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Breaking News: Get down on your knees and pray during market falls!

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Breaking News: Get down on your knees and pray!

It is this advice from a well known investment expert that led to a huge crowd of men and women and couples in their twenties and thirties sitting down in prayer in front of the Bombay Stock Exchange on Dalal Street in South Mumbai today.

It was a dream come true for investors when the Nifty closed below 4700 for the first time since Oct 2009. Thankfully, RBI’s credit policy did not pull the markets up, therefore providing prices that were not available for the past 25 months for investors to buy. Experts suggested that with the global turmoil continuing and a solution to India’s domestic problems not in sight, they were optimistic that investors will continue to enjoy wonderful prices to buy stocks of great businesses for some more time.

“I think given the global scenario, the party will continue for some more time”, a reliable source was heard saying. An unexpected recovery in Europe and the US may spoil the buying party, so investors should brace against that. But the likelihood of that happening seems low, so it is an optimistic scenario for investors who have not seen such prices for a while. “I have been waiting for this since the last one year”, an experienced investor interviewed by this channel said. “Prices may continue to get better over the next few months if global turmoil, the domestic situation and our government cooperates. So I am keeping my fingers crossed.”

Investors who missed the discount sale three years back were being advised to look at what’s on offer and take advantage of these prices. A young man, who missed the last mega sale in Dec 2008, and who had joined the mass prayers with his newly wed wife, said, “Well, I guess those 2008 kind of mega sale offers don’t come often. But then, this 2011 one is not that bad. So I am praying that the good going lasts.”

Yes, in fact, prayer! Experts had advised investors that they start with a prayer. A prayer that in these unpredictable times for the markets and the world economy, stock prices remain or get lower than where they are. Therefore, leading to the unprecedented flash mob prayer in front of the Bombay Stock Exchange. “If you’re planning to work for another 20 years, then pray for a proper market crash”, a reliable source was heard saying. In fact, a well-known expert went to the extent of saying, “if you are in your twenties or thirties with a steady income saving for retirement, get down on your knees and pray for a fall! And pray that it lasts!”

The Annual Performance Appraisal: Jigneshbhai and Swami

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“I must leave now”, said Swami, my South Indian friend just as we were sipping our coffee.

“Going out with family?” I asked, knowing that he was quite the family man.

“No! Don’t ask – I have this big form I have to fill after going home, and submit it tomorrow without fail”, he said.

“Hmm – something to do with your son’s school I guess. Then you better go”, I said.

“Arre – nothing like that boss! In fact, it is about the boss! I have to go home and fill my performance appraisal form, listing all that I did in the year and ensure my boss gets it by tomorrow, so that he can rate my performance! You know how this corporate thing works. You have to do this every year. I am sick of it – but kya kare? Will not get my increments and bonus if I don’t fill that form!”, an aggravated Swami said. I guess my repeated questions on why he was leaving our weekend coffee discussion early had clearly pressed the wrong button.

“Your annual appraisal system is part of the problem in our markets also”, interjected Jigneshbhai, my broker friend.

I was a bit surprised with that. I could not quite figure out how Jigneshbhai had an opinion on that too. I could see the same reaction on Swami’s face. But before we could ask anything, Jigneshbhai continued, “So your performance is also measured once every year?”

“Yes, they say they will do it twice every year, but happens only once. Increments are only given once a year”, confirmed Swami, with a sore face. Somehow the word ‘increment’ used in corporate circles seemed like a well devised tactic to set expectations on the size of salary raises, and that expectation seemed quite evident on Swami’s face.

Be that as it may, but Jigneshbhai went ahead making his point on how they were a problem.

“You see, as the time for filling your appraisal form comes near, I am sure people start frantically showing evidence of their performance? Like finishing up more projects, telling the bosses what they are doing and generally being more active?”

“Yes – that is right, more or less. But it is not fair to everyone, you know. Sometimes the good people get bad ratings, and bad ones get good ratings”, reaffirmed Swami, still having his issues with the appraisal process.

“Well life is not always fair. But this appraisal thing affects fund managers and institutions also. They know that the time for the measurement of their performance is near. So every fund wants to beat every one else.” Jigneshbhai had a good understanding of psychology.

“So what do they do?” asked Swami almost innocently.

“Well, I am not sure, but I guess it should be, more or less, what you are doing. Some researcher said that’s the reason markets fall in December. So that relative performance can be shown for the year. And then rise in January when they get fresh money”, explained Jigneshbhai in his nonchalant style. Sensing the surprise, he continued, “Of course, you cannot profit from it. When everyone wants his appraisal form to look good, this stops happening.”

This was not good to hear. And it also left Swami both alarmed and confused as usual. “Hmm, so they are playing games at the expense of my money”, he thought, but did not say it in those many words. Instead, always looking for simpler answers, he asked “So even they are working for increments. So, what are you saying? Stop investing in funds?”

“Of course not, you cannot change that”, resumed Jigneshbhai. “But you can become an appraiser once a year – of the fund manager of your mutual fund. And unlike corporates where every year performance is relative to others, in markets, you have an absolute against whom to measure his performance – the market index. Put him on a performance improvement plan if he cannot beat the market index. If it still does not improve after a year or two, sack him and move your money to a low-cost Index fund.”

What to do when Uncertainty is Certain and Nobody knows Nothing

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When J P Morgan was asked in the early 1900’s on his view on what the market will do, he famously said, “It will fluctuate.” But a lot of people seriously believe that they can actually predict where the market will be, or where a particular stock or sector will be in the next few days, weeks or months. A lot of other people believe that there exist such people, and hence believe such people.

“Will the market be at 20000 or below 14000 by end of the year?”

“Will Stock A reach its price target of 123 in the next 6 months?”

“Will Sector XYZ beat Sector DEF in the next 2 quarters?”

uncertainty-buy-sell-sell-smA lot of people give confident answers to these questions. Which sometimes makes me wonder whether they are in the business of being correct or being confident. I think it is more of the latter. Because intuitively it seems to me that trying to predict prices, levels or direction of the market is a bit like trying to predict the team score or that of a batsman in a cricket match.

“Will India score 300 in the first innings?”

or like our latest obsession “Will Sachin get his 100th 100 in this series?”

Well – answers to both these sets of questions should be like the famous ad ‘No idea.’

Market levels are like the scoreboard. There is no fool-proof way by which one can predict the scoreboard and claim to do it accurately every time. One can use all the past data in the world, and analyze the pitch and the conditions as much as possible, but whether the batsman scores or loses his wicket really only depends on how he plays the next ball. And there will never be any certainty about what will happen on the next ball. So all you can do in cricket is to focus on the next ball.

Pretty similar to the markets or perhaps life itself. Well that may be carrying the metaphor too far. But all one can do is to evaluate every price that Mr Market throws at you and play it on its merit. On where it will go next, the answer is simple, ‘No idea.’  John Bogle once famously said, “Nobody knows nothing.”

But even the greatest investors sometimes buy the wrong stocks at the wrong time, like the greatest sportsmen sometimes make the mistake of playing at a ball they should have left alone. Warren Buffett knows that, and so does Sachin Tendulkar. So sometimes they lose their wickets when they shouldn’t have.

But then the game continues. You come back again and get ready to focus on the next ball thrown at you. If you play it well on its merit, you don’t lose your wicket and score. That’s the only certainty in the game of glorious uncertainties. It is a simple game really.

Why Bulls, Bears, Pigs and The Big Fish don’t matter, and Cows and Goats do: Jigneshbhai and Swami

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“The ocean in Mauritius is just wonderful, blue-green and pristine. Truly is a paradise island”, said my South Indian friend, Swami who had just been back from his vacation. One of the few times I had seen him happy, without much to complain about. Just when I thought he was in a good mood, he said, “But I got badly tanned. Got fully blackened, and for two days, I could not get out of my house.”

“So did you do any under water activities?” asked Jigneshbhai my broker friend.

“Yes, I think that and the sun is the reason for my tan. But it was worth it. The sea life – the fish and other sea animals were just wonderful to see up close under water.” Swami remarked. Clearly, his vacation had got more positives than negatives out of him. I was glad to note that he loved the sea, the fish and the sea animals more than he disliked the seafood. And if this is what Mauritius could do to Swami, I am sure it must be really be paradise for normal mortals. Jigneshbhai and I exchanged a smile on that thought.

But our thoughts were interrupted.

“I am not interested in the small fish. It is not useful to check even what the big fish are doing.”

We just looked around to check who had spoken. It was the wealthy man in the sprawling bungalow who had just joined us. I am sure he must be frequently going to Mauritius – I hear it is some sort of tax haven for wealthy people and foreigners. So not surprised that he had a view on the sea life there.

“No, sir. I could see only the small fish, we did not go deep enough to see the big fish. But the small fish were very beautiful and interesting, sir!”, Swami remarked, trying to disagree with the wealthy man.

“No point in following the small fish or the big fish. I am not interested in either the bulls or the bears also”, said the wealthy man.

He was known to speak rarely, and when he did, it was cryptic. But I was not sure he realized that we were talking of Mauritius. As far as we knew, bulls or bears were in the safari or at best in the markets. We just stayed silent, trying not to look awkward.

But Swami could not resist continuing. “Sir, we did not go to mainland Africa, only to the island of Mauritius. So did not see any bears, bulls or other animals in the safari.”

“Well, Africa is still the new frontier. You should be more worried about the Pigs in Europe – I hope someone takes care of them.” As he said this, we were almost getting on the edge now. Swami and I were desperately trying to make sense of this conversation.

I think Jigneshbhai got what the wealthy man was trying to say now. He quietly signaled to us to stay silent and asked, “Sir, got it. Those economies – Portugal, Italy, Greece and Spain are in trouble, and I understand that this is good time to ignore the bulls, bears and all the big and small fish or anyone who has a view on the markets.”

“Yes, indeed. You are right”, smiled the wealthy man, finally satisfied that someone understood what he was saying.

While both Swami and I were clueless, Jigneshbhai eagerly asked, “Sir, in that case, which animals do you prefer?” This left us further dumbstruck. Looked like he had picked up the animal language.

The wealthy man replied, “Honestly, I prefer goats and cows. They are easy to maintain, need just simple grass, and are sure to give you milk regularly. As they grow older, they almost always multiply easily. If they don’t, their meat is useful. So even if you pay a high price, goats and cows are useful, valuable animals.”

While Swami and I were wondering what happened to our conversation on Mauritius, Jigneshbhai was happy hearing what the wealthy man said, almost cheerful and thanked the wealthy man as he left back for his sprawling bungalow. And while leaving, the wealthy man turned back to us and said, “There’s a lot of animal instincts out there. So don’t go with the herd.”

Your Call is Important to Us: The Tragicomedy of Customer Service: Jigneshbhai and Swami

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My simple-hearted friend Swami was in a restless mood the other day when we met over coffee. ““कृपया प्रतीक्षा करें, आप कतार में हैं” – isn’t that what they said, when you called customer service numbers in those days?” he asked us. “Some of them said ‘Please wait. You are in queue’,” my wise friend … Read more

Are you Waiting for Godot when it comes to investing?

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“Have you seen that play called ‘Waiting for Godot’?” asked the wealthy man living in the sprawling bungalow next to my house. He was known to speak sparingly and in a cryptic manner when he did. We had just met him at a common friend’s wedding reception.

“Have heard and read about it, but never got myself to watch the play,” I remarked.

“It could be called either funny or absurd or nonsensical on the one hand; or, it could be called philosophical, existential or even having a spiritual message on the other hand. I get reminded of it a lot when I see the constant chatter and commentary on the markets and economy in today’s media.”

The wealthy man looked up Wikipedia on his smart phone for Waiting for Godot and narrated to us what he found:

“Waiting for Godot follows two days in the lives of a pair of men who divert themselves while they wait expectantly and in vain for someone named Godot to arrive. They claim him as an acquaintance but in fact hardly know him, admitting that they would not recognize him were they to see him. To occupy themselves, they eat, sleep, converse, argue, sing, play games, exercise, swap hats, and contemplate suicide – anything ‘to hold the terrible silence at bay’.”

The wealthy man chuckled when he read that. He said “If you see or read the play, your first reaction would be ‘what kind of absurd play is this?’ It is about two men Vladimir and Estragon waiting for someone called Godot. There is a sequence of events that happen over the two days where we are shown three characters –  Pozzo and his slave dog Lucky who keep forgetting, and an unnamed boy who keeps getting messages from Godot. During the two days, many times the two men decide to leave, but every time say that they can’t as they are waiting for Godot. At the end of the two days, eventually no one knows who Godot is, and he never appears!”

Elaborating further, he continued, “I am just an audience, not an expert on the play, but I have found it funny, boring or profound based on my mood. People who study the play have called it everything from absurdist, meaningless, humorous, philosophical to a ‘representation of repetitiveness of life itself’ in which the two men represent mankind and Godot is God.” Obviously it looked like depending on how you saw it, there were multiple interpretations of it.

I asked him, “So why do you see parallels between the play and life in the markets?”

He said, “Indeed. most people seem to be like Vladimir or Estrogen, waiting for a Godot or a set of Godot’s who never come. And then there are the people who complicate things more than required – seeing patterns where none exist.”

“So what did the author actually mean when he wrote this play?” I asked eagerly, not quite sure I was able to comprehend it completely.

He smiled and replied, “You know, Beckett who wrote this play was always a bit cryptic and non-committal when asked this question. Beckett clearly realised that one of the reasons for the play’s success came down to the fact that it was open to a variety of readings and interpretations, and that this was not necessarily a bad thing. Beckett was actually surprised when people started analysing it, and had once remarked in honesty, ‘Why people have to complicate a thing so simple I can’t make out.’ Not very different from what we see around us in the markets, I guess – the complications, the analysis and interpretations, the lack of simplicity, the various characters, and the endless waiting for Godot.”

Standard Operating Procedure: An 18-Step Success Guide for Politicians

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Standard Operating Procedures used in service industries like technology and healthcare bring in standardization, process orientation and overall efficiency, and are increasingly bringing the same benefits to politics.
  1. Politician comes to position of power and sets in place a proper system to implement corrupt practices. Initially he makes sure everyone in the chain is satisfied and gets his due, so the system runs smoothly.
  2. After a while, he gets a bit insecure and realizes that he has limited time to ensure his life time needs are met. So he gets a bit greedy, and in the process misses to give someone their due.
  3. If the politician is highly experienced, go back to Step 1 and keep continuing the iterations. He is then on his way to political superstardom. Else Go to Step 4.
  4. Somehow word gets out, and a press article appears on how the politician is corrupt and has used his position of power for personal gains.
  5. Politician reacts and says that he is being victimized by the opposition. Politician and his party continue to say that character assassination is politically motivated
  6. Opposition says that they need an independent inquiry into the issue.
  7. In case he is truly a big fish or on the way to become one, go back to Step 5. The arguments continue and eventually die out. Most ambitious politicians should aspire to stay in this loop for most of their lives. In majority of the cases, there is an agreement between the party in power and the opposition and the issue is settled. Only if things get serious or out of hand, Go to Step 8.
  8. Forced by something which could be anything from not getting a share of the corruption money to taking advantage of the public mood, an inquiry has to be set up in excruciating circumstances – headed, in most cases, by a former, retired judge.
  9. The opposition rejects the formation of the inquiry commission saying that the character of the person who heads it as well as the members is not spotless, and hence this is an eyewash.
  10. Then after some time which could be a few months to many years, the inquiry gets done and a report is submitted, which finds some elements of wrong doing but no conclusive evidence. At this point, things generally close on the topic, or there is a demand for another investigation, in which case go back to Step 8 and repeat. Only if there is some serious suspicion, go to Step 11.
  11. The original politician’s party, senses that it is time to distance themselves from the politician – and so says that the legal process will take its due course and they believe that our judicial system will mete out punishment to the offenders in case of any wrong doing.
  12. As part of this process, someone from the opposition co-incidentally gets caught in an act of corruption. The opposition claims this is political vendetta. Go to step 11 and repeat for a few months and then go to step 13.
  13. Finally the court hearing the inquiry commission asks them why they did such a shoddy job, and why a case was not registered, and then, due to this kind of embarrassment at the hands of the judiciary, some proof is quickly gathered, and perhaps a case is registered.
  14. Hearings go on from lower court to upper court, Go back to step 13 for a few months, and then something happens and it looks like the politician may be cornered. Now go to step 15.
  15. A bail application is then made by the politician’s lawyers, and it is mostly rejected.
  16. The politician then falls ill and seeks bail on medical grounds – which is granted. Go back to step 13 through 16 and the process repeats. Finally in the rarest of the rare cases, in case he truly has no political utility for anyone, he has to resign.
  17. If it is really bad with seriously bad media coverage, he may lose the election next time. If it is not that bad, and some damage control has been done, he may win or someone else from his party will win in his place.
  18. A new politician comes to a position of power. Go to step 1 and repeat.

A Gambler’s Instinct: The knack for taking calculated risks and knowing when to take them: Jigneshbhai and Swami

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“One thing that is different in our players of today and our players of yesterday is that earlier our players used to play mostly not to lose, and today they very often play to win”, said my broker friend Jigneshbhai over our Sunday evening coffee. Continuing, he remarked, “The difference may seem minor but is vast. In the first approach, the best result you will get in the game is a prevention of loss and then you hope for a win. While in the second approach, the worst approach you may get is a loss, but if you calculate your risks, you may also get a big win.”

“Like what happened last week, when Dhoni and Raina suddenly decided in the 35th over that they were not happy with 225 as that may, at best, prevent a loss, but wanted 300 to play for a win.”

“But there was risk in it. What if they had lost their wicket?” interjected Swami.

He was right. There was a risk of that happening, and in that case even the result of prevention of loss would have been difficult to guarantee. “Yes, that’s right. Playing for a win always has more risk than playing not to lose. And it is not always sensible at all times to play only for a win. There will be stages when it is best to play not to lose. But the reason I think Dhoni is a great captain is because he has a wonderful gambler’s instinct that helps him decide when to play not to lose and when to play for a win. And acts accordingly.”

Just as we were leaving, he added, “You know, Swami. In the long-term game of investments in the capital markets, playing not to lose can, sometimes, also mean you are playing to win. It seems to me that the current period is one of those times when you can both play not to lose as well as play to win.”

And then in the background I heard this song by the famous country music singer Kenny Rogers that he started humming as we left.

“Now every gambler knows the secret to survivin’
Is knowin’ what to throw away
And knowin’ what to keep
‘Cause every hand’s a winner
And every hand’s a loser
And the best that you can hope for
Is to die in your sleep”

“So when he finished speakin’
He turned back for the window
Crushed out his cigarette
And faded off to sleep then somewhere in the darkness
The gambler he broke even,
but in his final words
I found an ace that I could keep”

“You’ve got to know when to hold ’em
Know when to fold ’em
Know when to walk away
know when to run
You never count your money
When you’re sittin’ at the table
There’ll be time enough for countin’
When the dealin’s done”

[youtube=http://www.youtube.com/watch?v=kn481KcjvMo]

A Cryptic Cocktail: Mixing Cricket Commentary with Stock Markets and Investing: Jigneshbhai and Swami

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The wealthy man living in the sprawling bungalow near my house with his BMW and Mercedes speaks very sparingly. And whenever he speaks, it is quite cryptic. So one has to really concentrate when he is speaking, and think hard after he is done. So the other day when my South Indian friend Swami and I were just walking across from my house to get a coffee, we saw the wealthy man taking a walk with his dog. He knows Swami, who by now has had a number of ‘question-mark’ conversations with him in the past. So he wished me good evening, and this time before Swami could ask him anything, he just told him with a wry smile, “The situation is tense but under control.”

I first heard this term being used by the Mumbai police during the Mumbai riots in the early 1990’s. It was so conveniently cryptic and became so popular that the Home Ministry started using it. Now I think it has become the de-facto phrase used by government officials, specially Home Ministry ones, to describe, in an imprecise way, what is happening whenever there are riots, earthquakes, floods, strikes, accidents or anything remotely like those.

So I was a bit surprised when the wealthy man used it, not quite clear what he was referring to. So I took the liberty of asking him if he had some time for a quick coffee. The wealthy man does not easily say yes, but this time, he surprisingly did – so in a few minutes, we found ourselves chatting with him over a coffee.

After an awkward silence for a few minutes, my South Indian friend Swami had to ask something. He tends to lose his patience with Jigneshbhai, but with the wealthy man living in the sprawling bungalow, you cannot do that. So in polite language, he asked him for advice on the current state of the markets.

The wealthy man replied, “This match is very much in the balance now”. And added in his baritone voice, “It is not going to be easy for the batsman to get bat on to ball on this pitch.” Further, neglecting our confused looks, he continued, “It will provide assistance to the bowlers, but if the batsmen apply themselves, one can play a long innings.” I knew he spoke sparingly, and was cryptic most of the time, but this seemed out of context. So we thought he probably misunderstood the question – perhaps he heard matches instead of markets.

So Swami tried to explain – “Yes sir, but I was referring to the markets, not to the Champions league matches. I have already lost so much, would be great if you could throw some light on what to do next.”

This time, we thought we will hear some gems of wisdom. But the wealthy man continued. “Well, given the conditions, it should be good toss to lose”. This was getting a bit out of hand. Even I was starting to wonder what was happening here. But Swami was now getting a bit aggressive. He clarified, “Sir, I am losing money everyday in these volatile markets. You have been playing the markets for so many years. Should I sell and get out now?” Again with eager eyes, we were looking for some pearls of wisdom this time. And the wealthy man said, “We had a cracker of a game today, but at the end of it all, one will have to say that the team that kept its nerve better prevailed”.

This was getting too much to handle now, even for me. We were starting to fear if the wealthy man had lost it – maybe growing age and the stress of his wealth getting eroded at this stage in life was getting to him. Or perhaps he was watching too much of TV, and business and sports channels were getting mixed up in his head. Swami gave me a strong stare, almost warning me that he is going to stop having coffee with me. As if handling my broker friend Jigneshbhai was not enough, now he had this wealthy man from the sprawling bungalow to make sense out of.

So we started wrapping up with our coffee, and hoped that this was it. It did not seem to make sense to press the point now. Not wanting to take the discussion further, I asked for the bill, and while waiting for it, asked the wealthy man which team he was supporting in the Champions League. I casually added, “The Royal Challengers seem to be up to it this time, but you never know with them. The Mumbai Indians could spring up a surprise.”

I thought this conversation was now making sense. We were both talking about the same topic. At least we will leave on a sober note. No more mixing cryptic cocktails of cricket and markets, I thought. So as we left, we were stumped when the wealthy man threw another cryptic one. “Indeed, in these conditions, I am in support of investing in wonderful companies with good long term potential. For the true fan, this pitch is just what the doctor ordered.”

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