A load of crap from an idle brain

Finally, i finished reading this book.  Have been reading it on and off for the past 6 odd months.  In the meanwhile have finished reading a few others too.  Odd, because the book is a very good read and written with lots of historical references.  For someone who loves to know the Roman, Greek, French, British and American history, this book is a treasure trove.

The authors of this book are Bill Bonner & Addison Wiggin who have been writing the free daily newsletter, The Daily Reckoning for more than 10 years now. The newsletter covers a lot about the daily economy, world politics, investment strategies, gold, stock market etc.  Bonner is also the founder and president of Agora Publishing.

The authors believe that the America of today has left the values of its founding fathers far behind and has become an imperial power instead of being a country.  Bonner also believes that the end of America is also coming soon.  The author talks about the dollar crisis, the coming end of the US economy. He writes about how successive US governments have gone to war and wasted all resources, the decoupling of the dollar to the gold standard, the federal reserve under Alan Greenspan with his inflationary policies totally wrecked the US economy.

Quoting from Amazon,

Bonner and Wiggin view ancient Rome as the classical model of empire. Running an empire was an expensive business; the folks in the homeland needed to be mollified with government handouts (bread and circuses), while a large military had to be maintained in the frontier. Rome used its military power to exact tribute from neighboring states; it was a protection racket, no different from the Mafia. Nevertheless, this scheme generally kept the central state solvent and the territories at peace. The United States is also an empire, Bonner and Wiggin maintain, but it does not follow the classical model. It placates its citizens with massive distributions of government largess while using its powerful military to exert influence and keep peace abroad. However, “[i]nstead of getting paid for providing protection, the United States is on the receiving end of loans from its tributary states and trading partners ” (p. 77). This is how the United States became the Empire of Debt.

Empire of Debt: The Rise of an Epic Financial Crisis
Authors – Bill Bonner & Addison Wiggin
Pages – 384
Publisher – Wiley

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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

Its been a year since i moved this blog to my own domain.  Didnt realise till the other day when i was searching something about my domain and found that it was to expire in a few days.  That’s when i remembered about a mail i got from Justhost explaining that since i have hosted my blog with them, they will continue to renew my domain name for free.

The past year of hosting has been really wonderful and the guys at Justhost have been a great help. Havent had any downtime of this website.  Touchwood.  On the 24th of this month, i would have completed 6 years of blogging.  When i started, i never realised that i would last so long.  Moving to my own domain has taught me a lot of things about hosting and stuff.  Hope to blog till there are news which will prompt me to comment. And i hope such news never stops.

Meanwhile will start writing more about finance and investing as these are the interests that i plan to pursue further. I started investing in the Indian stock markets in 2005 for fun.  TCS was coming out with its maiden IPO and i applied for it.  That was my first ever investment in equity.  I had been investing in mutual funds before that through Systematic Investment Plan (SIP).  I was allotted 7 shares of TCS for around Rs 850 each.  I sold them off a few months later around Rs 1250. I tasted blood and havent looked back ever since

After reading Equitymaster for a few years, I signed up for their service and till now they have given me superb advice on stocks to pick up.  I have seen few people complaining about the advise provided by Equitymaster, but for me their advice has mostly been positive.  On an average, 8 out of 10 of their recommendations have worked for me.  And i would advise anyone to subscribe to them.  Its surely not cheap, but they have lots of small options that you can subscribe for.  Their reports are comprehensive and constantly updated.

Sometime in future, i plan to write the NCFM exams of the National Stock Exhchange and also get certified as a Certified Financial Planner (CFP).  Those are my long term plans.

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A bit old news, but still interesting way to sell your goods.  Levis, the world’s oldest jeans company now sells Jeans in India in installments.  Anyone tried buying?

Riding on the success of its equated monthly instalments (EMI) scheme, denim major Levi Strauss India is looking to join hands with four more banks to drive consumption growth.

Last year, the company had launched this unique EMI scheme in an attempt to fit into tight pockets of consumers during the reversionary phase. This scheme allows consumers to buy premium-priced denims on a zero per cent interest.

At present, the company has tie-ups with Axis bank and HDFC Bank, where a buyer can pay the total amount over three equal instalments using their credit card for a shopping value of a minimum of Rs 1,500.

Read full news here

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In Singapore, everyone aspires for the 5Cs – Car, condo, Cash, Credit Card & Club membership.  As countries like India grow economically, its natural for more and more people to have similar aspirations.  But what we are seeing as per this article in Bloomberg is the decline in credit card business in India.

Its normal to see people carrying 4-5 credit cards in their wallets in Singapore.  I remember having read some survey long ago that a Singaporean woman carries more credit cards than men.  So much is the spending power of a Singaporean woman that one of the biggest bank in Singapore, UOB issues a credit card exclusively for women. They even have a punchline “The men dont get it“.

The reason cited by this article is the tightening of the unsecured loan portfolios.  Where does it leave the gen Y now? Will this lack of disposable income affect the growth of the Indian economy?  Afterall, the Indian government is banking on this new generation to push the GDP growth to more than 10% annually. Or is cash the new king?

The number of credit cards being used in India has fallen by around one-third or 35% over the last two years. The sharp drop is being attributed to banks’ move to cut unsecured loan portfolios and defaults.

You might have  noticed that those annoying phone calls from banks pushing credit cards have stopped. If you haven’t, you may be surprised to know that one crore credit cards have gone out of circulation over the past two years. There were 2.83 cr credit cards in April 2008. It’s down to 1.83 cr in March 2010.

Banks aggressively selling credit cards have became cautious after suffering defaults. While officials didn’t disclose the extent of their losses, the numbers are clearly quite high.

Another article in Moneylife on the same issue mentions that the credit cards have become unprofitable after having suffered huge losses.

Ever wondered why there are fewer calls from telemarketers offering you a platinum, lifetime free credit card? It has nothing to do with the Do Not Disturb (DND) facility from telecom operators. Credit cards have become unprofitable, especially after various banks suffered huge delinquencies in 2005-07, the boom years. Since the bankers or card issuers are not earning much money on credit cards, you now have to really struggle to get one.

A few years ago or before the 2008 recession, people used to receive a lot of marketing calls for credit cards, free for life from any annual fee. Now the trend seems to have reversed. With the slowdown, many people defaulted on their credit card payments. Usually, during a slowdown, the number of defaults goes up rapidly. However, people don’t default on their home or car loans, since there is a danger of the creditor taking possession of the collateral. However, the same is not true for a credit card. Even if the user defaults on his credit card payment, the recovery takes much more time.

Above picture courtesy: Deems

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The Indian economy roared past estimates to post a whopping growth rate of 8.6% in the January-March quarter of 2010. The quarter’s strong showing also helped India end the fiscal year with 7.4% growth, beating the earlier estimate of 7.2%. Manufacturing led the way, with a whopping 16.3% growth in the quarter and 10.8% overall, while even agriculture, which was expected to decline, ended with marginal growth of 0.2% year-on-year after growing 0.7% in Q4.

The GDP growth rate had slowed to 6.7% in 2008-09 following the global economic crisis, after topping 9% in the previous three years. On Monday, finance minister Pranab Mukherjee reiterated his confidence that the economy would grow at 8.5%-plus in 2010-11.

Finance secretary Ashok Chawla also pegged economic growth at 8.5% in 2010-11. “The growth numbers are pleasant but not really surprising, because we were expecting them to be robust which they turned out to be. This clearly indicates the momentum which is in the economy and the expectations that the 8.5% estimation for 2010-11 is going to be a clear possibility,” he said.

Full article here

Above picture courtesy: Moneymint

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The stock markets have been on a free fall for some time now ever since the Greek debt crisis blew up.  The Euro has been going down vis-a-vis the US dollar.  The dollar has been gaining in strength even against gold. Does that mean all is hunky dory and that all the problems are over with the US dollar and the American economy?  No.  Whenever there is a crisis in the world economy, the money takes a flight to the US dollar.  And that’s what we are seeing now.  It doesnt mean that all the weaknesses inherent to the dollar have vanished

The situation now is mirroring the famous words said by some great soul “In the land of the blind, the one-eyed is the king“.

So, what does this crisis mean to people who want to invest for the long term?  Its the ripe time to buy.  Dont pump in all your money at once.  Buy good companies in small quantities.  The market might go down further from here. Buy some now and some more when the markets go down further.  Never try to time to market.  The markets might not go down further from here, and if you buy now, you would have still got some great stocks for cheap.

Am a big follower of Warren Buffett when he says “Buy when there is blood on the streets“.  It might not be complete mayhem now, but there are some great companies available for cheap.

I have bought a few more shares of the following companies

Alok Industries

Bharti Airtel

MIC Electronics

Punj Lloyd

I really hope that the markets fall further so that i can pick up some more good stocks at some great prices.

Important Note: Please dont follow my buy/sell advise blindly.  Do your own research or follow the advise of a certified financial planner before investing.  Iam not responsible for any profits or losses you make by following my investment strategy.

Above price charts courtesy:  Yahoo Finance

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Godrej Consumer Products (GCPL) said that it had entered into an agreement to buy Argentina-based Issue Group for an undisclosed amount. The latter has a strong leadership position in the Argentine hair-colour market with a market share in excess of 20% and had revenues of over $33 million in 2009.

Apart from Argentina, the Issue Group enjoys market leadership position in hair colours in Peru, Uruguay and Paraguay including a presence in Brazil.

The deal estimated to be around Rs.230 crore provides a self-sustaining platform for GCPL’s ambitions in haircare and household insecticides segments in Latin America, GCPL said.

Full article here

Jindal Steel and Power (JSPL) on Thursday announced the acquisition of the Oman-based Shadeed Iron & Steel for $464 million.

Its project at Sohar in the sultanate is setting up capacity to produce 1.5 million tonnes of hot briquetted iron a year.

The Indian company’s director, Sushil Maroo, told media the acquisition was part of plans to expand operations overseas. “The Sohar plant is a gas-based unit. We are also setting up some gas-based steel units. It is a strategic fit for us,” he added. The acquisition was made through JSPL’s subsidiary, Jindal Steel & Power Mauritius.

Full article here

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