Wednesday, 30 November 2016

Kenneth Andrade - likes rural and consumption theme; doesn't want to invest in banks

1. Quite bullish on India rural theme

- Becasue of direct benefit transfer, crop insurance - there is lot of certainity in rural incomes
- Rural is about 14% of GDP, but that 14% contributes 20% to services GDP - which put together is huge
- Fertiliser companies, tractors, seed companies, insurance companies, etc., to play rural theme
- At times, he plays commodities like sugar. He invested in sugar companies during the bottom of the cycle

2. Quite bullish on India consumer theme

3. Against banks, NBFCs etc.,
These are highly leveraged companies.
Example - NBFCs are leveraged about 7 times or so. Their best period is behind them.



http://economictimes.indiatimes.com/markets/expert-view/rural-india-and-consumer-business-are-huge-pockets-of-opportunities-kenneth-andrade-market-expert/articleshow/52742503.cms

Our brains are in sync with the speed at which the market is moving and totally out of sync with the speed at which a business is moving.




Of Falling Stock Markets and Shutting Brains

 142  27
In one of the old interviews of Mohnish Pabrai of Pabrai Funds, he described the root cause of a common, but difficult to overcome, inefficiency in share prices –
Our brains are in sync with the speed at which the market is moving and totally out of sync with the speed at which a business is moving. You have to learn to dramatically slow your brain, which is very hard for most people. The reality is that you should make decisions based on how the business is changing, and that’s a very slow process.
You wouldn’t know that businesses change slowly from the share price activity in the stock market. Such volatility, of course, can be a boon for the disciplined investor waiting for what Warren Buffett refers to as a “fat pitch.” Most maintain a watch-list of what they consider to be superior companies that they would be happy to buy, but only at the right price. But the problem for most of us lies in deciding what that right price is because most of us find it difficult to understand what that underlying value of the business is, to which we must relate the price. And thus, most of us would rather make our decisions just looking at stock prices – especially when they are moving fast, up or down – than underlying intrinsic values.
Like what seems to be happening in the market these days. With the Sensex falling by a “huge” 2,500 points in less than three months – which, by the way, is “just” a 9% decline – I am seeing increasing noise of “buy stocks now”, “great opportunity to invest”, “you will rue your decision to not buy now”, etc. And a lot of this noise is, surprisingly, coming from retail investors who seem to have gotten smarter to be buying at every small crack in the markets.
Now, the problem here is that situations like these – when the markets fall sharply in quick time – is that it leads people to shut down their brains.
Scientists still don’t fully understand why we experience ‘brain freezes’ during stressful moments (like when the stock market falls rapidly in a short time). Of course, it’s long been known that the ancient and primitive part of the brain – called the hypothalamus – reacts to perceived danger by triggering a ‘fight or flight’ response. It sends a signal to release adrenalin, quickening the heart rate, speeding the breath and preparing us to confront the perceived monster or run away.
When it comes to the stock market, just the speed, and not the quantum, of fall is enough for us to act in funny ways. Like this gentleman – a professional money manager – whom I met at a friend’s place yesterday.
“So, are you buying now?” he asked me.
“Not much!” I said.
“Why?” he asked with an expression that I’m committing a sin not buying stocks in loads now. “The markets have cracked big time, and so have many good-quality stocks.”
“Big time? Where? When?” I asked.
“You must be kidding me!” he said. “I know of so many high-quality stocks that have fallen 15-20 percent in the last one month only.”
“Is 15-20 percent really a correction?” I asked. “Aren’t most of these high-quality businesses still trading at reasonably high valuations?”
“But they are still cheaper than a month back!” he countered.
“But they are still expensive than a year back!” I said. “Were you loading up on stocks then?”
“Well, oh…” he fumbled a bit, and thus changed the topic a bit. “But don’t you think this currency demonetization thing will take our economy into a new orbit, and so would the earnings of companies also rise, and thus the valuations look super-attractive after the latest fall?”
“Sorry, but I don’t know much about the real impact or extent of impact of demonetization. I hope it is net-positive for the economy, but how do I factor in a surge in corporate earnings because of this already?”
“But the domestic institutions like mutual funds are getting record inflows,” he said. “So even most other retail and big investors seem to be excited, isn’t it?”
“How do you say that?” I asked. “Getting new and big money into mutual funds is one thing, and mutual funds investing them in good value is another.”
“But what will funds do with such high and continuous inflows?” he said. “I read recently that fund houses are investing in large caps because they are finding the valuations attractive.”
“I won’t comment on what the mutual funds are doing – though I know most of them underperform even the benchmark – or whether large caps are really attractive, but all I know is that first, in investing it’s dangerous to focus on where the stock prices are going and not on where the businesses are going. And two, it’s dangerous to invest based on what other guys, especially the big guys, are saying and doing. Both are paths to hell as far as your money is concerned. And three, mutual funds don’t manage money, but fund managers within them, who are individuals with brains almost similarly funny as ours, do.”
“So how do you invest your own money?”
“Nothing special that I do. Just look at my watch-list and portfolio from time to time and see whether the underlying value of any business is attractive vis-à-vis the price, whatever the broader market may be doing. Though my brain also shuts down from time to time, and I also tend to make those silly mistakes.”
“And do you take cash calls? I mean, are you holding some cash now?”
“Cash? Let me not reveal that or Mr. Modi may listen and demonetize whatever little I have!”
“And what stocks are you looking at or buying now?”
“Well, let me not reveal that too, or the SEBI may listen.”

http://www.safalniveshak.com/falling-stock-markets-shutting-brains/

Thursday, 24 November 2016

Larry Summer on Data



Data collection is the ultimate public good.

29
 
 
98
 
04/04/2016
On Wednesday I spoke at a World Bank conferenceon price statistics.  While price statistics are not usually thought of as a scintillating subject, I got a great deal of satisfaction out of preparing and presenting my remarks.  In part this was because my late father Robert Summers focused his economic research on International price comparisons.  It was also because I am convinced that data is the ultimate public good and that we will soon have much more data than we do today.
I made four primary observations.
First, scientific progress is driven more by new tools and new observations than by hypothesis construction and testing.  I cited a number of examples: the observation that Jupiter was orbited by several moons clinched the case against the Ptolemaic system, the belief that all celestial objects circle around the Earth.  We learned of cells by seeing them when the microscope was constructed.  Accelerators made the basic structure of atoms obvious.
Second, if mathematics is the queen of the hard sciences then statistics is the queen of the social sciences.  I gave examples of the power of very simple data analysis. We first learned that exercise is good for health from the observation that in 1940s London bus conductors had much lower death rates than bus drivers.  Similarly data demonstrated that smoking was a major killer decades before the biological processes were understood.  At a more trivial level, Moneyball shows how data-based statistics can revolutionize a major sport.
Third, I urged that what “you count counts” and argued that we needed much more timely and complete data. I noted the centrality of timely statistics to meaningful progress towards Sustainable Development Goals.  In comparison to the nearly six year lag in poverty statistics, it only took the USA about three and a half years to win World War II.
Fourth, I envisioned what might be possible in a world where there will soon be as many smart phones as adults.  With the ubiquitous ability to collect data and nearly unlimited ability to process it will come more capacity to discover previously unknown relationships. We will improve our ability to predict disasters like famines, storms and revolutions.  Communication technologies will allow us to better hold policymakers to account with reliable and rapid performance measures.  And if history is any guide we will gain capacities on dimensions we cannot now imagine but will come to regard as indispensable.
This is the work of both governments and the private sector.  It is fantasy to suppose data, the ultimate public good, will come into being without government effort.  Equally, we will sell ourselves short if we stick with traditional collection methods and ignore innovative providers and methods such as the use of smart phones, drones, satellites and supercomputers. That is why something like the Billion Prices Project at MIT, which can provide daily price information, is so important. That is why I am excited to be a Director and involved with Premise – a data company that analyzes information people collect on their smartphones about everyday life, like the price of local foods – in its capacity to mobilize these technologies as widely as possible. That is why Planet Labs, with its capacity to scan and monitor environmental conditions, represents such a profound innovation.

Wednesday, 23 November 2016

Men without work

As per Larry Summers note, about 33% will be unemployed by 2050, primarily due to technology.



http://larrysummers.com/2016/09/26/men-without-work/

It's just not possible to time the market


Note: If one were waiting for a bear market to start buying in the US stock market, one would have had to wait for 20 years - from 1983 to 2000.

So, it's just not possible to time the market.



Waiting for a Bear Market

Today I came across a interesting post by Dev Ashish at Stable Investor about why a investor (especially if he is young) should yearn for a bear market than a bull market. The logic he provides is pretty right given that the cheaper you buy a stock / index, the higher the probability that you shall make a decent return on the long run.
Then again, a bear market is a symptom of a disease rather than the disease itself. A bear market is primarily caused by a change of opinion about future growth of the economy. A good economy that is not overheated and yet growing on a consistent tick can provide way better returns than any buy you can make in a deep bear market. Don’t believe me, well check out the chart below which plots the performance of the Dow Jones Index from 1982 to 2000.
chart
Over the period of time (18 years approximately), the Index went up 1,113% (or 11.xx times its initial value). Only once during the entire phase was a strong opportunity (Black Monday of 1987). If you started investing in 1982, you had to wait till 1987 for a bear market and if you started in 1989, your opportunity came only after the IT bubble burst.
In previous posts I have detailed about how I use multiple ways to determine whether market is bullish or bearish, but that is more from a technical perspective.
A drop of 20% (one of the ways a bear market is classified) doesn’t happen a lot of the times. In fact since 2009, we have had only three times Index has fallen by 20% or more and each time the scare is that this is just the start with worse yet to come.
But do investors really need to await for a bear market to come before investing money for the long term? Even in bull markets, you can find sectors / industries that are hitting the floor due to issues. 2008 marked the peak of the Nifty Metals has been smashed like anything. In fact, other than realty, this has been one of the worst performing Index. And yet, after each big fall, the Index has risen like a phoenix.
PSU Banks were literally written off thanks to their disclosure of high NPA’s quarter after quarter and yet in the recent months, they have given nearly 80% from bottom. Of course, none can catch the bottom and 80% is not something that could have been achieved (and the other thing it would have needed is to time the top as well). But what about 30%?
Asian Paints has been on a one way trajectory and yet if you were to check out the charts, falls of 20% or more have been all too common. Unless you believe the company has gone to dogs, does it hurt to risk a bit when stocks that are excellent have been plummeted due to one or the other issue that has taken over the media frenzy at that point of time? Or what about Apple or closer home ITC or Hindustan Unilever among hundreds of others?
Okay, you are using hindsight and selection bias to showcase companies that have survived you may claim and I plead guilty. But while companies may die, do sectors die? Nifty IT which represents the cream (and not so creamy) companies is down nearly 20% from its peak. Valuations are at multi year lows, is it worth a Buy?
While I have invested a small bit, I am waiting for confirmation of a trend reversal to plunge in more. In that way, I want the fundamental evidence I have in hand to match the technical parameters I follow. From its peak, Nifty Pharma index is down more than 20% even after considering today’s rise. Yet, given that Pharma as a Industry should continue to grow, doesn’t it make sense to risk either when it becomes too cheap (it hasn’t for now) or showing the technical evidence necessary that makes it a worthwhile sector to pick?
Do note that every opinion including mine are biased based on our circumstances and our beliefs. Anyone who isn’t holding any investment in Real estate (and that would include me) is hoping for and building a case as to why Real Estate prices should fall, but if you ask one who are invested, they can give you as logical answers as I do on why it will not fall. Either way, none of us know the future.
A bear market is useful for building stocks only if your own job is secure but deep bear markets don’t arise in a well doing economy. It arises when shit hits the fan so as to speak and when that happens, you would wish that you rather have your job back than a opportunity to buy stocks cheap. Rather than wait for a proverbial bear market, I think it makes a lot more sense to take advantage of market miss-pricing in individual stocks / sectors and hope that the long bull run continues without too many a hiccups.

Gold was expected to go from $35 to $6 an ounce when Nixon abandoned gold exchange standard in favor of a pure fiat dollar



India's Currency Debacle: "Consider It A Warning"










Tyler Durden's picture

A Major Crisis

Last week Jayant Bhandari related the story of the overnight ban of certain banknotes in India under cover of “stamping out corruption” (see Gold Price Skyrockets In India after Currency Ban Part 1 and Part 2 for the details).
The problem is inter alia that the sudden ban of these banknotes has hit the Indian economy quite hard, given that 97% of all transactions in the country are cash-based. Not only that, it has certainly created fresh avenues for corruption – which should have been expected (whether it will succeed in its aim of stamping out other types of corruption remains to be seen – we doubt it).
Moreover, the poorest of the poor are suffering the most on account of the ban, not least because the promised replacement of the banned banknotes is apparently hitting major logistical snags and may take much longer than thought.
Readers interested in this story may want to listen to an interview Jayant has recently given to Maurice Jackson of “Proven and Probable”, which we have embedded below.  A quick note on errata: at 1:45 and 1:57, Jayant says “2,000 dollars” – he obviously meant to say “2,000 rupees”.

Maurice Jackson interviews Jayant Bhandari

Further updates on the still developing situation can be expected soon.

Consider it a Warning

We would note on this occasion that although what India’s citizens are facing these days may seem a remote danger to most Westerners, it does demonstrate an important point: state-issued paper currency exists only at the sufferance of the State. It can be made worthless by decree.
As we pointed out in “Why Does Fiat Money Seemingly Work?”, the main reason why irredeemable paper money is accepted at all are not only legal tender laws which enforce its use as a means of payment, but primarily the fact that the State insists that its fiat currency be used for the payment of taxes. This is what creates a secondary market demand for fiat money, without which it could probably not exist.
Surprisingly, the concept is not really a modern one – it was tested in Great Britain for a considerable stretch of time with the tally sticks system. Although that particular system ultimately failed (just as every currently extant paper currency eventually will), it did show the way to governments. It was indeed possible to do more than merely usurp the production of gold and silver coins.
So obviously, governments do have considerable influence on what is used as the means of final payment in the economy. What governments have been unable to do though is to effectively “demonetize” the money previously chosen by the market – namely gold. Governments may well be able to make the possession of gold illegal, but they cannot possibly destroy the metal’s monetary qualities by decree.

golalot
Gold – the market-chosen money. No agreements, convocations or force were needed – people adopted gold voluntarily as a money commodity all over the world, after a long period of trial and error with a variety of monies.

When Nixon was persuaded to abandon the gold exchange standard in favor of a pure fiat dollar, many monetarists (one of whom was advising him on the move) and other mainstream economists were convinced that gold prices would decline from the $35 fixed exchange rate to something like $6 per ounce, reflecting its  value as an industrial commodity.
In other words, they reckoned that the act of officially “demonetizing” gold would erase all monetary demand for it. As is often the case with predictions agreed on by a majority of economists, this turned out to be rather wildly mistaken.
 

Another prediction by mainstream economists gone rather spectacularly wrong. Monetary demand for gold not only failed to disappear, it actually grew rather significantly – click to enlarge.

What has just happened in India clearly demonstrates that the nature of state-issued fiat money must be taken into account when considering what to do about the rapaciousness of increasingly desperate and technically insolvent governments.
If one wants to safeguard one’s cash holdings against the potential failure of the fractionally reserved banking system or against arbitrary wealth confiscation  – such as has inter alia been advocated by the IMF (see “Is a Large wealth Grab in its Way” for the sordid details on this) –  one has to keep this important detail in mind.
Withdrawing deposit money in the form of cash currency is only an effective strategy as long as governments don’t do what India’s government has just done. And one should definitely never make the mistake of underestimating the lengths to which governments are prepared to go under the cover of “emergency”.

Conclusion

In the course of the 20th century alone, we have seen such a wide range of government depredations with respect to money, that one has to be extraordinarily naïve to believe repeat performances are no longer possible.
What has happened in India should be seen as a clear warning. State-issued cash currency may not be affected by bank insolvencies and “bail-ins”, but it is by no means safe. By contrast, gold simply cannot be devalued by government decree.