Long Live the Republic - Happy 60th Birthday

Happy Republic day India!!
Its been 60 long years and we are sure we all grew up reading a lot (or are growing up reading a lot) on how we went about changing as a country in these years. The transformation has been slow (to say the least) and we believe at an appropriate way. Think about it, we always think that we could have done what we acheived in as many years in half that time. Just look at China they seem to be getting everything right, they are working at twice the speed, executing projects at breakneck pace and they just transformed the country in less than 25 years from 1985 to today. We on the other hand haggle about petty things, seek mandates from all and sundry and lose precious time just for making it all inclusive development.

Over the long run, we believe, only time will tell which model is right and which one proved a little bit dangerous but the fact of the matter is; there is no right or wrong model. This game is a marathon and not a sprint and above all looks like in this game we are the tortiose and China the hare. And we all know that story by heart, don't we?

There are a few point why we should be able to get an home run in this game. First, as a model we should be able to broadbase the pyramid more than China. That means that the people at the bottom of the pyramid (the destitutes, home less & landless labourers) should be able to move up gradually as a result of combination of public-private initiatives that seem to be taking root over the past 20 years. The evidence is more pronounced right in the middle of the pyramid; the class dubbed as the great Indian middle class.

Second, the ability of individuals and corporations to have a free hand; ability of freedom of rights; journalism and expression will over time take care of the sections that were hitherto neglected for decades. This process will gain speed and accelerate.

Lastly all of the above lends larger role for its people for participation in discussion, growth and enrighment of lifestyles.

Therefore is this model ultimately prove right at the end of this marathon. Prima facie seems so. But lets not get overboard on this. Sticking to basics, making the right calls in terms of educating the masses, allowing for proliferation of media and encouraging entrepreneureship are key to success over the long term.

So is India the next US? The answer to that question is whether the US is the role model. We think not. There are far greater vices hidden in the US system that seems apparent. They are increasingly becoming visible over the last 15 years. Do we therefore need to morph into such a system? Clear no.

Therefore, we believe that the next decade will come with its set of challenges and our ability to grab its more firmly that the 2000's; take full advantage and move the next level in this marathon, which would be the key to our success. It is also important to 'Do our own thing'; believe that we are doing the right thing and the world will sit up and take notice. This is already happening.

Until 2020, which can be looked as the next milestone; we think that we should see a newer India, an India which has come a long way ahead and becoming slowly, very slowly the role model for the rest of the world.

Until that time, however, lets get our head down and start off to do what we aimed at finishing long time ago. Let's build a strong, resilient and wonderful India in the decade ahead.

Jai Hind.

Approach gold the traditional way!

Gold finds place in an Indian’s asset basket with or without a conscious asset allocation strategy that might be in place. This tradition of having some of it stashed away for the rainy day or for a family function (mainly children’s marriage) need not be elaborated at all. However, in today’s context gold find place in an individual’s asset basket as a result of more formal means of inclusion. This has happened over the past 15 years with India getting more closely knit globally, proliferation of advisors and knowledge transfer on currencies and resultant need to hold real assets.




As a result, gold is now held more in an sophisticated form (ETF’s) or more complex to understand ‘Gold funds’ (a quasi form of holding gold through long position on gold mining stocks). The need to hold an alternative or real asset is now fulfilled by allocating 5%-8% of an individual’s portfolio by exposure through these means. In addition, positives like liquidity, ease of transacting and low/no storage costs make the case stronger taking exposure via this route.

The question then arises is should exposure to gold move completely to holding it in these forms. The answer to this question lies in looking at both pros & cons of holding it in the traditional (physical) form and making a choice according to personal needs and goals.

• Amongst the biggest advantage of holding gold in physical form is its absence of daily valuation which is evident in holding it as an ETF. This sets the stage for increasing the holding period as a result of absence of mark-to-market.

• Secondly, the notion of liquidity might be misunderstood when holding it in physical form; since in the ETF mode it would still take t+2 days to realise cash, while in the physical for its just over the counter (at least in the Indian context). This normally acts as a liquidity booster during emergencies and a last line of defence for any household.

• Third, unlike other asset class which require constant monitoring and periodic re-allocation depending upon investor’s asset allocation, gold can continue to be held for pre-specified goals such as daughter marriage (since it would be cost neutral when jewellery purchases are to be made under anytime horizon).

Amongst the disadvantages could remain its cost of holding and security, both of which are a big hurdle for today’s investor.
The need to propagate and communicate benefits of gold investment to his/her client’s asset basket lies ultimately with the advisor. More often than not gold investment is either too little or too much and depends upon investor’s psyche and outlook towards holding it. Advisor’s role in maintaining the appropriate level (ideally between 5%-8% of the asset basket) will have its advantages in the long run.

After a long haitus!

Whao! what a decade it has been. Hello, where were we all this while, you might ask. We made a promise some time ago that we are value investors and would be out there to help you guys understand investing the simple way. Blah blah blah.....

We broke that promise. Were we plain lousy? Yes and maybe no. Why no? Well we needed to pause (for one long year?, we hear you grumble) and collect ourselves and re-check the world around us. We have learnt very very valuable lessons over the past 12 months or so.

These can be summarised into:

• Look around you, pause to think and never ever take things for granted. Axes fell, people lost jobs (including our collegues); took paycuts and basically are happier than before (paradox?). Now that we have opened the can or worms, lets keep chatting over the next few years
• Spend time with your family. Don't ask why, just spend time with your spouse/girl friend/ kids (your own or your neighbours'). These are high quality things in life. And yes all this is free
• Understand and appreciate the work people are doing around you. Including that of the tea vendor in the street corner, understand the business model very very deeply
• This world seems like an unfair place. All the rich guys do look dumb. They probably are. Look within yourselves, you are far more happier than 90% of the people around you
• THIS IS NOT PHILOSOPHY; you will understand ways to better investing if you just be more emphathetic to yourselves and other around you. Easier said than done.
• Lastly, very basic understanding of things and application of discipline will give you an investment idea that was obvious but no one ever saw. Own that business. The key words here are 'basic' and 'disclipine'

So we are back with the ranting. Some interesting stuff, some foolish ideas, some philosophy throw in and a trillion ton worth of enthusiasm. So u ready for the 'Decade Next-->"

P.S: The enthusiasm bit above needed that scale, cause in today's world even trillons aint enough :-)

Welcome 2009!

At the outset a very Happy New Year to one and all. 2008 has been one forgetful year from all perspectives. Globally, we witnessed the biggest and the strongest disappear from the world stage (Bear & Lehman) and these were, for all we knew legacies of 75 year or more. Then nearer home we saw giants like China facing massive job losses and decline in GDP growth (though officially no ones dare talk about it in the mainland) and hoping that the storm passes quickly.

Closer home in India, we saw our worst nightmares come true. Stock markets crumbling, loan rates spiking, EMI’s getting out of hand, negative home equities, job insecurities and not the least terror attacks. And we definitely know deep inside that the terror attacks were not the last one we will see. And we also know that we have not done enough so far to bring the perpetrators to book (but lets not get into that debate right now).

Time to get serious about that asset allocation decision

Why an asset allocation decision important and is it easy to implement it in the current environment? First, we have no doubt that in this environment (which we expect will continue in 2009) it is extremely important to know when and where we need to invest our hard earned money. Second, despite it not being easy to have a strong asset allocation strategy, which will be fool proof, it can be the only way to capital preservation if not earn some positive return on the money.

It also becomes imperative because, with all the volatility in asset classes witnessed in 2008 (remember gold which has never been so volatile in the past has seen amazing swings during 2008) we need to put our money in a diversified basket of assets; distributed of which is on the basis of weights that are likely to make a meaningful hedge and an opportunity to earn a return when asset classes perform.

What does the crystal ball tell us!

If we had one, we wouldn’t have told the world what it told us. But jokes apart, we continue to believe that individuals should take all the opportunity to invest and lock the returns the fixed income markets presents us. These are truly golden times and we might not see double digit returns on fixed income instruments, fixed deposits and term notes after 2009 and therefore people should not waste time in thinking of locking in at rates provided by banks on FD’s.

More importantly, this is also a great time to SIP your way through the cream available in the stock market. We mean that though it is quite early to make a selective stock bets and it would be akin to finding ‘needle in the haystack’, it is truly a time to broad base your investments in the stock market. Great gems are all dispersed on the floor and let’s not waste time to pick one individually and painfully. Let’s sweep the floor.

It’s a great time to invest in systematic investments plans (SIP’s) of select mutual funds. For one you get to participate in the broad market, second it is a classic buy at lows and more units over a longer period in time.

Go for Gold!

Why gold and that too at top you might ask. Gold is an excellent hedge against inflation (which is going to come down over the near future) but that’s not the precise reason to buy into it now. It’s our classic Indian trait of saving for a rainy day, is what we mean. Try to collect it in physical form and in low quantities. For one, it will remain illiquid and mostly locked in the vault, second it will build over time and you will tend to forget about it (which is the classic case of long term investing-Buy and hold).

We are sure that when the unforeseen time does come (God forbid), you can reach for the vault instantaneously.  

Halleluiah!

But for now, its time to pop up the Champaign, celebrate our existence and pray for people who laid lives defending our country so that we may live another day. And yes, hope that almost definitely 2009 will be much better year as compared with 2008. Let’s start this year by thinking forward, learning from our mistakes and remember that the collective forces that drive the markets can make the most seasoned of fund manager/investor a very humble / helpless of persons within a short span of time.

Until then. Keep the faith.