Float and moat mixed with the election goat

State of affairs in India - 2013

Being locked out of your trading account can be good sometimes (lets hope so). Especially when it comes to the election time. Sitting on neat 30% profits on portfolio for past 6 months - I am having dual mind of either pulling out some money or buying more hoping that 'Ab ki baar Modi sarkaar' can give more impetus to the market. However - the decision for me to sit tight is made as I'm locked out of my trading account for the time being..

Last year was good for picking stocks as two factors came in handy for me - the currency devaluation (exchange rate EUR to INR dropped from 70 to 85ish i.e., 21%) and Sensex below 20K levels (add on top loads of stocks hovering at discounts to book value with 5%+ yields..).

As Charlie Munger would say - "Being rats in other person's granary" - investing is a crude way of wresting money from another in a capitalistic sense. Nepotism, monopoly and add some government backing (sprinkle some corruption) - you could be talking about India now. I think the trio can be good for investment though (corruption definitely not). I am not really proud of taking advantage of things as they stand - but; I'm not the PM right.. I'm just an average guy trying to earn a hard way to retirement..

Though - I do wish for the goodness of nation - there is a stable government; I really don't mind having any government in India at the moment. Being a net investor in the market for next 5 years, I would love that I can build my positions in few stocks favorably. Weak governments mixed with unstable policy matters don't seem to be a deterrent for me to invest (the long term consumption story remains intact - so I frankly dont really mind buying good businesses at cheap valuations). Actually who doesn't like to pick stocks with mouth watering margin of safety trading below BV and yielding 5%+ yields.. (on hindsight - being locked out, I definitely missed the golden chance to pick Corporation Bank and Syndicate Bank at 230ish and 70ish levels respectively which in turn would have yielded upwards of 9% yields..).

Shit happens.. but, I think we definitely live in interesting times.. ever checked the kind of returns Buffett made through the 1950's? I think its the kind of market India is in now. Amen.

Ciao till next time...Harsha

AAP - Why I am disappointed

I don't like Politics. I hate double-talk. More so, I feel that 'Honesty' cannot be subjected to twists and turns. Anyways... why this exception.. As I had blogged before (Link here) - I have been a huge fan of Anna Hazare:

"The man stood to make us whiter ourselves. None of us are white. None of us are black. We all fall in shades of grey. Some lighter. Some darker. It is our constant fight to be seen on the lighter shade of this color and confirm to the maxim - purer than thou.. this is what this guy is trying to stand up for. He is today talking about something small (Jan Lokpal).. but eventually he is trying to stand against the bad side of human nature.. he is standing to make the society a little bit more lighter.. he wants to say that all of us want to be good.. but cannot be for various reasons... maybe some day.. we will become good. Maybe our billion deities some day would provide us with divine powers to resist evil. Sooner than later. 'Hope' as they say, still burns bright in our hearts."

When Arvind Kejriwal created the Aam Aadmi Party (Mango People's Party - a nice jibe at that to Congress..), I was curiously feeling happy. Each mainstream party today has a plank to stand on. Congress has been the 'Secular' party (some would say - Pseudo-Secular.. and slowly this plank has been copied by SP, BSP, JD and many other regional parties which has eventually led to the slow decay of this once mighty party), BJP has been the 'Hindu' Party backed by RSS (some extreme form of regio-political planks were created by others like - Shiv Sena, MNS, others..). the nation needed a party to stand for the masses. We needed to take a stand against the 50%+ Black economy which has created huge imbalances in economy. On one side building up 5%+ Budget deficits (the deficit funding normally comes in 3 ways: long term loans which bring with it interest burden, FII/FDI investments - which sort of creates equity ownership in our nations jewels i.e., companies publicly traded and the big reparitions from NRI's) and on the other side drum up populist policies which take us on path of bankruptcy.. A fight against 'Corruption'- seemed refreshingly interesting. Especially for the 65%+ young Indians (in age group of 18 to 45 years) who normally tend to move away from religio-socio factors to elect leaders.

I thought - BINGO. AK has hit the bulls eye. In one shot - he has gained relevance that mainstream parties have lost out over years. A strange feeling of wanting to be politically involved came up. AK and AAP got a lot of respect from me. I am sure also from crores of people like ME. HENCE, metaphorically aam aadmi voted for him.

However, for the last month or so the AAP has been the center of attraction for wrong reasons in Delhi.. I must mention here that during the agitation led by Anna Hazare, I admired Kejriwal for his ability to connect with people and bring greater vigor to the movement. Shouldn't I then be rejoicing that the AAP has formed a Government in prestigious Delhi? Here are the reasons for my disappointment:

1. I expected new standards of political conduct from AAP when they said they would do things differently. It was shocking to see them form the Government in Delhi when they accepted the outside support from the party they abused the most as being corrupt, the Congress party. I don’t think their explanation that the people of Delhi asked them to  form a Government is a good one. On the contrary, it sets a dangerous precedent because in real life important decisions cannot be taken only because a large number of people support it by sending SMS. What was the alternative? If they were as principled as they claimed to be, and I expected them to be, they should have opted for a re-election. I believe they may actually have got more than 28 seats if they had adopted this course. Anyway, they didn’t and what followed disappointed me even more.

2. Political decision as regards water and electricity smack of short-term expediency. To say they exempted a section of people from paying bills because they had not done so at their behest is most dangerous as a trend.

3. I am disappointed that the whole anti-corruption plank stands exposed as till date AAP have not taken steps to initiate any action against those like former Chief Minister Shiela Dixit who was roundly abused by them day in and day out. At one time Kejriwal said he had 300 + pages of proof of her corruption, now they are asking the BJP to provide evidence. Their website Pol Khol also no longer has mention of Shiela Dixit’s corruption.

4. Lakhs of people are said to have joined the AAP. Here’s where it becomes essential for them to have made a framework of their national policies on a variety of important issues such as defence, economics, internal security , health, education etc. They have been in power for less than a month, but they became a party formally over a year ago. This gap had led to controversies with Prashant Bhushan’s stand on nuclear power and referendum in Jammu & Kashmir.

5. While more eminent people like Meera Sanyal, Capt. Gopinath and Mallika Sarabhai have joined the party, this raises the question of who is an aam aadmi? These are very well off, to put it mildly and hardly qualify for being the typical aam aadmi in a literal sense. If you go by the earlier understanding that the aam aadmi was someone who was not the big bad, corrupt morally weak politician, this no longer holds true as they have joined a political party and have become politicians themselves. It is now emerging to be a left of centre party.

6. Controversies regarding U turns in decision-making , be it about  Kejriwal’s accommodation or about Janata Durbars are not exactly adding to my confidence of the maturity of its leaders. I believe they tend to oversimplify things. Kejriwal said there was not much difference between the number of rooms in his current apartment and the new one he planned to take up. He forgot to take location into account, there being a world of difference between his current location in Ghaziabad and the apartment in question in a posh area of Delhi.

7. Policy paralysis - like opposing FDI and increasingly turning Left-Centric (in terms of ultra protectionist attitude).

8. CM or rabble-rouser? Prioritizing agitation v/s governance on side topics (which could well be taken care off by his folks in AAP - like agitating against certain policemen).

The next few months will be very crucial for the AAP. They have made it clear that the Congress is not a factor in the General Elections in 2014. How they will perform is anybody’s guess. They may shine, they may fall but as of today, I have started moving away from AAP band wagon.

Ciao till next time...Harsha

Guenter Anzer - A lesson in life learnt..

There are few people who can be missed at first sight. Guenter was certainly not to be missed. Standing at over 6' 4" - he certainly had a commanding presence; the friendly Ober Frankonian voice.. the at once friendly - 'hey I've known you for ages' kinda friendly salesmanship.. and off course - Guenter's gift of gab.. you've got to know to believe. I am very happy to have known the man from close quarters and its been a great pleasure and honor to have been his friend and mentee..

Guenter recently passed away. Just before Christmas 2013. As he would have liked it - the man worked until death. Sometimes.. Its better to leave with a feeling that the promise was yet to be complete than leave with a feeling of living beyond expiry date!

Flashback - It was the second day of Embedded in 2012 (for the uninitiated Embedded World is a conference held in Nuremberg - one of the biggest electronic design exhibitions worldwide). I vividly remember my former colleague Knut Kittel introduce the mountain of a man.. He seemed to have the knack to beat the hell out of us at Cypress being a one man sales army for our nearest competitor (for sake of brevity - I leave out business details). Had a coffee.. some friendly words.. exchange of business cards and I made a mental note to keep in touch. As fate would have it - more opportunities ensued and by twist of fate, details of which are not needed for the purpose of this article - Cypress soon hired him as our local rep.

One of the things which you normally would call ' EODB' (Ease Of Doing Business) - which after all the processes in place at a big organization... you still fail to achieve.. was something the man made it seem easy. If only there was a school to teach young sales professionals the way to grow business; Guenter would have been the Principal of that school. Some of the takeaways from knowing the man has been -

- Develop an attitude of 'Customer first', 'Internal shit next'. Hiding behind processes is easy - but that does not necessarily do good to the organization in the long run.

- Failure of our organizations... People do extraordinary things at work only when they want to, not when they are forced to.

- Something I find ironical. If at all there was someone who worked for the sake of work alone - I would put the guy right at the top of my list. Enjoying the journey - as long as it lasts... its not easy.

R.I.P Guenter. I would always remember the lessons I learnt and off-course the bier-garten  tips for life. Prost!

Ciao till next time...Harsha

The Money Game

The irony is that this is a money game and money is the way we keep score. But the real object of the Game is not money, it is the playing of the Game itself. For the true players, you could take all the trophies away and substitute plastic beads or whales teeth; as long as there is a way to keep score, they will play.

— ‘Adam Smith’, Quote from Money Game

Ciao till next time...Harsha

Dubai - Thoughts of a weary traveler...

Finally we went to Dubai for a vacation - wife, kid and and your truly.. This was on 'to see list' for the past 5 years... time and again something stopped us from going there...

Well, it turns out that we would not have missed much at all.. giving it a skip. As you enter Dubai - the first thing you do notice... is the concrete jungle filled with sky scrapers and malls... ('malls' may not give you a sense of size - a normal mall multiplied by 100 would come close to the size of Dubai mall... this is just one of the many). The Dubai mall had more shop attendants than customers... there was the famed Dubai Shopping festival ongoing...

Anyway.. the whole place looked very surreal to me... If you visit the city with eyes open –  the truth is hidden in plain view, behind the glitter and glamour of the place.. you see more servants.. more maids, workers and poor laborers on the building sites (all from the Indian subcontinent) than Arabs... None looking all that happy. We did see some rich Emiratis in their white dresses being driven by Indian drivers in Porsches, Mercs, BMWs and Rolls Royces... The undercurrent I felt was - South Asians were not looked upon as equals in Dubai. Some research later did confirm this after fact.

The place... seemed more like Albert Speer was reborn to build commercial castles for modern day Walt Disney... The multitude of sky scrapers had big screaming 'TO-LET', 'FOR SALE' or 'CALL FOR LEASE' signs.. written in BIG..BOLD letters (each letter looked like covering 3 - 4 floors to me..). Most roads have unfinished sky scrapers with workers teeming to complete them in that scorching heat... wonder why the hurry to add one more unoccupied sky scrapper...

The friendly taxi driver (South Asian again... a little research on Google later confirms that the population in Dubai is indeed 50%+ South Asian - Emiratis' make up less than 15% of the population).....was more than happy to talk about the desert revolution - how he has seen the desert bloom in past 15 years... On top of Burj Khalifa (at 160 floors - this dwarfs the other buildings around.... wonder if even 5% of this structure is occupied...) - you get to see the other sky scrapers like Gulliver would have seen the Liliputs....so many.. every where... you even see a 'Before' and 'Now' picture on walls at the observation deck showing how Dubai looked 15 years back and now... made me wonder how on earth could someone build this concrete jungle in the wide vast desert.... what was the need? Who are they building it for? 15% Emiratis living there? Are they trying to turn this place into a commercial nerve center in the middle east - is that needed at all? Deep inside - it struck me hard.. how money can make people try to fight nature... could money turn Dubai into Las Vegas / Singapore? For how long?

Dubai - 1990 v/s 2013

Where do they get so much water to pump up 160 floors on Burj Khalifa.... or 100 floors... or even 20 floors... every building around seemed like 20+ floors to me (turns out that there are over 200 sky scrapers in  Dubai)... Water, after-all is more costly than Petrol there... During its peak in mid 2000's- 1/5th of cranes worldwide were in Dubai - its afterall a small place: a little Googling tells me that the State of Dubai is smaller that our city of Mysore (or any level 2 City in India - in terms of land mass).. how on earth do they even get to build these structures... who builds them??... the posters all around in Dubai will make us believe that the Ruler Sheikh Mohammed has built this city.. Turns out that the vast majority of the concrete structure gets built by teeming underpaid workers from India, Pakistan / Bangladesh.... one gets to hear about the scamsters luring people to go to Dubai / Middle-East in smaller towns of India in exchange for large sums of upfront visa 'fees' / facilitation money - did not seem impossible to me that they get lured to work in these mammoth construction sites.... we did walk past some construction site filled with Indian laborers.... felt a slight tinge in my heart.

Dubai went on the verge of bankruptcy in 2009... big brother Abu Dhabi saved them from defaulting their Dubai World loan. Seems like a time bomb ticking... with all those empty buildings and the empty malls....  seems like Dubai is headed for a hard crash...

Wonder how long can the lights be lit on the sky scrapers and water be pumped in those artificial islands.. and in those landscaped golf courses and multitudes of parks when Oil Money runs out. After all.. Oil will not last forever.. not even for big brother Abu Dhabi..

How much waste. What for and for how long? This money could have been easily put to better use. With much less human suffering. Something reminds me of that beautiful poem from Percy B. Shelley -

Ozymandias

I met a traveler from an antique land
Who said: `Two vast and trunkless legs of stone
Stand in the desert. Near them, on the sand,
Half sunk, a shattered visage lies, whose frown,
And wrinkled lip, and sneer of cold command,
Tell that its sculptor well those passions read
Which yet survive, stamped on these lifeless things,
The hand that mocked them and the heart that fed.
And on the pedestal these words appear --
"My name is Ozymandias, king of kings:
Look on my works, ye Mighty, and despair!"
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare
The lone and level sands stretch far away.'

Ciao till next time...Harsha

'Indian Stocks' - desi eshtyle, dose of news.. something which does not easily go out of fashion

Well.. most of Warren Buffett fans would know his love for media stocks (newspaper specifically) and how he has moved away from them over time. His shareholder letters are a wonderful source of 'gyan'..

Been in India for a vacation.. first thing which catches my eye is the newspaper.... I have 'read' the news, I know what to expect from online sources... but still... I LOVE to hold that paper in hand to get latest on the local stuff... happenings in politics... gossip.. some discussions on what are the current hot handles...

What a wonderful business to be in - 'local news'... better still in your own mother tongue. Hindi.. Kannada.. Tamil.. Telugu... Marathi.. Gujarati.. Bengali... Malayalam... whatever other languages which are 'not easily available on the net'.

Well... I'm now classifying all the regional newspapers listed on the market. There seem to be host of the small players. I have not spent time riding on one or two stocks in this space. Starting tops down - I am listing the top 1 -2 in each languages and trying to download their annual reports..

For starters - Hindi, Malayalam and Telugu have struck my mind. One tip: In Hindi - I like 'Hindustan Media Ventures'. Strong balance sheet and lot of cash (too much cash can be bad in wrong hands.. however I think coming from the HT stable, could be a good buy in mid term). I am still trying to see other language papers currently...



Ciao till next time...Harsha

Recently struck me... Food inflation

YoY increase in food prices (India) - 45.67%

No sane man could have guessed this correct if you asked him a year back (whatever happened to garibi hatao..). The weekend was spent doing research on how food ends up on our table (will not bore you will details).

Anyway.. There are at least 6 - 7 value adding layers which add-up to produce that basic idli-vada / anna-sambar on dining table.

Interestingly many companies in the supply chain have seen Sales, GM% increase quite consistently. Debt seems to be the only concern for some big companies.. (Example - Jain Irrigation.. by the way - I trust this to be a multi-bagger); then again I think the inflationary trend is not factored in at all. Stock prices have remained at pre - 2008 levels though earnings have more than doubled for most agri based firms.

Well.. on a side note, maybe... instead of getting MBA degrees - youngsters should pursue agriculture degrees. Anyway; for me - its time to pick up some stocks cheap.

But seriously - think again 45.67%!

Ciao till next time... Harsha

Banking - Only way is up.

Banking in India is fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks... I think from a long term perspective the only way is 'UP'....

From a global perspective - Indian banks are very limited in size (example: SBI - India's largest bank in all respects doesn't figure in top 50 banks worldwide. I think it is no. 89 or so on the list). Nevertheless - I reckon RBI is taking more measures to speed up banking growth. New banking licenses coming in by end of 2013 is one such indicators...

Banking (and Insurance - which is nascent in India and somewhat related) would be long term growth story. Last private sector banks to be given licenses were - Yes Bank, Kotak Mahindra.. nearly 9 years back. Before that sometime in 1990's - ICICI / HDFC (one knows the meteoric rise of these banks).

From a growth perspective, my picks -

Yes Bank - One of the fastest growing banks in India. Have been accumulating ever since 2008 when it reached sub 50 levels... some nice buying opportunity now when its hovering sub 300 levels now..

South Indian Bank - One of the oldest private banks in India. Steady presence in south.. patronized by NRI's. Nice one to pick sub 20's.

DCB - Its sort of rising again as a phoenix... dark horse worth holding. Once the debt goes (hopefully next year) - I like this one.

What could be interesting bets - some of the applicants for new banking licenses - LIC Housing Finance, L and T Finance Holdings, AB Nuvo, others... I'm kinda looking at averaging the top 6 - 7 players who most probably will get a license. Seems like the safest strategy for me!

Ciao till next time...Harsha

Auto ancillaries - Lumax Auto Tech

Auto Ancillaries is a long term growth story in India.

I have been pretty bullish on Auto Ancillaries as a long term India story. There are many good picks currently and one of the interesting ones I feel is Lumax Auto Tech.

Recent panic has seen many of the Auto ancillaries trade all time lows. This led me to research recently about all my picks in this sector. Best of the lot I think is this little known company.

Have been following this for a few years since its IPO. Pretty strong promoter presence, nice dividend yield (trading in 90 - 93 range, dividend yield of ~6.2%), strong growth prospects since they have a strong presence in Auto lighting segment (Near monopoly at Bajaj) and others like two wheeler chassis, Adjustor Motors, Exhaust systems & Mufflers, Fork & Handle Bar Assemblies, Petrol tanks, etc to two and three wheelers.

I didn't have enough money in 2008 when I thought this could be a nice bet - just had another buying opportunity. Seems like a nice investment for next 5 - 10 years.

Ciao till next time...Harsha

Stock Investing - My little mutual fund

As I have said sometime back - it feels awesome to get more return on your money than a fixed deposit could give you. Better still if you could average 20%+ YoY.

I am going to share with you my current thoughts on stock investing. Its just my story as I see it. I know I have a long way to go. I am just starting off and I feel happy to have struck to investing. I have no reason to share this, but for my own personal gratification.

Stocks have always been fascinating. Dad's old shares - mastergain / mastershare and the small talks in house made me want to invest and learn.

As soon as I finished engineering - I bought a few shares from my first salary. I have not stopped doing so till today. Analyzing companies, reading balance sheets and just reading about different sectors and trying to create a vision for future gives me a kick.

Here is a timeline of my investment story.

2004 - started investing from my account.

2006 - doubled my money (what little I had put in).

2007 - was a bad year. made investments at wrong level. Let me blame this on my MBA degree I just got. Broke even though.

2008 - worst year till date. Lost nearly 40% of my money. However - stayed put.

2009 - through 2010 - recovery. Modest gains - something which I really took on was habit of reading balance sheets and analyzing cash flows.

2011, 2012 - picked some good ones. Started diversifying. Something which hit me hard last year was the dividend aspect. I feel that a way of making easy tax free money is dividends.. money that comes back to you every year. never ending. usually increasing.

2013 - currently analyze and hold positions in 80 - 90 different stocks. The wild swings and high rupee-eur/usd rates have been my friends. Lots of stocks trading at low valuations during past couple of months. I am not much into buying and selling on short term basis. Like to hold onto them. Except that I like to keep most of my money in few of my favorites!

So.. that's my hobby. Let me give you my thoughts on my favorite picks next time I write my blog (hopefully soon)...!

Ciao till next time...Harsha