A load of crap from an idle brain

The author has perfected a formula that he has used to beat the market consistently and earn more returns than what the index has provided. He calls it the Magic Formula Investing.  The formula is explained in the book in relatively easy language.  According to Greenblatt what you need to be concerned is just 2 things about a company:

• A company’s earnings yield

• Return on capital

The rationale is straightforward: buy shares in good businesses, measured by returns on capital, only when they’re available at bargain prices, defined as a high earnings yield.

The magic formula looks for companies that have the best combination of earnings yield and return on capital, with each input weighed equally. An outstanding company with an expensive stock ranked, say, first for return on capital but 1,999th on earnings yield, would have the same combined ranking of 2,000 as a low return on capital company within expensively priced shares, ranking 1,999th in return on capital but first on earnings yield.

Using this approach to create a regularly updated portfolio of about 30 stocks with the highest combined rankings, Mr Greenblatt tested his formula between 1988 and 2004. The results were remarkable: with only one down year, the magic portfolio would have returned 30.8 per cent a year, against a 12.4 percent annual return for the S&P 500. Rather than using the latest 12 months’ earnings to calculate earnings yield and return on capital, Mr Greenblatt and his analysts try to improve on the rote application of this formula by using earnings estimates in a “normal” year, one in which nothing unusual is happening within the  company, its industry or the overall economy.

source: Amazon

The Little Book That Beats The Market
Author – Joel Greenblatt
Pages – 176
Publisher – Wiley

After having nurtured the telecom sector of his company and the carving of the business meant that the business went to younger brother Anil, the elder brother Mukesh Ambani seems to be in a tearing hurry.

Mukesh Ambani-led RIL’s foray into the telecom sector will entail an investment of about $5 billion, for which it is open to sharing infrastructure of younger brother Anil’s group firm Reliance Communications, company officials said. The flagship firm of Ambani, who is known for making ultra-mega projects, would invest about a billion dollars for rolling out broadband services to attain a target of 100 million subscribers through the just acquired Infotel in five years, RIL top officials told analysts last night.

RIL acquired Infotel for Rs 4,800 crore on the day the Nahata group firm emerged as the sole player to have bid successfully for all-India spectrum at the end of the 16-day-long auction conducted by the government on Friday.Apart from this, the cash-rich RIL will have to pay Rs 12,872 crore to the government as the licence fee for spectrum bagged by Infotel, which would become the subsidiary of the Mukesh Ambani group’s flagship company.

Incidentally, the second largest largest telecom player, RCOM, bagged the highest number of circles along with Bharti Airtel for the 3G license auction, which concluded recently.

Read the full article here

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India’s gold obsession never ends

At a conservative estimate of 15,000 tonnes, India’s privately held gold reserves, at present prices, are valued at $550 billion – nearly 40 per cent of India’s stock market capitalisation of $ 1.4 trillion, reveals a report from HDFC Securities. India’s net retail investment in gold has also doubled from 90 tonnes to 200 tonnes over 2003-08 and is now a $7 billion market. HDFC Securities analyst Anupam Gupta expects that a 1 per cent shift in savings from bank deposits to gold can add 4 per cent to India’s annual gold demand.

India’s obsession with gold is well known. Accumulated over generations, India’s privately held gold reserves are estimated at 15,000 to 25,000 tonnes. At present prices, this is valued at $548-913 billion and can act as a potent driver to sustain the wealth effect in India. While jewellery remains the dominant mode of possessing gold, India’s net retail investment doubled to 200 tonnes in 2008 from 90 tonnes in 2003, reflecting a marked shift in consumer attitude towards gold as an asset, the report said

Another way to look at gold ownership in India is to compare it to annual savings patterns. Indians purchased 660 tonnes, or $19 billion, of gold in 2008, which formed an approximate 15 per cent of physical savings and 5 per cent of total savings. “This implies enough headroom for growth because attitude toward gold ownership changes from jewellery to investment. As attitudes change, we expect Indians to open up to the idea of owning gold as an investment, rather than an asset,” Gupta said.

Gold loans also present a huge opportunity. Even if banks tap 5 per cent of average private gold reserves of 20,000 tonnes, this translates to a market size of $37 billion, Gupta said. Banks and non-banking financial companies (NBFCs), such as Manappuram General Finance and Muthoot Finance are expanding their network to tap into this fast-growing and underserviced market.

News source: MydigitalFC

Picture source: CometoIndia

Previous articles on Gold & India
RBI buys 200 tonnes of gold from IMF
Joy Alukkas to open world’s biggest jewellery shop in Chennai

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South Korea and India signed an ambitious free trade agreement Friday that slashes tariffs, encourages investment and promotes exchange of skills in a bid to double fast-growing commerce between two of Asia’s biggest economies over the next decade.

South Korean Trade Minister Kim Jong-hoon and India’s Minister of Commerce and Industry Anand Sharma signed what the two sides formally called a Comprehensive Economic Partnership Agreement, but which in reality is a free trade deal.

Incheon International Airport, Seoul, South Korea

“This is a historic occasion,” Sharma said at a joint press conference with Kim.

Kim said it was South Korea’s first free trade accord with one of the fast-growing BRIC countries — Brazil, Russia, India and China. Sharma said it was India’s first comprehensive trade agreement with a major economy. Bilateral trade between the two countries reached $15.6 billion dollars last year, according to South Korea, and has been steadily growing. In 2002, it amounted to just $2.6 billion.

“We will be able to have access to one-sixth of the global market,” Kim said, adding the agreement “will open a significant opportunity as well as strengthen our relationship with India into the future.”

Sharma said the economic relationship between the two countries “has enormous potential to grow” and could double over the next 10 years.

“That’s what we will be aiming at,” he said. “This is just the beginning.”

The deal calls for abolishing or cutting tariffs for 90 percent of Indian goods in terms of value and 85 percent of South Korean products and increases investment opportunities, Seoul’s Ministry of Strategy and Finance said in a statement. It also allows for greater human resources exchange between the countries, the ministry said, paving the way for Indian computer and software experts as well as English teachers to gain access to the South Korean market.

“India has great competitiveness in terms of its IT professionals and so they will be able to come to Korea to contribute to the growth of the national economy in Korea,” Kim said. “English teachers from India will be able to contribute to the development of education in Korea as well. “

Lotus Temple, New Delhi

Major South Korean corporations such as Samsung Electronics Co., Hyundai Motor Co., LG Electronics Inc. and steelmaker Posco are already active investors in India. Negotiations for the deal began in February 2006.

Though the agreement has been signed, several steps remain on the South Korean side for it to take effect, such as ratification by the National Assembly, according to the ministry. India, however, has completed all necessary procedures for the deal to take effect, the ministry said. The latest deal highlights South Korea’s national strategy of aggressively pursuing free trade agreements.

Seoul signed a free trade deal with the United States in 2007, though it has yet to be ratified by legislatures in both countries amid political sensitivities and suspicions regarding free trade among some lawmakers. Seoul also has a free trade agreement with the Association of Southeast Asian Nations and said last month it has concluded negotiations with the European Union. South Korea’s biggest trading partners include China, the EU, the U.S., ASEAN and Japan.

Above news source: AFP

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Shouldn’t these have been done earlier considering the fact that much of the products that originate from China are not only spurious, of inferior quality,  harmful to humans and the security of the nation (especially the cellphones with no IMEI numbers).

The government on Wednesday put quality restrictions on mobile phones, dairy products and toys in a measure aimed mainly to block their imports from China and which may trigger another round of wrangling at the WTO between two of Asia’s biggest economies.

The Directorate-General of Foreign Trade said mobile handsets without the IMEI (International Mobile Equipment Identity) number, which helps authorities to track the sale and use of the phones, cannot be imported from now on. An estimated eight lakh such phones come into the country every month from China. These are unbranded and cost a lot less than the branded variety.

Security agencies had raised concern over the use of these phones, many of which, they said, were being used by terrorists to set off bombs and communicate among themselves. Since these sets do not have the 15-digit IMEI number, or cloned numbers, the authorities find it difficult to track the sale or usage. Approximately 30 million such phones are in use at present.

The DGFT also banned till January 2010 the import of toys that do not meet international safety standards and norms. This move too will hit imports of toys mainly from China and several other countries. India had blocked import of toys from China in January on health grounds, after concerns over their safety were raised in developed markets. But the restriction was eased later after Beijing questioned the restrictions on the ground that New Delhi did not put such curbs on toys from other countries.

More than a dozen countries in Asia and Africa had also banned milk and dairy product imports from China, while several others had recalled the products suspected to be contaminated. India, world’s largest milk producer, does not import milk products from China. The ban is being seen as a preventive measure.

Meanwhile, the government has asked its missions in the African region to step up vigil against bootlegged drugs being sent to those markets with fake `Made in India’ tag. The commerce department last week lodged a complaint with the Chinese embassy here and the Indian embassy in Beijing and sought action against the impostors.

The Indian action comes after Nigeria’s pharma regulator reported the detention of a large consignment of fake drugs for treating malaria. The consignment carried `Made in India’ labels but was produced in China. A laboratory test of a recent consignment of anti-malaria drugs Maloxine and Amalar tablets proved these were fake. Had the drugs flowed into the market, about 642,000 lives would have been affected.

/Newslink/

Hope the ban stays long enough.

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The new year has not been off to a great start, at least blogging wise for me.  For some strange reason, iam not even checking my blog, visiting any other blogs or even commenting on them. Contrary to the economic conditions worldwide, am swamped with work.  On my way back home, am so tired that i hardly can open a book and read.

The songs in my Creative Zen play in my head as i doze off.  Fortunately, i haven’t missed out on my bus stop.  Eitherway, the bus interchange is quite close to my home and even if i don’t wake up, the driver will kick me out once the bus reaches the interchange.

Before i could realise, the 4 day weekend passed by.  Did nothing constructive. Just lazed around at home and watched 6 movies.  Some of them i have updated at the Movies page.

I have almost stopped reading the newspapers thoroughly.  With layoffs to the emergence of Talibans in Mangalore, the Thuggerays in Bombay to the incessant coverage of Manmohan Singh’s health conditions, its getting routine and boring.  With so much of bad news around, i hardly need any more in the papers to feel more glum.  So, i have made it a point to no longer read any news in detail that sounds negative.

The only positive thing that happened is that South Africa beat the hell out of the Aussies both in the test and one-dayers.  Pricky Ricky Ponting’s face was well worth watching during the match.  Everything that he is laying his hands on is turning into cow dung.  Looks like Australia committed the same mistakes that West Indies did in the 90s after a superb 80s.  By not managing to get effective players to replace the likes of Waugh brothers, Taylor, Warne, McGrath, Slater, Hayden etc the Aus team is now in a serious rut.

Warner and Shaun Marsh are great prospects, but Aus doesnt have a bowling lineup that can bowl out an opposition twice in a test match.  In McGrath and Warne they had 2 of the most lethal and consistent bowlers.  Of course such players are born only once in a generation, but for sure there has been no good nurturing of the kids to replace the giants.

Compared to them, i believe the Indian team has done a better transition.  With Kumble and Ganguly gone and with Dravid almost out, India has lost a majority of the Fab 5 that it boasted of.  The one day team has no one from the Fab 5 except Sachin Tendulkar and unlike the past when we switched off the TV when Sachin got out, today hardly anyone blinks.

From the boring domination of the Aussies at the beginning of this decade to a much more rounded competition (South Africa, India and Australia), i believe we could be looking at much better matches ahead.

Also once Muralitharan and Jayasuriya hang their gloves, Sri Lanka would also be on their way down.

So, what have i been doing in the past 2 months ever since the markets crashed and the economic gloom all around? Invest in the stock markets of course.  Some of the best companies are available at dirt cheap prices or at the lowest ever prices in their lifetime.  I know of a lot of people who are staying away and waiting for the markets to stabilize (am not sure what that means), but am buying.

I have started buying small amounts in L&T even though am not really appreciative of the L&T management trying its luck in the Satyam muck.  I have also started buying into Tata Motors.  Also have averaged out my investments in Reliance Communications, Punj Lloyd, Suzlon & Praj Industries.

Disclaimer:  I would like to hereby declare that all the investments that i write in my posts are not to be taken as an advice.  Iam not responsible for any losses that you might make by following  what i have mentioned in this blog. Please approach a Certified Financial Advisor for more info or do your own research before investing.

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After all its not all what it seems it is.  Even though Ramalinga Raju tried to put up an innocent face in the resignation drama and has tried to take all the blame himeslf, it doesnt still seem to add up.  Its always been suspected that Raju was never interested in the IT field and Satyam was just a facade for him to rake in easy money which he could funnel into his other businesses in textiles and real estate.

With earnings in dollars from the software business, it was easy for Raju to divert the money to other businesses that his family was handling.  Meanwhile, the government has ordered investigation into all the companies under the satyam umbrella.  They are

Maytas Properties
Maytas Infra
Satyam BPO
Nipuna Services
Knowledge Dynamics
Nitor Global Solutions
CA Satyam AS
Satyam Venture Engineering Services

What’s more baffling is that the Hyderabad police is still waiting for someone to lodge a FIR against Raju before they can arrest him.  Its a known fact that Ramalinga Raju has his contacts in all the top places in politics.  His closeness to Chandra Babu Naidu and the current CM of Andhra Pradesh, YS Rajasekhar Reddy is well known.  Is that the reason why the police is apprehensive about arresting Raju fully knowing that they might step on the toes of some very powerful people?

As for the most funniest news yesterday, it seems the Crime Branch – Criminal Investigative Department (CB-CID) wing of the Hyderabad police has no idea of how to investigate an economic crime.  So, they are willing to let the Central Bureau of Investigation (CBI) handle this.  The CBI has a wing that is completely dedicated to investigate such crimes. So much for law enforcement.

Here’s the catch: A 3% margin — which is what Raju said Satyam had actually made — is ridiculously low in the IT industry. Forget Infosys, which made 33% in the same quarter, all IT firms of similar or even smaller size make between 20% and 30%. There’s no way Satyam, which services 185 Fortune 500 firms, could have such a low profit margin, said every analyst we spoke to. What’s more, even people in Satyam dont believe Raju. TOI, in its Thursday edition, quoted a Satyam staffer saying, “His letter implies that we worked at a margin of 3%. That’s pure unadulterated crap.”

So, if Satyam was operating on a much higher margin, why would Raju choose to say it was actually much lower? The implication is that more money was coming into the company in the form of higher profit, but it was being siphoned out.

It’s a crime to show money in the books where none existed, which is what Raju said he did. But it’s a worse crime to take out money that actually did exist. There’s speculation that Raju was doing so in order to invest in other businesses such as real estate, and did intend to put it back in Satyam at some point of time, but possibly got into such a jam that he couldnt replenish the company’s coffers.

The 3% margin question was put to the interim CEO Ram Mynampati at a press conference in Hyderabad on Thursday. He side-stepped the question.

Read the rest of the article here that indicates that Raju might not have been only responsible for inflating the cash in the books, but was in fact stealing the money made by Satyam and funnelling them into other businesses headed by members of his family.

If the above mentioned accusation can be proved by the law enforcement agencies, Ramalinga Raju is in for some serious trouble.  But like with every other offence that has occurred in our country, iam very pessimistic about Raju getting his just desserts. He might just walk off the hook and the lakhs of shareholders will be left clutching at the straws.  As for the supposedly 53,000 employees in Satyam, is it true that they really have so many employees?  Or was it another spin of the great crook called Ramalinga Raju?

Who knows?

Above cartoon from : Twenty22

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Close on the heels of the Bernie Madoff Ponzi scam in the US, Ramalinga Raju has tarnished the Indian industry with a scam that has been running for years. The Satyam balance sheet was inflated by Rs 5040 crores.  To control it, he even took Rs 1230 crores worth of loans.  What started off as a small accounting glitch and was hidden from the shareholders and the public has now grown so big that in a last ditch effort, Ramalinga Raju even tried to buy over a real estate firm Maytas so that he could cover the hole created by the fraud with another fraud.  When the investors took umbrage to it and hammered the stock, Raju had the cheek to come on live TV and brush it off.

It was a clear case of a crook who had grown too big for his boots.  Even today Raju wouldnt have resigned if not for the fact that some of the shares that he and his family had pledged with some private Financial Institutions were sold off by the FIs as the stock was being hammered post the Satyam-Maytas deal.

Now, Ramalinga Raju would like us to believe that none of the directors had any inkling of the scam that had been going on for years.  If this is the kind of transperency that an independent director brings to the company, its high time they are taken to task.  And what about the auditors who were supposed to look into the balance sheets and raise a flag?  How did Raju manage to hide the scam all these years from the independent directors and the auditors?  If he was so cunning, then Raju deserves to be punished heavily and also the government should make sure that all the auditing firms that audited the Satyam books in the past years should be banned from taking up anymore business in the country.

If Raju had managed to shut the mouths of the directors and auditors with generous payment, it simply shows his audacity.  He should be given exemplerary punishment and made an example just for the fact that he has poured cold water on all the efforts by the government and genuine companies in projecting India as a safe investment hub.

Am appaled and outraged to see that a Chairman of a company could take the shareholders, SEBI, the auditors, the directors, the government and its agencies for a ride all these years.  As an investor in the Indian stock market, i have completely lost faith in the system. I dont know what to do with all the reporting and the balance sheets that the companies put forth.  Should i believe them at face value?  If the management has the audacity to silence the auditors and the independent directors, what choice does a normal investor like me have?

Ramalinga Raju, the auditors, the independent directors and everyone else associated with the scam need to be punished hard by the law enforcement agencies.  He is a blot on the Indian business scene.

I can only have sympathy for the minority investors in Satyam whose stock was hammered today by more than 77%.  What about the thousands of employees of Satyam who put in their hard work only for the head of the company to take them for a ride.

My previous take on the Satyam-Maytas deals here, here

An insider’s take on the Satyam fiasco.

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