Investing ain't easy

ipath_logo_big.gifLately, many people have been asking me about investing in India and it got me thinking about investing in general.

I’ve realized that it’s very tough to beat the index year over year, this image (although dated) shows what i mean. I’ve read that many managers under perform the indexes, but I recently saw the concrete data in the iShares marketing packet (pdf file). It shows that over a ten year period, 96% of ALL large cap fund managers under performed the index. As they say, if you can beat them, join them.

So how do you invest in an index fund? Their is a whole industry around this called ETF’s – exchange traded funds. They basically buy the stocks that compose a certain index and wrap it into a nice tradable vehicle. The expenses (or impact) costs are low since there really is no overpaid fund manager to compensate. And since they are not actively buying and selling you don’t get hit with capital gain taxes as you do with a mutual fund. Some of the bigger players in the ETF space are State Street Global Advisors (with their SPDR products), Rydex Investments and Barclays with their iShares and iPath products.

This brings me back to investing in India. This whole ETF discussion came about when I started to look at various ways for investors to access the Indian markets. The following are several ways:

1. Buy ADR’s
2. Mutual funds that target India (Morgan Stanley India Fund or the Blackstone India Fund)
3. Indian focused hedge funds
4. ETF’s – right now iPath is the only one, many more will be coming soon

Take the Blackstone fund for example, in 2006 it returned an average of 43.9% which sounds great but when you compare it to the Sensex benchmark which did 46.32% for the same period it ain’t so hot.

There is an article in today’s (July 25th) business section of DNA (a Mumbai newspaper), that talks about the performance of Indian mutual funds and how lame they are. One of their stats shows that 88% of all equity diversified funds underperformed the Sensex for 2006.

Bottomline, I’m not sure what the value is in paying a money manager to under perform the index.

Cold Coffee anyone?

starbucks_logo.jpgIf you were hoping to get hot Starbucks coffee in India you better bring it on your flight to India. The wrath of Kamal Nath hits again, he’s the head honcho at the Commerce and Industry Ministry. According to the local papers, there was some confusion within the government over what exactly passes as a “single-brand format.” Holy crap, that is so ridiculous I almost fell out of my chair when i read that. It’s also reported the government wasn’t convinced about Starbucks’ plan to retail it’s world famous merchandise in India. Yes, Starbucks started with it’s first store in 1971 and now has over 13,000 locations and the government of India is worried about it’s retail plan in India? whatever.

Biyani's Bazaar

kishore_biyani.jpg If you’ve ever been to a Big Bazaar, Pantaloons or Central then you have Kishore Biyani to thank for it. He’s the guy behind India’s first wave of retailing. I bought the book for Rs. 99 at Big Bazaar (go figure) and thought I might gain some insight into his empire. Unfortunately that was not the case. The book is more of an “awww-shucks” I got into retail and now I’m big. I was surprised he did not once mention the BMC or any government agency he might have run into while building his empire. As the title reads, “It Happened in India” – but only with the help of political “friends.”

However, while reading the book I learned:
– The Ruia Group led by Atul Ruia is the owner of Phoenix Mills (not Shyam and Ravi Ruia of Essar)
– Kishore never visited a Wal-Mart until 2002 (What the fu!@#$, that’s like building a car and never having stepped into one)

Best quote – “Working with Kishore is much like drinking Guinness..it’s an acquired taste.”

3rd anniversary of celestri.org

3_years.jpg Yup, it’s been 3 years since I first started blogging at celestri.org. This will be post number 181, which works out to 1.15 posts per week. It’s been pretty interesting to be able to write down my thoughts and then get questions and comments from all over the world.  In the process it’s also helped me hone my writing skills.  In school, my worst subject was english and I used to loath getting assignments to write 500 words or less on a subject.  Now it seems I can’t stop writing.

Global running of the bulls?

global_bull_run.jpgIf you thought that the Indian Sensex was the only stock index that hit a historic high this past week you’d be wrong. The Running of the Bulls festival has just ended in Pamplona, Spain. However, the bull markets continue to run up in every other country, some of them include: US Dow Jones, US S&P 500, Australia, South Korea, Honk Kong, Singapore and Germany.

The story has been played out all over the media here in India, with a very India centric story. The talk of how the Foreign Institutional Investor’s (FII) are just pouring money into India and what a great growth story it is, with a subtle hint that if you don’t invest in the markets you are an idiot.

FII’s have poured about USD 3.5 billion in the last two weeks, compared to USD 4.37 billion from January to June. However, you ask any trader on a trading desk and they’ll tell you the same thing – very thin liquidity. Most funds that come to India, end up trading one instrument – the nifty index future. Which means most funds are essentially day trading or short term traders, not the much touted long term growth strategy play. In this market the FII’s are the bulls, if you plan to run with the bulls just make sure you don’t get gored.

The forgetful trader

orcl_small.png Sometimes the best way to trade is not via technicals or fundamentals but instead the buy and forget strategy. During the dot com bubble one of my buddies (Will P.) was always talking about Oracle and how great a company it was and blah, blah, blah…So I decided to buy the stock. On Aug 21, 1998, I bought in at around USD 24 and watched it everyday. I watched it hit USD 80 and then saw it crash like Paris Hilton after a night of drinking . After that, I was resigned to the fact that I lost a boat load of cash and decided to just keep whatever was left in the portfolio and not sell. (Click on the chart to see the roller coaster ride).
Recently, I was talking to someone and they mentioned Oracle had hit USD 20 which was a 52 week high. In the back of my mind I was still thinking I was USD 3-4 away from break even. But, I decided to check my holdings and my actual cost basis was around USD 4.15 a share. I completely lost track of the shares and it had split several times after buying it. I’m pretty sure if I had tracked the shares day to day, I would have sold out for a 100% profit instead of sitting on a 350% gain as of now.

microstrategy_logo1.gif Oh, but don’t get jealous and give me your money to manage. Around the same time, I bought MicroStrategy and currently it’s down -88%. Yes, it’s still in my portfolio as well, you win some and you lose some.

World Wealth Report

world_wealth.jpgIt’s that time of year where Capgemini and Merrill publish their annual World Wealth Report. It’s mostly a fluff report, but I like to look through it for several reasons.
1. See the geographic distribution of the declared wealth
2. Their definition of a High Networth Individual (HNI) and Ultra High Networth Individual (UHNI). An HNI is someone with over USD 1 million in assets, to be declared an Ultra High Networth individual your assets have north of USD 30 million. Once you reach that number, every private banker is going be calling you.
3. Asset allocation for a portfolio. It’s stupid to have ALL your money in one vehicle.

Download a copy of the report in PDF.