Tuesday, December 30, 2014

Some books for the Investment Enthusiast

One book to read - "Competitive Strategy" - Michael Porter- Will take time- Every sentence in the book seems to fit some company, if you think long enough. One reading is a waste. Keep on reading it for life. Helps me to look at a company from a longevity point of view and take a call.
For those who have zero knowledge of accounts, I recommend "How to Read a Balance Sheet". It is published by the International Labour Organisation (ILO) and an Indian edition is recommended. Wonderful introduction to accounting. Very inexpensive.
For those who know accounts, I recommend "Techniques of Financial Analyses" By Erich Helfert. A timeless classic . Indian reprint available, I think
Graham and Dodd :"Security Analysis"- A timeless classic. Not to be missed.
All other books, no views. Some are entertaining, some give us some perspective, but no book gives you an education. There are a few classics I like:
1. Where are the Customers' Yatchts?  -  Fred Schwed
2. Common Stocks, Uncommon Profits - Philip Fisher
3. Jonathan Livingston Seagull- Richard Bach
The last mentioned book has got nothing to do with investing, but will make you become better at whatever you do and help you keep faith in yourself, if you have done the right things.

Monday, December 22, 2014

Using statistics and trends to fool the investor

My column in Deccan Chronicle. Pointing out the abuses of statistics and also the simplicity and relevance of the ROE measure.


Peter Lynch on Financial Planning...

(Opening lines from a lecture by Peter Lynch.. circa 2000 or so... Do not have the full talk)

As a whole, the financial services industry has become morally bankrupt and spiritually depleted. We have created a ‘cottage industry’ that feeds millions who make a living within, and on the fringe of financial markets. Nowhere is the illusion more alive than in the allure of the terminology, “financial planning”. Here, millions of investors have assumed that a ‘scientific evaluation’ has occurred.
Before I share why the ‘scientific evaluation’ assumption is inaccurate, let me tell you how I believe the term ‘financial planning’ evolved. In the late 1980s, the financial services industry was deregulated. Up until that time, brokers sold stocks & bonds, insurance salesmen sold life and auto insurance, and banks made credit available. The sales method, employed at the time, was basically universal ‘give the client a headache and then sell him an aspirin’ (identify what was wrong and just ‘happen’ to have the solution in your briefcase).
When deregulation went in to effect, the financial services industry players had to appear to the investing public as all encompassing and, thus, the term ‘financial planning’ was born. It would be a universal sign that your bank teller can now also be your broker and your insurance agent.
One-stop financial planning became the norm. So what’s wrong with this picture?
There is a story that went around about three accountants that were applying for a job. Each was asked only one question: ‘How much is two plus two?’. The first two simply said ‘four’. The third got the job. Why? His answer was ‘What do you want it to be?’. Financial planning is a flawed process. This ‘scientific process’ works in essentially the same fashion as the question above. It is simply guesswork utilizing several significant mathematical assumptions such as interest rates, inflation rates and tax rates. These economic factors are unimportant to some since they always ‘buy low and sell high’. However, I hope that you would agree that they are assumptions that will impact the future. Therefore, since we realise that no one can accurately predict the future, it stands to reason that one or more of these assumptions must be incorrect in the plan, thereby leading to either the plan being reconfigured or a change in financial planners, or the worst choice, ‘doing it yourself’. Also the plan begins with the question ‘how much do you need at retirement?’. Therefore, the ‘scientific process’ is nothing more than smoke and mirrors, which utilizes the correct combination of assumptions to ‘reach’ that goal. The reality is that the assumptions are simply a tool to make a sale. And, at the next ‘consultation’ with another client and on the same day, your ‘Certified Financial Planner’ may use totally different interest, inflation and tax assumptions= for the same span of time!
Unlike many of my peers, I put my pants on one leg at a time. Perhaps this is why, I still have pants while others have lost their shirts (pants, underwear etc) and just as much an expert in being wrong as I am on being right. But remember that we are the sum total of all of our mistakes and smartest person is the one who made the most mistakes and learned from those mistakes. With that said... I will ----
All I ask is an open mind, which is difficult considering that the financial services industry, and supporting media outlets, spends billions on creating an illusion that even Houdini would appreciate.

Saturday, December 6, 2014


Title: AYODHYA   The Dark Night
Authors: Krishna Jha and Dhirendra K Jha
Publishers: Harper Collins, India
Price:  Rs.499.00


There is a breed of people who will do anything in their pursuit of power and furtherance of political ambitions. One of the oldest weapons has been the use of religion as a tool to attain these goals. History is replete with examples of God being used and abused to whip up emotions and create a divide amongst people. Faith is a personal thing and should not be a weapon to divide people.
The Hindu Mahasabha which was the arm trying to form a “Hindu” nation used several strategies to try and achieve their objective. One of them was to ‘recapture’ Babri Masjid and create a “Ram Janmabhoomi”. This episode is shrouded in mystery and the problem still has to be resolved. It is a moot question as to whether a solution can be found that will please everyone. Surely, there will be politicians on either side of the fence, waiting to ignite passions.
The events of that night are re-constructed by narratives from persons who were there. The entire plot hatched by politicians with active participation from the local administrative person goes through with some hitches. From a key team of three, one backs out and the other two are left to accomplish their mission. The police and the security are manipulated to look elsewhere. And the local District Magistrate, KKK Nair aids and actively abets the installation of the idol and keeps the law at bay. And this was presumably with the blessing of the then Chief Minister of United Provinces, Shri G B Pant.
The interesting thing is that before the idol was installed, there were three or four ‘akhadas’. The word ‘akhada’ (or akhara) means a group. Each of the akhadas, till the grand conspiracy, claimed itself to house the birth of Ram. The akhadas (Nirmohi akhada which claims ownership of the disputed place, means a group without attachment), whilst claiming to worship one hindu God or the other, were generally at each other’s throats. Violence between akhadas was common.
This conspiracy did get the idol in to the masjid and then followed fights between akhadas for the management of the new “Ramjanmabhoomi”. The cash collections itself was a big lure. And the Hindu mahasabha had its act ready. The idol was installed in the middle of the night and posters announcing the ‘miracle’ were all over the place before sunrise! The local administration was an active accomplice in this incident.
“Ayodhya- The Dark Night” is a docu-drama that aims to reconstruct the night when an idol of the Hindu God Rama was placed inside the Babri Masjid. The authors, Krishna Jha and Dhirendra K. Jha are two journalists who have dug up archives of old newspapers, magazines and interviewed hundreds of people to try and piece together the drama on the night that the idol was placed inside the mosque. What has come out is a book that reads like a thriller, with the dramatis personae sketched out and the dastardly actions of the politicians, the religious heads and the administration in perpetuating this act clearly brought out.
It is a brilliant effort and is a read for all of us who have not delved in to history and merely follow the television media or rely on hearsay and come to biased opinions. Many of us may not be aware of the India that was in the period between independence and the adoption of our Constitution and one facet of the battle between fundamentalism and secularism is brought out well in this book. We all have a general view on history but rarely do we go deeply behind an event.
Each group of participants- the religious sects, the civil servants and the politicians are united by the common thread of acquiring wealth and property and religion is merely a platform. The multiple sects of the Hindus want control over the Ram Janmabhoomi to control the money that flows in. The civil servants use their clout to create divides and usurp property and money and the politician wants to have voter base to remain in power. All of this is brought out with names documented.
Since this is a reconstruction of events, with narrators giving their version, there could be elements of fabrication or distortion in the book. However, the main plot seems credible, though there is no conclusive evidence of any one individual being named. Names thrown about include Veer Savarkar to a Mahant Digvijay Nath (who was also accused of the murder of Mahatma Gandhi and then let off).
The book also raises several questions. Why do we have ‘state’ and ‘central’ demarcations when it comes to law and order? It was relevant during the fateful night at Ayodhya and is equally relevant today. Why do politicians let things fester and remain indecisive? Prolonging a problem simply because they think it may hurt some pocket of their votebank has become a standard procedure. Why do political parties use faith as a tool at all? Why do we as people meekly keep quiet? Are we so lost in our day to day existence that we tolerate the politicians and continuously ruin the country for future generations?
After reading this book, if you have merely followed your text books on history, you will change your perceptions on so many leaders of the past. Sadly, none of them come out as heroes. Clearly, Ayodhya issue could have been frozen within twenty four hours of its happening if the administration and the politicians had a will to act firmly. Alas, each one was worried about his own seat of power. After reading this, we also realise how the present set of leaders are obfuscating the issues and goading people with half-truths, if not total lies.
The authors also have given their views on events as reconstructed. One may or may not agree with their views and biases. Even if you take them away, there is enough left for the reader to form his own views. Whilst one may challenge the details of the history as reconstructed, there is enough to give you a broad outline. Whether each and every nuance of the conspiracy has come out is not material.
India won its independence to become one nation after a long battle with the English.  With its multitude of religious sects and sub-sects, India has become a fertile ground for politicians to use religion as a stepping stone to power and wealth. How long back in history will each one go behind the other for retribution or retaliation? Will our tomorrows be ruined by yesterdays?