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My heart goes out to the victim of Dadri lynching. Such acts are deplorable. Appalled? Yes!! But lets "choose" our response ...

Friday, January 06, 2017

Contrarian Thinking explained

Going against the herd is the key principle of Value investment. This is where it differs from the chartists etc who essentially try to “go with the flow”. Going with the flow is great while swimming.

Contrarian thinking is not based on ignoring known facts or just trying to be different / brave. It essentially means stripping out the emotions from the current situation and looking at things in black and white.

Explaining with a demo:
Let me make this clear with an example. I am sure“3 idiots” a popular bollywood flick, was enjoyed by one and all (including  me). Most of us will also swear by the “message” of the movie. But on a slightly deeper analysis, the movie shows big fallacies and inconsistencies in its events and incidents.

I will take one: a student commits suicide since the heartless professor didn’t allow him extra time/credits for project submission.

CONSENSUS view: Poor student had to die because of the arrogant SOB Virus (nickname of the teacher). Damn you Virus!!! It was entirely the professor’s fault. Why didn’t he allow extra time / credits for the project? Wow a Quad-coptor!!! (what if incomplete?) He should have awarded full marks to the student for even attempting such a project?? What are lousy grades against a young boy’s life??

Why cant you learn from the netas giving away all those free stuff (free laptops, loan waivers, wi-fi etc) from tax payers’ money and getting praised for their large-hearts?

CONTRARIAN view: Sad & unfortunate that a student commits suicide. He/she should be saved. But was the professor at fault? The student wasn’t in a school project. He was old enough to realise the time required for his ambitious project and match it according to the available time and resources. C'mon we don’t  write 2-pages answer for a 2 marks exam. Even a class 5 student knows that much. Common sense no?

How can a project guide allow extra time to a single student? 
If he does, would he not be unfair to every other student who had worked hard/sacrificed to submit the complete project on timeIt would be like examiner allowing “five minutes extra” to one kid, while every other student are asked to hand over their answer sheets.

Hence, Contrarian view is stripping away the emotions (of young student committing suicide) and realising that the movie is only trying to play with your emotions instead of properly examining the issue.

Business news channels, with their myriad “experts” tend to overplay a particular event zillion of times which does cloud our judgment and makes us act in hasty/emotional response. A value investor must be careful to avoid it.

Caveat: Averaging is usually followed as so called “contrarion” approach. But averaging in a debt-laden company or one which is getting obsolete etc. should be strictly avoided. 

Fun fact: Google Bill Miller + kodak. 

Thursday, November 17, 2016

Investing during volatile markets

Surprises happen, often
Taking a step back, we had no clue about the PM’s announcement about the de-monetization (banning of Rs 500 & Rs 1000 currency notes) and are still to come to terms with the impact and the after effects of the move. Neither had anyone any idea that a certain Donald Trump, a political first-timer, will be elected the President of the US of America! 

But both events happened, and took most, if not all of us, by surprise.

Coming back to Indian markets, the commentators are as divided on the economic and political impact of the anti-black money drive on the common man as they were clueless about such an event unfolding. However, prima facie, I see the following likely outcomes:

  1. Rise in deposits, will bring down rates: If the so far, surge in bank deposits (Rs 4 lakh crores so far; ~4% of total deposits) are anything to go by, the move may shore up bank deposits which in turn would swell short term liquidity in the system, putting downward pressure on interest rates causing the lending rates to start falling.
  2. Correction in prices of traditional black money havens: Maybe you would also have guessed that real estate prices would correct and at least home buying (for self use) may be a good idea in the near term. 
  3. Near term pressure on lending agencies: Equity investments in banks and NBFCs (especially LAP & MFI) may be under pressure for the near term as disbursals, collections as well as borrowers finances take time to adjust.

But all that you probably already knew. So what new can I tell you? 

I will reiterate on sticking to the basics of investing. Hence:
  1. an investor’s long term investment strategy should be influenced by near term/macro events to a limited extent. I believe that usually it’s a mistake to base investment decisions on macro forecasts/events. 
  2. macro events are important market influencers and hence often provide attractive entry/exit levels, which should be made use of. But they should not influence the choice of investment 
  3. investors should continue to invest with a long term view, taking an objective view on individual company’s performance, financial health, quality of business (existence of sustainable advantage & pricing freedom) loosely tempered with appropriate valuation measures 
  4. A long term investors should avoid making too many entry / exits and frequent churn in the portfolio. Sadly, churning is a trait, often encouraged by brokers by providing tips, automated or chat based reccos, rock bottom brokerages etc.

Call to action:

Significant correction has taken place in the markets, and may continue in the next couple of months.

Value investors should ideally take advantage of near term fear / greed of the market.

Wednesday, October 12, 2016

The hokum that we have been taught in History, and why the truth is so fascinating

Most Indians, like me, deeply love their country and are proud of its rich and its diverse culture and heritage. However, problems like Caste system and the regional / communal division in the country are sobering thoughts and most of us wish we had a more plural, inclusive and united country. The so-called “Aryan invasion” theory (unproven, but widely believed) is also cause of much anguish and division.

I was reading a very interesting book ("The Incredible History of India's Geography") by Sanjeev Sanyal  and I came across something something that was truly remarkable that I must share with all of you.

I was happily amazed when I read that the genetic makeup of Indians is unique and most of us are from the same flock. Hence, the so called “Aryan” and “Dasa” race divide, and consequently, the North Indian vs South Indian divide is all bullshit. Also, most, if not all of us have high & low caste genes in equal measure and essentially we all are the same.

Genetic science has proven that ALL the present day Indians are a mixture of ANI & ASI genetic make up. Not only this, studies PROVE THAT THE RIGID CASTE SYSTEM DIDN’T EXIST 2000 years ago.

Did some googling and you can see the evidence for yourself: 

Put simply, 2000 years back, when the caste system was not rigid, people frequently married between castes. This means, all Indians share the same ancestors, which would comprise both HIGH & LOW CASTES. This rigid caste system with restrictions on marriage between castes is a recent (anthropologically speaking) phenomenon and essentially, no one can be claimed exclusively of this or that caste. I am excited by this, because, with this new evidence the high-low caste divide just melts away.

Genetics & geological studies also indicates that the super advanced Harappans & Mohenjodaro people weren’t killed by the "nomadic Aryans" but merely migrated to rest of the India, due to the drying up of the Saraswati river. 

They, went inland in India and inter mixed freely with the abroginal races, to produce the MODERN INDIAN. Hence, the so called Aryan invasion theory was mainly bullshit by the Europeans and kept alive by politicians and taught to many of us in School History. What a way to mislead an entire generation & nation on a UNPROVEN THEORY !!! 

Essentially, a South Indian and a North Indian are genetically very close and not of different races. We are something called ANI-ASI type. There are some tribes in Central Asia who are similar to us. But that is that.

I have always hated & been against Indians being divided on the basis of religion, color, region or caste.

Since, genetically we are all of the same makeup, unique & different from most other races in the world, I believe there is really no point in trying to fight amongst each other. 

Rather we concentrate on fighting Poverty, Pollution, Terrorists and lazy Politicians trying to divide us for their selfish Vote-bank politics.

Happy Vijaya Dashmi to all my brothers and sisters.