Portfolio diversification

I look at my current portfolio, do some analysis and think these are the few diversification I will make over the next few months ( or the year maybe) -

1. I have a decent exposure to debt - but that is primarily in the form of my provident fund which earns me 8% ( think that's what it is now). No short term debt ( have some , but a convoluted Overdraft on that is what is my working capital for a lot of expense I am incurring now). so should I increase my debt portion? not sure I want to do it. I will need some cash as backup and they will primarily go to create a OD with some debt backing them
2. Commodities - this will be the next big thing in India ( it already is) - but I don't trade commodities. ( here my attraction is in the agri related commodities and not ferrous/ non ferrous metals). Agriculture has lagged in our economy for far too long. Given the fact that 60% of the population is dependent on it and we need to secure our food security, I expect movement on this area , more out of force than genuine concern. Its a 2-3 year play and should be very rewarding. I am still not sure how to play this, but will keep you posted
3. Gold - I think this is an asset class I will need some exposure to. I can do it either thru physical gold, Gold ETFs and through a hybrid fund like DSPML which invests across the gold value chain. I am not sure if physical makes sense, but will evaluate the other two.
   
4. Commercial real estate - I think this will create a cash flow scenario. Also , when I say commercial real estate, its basically a small office/ shop version - This will need me to put down some capital and leverage hard. I am hoping the real estate will fall further to allow me to pick some up. This will need lots of cash, I might just have to team up with a few friends ( assuming they are willing). Here once the REITS come in, I should be able to build an exposure, but I think that is atleast 13 -15 months away in India.
   
5. Some other slightly weirder ideas - like financing a moveable asset like a mini truck, or some small microfinance institution, or something.
   

Keep in mind that I don't have huge sums - I am assuming here, I will find like minded people and find the right opportunities. I want to take slightly larger risks, diversify the cash flows and see if I have to guts to take the opportunity given by the Indian economy to the build capital for myself.

Anyways, My dear reader, thanks for visiting me. Some of you are regulars I know, some land up through some search engine. Keep coming back, leave a message to let me know who you are, ask if you want me to write about something you feel I am capable of having an opinion worth airing...Keep me in business. Wish you a very happy and prosperous happy new year.

Lessons for Entreprenuers - Marketshare vs. cashflow

If you are an entrepreneur, you should learn a few lessons from the current saga unfolding in the Air Deccan- Kingfisher saga. The whole episode has a lot of lessons to learn in corporate strategy – a model which worked elsewhere might not work in another as the conditions are not the same – so a low cost model in a country where most of the costs you face are the same as a full service carrier will not be the same as a south west or a Ryan air success, so think through. In game theory, we have games modeled called ‘battle of attrition’ where the first person to blink loses everything and the person remaining in the game get abnormal returns – in the airline business, that is what happened – where on the last day when Deccan was to make money, It was being priced out of the market.

But all those lessons are what have been written ad nauseum elsewhere. I look at Captain Gopinath and think of lessons for entrepreneurs. A visionary entrepreneur, who on the first counts made the right moves – built a strong team, entered the market and exploded it, had financial investors who believed in him (Ladhanis), changed the right parameters of the model (ticketing software, yield management software) and created history – but now sadly he has lost control of the baby that he gave birth to – having ceded control to Kingfisher. I think at sometime an entrepreneur has to choose whether the dream is larger or his control over the concept and I respect Capt Gopinath for the decision where he has let the dream grow, albeit with a changed identity but it will survive. Many Indian entrepreneurs can never see themselves two steps away from the company they gave birth to….

But then I ask myself how an entrepreneur can not have to go through this divorce – this premature rupture of control, of giving up the dream u built – remember the best returns are available when more and more people believe in the concept, the company and the team. So the longer you hold stake and mould the concept better it is. Remember, most Indian promoters hold substantial stakes in their companies and a slow dilution at multiple points over periods is the way to maximize wealth. The basic feature which most investors and books on investing will stress is – cash is king – topline is myth, bottomline is reality – so don’t chase marketshare at the cost of profits – I am not sure there are too many successful models where you have 60% marketshare, make losses and then due to scale economies start making money ( The other industry that comes to mind is the Newspaper industry – where larger you are ad revenues supposedly will flow in, so you have the gimmick of invitation pricing et al). Guard against managers who run and chase marketshare, it’s easy to throw money and gain marketshare, but you can’t throw money to get profits –Remember the goal of any entrepreneur should be to create an organization that not only survives him, but can’t be around after he is gone. A year in the life of a human being is long but compared to a life span of 65 years, it is small, and then for a company which is supposed to exist for centuries to come – what is but 2 years of slower growth to make the foundation stable.

I am sure people will talk of how the opportunity might go away – but that is the traders’ view of the world – an investor/ entrepreneur should believe in the power of the vision – work towards that outlive the people who saw it – yes it is difficult, non sexy, masochistic, painful and is guaranteed to give bouts of self doubt – but isn’t that the beauty of building great organizations?

Ads that get on my nerves...

Sometimes a few ads just get me irritated.... I have already cribbed about the veneta Cucine ad sometime ago.... this time -

Its I think the Aveo Uva - ( Notice I cant even seem to recall the brand name!!!) - anyways this is with Saif Ali Khan offering a stranded Rani mukherjee a lift on the roadside and then school kids rush in..... so what get me pained? In India, we lack the culture of safety. I don't have the stats but maybe 10% of users use seat belts in the front seat and maybe very few in the back.... so how can you cram 4 ( or was it 5) kids in the back seat of a car? of course, we are a nation who will turn a blind eye to 15 kids in the back of a rickshaw, so why the heck are you getting ruffled you might ask.... my only answer will be, lets move forward.... would GM have made a similar ad in the US? so why show such things in India?

The other ad which to me is puzzling is the shiny slim phone ad where the lady move through security metal detector and it beeps.... she is hiding a metal phone and the security guard cant find it.... why? becoz the stupid guard doesn't run the detector on the back...... duh , give me a break.... ( although due to association, I first thought it was airport security - now I think there is nothing to give that impression) ...... so down with dumb security guards and copy makers....

Investing in mutual funds – building a balanced portfolio

I have in the past blogged about going about investing here. I will jump a step and write about building a balanced mutual fund portfolio. I will address the debt side of mutual funds in a separate post on building your debt portfolio, so this post refers to only equity funds. Some steps I think are critical –

1. Get the funds right – Portfolio theory and investment theory says, diversification helps – the same applies for a mutual fund portfolio too. So you should plan to build one. And Remember this is going to be long time bound, non exciting, non sexy action which will make you cringe when the guy in the next cubicle is boasting of his 70% profit. But trust me, if you are not a gun in stock picking and don’t have time, go for mutual funds. A well balanced portfolio needs to have these funds I think

a. Core equity funds – Here you should have two sets of funds : one a bottoms up stock picking type with a large cap bias and will usually be stable in their returns and move with the Sensex or Nifty. The second should be a good growth fund that bets on the growth stocks. Remember although growth stocks tend to be the mid cap/ small cap stories, a growth fund targets returns and not capitalization. This should be a large chunk of your portfolio maybe ~40%. In case you are investing for the sake of tax saving in ELSS funds, then add them here.

b. Index funds / Exchange traded funds based on the index – This will allow you to ride the market direction with a lower expense load. Choose from a wide range of index funds or ETFs available. Keep in mind that if the core equity fund you chose has a largely the same companies as the index fund then you are losing the benefit of an exchange fund and losing on the expense. This should be ~20%-25% of your portfolio

c. Contra fund – This takes bets on stocks which are currently out of favour with the market. Use these funds to give that occasional punch to the portfolio and this should be about 15% of the portfolio.

d. Thematic / Go anywhere funds – These are funds with a mandate to go anywhere, invest in any story and take concentrated bets or diversify. In a volatile market like India these are funds which, if nimble, will make money due to emerging themes. This should be about 15%of the portfolio

e. Sector funds – These take concentrated bets on a particular sector. Ride the momentum and languish when the sector goes out of flavor. Send in 10% of the portfolio here.

2. Getting the mode of entry right: I would suggest you setting up a SIP on the core equity funds and the thematic funds, while sending those sudden bonuses and one time investments into the contra and sector funds. Remember the latter will increase the risk of market timing.

3. Watch the loads: some funds levy a higher entry load while others link it to an exit load with period of investment. ETFs and index funds have a lower load structure. Remember, loads eat into your returns.

4. Monitor your portfolio regularly: I would suggest a quarterly review, with a rejig once/ twice a year. Don’t touch your MF investments for 3-5 years atleast, see them grow. Use a good portfolio tracker like the one you find on sites like www.Valueresearchonline.com

5. Options – You will find Growth, bonus and dividend options. Dividend will have reinvestment and pay out options. Forget all these, remember, if u don’t need the money, choose growth and if u need the money choose dividend payout. The others don’t matter; they are a vestige of a period long bygone where taxation was an issue. But remember, if you investing in a ELSS fund to save tax, it makes sense to always choose the dividend option, since every investment is necessarily locked out for 3 years. You don’t have an exit option.

6. Forget the NFO’s go for good old tried and tested funds – very rarely do new ideas come to the market, when they do go for new fund offerings, else just invest in funds which have a track record. Although past performance in no guarantee of future, atleast it’s a better option than the new unknown

7. Close ended fund or open ended – the spate of NFO which claim to be better because they are close ended and hence give the fund manager a better control on investments , although true a little bit, is driven by the change in rules for amortizing the expenses. So cut through the crap, go for old funds, open ended and with a track record.

8. Throw your advisor out of the window if the first recommendation he makes is to invest in an NFO, unless he has very strong reasons about what is new about the fund and how there are no such funds available already.

9. Remember the difference between absolute performance and relative performance – All Mutual funds will boast of how they outperformed the market, but they are referring to relative performance to the index they chose to be benchmarked against. So if the index fell by 150% and they fell 149% they will still claim to have done better. And remember to include that load when you are calculating the returns. Me and you are bothered about what is the absolute performance… go back open the 7^th standard mathematics text book and learn how to calculate simple returns if you are not sure..

Happy investing , in a country where financial assets are a piddle , use this mode till you feel comfortable to venture alone in the jungles of the Indian equity market

Analysing my investment performance...

Although I regularly track my portfolio and juggle around my portfolio, the last 10 weeks I have actually monitored it closely since I am trying to decide if it is worth spending time on research. Every stock pick I do takes me anywhere between 8-10 hours of research and digging that much time these days is becoming a fairly difficult, with the increasing work load... so what are the results...

During this time the market ( defined as Nifty) has given a return of 17% ( all return figures are absolute and inclusive of transaction charges - not taking into account any tax which needs to be paid if i book profits now)

I have a mutual fund portfolio, which is probably 3.5 to 4 times larger than my stock portfolio and that returned about 19% during the same period.

My stock portfolio on the other hand has returned ~37% during the same period. This is post the entry costs... So my own stock portfolio is doing better. But wait, the risk profile is not the same across these 3 things. While Nifty is mostly large cap, my MF portfolio is a mix of large cap, small cap and some minuscule debt. On the other hand my stock portfolio is more of mid to small caps... so based on risk return equation maybe they are all running their own races well enough. I think come new year, I will re jig my MF portfolio, there are some laggards and shift the money to better options.

But still, is it worth doing my own stock picking, I think I will keep trying this for another year or so, see the results and then decide... I will update this in about 2 months time again... so keep coming back.

Is Infosys the next HLL

As a student of business history, as someone who took a shot at being a strategist and a novice investor I find this line of thought interesting…. Bear with me while I try to articulate what I am thinking….

HLL (now HUL) was (is?) a dream company to many bright minds in India, it launched dreams – the beauty secret of film stars, one which made dark south Indian men chase their fairness dreams, brightness to our clothes – gave us Rin Brightness, Lalithaji, Liril girl and set a generation of women to dream… A generation of marketers were born, a slew of products unleashed – one senior executive once told me – in the early 80’s there were 4 good schools which churned out good managers – IIM – A, B, C and HLL.. It has given Indian Industry many CEO’s, many more middle managers who will lead Indian Industry in the years to come…. To borrow a line, it went where no marketer went, deep into the Indian hinterland... back in 1980 when fads like “Bottom of Pyramid” were still not around; they unleashed campaigns in rural India, with bullock carts peddling messages of hygiene, cleanliness and Lifebuoy…

It was a darling of the investors, gave fantastic returns, it was one of those blue chip stocks people held… I cant find any number on the holding, but it gave returns for a long time and was a staple of most portfolios…

Infosys, the company born out of the Indian middle class dream, the success story of Indian economic liberalization, the company which made ‘global delivery model’ , ‘flat world’ well recognized words, while it did not spawn the IT industry it’s the most recognized child of the industry. It made millionaires out of middle class families and gave a wealth creation a chance to gain respectability in our hypocritical society..

It too was a darling of the investors, every quarter results of Infy sets the market tone, it was the stock which is keenly tracked by the FIIs , opened the NASDAQ with a bell from mysore… its languishing now, for a year, IT has not driven markets, returns have not kept track… will it follow HLLs footsteps?

Mr. Market ( to borrow Ben Graham’s reference to the stock market) is fickle, runs behind momentum, flavours of the season ( infrastructure, real estate now ) are what excites it, but these two companies need to succeed… they are refreshing oasis of professional management established, led, managed companies in family driven companies in India. I have nothing against family managed firms, I work with them, but the rise, flourish and continued existence of professional companies is what will keep the dream of middle class professionals like me…

The day I stopped a tram in its track....

And before you guys start thinking I did something our Indian film heroes regularly do with their little finger on the left leg with ease and say so what, let me explain.....

I went on a student exchange to Belgium. I was with Solvay Business School, University of Brussels. I loved my stay there ( and the Belgians, I think they were wonderful!). My hostel was about a km from the university campus and was an awesome place. More of a living community, with people protesting against war, sun bathing( when the damn thing came out), coffee with music and music performances... sigh those were awesome days. Anyways, back from the detour.

The Belgians are probably the most courteous people I met on my trip to Europe ( I saw, trekked, traveled to some 7 countries!!). On the main signals, there are anyways pedestrian requests, where you request for the traffic to stop, which then turns red to let you pass. On most other roads, all you need to do was to step near the Zebra crossing and the vehicles would stop to let you go. You acknowledge their courtesy and off you go..... it took me a while to get used to cars stopping completely to let me pass.... I would usually be dumbstruck as to why the heck are they stopping :) problem of upbringing...

And one fine day, I was listening to Bob Marley on the discman, having hot waffles and out I step on the street from the pavement and realise a huge gush of air around me ..... and then I realise, the tram which was on the street stopped to let me go.... jackass that I was :) I apologised to the driver, acknowledged and moved. And surprise he didn't swear at me nor did the others who were waiting to cross....

Now lets play that scene in Indian frames... Deepak steps on the street, driver says "B#@$%^, iski to aaj main le loonga" and pushes the throttle, wham, passengers say " sahi hua saale ki dimaag thikaane aagaye" and then me, with a few handicaps (not the golf types mind you) would be seeking treatment and sympathy!!!


I think about this and try to attribute why we Indians will not let people cross even when the signal is red.... vehicles do a 'creeping acquisition' of the Zebra crossing, swear, spit,scream and honk... I tell myself maybe we are an aggressive race, maybe we are trying to catch up on lost time under the sun, maybe people have urgent work, maybe population trouble leading to too much competition leading to high levels of aggro behaviour but its plain lack of culture I decide, lack of courtesy and respecting someone on the road.... I might be guilty of the same conduct, but trying to change...

All about managing money...

Am down with a bad cold and fever.... so some random tidbits/ observations :

1. You make money by taking concentrated bets - if you are convinced about a stock and can lose all the money you are investing in it, then bet a substantial portion of the portfolio in it. Remember - a 100% return on a 10% part of your portfolio is not much if the others are averaging 25% - A study says, most people in the Forbes richest 400 made it there because of the one big idea that worked for them. So spend sometime, research and come up with a few bets u think will work
2. Once money reaches a critical mass - passive income keeps you going if you harness the power of compounding. So while the attraction of being frugal might not seem great, frugality when you still can ( read : no wife, no kids, no huge medical bills, lifestyle diseases) pays well when you want to party later - so make that large sum of money and build capital
   
3. Use Leverage - Debt is a bad thing. I plays on your mind and creates chaos in times when you want to splurge. But then when investing using debt prudently will allow you to add that zing to your effort to build a passive income stream. Set a level , say you will use 20% of your current income to service debt, that should allow you to get 10X of that money to invest, club it with your capital, which is usually 25% margin and voila you have an asset of 12.5X. Remember - don't use this for stock market investing or debt or commodity. Use this for real assets where the return is higher than the cost of debt
   
4. Protect your capital through diversification - Before you think I am joker who has lost it due to fever, ( Pt 1 says - take concentrated bets, and here I say otherwise) - The same study also says that on an average over 3 centuries ( or was it some lower number of years?) only 20% of people remained in the next Forbes 400 richest list. The ones who did diversified. This is simple, once you have capital built, diversify and protect it from cyclicality.
   
5. Don't self medicate - Since you will not operate on your loved one and will seek a doctor, why do you think you can invest on your own? ( Yeah we know you made 100% on the stock market last week, my pet fish can do better in this market bozo!!) - so set aside a part of your portfolio to be managed by the ( so called !!) experts - Mutual fund ( for aam junta like you and me) , Portfolio managers ( for creatures of higher living) and maybe own fund manager ( Read : Azim Premji , Narayan Murthy , Anil ambani etc who can setup a private equity fund from their dividends)
   
6. Don't forget leakages - Shoddy government working, death, taxation and transaction charges are the only certainties in life - cant avoid the first two, don't let the latter two kill the return % ( and you thought love was also a certainty?)
7. Don't forget to have fun - All the bloody money in the world is to let you have the choice to say "No I don't want to do that crap, maybe something else" - so work towards freedom of choice.
   

Vodafone - a irresponsible corporate citizen

If you move around in Bangalore these days, you will notice the advertising blitzkrieg that has been unleashed. I have no problem with advertising, but when some enthusiastic Area sales manager/ marketing manager thinks he has to be innovative and goes overboard I get pained. So what is the issue?

To create what in marketing parlance " a new marketing asset" vodafone has splashed the trees in Bangalore with metal ad boards which have a metal angle which needs to be nailed to the tree and the ad juts out. While vodafone did nothing to help these trees grow or maintain them, it makes full use of this. This damages the tree ( to whatever little extent - I don't care) , and encourages other businesses to do the same. In no time I am sure, the trees in Bangalore will have this all over and we can bid goodbye to the trees. When you pay for getting your message across, its advertising, when someone else writes to give you exposure its publicity, but when you make use of public property , its Vandalism - and Vodafone is no less than our irresponsible political parties....

Get a mentor now....

One of the things one should surely do is get a mentor. Remember, you need not have one mentor, but multiple mentor. The critical thing why you need a mentor is to show you the 'bigger picture'. Sometimes you get so engrossed in what you are doing, you lose focus of what it is that you set out in the first place for. So where all should you get yourself a mentor -

1. Life mentor - A person who will straddle your personal life and career and helps you articulate what you see yourself to be when you are maybe 45 and have hopefully higher callings in life and not just that big house, corner office, faster car, smaller phone and snazzier gadget

2. Career mentor - One who will help you move towards a long term goal in your career. The assumption here is that your current job is a step towards it and not the one which will lead you there. This applies more to the MBA friends I have who are chasing larger goals and are using the current job to get a skill set - E.g. - I come from a family with no business background, so I might join a startup to understand how they work if I want to startup on my own. But my mentor needs to be one who has done similar things and has started up

3. Job mentor - This person serves the need of the hour and helps you acquire the skills in the current job and helps you move through the organizational clutter. This person need not necessarily be from the same company, but from the same field

So where do you look for a mentor? - in the networks that you have built over a period of time. If you are the type who does not network, ask friends to refer you. Don't expect a high level of involvement from the mentor straight away. Most probably the person will evaluate you before he decides to spend his time where all you offer in return is the feeling of reminding him/her of what he/she was in a younger time.

Remember to do your home work when you approach a mentor, a mentor is not for cribbing but to act as a sounding board. Define your objectives, look at the problem, generate options, do an analysis of the pros and cons and then approach your mentor for advice. Trust me this is important in your own development. Acknowledge the impact mentors have had on you when you succeed, that's the best you can give them.

Make sure your mentor understands your life situation, goals and ambitions ( this is for the first class of mentor i specified) and job, career respectively. Don't hide what you think are the mistake you made, your weakness and strengths. After all they need to help you climb mountains. Respect their time, the effort they are putting in. You maybe a hotshot and the next Bill Gates but this person is fulfilling a purpose.

Some mentor/ mentee relationships quickly move to a co-learning level. Offer what your best, that is what will change the perspective you have about life/ career/ job from what your peers will have.

I have had some fantastic mentors, I can just pick the phone, tell them the mess I am in and they are there to offer me support. I can share my achievements and see the happiness and be thrilled. I have very little to offer to some of them, but hope some day I can pass this along...

The 4% inflation myth!!!

( unrelated : I do a lot of offline writing , so will post more regularly. Hopefully the quality will improve )

One of the myths you hear when you plan your finances is to take into account the inflation. If you are financially educated , you would have heard the difference in real and nominal rates et al. But have you ever bothered what is the inflation rate applicable to you?

If you live in India like I do, then the mai baap government doles out a figure called WPI - wholesale price index which is what the whole business press creates a ruckus about, but when the heck did you and me buy in wholesale? There is a CPI - consumer price index and rightfully its different for different set of people, but then that comes with a lag. This is not a discussion about the pros and cons of various inflation indices. I will reserve that for a boring chat with some of you who are both statistically and economically inclined.

My limited point is - when you planning for the kind of money you want, think of a factor called "lifestyle inflation" - If the hierarchy of needs were just needs, comfort and luxury - remember they will keep getting redefined. Yesterdays comforts are today's needs and today's luxury will be tomorrows comfort. I come from a class and generation of kids who learnt cycling using rented bicycles.... I don't see those shops these days. So bottomline use your imagination and budget for higher expense on essentials

The other factor to factor ( !!) is remember that your life goals will also change - A few days ago i rediscovered how much I love to travel, that I want to see more countries. My current count is 9, and I want to atleast increase it 45. So my plans better take that into account. So what is your life goal - space travel?

As a generation - am not sure we will stick to an organisation for 3+ decades ( that ~11000 working day!!! - subtract sick leave and earned leave ) - since you will change jobs, career - plan for expenses for upskilling/ reskilling yourself. Those will be significant expenses. Also I think since the stress is higher, crutches of a joint family are missing, other social support systems missing - we will burnout sooner - so get the period right

Am sure there are others - all these are stuff which are like inflation, so don't factor a bland 5% inflation the government wants you to believe....

What my MBA gave me and what it did not...

4 years after my MBA , when I was as usual giving gyan to a wannabe MBA , I thought it was time for introspection – what did my MBA give me, what did it not and what was on offer and I could not take out –

What MBA gave me –

Confidence & perseverance – I always did well in my studies, it was in B-school that I got stretched and boy was it a stretch !!! nightouts, deadlines, competition prepare you well for a corporate job where you are expected to hit the ground running. So although I am sure I will not know most things, I know I can learn and get upto speed to reach where I want.

Respect for different working styles – I was brought up in the work hard and the Indian middle class work ethic. But then you reach school and meet extra ordinarily intelligent people, people with smart working aspects, some with questionable work ethics and you see all of them doing well. Learning to work in teams with diverse styles and learning certain skill sets helps immensely. Also you realize the value of ethics and make choices

Network – My MBA plugged me into a network of extremely smart people. Friends who can open doors for you and push your limits in understanding stuff. Living on campus, having discussions about hundreds of unrelated things helped create a perspective which is very different

Audience – I talk to CEOs and promoters on a regular basis. Advise them about business decisions and get treated as an intellectual equivalent. Although I might serve them a limited purpose and I have miles before I reach the levels of some the fantastic CEOs/ entrepreneurs I have worked with, the learning has been awesome – this wouldn’t have been possible without my MBA

International exposure – I went to Solvay business school in Brussels on an exchange programme and it was an eye opener on both hard and soft aspects. I worked in teams which had people from Vietnamese, Chinese, Italian, Moroccan, Spanish and African origin. And boy was it a lesson in communication and respecting cultures. I will post a different post on how it helped me appreciate India better.

What my MBA did not give me –

Assistance in career decision – Most European and US business schools have career counseling setups. The placement setup in Indian schools is most job process focused. If you need counseling the seniors and alumni need to be accessed. With the week alumni network that we had, this was a definite drawback. Would it have helped maybe, maybe not – but am sure would have liked to have access

Industry interaction – Indian B-schools and Industry I think share a love-hate relationship. Students try to get the industry to sponsor, come to interact, setup chairs but then industry rarely responds. Some of the best classes I had, was when we got an industry person to add to what was being discussed in a case. Maybe the growth in the Indian industry leaves very little time for such things and maybe alumnus don’t really appreciate what the school did for them

Breaking the stereotypes –India is about stereotypes. Science is better than commerce, an engineer is better at quant, an accountant is not creative. MBA made me realize and acknowledge when I was getting influenced by a stereotype. But did the school do enough for all of us to break these, am not too sure.

What my MBA offered but I did not utilize well:

Access to a large library / resource: Most times I think running around took away time to explore the library. Increasingly I am believer in reading what has been written about a subject and chiseling my own views. I didn’t have time

Engaging the profs : Each one them with the eccentricities is a person who could have developed/ destroyed ones interest in a subject. Could I have been a marketer? Could I have been a quant trader? Do I love market research I will never know, didn’t spend enough time trying to find out.

Understanding a subject vs. cracking a system: when you are in a hyper competitive environment and the top 1% percentile is greater than the population of many European countries, one is forced to look at the end but not enjoy the means. I could have learnt a lot (I did learn a little!!) but then the focus got shifted to cracking the system and getting those marks.

This list will grow. Maybe 6 years from now I will have a different view. Do let me know what falls in these three buckets when you look back at your own MBA. If you are an aspiring MBA applicant, watch out for these. Am sure learning by watching others helps you avoid what that famous saying says “ Those who do not remember the past are condemned to repeat it”

So you want to start investing.....

go right ahead, you should, after all there have been tomes and tomes written about how inflation eats into your savings and how you should invest in equity blah blah blah. So here is a checklist of what I think you should be doing -

1. Do you have a clue about what your expenses are? - this is because most of us have a good idea of the income - so get a hang of the disposable income - then how much you dispose every month and see what you have left to invest ( * Note - I am not going to talk about a plan that you need to have before you invest in - thats for a different post)
2. Setup an emergency fund - the funds in this should cover anywhere between 3-6 months of your expenses. I suggest you send this money into a fixed deposit or a liquid fund. Ask your bank to setup a overdraft on this money - so that if ever required you draw down immediately while earning interest
3. Get insured - medical and life - this ensures your lifestyle remains the same ( how much insurance to buy - another post - or will link to some good reading)
4. Whatever is left - split the money into 3
   

• Money you surely want in a year or two - send this into debt products - a bank FD, a Fixed maturity plan, a debt fund - depending on what you are comfortable with
  
• Money you dont want for the next 3-5 years - invest in a mutual fund - select base funds which will form the core of your portfolio - start a systematic investment plan on this and forget about using it - review this monthly and a thorough review quarterly/ half yearly
  
• Money you can afford to lose and will not lose sleep if you lost it - take it and invest directly in shares - but come to this step only if all the above are done

Now how to select a fund , a stock etc - I shall post sometime soon..

some random ramble....

Why the stereo type - Have you watched the veneta cuicine ( did i get the spelling right?) - Its an animated ad - with a jingle going " its a funday cooking in a veneta cucine ......" the maid is shown as a black woman while the rest of the family is of a different colour - How did anyone approve this ad? Yeah as a country we are not so touchy about racism, but I think this was in poor taste

I read some article which had brought a similar observation - The Singapore girl on the Singapore airlines represents the ethnic look and feel of the average woman in Singapore, but on none of the Indian airlines would you see the air hostesses seem like the average woman in this country - mostly fair woman is what you would see. No wonder " Fair & Lovely" has a large market!!!

What to do when you quit a job?

This is a post that is a follow up on my learnings from job post - People asked me how do you exit a company.

I have exited a company thrice by now and each one was an experience in itself. When I quit the Bangalore stock exchange - people were happy for me as I was heading to IIM-B and they wished me luck. Even now when people from the Exchange meet me, its a family feeling and they are proud of where I have reached.

Coca Cola, my next employer was the worst exit till date for me. I quit and I thought I indicated quite well why I quit. I was asked to deliver on a few things before I left and ensure the thinks I was working on did not completely fall through. My last 30 days were far more chaotic than what most people on 'notice period' would have. The HR people kept dilly dallying and my notice period writeoff (90 days in all and I served 60+ days). I was told by my department it will get waived but ultimately I shelled more than 2 months take home for they actually took stuff like PF, canteen money etc from me while cashing my leave ( 45 days) at a piddly basic rate.

KPMG was very nice and professionally done. And the exit was so smooth, its a pity they put their best face when I was on my way out. So what are the lessons

1. Speak to your boss first when you have decided - have an official chat and an unofficial chat ( the latter if you share the rapport)
2. Immediately speak to your Head of department and tender the resignation in writing copy marked to HR - Get your HR to tell you the procedures and get your boss/ HOD to tell you what is expected of you before you leave
3. Create a backup of all your work and cross reference them for future use within the organisation. Leave notes where required - Trust me being a good employee also shows great professionalism
4. Inform the team you work with ( when , depends on the understanding with your boss/ HOD) and ask if there is anything that they need from you - You might work with again so leave a good taste - Also people reference these days through a lot of things - you never know the guy in the next cubicle might be the guy they call!!
5. Start your signoffs sooner than the last day. It usually takes time. So dont wait for the last day. Leave your contact details - let people know where they can find you.
6. Keep in touch with people who were good friends - to put it differently, keep in touch with people you know will be of any assistance. Remember its quid pro quo - if you are useful to them, they will be of use to you.
7. If you had a mentor in the organisation - stay in touch - my guide from coke is still my best career advisor, the manager I worked the best in KPMG is still my guide when I am stuck.
8. Every organisation builds you professionally - acknowledge the good part, leave constructive feedback ( most organisations dont take it well - so dont criticize too much!!) and see the people in the organisation different from the organisation

Action points on the financial front

I have been investing in the market for a long long time, but had stopped in the middle for some years during my MBA and then for sometime during my first employment primarily due to lack of investible funds. Then about 3 years ago I started investing and have been regularly. Then somewhere, I decided to actively plan my finance completely. So I have been trying for a complete coverage - not just on the assets side but also on the liabilities side. I used my bonuses to pay off my education loan well before time, then took a loan to put that down payment on a flat and paid it off with the next bonus. Now I have a loan taken to fund my brothers education and I will let it run its course, since the cost of prepaying that loan is very high.

I have a SIP running every month - and I juggle around which funds I invest in based on how my portfolio is looking. I take turns in investing in a base fund like Fidelity equity, HDFC equity then shift to growth options like Reliance growth, Reliance Regular savings fund, Magnum Global and then sector/ contra bets like magnum contra, DSPML Tech, Bank BEES.

I have investments in equity directly. Most of them are shares not owned by the funds I own. Its also to do with the thought process of benchmarking my own stock picking skills over the fund managers :) , Will post how I did in about a years time.

Right now, I think I have a low insurance cover. I want to buy term cover - have explored the options, just need to execute it. Actually, I will increase my insurance cover drastically over the next 2-3 years, but primarily term covers with residual cover after the premium payment period if possible.

I need to brush up on my derivatives front and start investing there - but that is the target for April 08 - when I estimate I will have more investible funds ( read - can also lose more!!)

Need to evaluate if I should take a pension plan anytime soon and how it will work out.

Investment in commodities is also on the horizon - but need to think through.

Primarily - I want to setup a sizeable passive income stream which will contribute to my investment corpus soon.

In case I seem to have missed out on some very obvious things - leave a comment, will be grateful.

A sub optimal way of investing

I have had banking as a sector to invest for a long time, but due to time constraints, have not been able to research on the sector and identify the right candidates. While the obvious ones stand out, I would still like to research before I invest. So as to not lose out on the opportunity, I invested in Banking Benchmark exchange traded fund ( BANK BEES). My average cost of entry has been Rs 684 (adjusted for brokerage and divindend) , the current rate is 807 - over 3 months thats a return of 17.98%. Which is quite Ok I think. The other way I could have participated in this is through a banking mutual fund. The average category return is ~22.5%. If I were to adjust the entry load that most funds would levy, it comes down to 19.45%. So I have lost about 2.3% for not having invested in an actively managed fund.

I got thinking, I am sure there would have been better returns if I had spent time on researching, but given the fact that I am not too sure of evaluating banks ( you cannot go by the traditional way of researching companies to evaluate a financial institution) and since I did not have the time, I took a lazy way out. Maybe I should use those hours I clock in the flights on reading up on such things and researching. It will be time worth spent. But first I should get my sleep quota, which I try to fill in on the flights.

But I am still bullish on banking, will post on my picks...

Reinventing the wheel in financial inclusion

Financial inclusion seems to be the latest buzz word. I have been hearing it over and over again in the last month or so and it seems to be everywhere. This is financial services own "bottom of the pyramid"story, and as usual our press has taken to it - the latest flavour of the month.

Micro finance and micro credit have become big money spinners, while RBI seems to be coming up with an innovative plan of accrediting village money lenders to bring them into the mainstream financial system. Micro credit has drawn some flak for what people claim are exorbitant rates that they seem to charge. Do they? am not too sure, I take the argument that the Micro finance institutions dole out about high cost of delivery and the related crap. There is scope for lower rates, it just needs more competition but I don't think regulation is the way to go.

But coming to my main observation. The main hitch that most of these organisations claim is the lack of grass root level staff who can assess credit risk and effectively deliver the services. The typical last mile problem faced in a B2C industry. But for those who are old enough to remember, Indian Banks used to have a 'pygmy collector' who used to go around to small businesses and such daily and collect money and deposit to the bank next day. The pygmy collector used to get a small commission ( i think, am not so sure), knew the market like the back of his hand and had tremendous linkages. Why didn't the Indian banks use this system to reach to the "financially excluded"? Why not revive this scheme ( am sure it still exists in a few banks, but as usual waiting to be discovered by the ICICI , HDFC banks of the world) - Bring it on, let them loose, and see the low cost deposits swell and see that level of inclusion soar.......

As an aside :

I think I have become a weekend blogger, new job barely leaves time to exist.... but will try to be proactive...

Where is the error?

I use a fundamental analysis mode to shortlist stocks and then watch them for sometime to get a feel of the range in which they seem to move and then buy in....I seem to manage to get good set of stocks into the watchlist... but then I seem to be going wrong in my execution - while I picked Gujarat NRE coke, IVRCL and RNRL at the right time, I missed out on Crompton Greaves, ICICI and Sesa Goa.

I am trying to understand why I finally execute the trades I do and the ones I dont - still not very sure. The other problem is the target price I have - once I hit 30% return, I get jittery and some how feel like its time to exit, while the stock might be headed higher ( E.g - ACC ) - I need to improve my target pricing, which will hopefully also let me understand the margin of safety on a stock.

I am stuck with a dud currently - Federal Mogul goetze - its more than 45% down from my acquisition price and will do some research and dump it very soon - didnt cut my losses in this stock - I could have done it when I was 25% down but then that figure looked daunting - stupid move - Will post what my thinking was, and why I think I should move out in a different post.

Current on the watchlist - Manugraph, ICICI bank and Vijaya Bank

Lessons learnt in each job....

I have been in my new avatar as an investment banker for close to a month, its been exciting, tiring, interesting and all those good things you can say about a job... This is my third role post my MBA and this got me thinking.... this post actually is a notes to myself, because I want to actually list what I learnt in each place and a private note on the screwups .... so here goes -

1- Corporate -

• Initiative is rewarded- no structured learning happens, so if you think a step needs to be taken to meet a goal take it - speak to your boss, he might want credit if it works, it is always good to let them take credit. Finally as long as he is fair, you will thrive.
• Politics is prevalent - dont let it ruffle you- use it, dont play dirty , but dont spare the jerks
• People are important - technical stuff anybody can learn - people will bail you out where knowledge might fail - and people teach you stuff which you might take years to learn by yourself
  
• Dont forget the obvious - stating the obvious might lead to the best result
  

2 - Consulting

• With access to the net - information is abundant - make intelligent connections - When searching in google, the most obvious string might be the best
  
• Communicate communicate communicate - there is no such thing as over communication within your team and with your manager
  
• Solve the problem - but first know what it is - A problem might be the symptom -
  
• Structure your moves - Sometimes the only value might be structure to remove the clutter
  
• Read the text books - They didnt write those fat books for nothing!! but learn from the team
  
• Presentation is as important as the content ( forgot this last week :( )
  

3 - Ibanking

• Multi tasking - Compartmentalising your capability to work is important
  
• God is in detail ( has been important in all jobs, but impact will be higher in this role)
  

I am sure there will be more in the third bucket. Note that I am not talking about the technical skills like presentation making, financial model making, industry landscape generation etc... they are job specific and you anyway learn them.... I want to record the softer skills, so that I dont forget....and these become second nature


So , if some of you who have worked with me want to contribute, pl feel free to add......

Eighth wonder of the world - Bangalore Roads

I am amazed by the state of bangalore roads, I have to give it to the new government, they have been asphalting the roads at atleast a pace I have never seen before in my short life span...The last time I remember such frantic action was post the JH patel government was replaced, the state of roads then was something I will never forget...

So whats the problem? I think the average life of a Bangalore road is about 5 months, that is if it was laid before the monsoon, if during the monsoon as of now, then about 3 months, if post monsoon, maybe 6 months , but when you are on an average spending ~ > a crore / km for a stretch, dont you expect better life?

I dont buy the crap of rains, we are not the only country that experiences tropical rains and I dont buy the nonsense of lack of engineering talent, resources we are spending enough I think....

I am sick of this corruption, while maybe I should find out using Right to information if there was any independent quality check, was there any performance guarantee etc..... crores and crores of rupees spent on roads can be spent on education maybe, primary health more so, child nutrition or 100 other things...but am sure the road contractor lobby and all the ministers who are in cahoots with these guys will never let this happen.. I am depressed :(

In all why did I call Bangalore roads the eighth wonder - it represents the pits of public corruption, heights of public apathy, the engineering wonder of showing us the moon surface every single day, enriching the doctors due to slip disks, helping reduce population by creating accidents and teaching us the strength of chemical bonds ( or lack of) in bitumen !!!!

Its in the DNA to succeed for startups.....

I am a sucker for taking my transactions online. Some make my life simple, some give me grief and some just plain irritate me. But yes, some surprise me....

I travel by air nearly once every week.... I have nearly taken all my air bookings online...I have tried Cleartrip, yatra, makemytrip, flight raja, indiatimes at sometime or other. While some have got the front end right ( flight raja, cleartrip), some backend ( yatra) some have got the full package going.... I booked with cleartrip once and ended with a ticket/ invoice with no fare calculations. Unlucky for me, this was a business trip where I had to claim this fare. So off I went to hunt for this invoice. Hell begins.... it took me 9 mins in the customer care Q to speak to the executive, who would speak to me and assure they will send me the invoice but nothing happened. 6 calls, 4 mails later... I gave up. Lost Rs. 12000 due to this...

The other instance, I tried insurancemall to buy insurance, was not satisfied and posted on this blog. Manish Jaiswal the CEO and MD, commented and took note of my rants. I was surprised. If I were to compare cleartrip and Insurance mall, insurance mall stood out by miles, and even when I have not given them my business still...

I think its in the teams and the DNA to succeed... to take finicky customers and still serve them. You might get funding from the biggest funds , you might have fancy founders, you might have a fantastic technology, swanky offices but if it is not in the team, every single one of them to serve the customer - you cant succeed. In this liberalized environment , you will not survive. I might be one in a billion for you, but i am still the centre of my universe....

PS: Guys try out insurancemall, and let me know if you like the service. I might have been an aberration!!

Buying insurance online - my experience with insurance mall

I am generally not a good person to sell anything to. I have an inherent need to have lots of data and with financial products, due to my training and the time I have spent in the market, I usually ask a lot of questions. Most of the new age 'financial advisors' don't manage to answer me and my interactions with them are restricted to the first transaction only. The list of such transactions reads like the who is who of the financial advisors today

1) sharekhan - they have lost the opportunity to cross sell anything to me, the guy usually calls in the middle of a work day and doesn't follow up
2) HDFC bank - They still do not understand I have a salary account, my forex transactions, a loan account and a large amount of my funds which are in the FD form with them. So if they had a profiling software, I should come up high, but I doubt if they have anything. So when I approached them for investment, what does the dude do? ask me to invest in NFOs of mutual funds and gives me a list of new funds. While i have nothing against investing in new funds, they better fit my investing framework. And the person from HDFC bank just could not measure up.
3) ICICI direct - These guys are slightly better - when the person who interacts with me
understands he does not know what I am asking, he acknowledges the fact and gets back in 30 mins. Keep up the good work guys, most of my investing offline is shifting to these guys.
4) personalfn - these guys were good, but since I travel so much and insist on meeting guys mostly on saturday mornings , I think this guy gave up.

Ok, the reason for this post - My new company does not have a health insurance, so I was looking to buy one. So I land on the insurancemall site. It is supposedly the best site to buy insurance online and has got wide coverage. So off I went. They have a very nice feature to compare premium and some basic features. But since I wanted more information, I tried the live chat, but could not continue. So they followed up with a mail, so back I went. Tried the live chat, and wanted details about some of the policy fine print. So the person on live chat put me onto a customer care executive who called. He had a transcript of the chat till then ( which shows someone has thought a bit about the business process!!) and started out. While he had the basic information, I wanted to know about the fine print. He tells me it was not available and he would get back. Am still waiting.

So will I buy insurance online, no sir , I think I will stick to my friendly insurance agent and buy it through him. But I will use the insurancemall.in site to look up premiums. Now if only my agent can stop being an agent and convert to a broker and offer me choice of companies from whom I can buy insurance, I will appreciate it.

Maybe I should just give him this idea :)

Updates

Back after a long absence, courtesy my job shift. A quick update, I had applied through investorhelpline.com to get my unpaid principal back from lloyds bank and people, it works. I received the cheque in about 15 days. Am thrilled to bits, its a small amount, but still any money is welcome :), so if you have not got your dividend cheques, bonus shares, annual reports or any query approach the company first and if it is unresolved, approach these guys.

Pl spread the word around, its time someone held our corporates responsible.

Tracking your expenses

You know your income, but do you know your expenses? If you were to approach a trained financial planner, he/she would usually would want to establish the amounts you are spending. While some of the expenses are annual ( insurance payments, tax payments, renewal fees), monthly ( rent, utility payments), some weekly and some sporadic. You should also not miss out on those expenses which are unplanned. Capturing those unplanned shopping trips and long drives which burnt 1K worth of fuel are also important. The important part is to capture them and include them in your financial plan.

While most control freaks like me would logically have an excel sheet, going into details in an excel sheet is a very tedious thing. I found this excellent site www.expenseview.com where it allows setting up expense accounts and tracking them. Check it out, its worth a try.

Why am I trying it? I am planning to buy some term insurance and would like to get a hang of how much I am actually spending and on what. Although I have a fairly good idea in big buckets, knowing the details will help me understand how these expenses will behave over the next few years ( shopping is a very small component now, am sure it will explode ;-) ). With greater income, I am trying to see if I can flush in more money to my investments.

Let me know what you think of expenseview.

Are Indian Chit funds equivalent of P2P lending?

This post is primarily triggered by this new (?) concept which is taking off in the west - called Peer- to-peer (P2P) lending. While there are a lot of technicalities involved , at a stripped down level, the concept is - there are a group people who want to lend and there are a group of borrowers. P2P is primarily trying to bring these two through low costs media like internet and social network sites like facebook in the US. So why the need to invent a new mode of lending?

When I want to earn some interest on my savings, ( I would invest in equities !!) but for the portion that needs to go into the debt part ( you should should should have a balanced portfolio mind you!!) I keep them in banks. The banks give me x% and then lend it to corporates and other people who need funds at x+ delta %. The additional interest is called by Net interest margin figure ( NIM) in the analyst statements check it out. The spread is supposedly to cover for the various costs - admin, sales, Delinquencies, salaries etc..... but most banks make a lot of money in profits. While as a shareholder , I wouldn't mind, as a customer from both sides , I would like low cost options - enter P2P lending.

I think it will work fairly well in the US and in other countries with well developed credit rating systems. To be eligible for a loan on most P2P lending systems you need to have a minimum credit rating and even then even if you have large outstandings then you do not qualify. The network charges some admin expenses but the net as a medium will lower the costs significantly. Typically the network will also ensure they get a collection agency to collect ( unlike in India, I assume these guys are not goons !!) and report any default to the credit rating agencies.

So the most important component , the credit score is missing in India. CIBIL , the credit bureau has started in India, but a guy like me who has had no bounced cheques, no credit roll over, a fully repaid education loan, partly paid personal loan will still get treated like the same jetsam/flotsam who have multiple defaults.... so P2P is a far call in India still...

But chit funds, where few people get together, pool a sum of money for a fixed period and one of the participants gets the kitty by bidding for it , is quite similar a setup I think. while currently I think chit funds are being regulated by RBI ( need to check!) , I think its a wonderful instrument for people who do not have access to normal banking channels but have a good social network. Also maybe this model needs to checked by our uber cool Micro finance institutions and not try to become proxy banks and increase the costs...

Caught in an investment bind

Right now I am evaluating a few investment opportunities :

1) locking in some returns by going into a close ended fund heading into redemption in the next 18 months
2) some value picks which came through my filters- where I have not been able to research my them : Currently evaluating : Areva T&D ( has made a move over the last 2 days - maybe a missed opportunity), the other value pickers favourite - Kirloskar Oil engines ltd, Paramount communications, Prajay Engineers, birla corporation.... hmm, where will I go, will study over the weekend
3) An exchange traded fund ( Whats that? - will post the next time) in a sector where I think there is a lot of opportunity.
4) Safe haven investment - bag the blue chips - L&T, SBI, Reliance

Whats the catch - I dont have money :-) ..... so much for planning. I have just booked about 115% + annualised returns on some cement investment ( avg holding 30+ days) - While I still hold some cement stock and am impressed with their pricing power, if it reaches further levels, i will exit further and see if I can move my profits elsewhere.... but atleast till 2009 beginning, I will love the sector - what will happen then - supposedly some supply will come through easing the pricing power.

And as an aside, my experience with my investment in Fixed Maturity Plan of HDFC has been good. If this continues, maybe I will move a higher amount to the FMP mode. ( I intend to post about FMPs and ETFs sometime very soon. Maybe I need also check out if there are any index funds in the sector I am targeting - Good news - SEBI has capped fund management fees at a lower level than active managed funds....

Investor grievance redressal

If you are an investor in India where shareholder democracy is a still born child and companies frequently ride roughshod over the rights of investors, we need some activism. While class activism took off in the west long ago, India is yet to see anything of that sort. Hedge fund activism is now the inthing. Funds like Efficient frontier ( not able to find the link) have forced a discussion about the leverage being carried by vodafone and are atleast forcing a discussion.

The regulatory mechanism in India has improved by leaps and bounds in the last decade. But have we achieved anything for the individual investor is the question. And when I mean by investor here is not just the equity investor but also the debenture instruments and public/ company deposits. Debenture trustees have failed their mandate in India, rarely have they been able to carry out the duty that their role envisaged.

In case of equity investors multiple avenues exist - you could complain to the stock exchanges ( which have a investor cell - funded by various internal sources), or SEBI. Complaints like non receipt of dividend, demat requests, bonus shares, annual reports ( its your right as a shareholder to receive them!!!) and such others. You could also write to the cells of NSDL and CDSL and try to resolve this.

In case of public deposits, the authority for this was (is?) the Company Law Board (CLB) which passes the orders. NBFCs and for those who are old enough those teak, sheep, plantation companies ( remember guru kiran, Anubhav et al?? ) are regulated by RBI.

But there is another glimmer of hope, check out www.investorhelipline.in its run by a group called Midas Touch investor association and supported by the Ministry of Company affairs , Govt of India. While the government has nothing much to do and has no association to this site, I think the group has done a wonderful job of helping investors out. Till date they have helped resolve 730 cases, which is remarkable. While it might seem very small, remember this is when they have no legal power ( as in punitive) to pursue the cases but still ave managed this. Good show guys, keep up the good work.

So if you ever get stuck with some issue and company is playing hardball, you know who your friends are.

"Development of a fair, transparent, efficient capital market having a participative, enlightened and an empowered investor." is what investorhelpline says its mission is, lets clink glasses to that

Responsible blogging

I did not think my blog would be visited by people who do not know me. So if you look at my posts on portfolio advice, they will seem not too deep. I was analysing the page hit statistics and realised 7 of the 10 hits I had till date was when peoples searched for Bhavishya Nirman bonds. I am not sure I gave enough data to people to decide if they were looking for this. Notes to self - I will write slightly detailed posts and post my analysis also. I think I owe it to my readers. Leave a note if you want to see some detailed analysis of the deep discount bond.

Alternate careers?

some days I ask myself if I had not chosen the current path what would I have done ? hmm... I love law - I think its quite interesting but realised it will never fit the scale of my ambitions, I never had any aptitude for the artistic variety ....

I think I would like to do research but yes, It has to wait till I fulfill my wealth creation ambitions - its not the selfish for self kind but to reach levels like the robber barrons or maybe the old wealth families in India but that I think would take a lifetime :-) but just in case, I want to get into academics , but it has to wait.

I will resume my post about portfolio building again , as promised I will check out fixed maturity plans. I was asked by someone what are the good company deposits available now - I think Bata and Raymonds are offering about 11% pa, but I would refrain now as banks like ABN Amro and Karnataka bank are offering 10.25% and 10% respectively for 400 days ( pl refer to the disclaimer in my first post!!!!) , so its not very prudent to go for an unsecured instrument for 75 basis points.

Inbound consumer markets , outbound manufacturing....

someone asked me what kind of organisations are using consultants for market entry strategies in India - my two bits worth

Inbound companies into India are in the consumer markets - the current flavour is retail - people trying to see how to benefit from the fabled ' middle class' ( this seems to be the second coming for the great indian middle class - most FMCG companies fell for the per capita consumption growth story the last time !!) , so most of the companies in consumer markets are inbound stories - luxury retail ( designer jewellery, accessories et al), branded retail

On the other hand the gut wrenching efficiency drive that the Indian manufacturing companies went through in the 90s has left them lean and mean, low debt :equity ratios, access to cheap capital for the first time (???), strong domestic growth and sights well set on the foreign shores.... so they are aiming at the 'developed' markets - buying goods 'higher in the value chain' , buying brands, buying products at a higher stage of evolution ( flavoured water anyone? ) to understand how the business dynamics work or trying to be global players trying for value. So most of these industries drive the outbound market entry strategy.

Interestingly in the latter case, most firms which were family owned have brought in professional managers to drive this and given the overall level of skill available within the organisation ( quality is available, its the quantity which is an issue) consultants are called in...

what do you think?

Company deposits - a calculated risk

I posted about the deep discount bonds last time, that assumes that you have money for long term debt options. While most people will suggest that if you are ready to lock funds for periods like 10 years, then go for equity, my suggestion is to keep a healthy mix of debt and equity unless you are a very short term investor (defined as 1 year horizon).

I am also assuming that you have already looked at the standard options like the Bank FDs, Post office schemes etc.

The other option available if you are open to a higher degree of risk is you should be looking at some company deposits to bolster your portfolio returns. Keep in mind that most of the company deposits are unsecured in nature and any loss will land you with Zero money in most cases. having got that flag away, lets focus on how you can add this thing to your portfolio - 2 sites which seem to have a good list are moneypore and Bajaj capital. Check only companies which are profit making and have a history of dividend payment and long history of fixed deposits. As per law, a statutory adevertisement is to be released by the company, check this out, this gives information about the company, its history and operational details etc. My personal tenure for most of these is 1 year, I usually review the companies performance and review whether I need to renew or not. Always check the credit rating for the instrument. If there is no credit rating ( not probable) or has not been revealed steer clear.

What can you expect from these investments - maybe +1 to +2 % on interest rate on AAA rated instruments for a year over the bank deposits, but in the current scenario the gap has reduced.

I will post about that new kid on the block Fixed Maturity plans next, keep reading....

Return of the sith with bullshit?

Back from a long break, hoping to blog more often from now on.

I have been reading Bill Bryson - A short history of nearly everything - Dhammo said, hope atleast these people landed in heaven - how true. Some of the guys mentioned have pushed the frontiers of our knowledge to limits which have seriously enriched the homo sapien understanding of the world.

As an aside, I intend to look at investment opportunities in this blog, so if you looking for some investment analysis, keep visiting.

Since I have been a great fan of Benjamin Graham, I believe in maintaining a very balanced portfolio - debt and equity in the portfolio. I still have not mastered the balancing bit and hope to setup some rules for myself, so that I can effectively book profits in a bull market and cash on capital appreciation.

I am trying to build a balanced portfolio and will share some of the instruments I am using to this effect.

Lets start with debt - I will write about some interesting options on the fixed income side and then move to the equity side.

NABARD has launched the Bhavishya Nirman Bonds - the current one on tap has a fairly good yield for a debt instrument of 10 year tenure. It is a deep discount bond/zero coupon bond with a face value of Rs . 20000 and a tenure of 10 years, issued at a price of 8250 if you are a retail investor. Its an unsecured instrument mind you, so maybe the premium is justified. I need to check out the current t-bill yield but locking in a pre tax 9% quarterly compounded yield is fairly good I think. If you can take that kind of a tenure then investing in this makes sense.

Although the option of holding this investment in demat form exists, trading on the BSE is in physical form and in market lots of 50 , which is slightly large. I have not checked the trading volumes of deep discount bonds but the option does mean you have some liquidity. Odd lot trading was something from the era of paper trading and am not most guys understand it today.
Should one invest in a deep discount bond ? The main advantage is that you avoid the re-investment risk, and (need to check on this!) the tax treatment - where the interest is considered capital gain and not income, helps if you are in the higher income bracket.

check it out at www.nabard.org.

Disclaimer : This is not an investment advice, you should speak to a qualified financial planner and tax consultant before acting on this post. This represents my view and my view only, not of my organisation, my parents , my pet fish or any other entity living, dead, fictional or otherwise.