in this post :). (most searched Bollywood personality apparently). You feel that I am misselling? Then what about those insurance agents that sell you investments?

Another Year, Another Story

Just completed yet another revolution around the Sun today at 4:15 PM precisely. 35 full circles! 35 laps done and no pit stop yet. No sign of the chequered flag either. And yet my head is not spinning. I look the Sun straight in the eye, since He is my ruling planet. In fact, it was quite a good omen for the Sun to have burst into flames 4 days back and sent in a massive shower towards Earth.

Moving from astronomy to astrology, this is a rare moment in time when this day for me appears to be so close to a new moon. It will only be after a couple of decades that I will be able to experience this rare alingment again. Gulp! Astrology and I? I hate to admit it but I can be quite wussy sometimes!

Multiples of 5 are spooky milestones. It’s like completing a level in some video game – you feel a sense of accomplishment while bracing yourself knowing that you’ll be meeting more ogres, evil vamps and monsters in the next level. I’m going crazy thinking that the next level will take me to 40! Fuck. How embarassing. In a dastardly attempt towards self delusion, I mailed myself this birthday greeting card! I was elated when it came through. 🙂

The best gift definitely came in  the form of news that my daughter has moved up from the city round and made it to the state round of a spelling bee competition.

Finally, to brace myself for the oncoming mutants, zombies, aliens, et al, I guess I will have to do some (if not all) of the following:


– Gift myself more time. This is damn easy for a lion! I put a mental tick here even before I finished typing this sentence.

– Get trimmer and fitter. Health according to me is not wealth, but is important nevertheless. I seem to have neglected myself in the past year and the effect is showing. 🙂 I have joked many times that my weight always increases faster than my salary. But now I am serious. The new order of the rates of change is: Inflation > My weight > My salary. The future order should be My Salary > Inflation > My weight

Btw, there is a trick that most fashion/film photographers employ when shooting guys – ask the subject to stand akimbo and twist his torso 30 – 45 degrees. Take the shot from the side. Voila! You get a perfect V. Vain guy readers, try it the next time you negotiate your bathroom mirror. If you are a perfectionist then place your fist – the one which is on the camera’s right – near your trouser pocket as if poised to remove your car keys or something. Tightly spasm your other arm as if paralysed and you’re done. Just dont grimace the way John Abraham did when he was trying to hold up his beach shorts. But I digress. In my next post I will be talking a lot more about the male body, so hold on to your beach shorts till then.

– In the past, most privileged years of my being around, I have largely taken, taken, taken from the environment. Maybe I should start thinking about giving for a change. To myself 🙂

– Figure out the answer to the question about investing that has always vexed me. By the time I come back around to complete yet another revolution around the Sun, I hope to be in a better position to know when to sell!

– Pay more attention to sonny boy. Had sat down and taught and read books with the daughter a lot but could not do so with the brat since work had exploded around the time he burst onto the scene. Thankfully, he is picking up things on his own from his sis, so I’ve sheepishly escaped! There is a pending project with him re “traffic lights” – a small scale model of a city, with roads, houses, traffic lights, petrol pumps and lots of lots of cars plying the roads – that I was to do with him last year. Hope to do it this year. Will post pics if anyone cares to watch, but won’t use Lego bricks since so many Lego bricks will turn out to be expensive. We’ll do Thermocol.

Read at least 12 books this year. Books that are unrelated to my profession. I rarely read fiction these days.

Do not read Atlas Shrugged this year! Have read it 5 – 6 times already and I think that has been one of my problems. 🙂

Stop idolising Jesse Livermore.

– Target to increase the monthly views to The Third I by 30% by end of my next turn around the Sun.

Stop paying people money to visit my website! There, I said it. Beware, some of you readers – the taxman cometh.

360 degrees to cover. 10 commandments to live by.

Rupee’s “stable” symbol

It was good to see our currency getting a formal symbol in the midst of all talk and nervousness about inflation. While D. Udaya Kumar scrawls himself into history’s books for designing the symbol, I have my own take on the symbol and what is symbolises. Some people felt that using Devanagiri script is anti-non Devanagiri India and I feel that they are loco. My problem is that Ms. Ambika Soni used the design to explain the underlying stability of the Indian currency. What stability? I am not able to understand. Inflation is running so very high and controlling the currency is like riding (and trying to tame) a wild horse. I am a bit slow in these things.

But what I do know is that some of the factors that determine currency stability are : A) enough liquidity and cushioning in the local banking systems, B) the accompanying political landscape is stable, C) inflation is under control, D) legal systems are strong. If these ingredients are not in synch, the currency may topple over. Since symbols represent the inherent qualities of a currency and since the currency is a barometer of the strength of an economy, let’s use reverse logic to check if the chosen symbol for the INR does indicate stability. Let’s at least check if the symbol chosen for the INR is stable in the first place. We’ll might also take a look at the stability factors of the major world currencies while we are at it.

The concept of center of mass, borrowed from physics indicates the center of any shape, however weird it may be. If you make a 3 dimensional solid out of any basic shape, such a shape should be able to spin around it’s axis – and keep spinning if friction were absent. In the real world, friction and restraining forces constantly act on physical bodies. Let’s examine each major currency symbol (click on symbol to magnify), as if it’s 3 dimensional figure were standing on the world platform and see how it respondes to forces of inter-country friction, asset bubbles, financial profligacy, etc – all being represented by the testing forces of friction (cost of being a world currency on the world platform) and gravity.

Stable. But one nudge and it’ll topple over left or right – i.e. to China or the U.S.A Very stable!! Stodgy and just may not budge. Won’t be able to withstand it’s own weight. Will topple over Stable. But one nudge and it’ll topple over. Already fighting it’s 200DMA Will fall down right. If only the horizontal railroads began from further left.

I recommend that you do not take such advise when initiating positions on currency movements! BTW, you don’t have to be a financial whiz kid or a professional trader to initiate positions in world currencies. Just your decision to take up a job in India’s software industry makes you terribly short on the INR. 

Anyway, I like the symbol – whether it is stable or not. I like it since the Big B has requested that it be featured in the logo of the next edition of his show – KBC. I like it despite the fact that it looks like a bastard child borne out of the union of the Devanagiri Ra and the Latin R. I like it despite the fact that it gave me a kink in the neck. I wanted to see if there is some Dan Brownish hidden symbolism in it’s meaning. I craned my neck up and down, held up my laptop at weird angles for that aha! moment but all I got was a sprain in my neck. See, there is massive hidden meaning in the symbol of the EUR. What happens when you tilt the EUR by 90 degrees? You get something similar to this! Hinting at the intrigue and various games that the continent has always been a stage for. Then there was that story of the WTC attack being foretold in a USD 20 dollar bill.

Actually, if you are lean that way and incline yourself physically that way as well, you might just spot this in our currency symbol. Hardly something to associate free capitalism with! 🙂

But considering the fact that cigarettes, tulips, spices, cows, et al have all served as good currencies in the past, I do not think we should have any problem with this tilted masterpiece.

Symbolism apart, the real concern that should play on the minds of our policymakers is the runaway inflation that’s on us at the moment. I was in Mumbai over the weekend and just could not believe the amount I had to pay for just 250 grams of okra, a kilo of tomatoes, a suspicious looking floret of cauliflower. Around a 100 INR! Prices of food and related stuff are increasing @ 20% per annum. So are costs of education and medicine. Eating out has become crazily expensive. So, what I am saying is that the INR is not fiat currency. Far from it. Just that inflation is making things difficult. Very difficult. And the people in charge need to change many more things than just the symbol of the INR.

Did you know that the Vietnamese currency is known as the Dong? And that frugal Vietnamese women really know how to stretch one to the hilt? 😐 The symbol for their currency looks a bit sexual as well.

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