Personal Finance Fiasco


Sometimes you know the truth but don’t want to think about it, because it hurts or goes against everything you believe in. I’ve always had a keen interest with the financial markets, whether reading The Wall Street Journal, Forbes, Fortune or watching CNBC. But, one area I always thought was a bit murky was the area of giving personal finance advice.

Many of the magazines such as Kiplinger’s Personal Finance would scream “10 stocks to help you retire” or “make your 401(k) work harder for you” to attract readers. But, when you would read the articles you realize it’s pretty worthless information. And yet every time I would read an article along the same genre and expect different results…stupid I guess. I knew the advice was mostly wrong but I didn’t want to believe it.

My eyes were opened when I was watching the Daily Show with Jon Stewart and he had Helaine Olen on as a guest. After the show, I downloaded her book “Pound Foolish” where she slams the entire personal finance industry for providing worthless information. It’s pretty clear she’s not looking to make friends and is just speaking the truth.

The whole “Rich Dad, Poor Dad” line of books – apparently the Rich Dad never existed. Wow, is all I can say. If you really did follow his advice and took on massive debt to buy houses all over the US, then welcome to the great housing bust of 2008. Feels good don’t it! Even Robert Kiyosaki the author of “Rich Dad, Poor Dad” got hit by the housing bust, one of his companies filed for chapter 7 bankruptcy in late 2012.

The book goes on to mention almost every personal finance guru – David Bach, Suze Orman, Dave Ramsey and many others. Bach was the guy that talked about skipping that cafe latte at Starbucks and instead saving the money. Overnight, he was on every morning talk show speaking about the “Latte Factor”. Honestly, if you are that hard pressed for $4.00 a day you got bigger issues and listening to some joker on TV for financial advice is the least of your concerns.

After reading the book you realize people are looking for quick and simple answers. However, many financial products sold are complex for a simple reason – to hide the fee structure. I’ll never understand why people work 40-80 hours a week for a paycheck and then take zero time to understand their personal finance well being. Stop the madness and start small, take one hour a week and start to understand your money situation and investments. Nobody gives a damn about your money more than you.


The 1.2 Billion People Trap

I always laugh when I get an email or phone call from someone telling ME how big of an opportunity India is for XYZ… Part of me wants to puke on their business plan, but part of me does believe India has vast opportunity if an idea is executed correctly.

Most of the conversations go like this “I was in India for 2 weeks and everyone has a BlackBerry or iPhone…wow 1.2 billion people, if I capture 1% I’m golden…” or “there is a large captive audience if we streamline service XYZ.”

Let’s examine each thought process in detail. The person in the first example probably stayed at a 5 star hotel and dealt with people that most likely are high earners.  That is not the real India, this individual is going to be shocked at how small the actual target audience is.

The second assumption is someone looking at a problem from a US/European point of view and applying it to India. An example would be mobile phone networks in India, right now India is adding 10 million new mobile users a month.  Mobile operators are not concerned about retaining customers or streamlining customer interactions, instead their biggest issue is their infrastructure cap-ex spending.

For ANYONE looking to start a business or expand their current business in India, I would highly recommend the book “We are like that only” from Rama Bijapurkar. It will get you to start thinking about your REAL market size opportunities and not fall into the 1.2 billion population trap.

Rama highlights 3 types of consumers in India based on income distribution: premium (10%), popular (30%) and discount (60%)…yes, most Indians are “value buyers.” When I hear Ferrari, Gucci or some other high end product is coming to India, you can assume it’s going to be a loss leader for many years to come.

Chapter 7 is where the action really starts with the SEC codes, what are SEC codes? Socio-economic codes (SEC) is a way to classify and segment the entire 1.2 billion people running around India. Those folks who want to sell Ferrari’s and Gucci bags will be bummed to find out their target audience is classified as SEC A1 which contains only 2 million households and 10 million people…what a let down.

Rama is very quantitative driven with her research and I was hoping for more actual case studies. However, the book is a must read for anyone looking at India or wants a PhD in number crunching India’s social graph.

Derivatives Deja Vu

I just raced through the latest book from Satyajit Das titled “Traders, Guns and Money” and you would think it was a year in review on the global financial markets…WRONG.  The book was penned in 2006 and describes his last 25 years in the derivatives market which happens to be what is ailing most investment funds and banks.  Many of the financial products that were used in the past have made their reappearance, repacked and rebranded.  Structured products, foreign currency convertible bonds (FCCB’s) and yen carry trades are just the tip of the iceberg.  In India all 3 have been in vogue lately and peddled by the banks.  It’s very easy to compare a product giving 8% vs 6% when all other factors are the same but with structured products it’s not so easy to decipher what the fu#$% is going on. 

India’s version of the sub-prime mess is the yen carry trade.  Many locals banks pitched the idea to corporate treasuries as a way to get funds cheaply and grow their business.  Instead many took the loans at 1-2% and speculated in the local equity markets which were giving over 45% returns in 2006 and 2007. Now that the markets have tanked and the yen has gone to hell, most companies are sitting on hugh losses. Most won’t report these losses as yen carry trades but some other financial engineering exercise.  Which leads to the whole issue of credibility, can you really trust what a company pimps in their annual and quarterly numbers.  

The last 50 pages of the book starts to drag as he gets into detailed calculations. However, the book is a great read and provides insight into a sector of the financial markets that most people have no clue exists or how it functions.  If you plan on getting into these complex derivatives transactions…read this book first.

Building the Ambani Empire

polyester_prince.jpg What timing, I finished reading Polyester Prince on Feb 10th and on Feb 11th the Reliance Power IPO from Anil Ambani got listed on the Indian exchanges. Finding this book was about as easy as getting shares in the Reliance Power IPO. The book is apparently banned in India on the request of the Ambani family since it shows Dhirubhai rise via unscrupulous business tactics.

The book was published in 1998 and 10 years later some of the usual suspects mentioned in the book are still around. Whether its Nimesh Kampani, Vallabh Bhansali or Anand Jain on the financial side to Pawar, Deora and Deshmukh on the political front.

More eye opening is the same basic concepts that sold people on the Indian equity markets back then are still being using today, such as the emergence of the Indian middle class or the India “story.” An example from the book talks about Barton Biggs, who at the time was Morgan Stanley’s investment guru, rated Reliance as one of the best buys in Asia and a proxy for the India “story.” Today, Biggs runs Traxxis a global macro fund out of NYC.

Overall, the book is a great read on the rise of Dhirubhai and what it took to make Reliance what it is today, good or bad.

On a side note, I was able to buy my copy at the Haji Ali intersection from one of the street vendors, he started at Rs 600, but I ended up paying Rs 200.

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’s an acquired taste.”