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Not an Ordinary Joint Family: The European Union and the Crux of its Problems: Jigneshbhai and Swami

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ambuja“भैया ये दीवार टूटती क्यों नही?” said one brother to the other in the Indian joint family from the famous Ambuja Cement ad. And then the voiceover replies, “टूटेगी कैसे? ये अम्बुजा सीमेंट से बनी है.” I had heard that this ad was popular with the English players whenever Dravid used to come out to bat during the recent Test series. But that was for the Great Indian Wall of Cricket. It is not the same with walls in joint families. They keep on coming up and going down.

There used to be the old Indian joint family many years ago which had no walls. All brothers and their wives and children used to live in the same big house with no major walls separating them, and led by the great patriarch and matriarch. It worked in a lot of cases because most brothers were involved in the family business and hence shared the profits as well as the losses, the good times and the bad. Occasionally a brother turned out to be a good-for-nothing, and the joint family took care of him and his family. Not necessarily the best thing to do, but that’s how it was. If things took a turn for the worse, in cases of family honor specially, very rarely the good-for-nothing brother was thrown out! And then over time with individual families within the joint family, the walls kept coming up, growing into different houses, different businesses. Everyone had to earn their own bread and manage themselves, as the joint family dissipated.

Well this was what my broker Jigneshbhai was trying to explain to my South Indian friend Swami the other day. As usual, Swami was perturbed that ‘global turmoil’ was messing up with his investments. As if the Sub-prime crisis and US Debt problems and rating downgrades were not enough, he was now being told that some new beast called the European debt crisis had come up. And Jigneshbhai was insisting that this was because of the European joint family. “Don’t joke here”, said Swami. “This is about money, not family.” “That’s the problem. The Europeans mixed up family with money. In India, people are moving from joint to nuclear, and the Europeans moved from nuclear to joint!”, insisted Jigneshbhai.

Unable to understand, Swami kept staring at me, wondering what kind of financial adviser I had recommended to him. “Look Swami – a few years back, Europe was a continent with different countries running on their own, like our own nuclear family. Each of them had their own incomes, their own budgets, their own savings. And then they decided, we stay so close to each other – so why not allow free trade, free movement of people. Till that point it was fine! That prevented wars, you know – they had a history of fighting each other. Once people met, worked and mingled, they felt better about each other.”

It is great to listen to Jigneshbhai when he gets into this ‘ज्ञानी’ mood. So I listened, and so did Swami, albeit with his usual confused look. Jigneshbhai continued. “But then they decided to mixed their finances with proximity, and said let us give up our currencies, and have a common one. That brought all the walls down, and everyone thought they had become one big joint family. But that was not really the case, because there were big brothers and small brothers in it.”

“So now are they fighting?” asked Swami.

“Not fighting wars, but it is not very different. One brother is doing well, and says why should I pay for that good-for-nothing, and that fellow says if you don’t give me money, I will bring the family down. Unfortunately, it is not an ordinary joint family. There is no patriarch as such who can clamp everyone down, or throw a good-for-nothing out. And you know how it becomes then – like our  TV serials. That’s why I said, the problem is the European joint family.”

Good to hear this, thought Swami. It is not just Indians who have family problems. He was just going to ask a ‘सास बहू’ type question, but remembered his investments. His confusion was still not clear. So he asked, “Boss, so when is this family drama ending, and what does this all have to do with my investments?”

Smiling, Jigneshbhai replied, “Nothing. Family problems don’t get sorted out so soon. And Europe is not just another ordinary joint family. So if you have the courage and the money, keep investing. Your family will, later, thank you for it.”

Nonsense Generator: A Step by Step Ready Reckoner to become a Market Expert

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For individual investors who have ambitions to become market experts, I have devised a step by step approach that can be followed by almost anyone. No background in investing is necessary, but a learning attitude is important. It does not guarantee success (like market disclaimers!), but it is a sure and steady way to market expertise.

For those interested, here are the steps involved:

Step 1: Take any word in column 1 and another word in column 2 from the attached Excel sheet to form a cohesive set of meaningful terms. Like “Macro Environment” or “Monetary Policy”.

Step 2: Repeat step 1 to come up with two or three such cohesive meaningful terms. You can add more, but beyond two or three, it can tend to get difficult for people to believe that you are a genuine expert. So let’s say, you choose “Macro Environment” and “Global Uncertainty”.

Refer to the Excel file nonsense to practice steps 1 and 2.

Step 3: Now assuming you have mastered steps 1 and 2, add a few verbs to this term, and perhaps also a few adverbs after the term. This is actually something that cannot have copy-book instructions. Hence I do not have a table for it. But that’s where experience counts.

So finally after adding some non-core words to your core terms, you should come up with a nice expert sentence like: “Given today’s macro environment, lack of foreign liquidity and global uncertainty, going overweight is not recommended. Though long-term valuations and structural factors are still favorable.”

Or you could come up with something like: “The market may be going through technical consolidation, and fundamental research may not hold ground. Unless global cues are favorable.”

(Expert Terms underlined above)

Caution: Step 3 is very crucial to ensure that you have the right mix here. Do not go overboard in using the terms here. There is no sure-fire formula for this and can only be mastered with creativity and experience. It is a bit like cooking. An expert cook always knows what are the right ingredients and what should be their proportions so that the dish does not get spoilt. So keep practising step 3 till you reach perfection.

Step 4: Finally, any writer can write a speech, but it takes a true expert to deliver it in all seriousness. That is what step 4 is all about. Deliver it in true seriousness, preferably with a ‘lost in thought’ look, as if you actually understand what you are saying. That is the sign of a true market expert.

PS: For those who cannot master the steps just based on the notes above, practical demonstrations of step 1 to 4 are available mostly 24 by 7, but certainly between 9 am and 4 pm Mon-Fri on any business channel on TV.

A Matter of Faith: The Role of Reason and Belief in Investing: Jigneshbhai and Swami

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“Can you guarantee it?” asked my South Indian friend Swami, when my broker Jigneshbhai asked him to hold on or add to his investments saying that markets will recover. Jigneshbhai said, “Boss, there are no guarantees, but they should recover eventually.”

Swami continued, “But when? For the last 4 years, the returns from my investment are less than 5% annually. I would have been better off with my fixed deposits. Today they give 9% at least. If you cannot give guarantees, what’s the use?”

This conversation was getting a bit heated. It always happens when it is about money. I continued sipping my hot coffee watching them talk.

Finally, Jigneshbhai got up in a rage, and asked, “You do your puja everyday Swami. Can your God guarantee that you will not die tomorrow?”

This was something Swami did not expect. This was about money, not God, he thought. “Don’t change topics”, he said in a disillusioned manner. Sensing that this was going awry, I intervened, and finally we changed topics and started talking about somewhat milder things like the weather, cricket and politics. Eventually a dissatisfied Swami left, as unhappy as he had come.

Jigneshbhai turned to me after Swami had left. “I will tell you boss, I have been in this profession for the past twenty years. Reason alone is not enough to invest. Beyond a point, you also need faith. And people like Swami have faith in everything else but the markets. Of course, markets do not cover themselves in glory to attract faith. But you must have some faith in the future. Who knows what will happen tomorrow. How can I give guarantees when God himself does not?”

He continued, still a bit angry. “You tell me, are there any guarantees that if you do your rituals, God will always oblige?” “Of course not”, I said nodding in agreement, hoping that this will cool him down. But he continued, “Similarly, there is a rationale that if you follow your investing ‘rituals’ well, the God of markets will oblige. But there are no guarantees.” “Right, makes sense”, I added, trying to fill the conversation up.

“And your friend Swami does not even follow the investing rituals.”, Jigneshbhai argued and continued, “Finally, at an individual level, it is a matter of faith.” I felt that I was hearing some words of wisdom from a true believer in markets.

I felt, perhaps, that is true in every sphere of life. Reason can get you ahead, but only so much. Like all other endeavors, reason is important as it sets goals, makes plans for you, helps you make the right choices and decisions. But there are no guarantees that it will work all the time. Beyond a point, and especially when the plans do not work as planned, finally, I guess, it is a matter of faith.

The “In-between” Generation of Indians: Caught in Two Worlds or the Best of Both?

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One of the things that I learnt from the recent anti-corruption movement is that I think there is a generation of Indians who are the ‘in-between’ generation. People from the older generation were generally initially quite cynical, the ones from the newer generation were generally quite positive from the start, and a large part of the in-between generation were quite literally ‘in-between’. I may be wrong here, but this is just a point of view.

Generally, people talk of the Indian economy in two parts – the pre-1991 license and government raj and the post 1991 liberalization era. By way of distinct ways of thinking, I think there are three Indian generations. The pre 1991 generation that was born, and more or less done with a major part of their working life by the 1980’s and 1990’s.  Then there is a post 1991 generation, those who were born in the 80’s and 90’s, and who generally cannot quite imagine how life was before the 1990’s. And then there is the ‘in-between’ generation – people born in the late 60’s and 70’s, who grew up in the ‘government era’ and even, perhaps, started working in that era, but who were positioned to be the early beneficiaries of the economic changes happening right under their nose.

Not quite from the old era, not quite fully from the new era. Not quite held back, not quite breaking free, but caught ‘in-between’.

rockandahardplaceLike many of them never went outside India till they finished their education, and still a lot of them have seen the world. So a lot of them are caught between whether they like to stay in India and abroad.

Like many of them have seen job security in the early part of their careers, and then with increasing opportunities, have taken advantage of them, but have also seen the pressure that comes with it, and the demise of guaranteed employment. So a lot of them are stuck between whether it is a ‘me first’ or the ’employer first’.

Like the women in this generation are neither ambitious enough to clearly go for their career over family; nor are they willing to compromise on either one. So they are caught between ‘family first’ or ‘career first’.

Like the men in this generation want to have a life with their wife and kids, but they also think taking care of their parents is their responsibility. So the men are caught between their own family or their parents.

They want the good things that life offers, but have also seen what life used to be and could have been. So they are caught between chasing what is possible and being happy with what they have.

Look at it one way, this generation has been caught between a rock and a hard place. Look at it another way, this generation has got the best of both worlds.

May be there is some sense in this, may be this is fully my imagination. Perhaps the reality is somewhere ‘in between’.

बैठ जाइये: Takeaways from Parliament’s Lokpal Debate

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‘All of humanity’s problems stem from man’s inability to sit quietly in a room alone’ – said Blaise Pascal.

On those lines, there might be some truth in extending it a bit – ‘All of a nation’s problems perhaps stem from their parliamentarians’ inability to sit quietly and agree in a room together.’ If only more of our parliamentarians could agree on solutions to more of our nation’s problems more frequently, a lot of our problems would perhaps be non-existent, or definitely solved faster.

At the very least, the problem that our speaker faces daily of having to repeatedly keep saying “बैठ जाइये” so often would definitely go away. Pity the speaker of the house trying to control the proceedings of the house – specially on days like Friday of last week, which is, perhaps, more like a normal working day for Parliament. It was evident that whenever someone would stand up to ‘make a respectful submission’ or a ‘humble point’, all it would result in would be noise from some section of the house, followed by a different version of “बैठ जाइये” from the speaker. Honestly, how many different ways can you say “बैठ जाइये” after all? It seems that there is an inverse relation between the number of “बैठ जाइये” pleas made by the speaker and the quality of output from the house. One could see that on Friday, after all the constant “बैठ जाइये” pleas, finally the house was adjourned, and on Saturday, with only a few intermittent “बैठ जाइये” pleas, the house achieved some meaningful debate and reasonable output. How I wish we had more such occasions where parliamentarians could sit in peace and agree more!

For the past two weeks, common citizens – led by an uncommon man – have found it much easier to follow “बैठ जाइये” instructions. They have all been ‘sitting in peace’, in protest silently, non-violently – all agreeing on the common need to root out corruption at all levels in the country. Somehow, they have also presented a solution to the problem in the form of a bill, that some agreed on, some did not, but everyone felt was on the right lines at least. And if a whole country, well almost, but a significant part of it could do so, it was high time that a set of 540-odd elected representatives could find a way of sitting quietly and agreeing in a room.

Well – it looks like they did achieve a way of doing that on Saturday. But the people outside are still not convinced that this is real. “यह तो कमाल कर दिया” – said my broker friend Jigneshbhai, also a supporter of the India against Corruption movement, just returning yesterday from one of the rallies. May be it was a one-time miracle, may be it was not. Perhaps the ones outside the house will agree, sit and protest again, maybe when they realise that the ones inside are not able to sit and agree again.

And then, unfortunately, the problems for the speaker are sure to start again. She will have to find new ways of saying “बैठ जाइये”. I have a suggestion. May be she should change it, and say “बैठ जाइये नहीं तो अन्ना हजारे को बोलूंगी”! Who knows – maybe that will work and we will have miracles like Saturday again!

What does the US Economy suffer from? Diabetes or Heart Disease

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I often wonder what is a worse condition to have, diabetes or heart disease. And what is easier to live or die with.

Like the wife says it is easy to fix heart disease if it is only that. You may be able to detect it before you get a heart attack, and do something by quickly having an open heart (by-pass) surgery. At least for a while, that’s enough.

And the wife also says a diabetic may not seem very ill, but must realize he is suffering from a chronic condition that has no cure. The only cure is to get out of that condition. And it is only possible to get out of that condition, if he eats and exercises well, and also takes the insulin and medicines.

And it is tough being a diabetic, specially if you are unable to manage it. The first step is to accept that it will be a chronic condition that you can live with and manage. But that does not mean it is not serious, and will not affect you eventually, if you do nothing about it.

Like I sometimes feel that the US Economy got a heart attack 3 years back, and the doctors of the economy thought this needs quick fixing. So they did something like a quick and urgent by-pass surgery, so that the world does not go into a seizure. That it was required at that time to save the patient, and it actually did.

Like it worked for a while, but seems like there are blocks in the heart that keep coming up every now and then in the US and other Western economies. And every time you do an angioplasty or a by-pass surgery here and there, you seem to have fixed the problem.

But it seems that the real cause of the heart disease is a chronic spell of diabetes over the past 3-4 decades. When people and governments gorged and gorged, despite high levels of sugar, and now are unable to understand why the heart disease is not getting fixed.

Like every time they go on a diet and insulin for a while, they seem to be getting back into shape, but some part gives up as it is not used to it, and asks for more food. And it seems life threatening every time, or does it?

Like the doctors and patients need to realize that it is diabetes. And diabetes is not something that can be fixed overnight. In fact it cannot be fixed at all. It can only be lived with and managed. It needs a change in habits and lifestyle. But if you do not do anything about it for 30 years, don’t be surprised if your eyesight becomes bleary.

The only cure is to manage your diet, build an exercise discipline, and pray to God that everything gets better. It eventually will, but that’s the only way – time and discipline.

And you may still need to keep checking your heart to look for impending heart attacks.

As Buffett said in one of his letters, “No sooner is one problem solved than another surfaces—never is there just one cockroach in the kitchen.”

Diabetes is the lurking cause, heart disease is the effect.

And so I met my broker friend and told him about my theory excitedly that the Western Economies seem to suffer from diabetes, and the doctors of that economy are giving them medicine for heart disease. And how it won’t cure the economy and it is the wrong medicine due to a wrong diagnosis.  He just flashed a wry smile at me, as if I was the last person in the world to come to that conclusion.

In a worried tone, he said, “That is fine. Just hope and pray that it is not Cancer.”

डर के आगे जीत है: Why Long Term Investors should not fear Market Crashes

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canwepanicnow“Can we panic now?” asked Ron Weasley to Harry Potter in “The Chamber of Secrets” when they suddenly find themselves surrounded by giant spiders in the Forbidden Forest. That is how a lot of us feel in the current market situation, perhaps. It is one of those times when everyone seems to ask everyone else this question. Is it time to panic?

Like so many things in finance, this is the wrong question with many answers that seem right. The reality is everyone may have a view, but no one can claim to know the answer for sure. The fact is that it is the wrong question to ask.

There is no doubt that in stomach churning times of volatility, the first thought that strikes you may be – sell everything and run. Sometimes, the second thought may be – buy everything quick, because things have gotten cheaper. Both the views are wrong because they depend on timing activities based on market events, rather than based on a plan.

Mr Market can get into manic-depressive moods as well as exuberant moods at the drop of a hat. If it forces one to get either too happy or too sad, one is turning one’s basic advantage into a disadvantage. Think of stocks as a crate of coke or a basket of potato chips that you buy for weekend parties. If you bought something on Wednesday, and your neighborhood supermarket announced a 10% off sale on Friday, will you think – Oh no! I think I should sell the coke and chips I have, and conserve some cash! At best you may think, let me buy more as the prices are great, and I am going to need them next weekend anyway. If you are a rational consumer, you are likely to weigh your decision – based on whether you need more coke and chips, whether you think it is worth stocking up, and whether you think the sale is genuine or is it on old stock. Unfortunately, a lot of individual investors do not think about stocks like that, and hence the fear associated with market falls. Therefore, headlines read ‘Global Bloodbath’ instead of ‘Sale, Sale Sale!’

Take this quiz that Buffett wrote in his 1997 letter to his shareholders – “If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.

But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the “hamburgers” they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices. ”

And finally he adds: “So smile when you read a headline that says “Investors lose as market falls.” Edit it in your mind to “Disinvestors lose as market falls — but investors gain.” Though writers often forget this truism, there is a buyer for every seller and what hurts one necessarily helps the other.”

darrkeaagejeethaiThe really good long-term returns from equity come not despite the falls, but because of the falls. For someone who invested in US equity 10 years back and forgot it, he may look at his portfolio today and say – this has gone nowhere. Similarly, for some one who invested in Indian equity 4-5 years back, again the scenario is similar – broader market levels in August 2011 are more or less where they were in August 2007. But for someone who rode the falls, and invested at that time to whatever small degree, even partially in the right stocks or funds, the returns have come. So it is not that the long-term returns from equity have come despite the fall. The long-term returns from equity come because of the fall. The problem is no one can say for sure whether a fall is the end of the falls, or the beginning of another set of falls. Life has to be lived in forward mode, and can only be analyzed in reverse mode later.

But one thing is clear. It is during the times of sudden, big falls that fear is at its highest. It is in such times where it is most important for an investor – firstly not to sell, secondly do nothing, and thirdly buy something. Because truly, in such times, the risk of permanent loss of capital gets lower. If one manages to neglect the value of investments already made (and hence notional losses or reduction in profits), buy the right things in large proportions during times of ‘darr’, and can withstand, or better still, buy more during further falls if they happen, he is sure to be on his way to ‘jeet’  – may be not in a few weeks or months, but surely in a matter of many years. As long as one is committed for the really long haul, and makes rational choices, there is no doubt that there is truth in the saying – डर के आगे जीत है.

5 Star Rated Advice: Deciphering the S&P US Downgrade: Jigneshbhai and Swami

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“Who is this S&P?” asked my South Indian friend Swami to my broker over a cup of coffee.

Swami, who generally spends time with his family over weekends, suddenly called me on Sunday afternoon, and said he wanted to meet my broker friend Jignesh who knew a thing or two about investing. I was not quite sure what it was about, but being a close friend, I arranged for the meeting. Swami seemed quite perturbed when he came home. “Arre – they are saying Indian market will fall because some S&P downgraded US. I want to understand why”, he explained as the reason for this sudden meeting, while we were leaving my house. So at around 6 pm, we met over coffee.

“Arre, it is a rating company”, responded Jigneshbhai. “Means?” queried Swami, not quite sure what a rating company does. “They provide ratings for different things, like companies, governments, anybody or anything that has a financial instrument or offer.” “Why?” – continued Swami, still not sure why something like that is needed by anybody.

Now Jigneshbhai thought it was time to really explain things properly. “Dekho – how you read reviews of movies in Times of India sometimes, and then decide whether or not to watch the movie. If it gets 5 star, it is a hit, so you go and watch it, if it is 1 star, it is a flop, and you don’t watch it. Like that, S&P provides star ratings to anyone who wants money – like companies, countries or anyone else. If it is AAA rating, people who have money, give them money easily, if it is lower, then they will think more, or charge more interest. Like that – understood?”

Finally, some spark dawned on my south Indian friend, who was otherwise quite a bright chap. But not fully lit up, he continued, “So that S&P is saying US has lesser money than earlier? So their economy is in trouble” “Something like that” responded Jigneshbhai, not quite wanting to get into detailed arguments about fiscal deficits, interest rates and recession, I assumed. He thought this was the end of the discussion, hoping he does not have to explain more, and quickly started asking me how are things at home and work in general.

But his hope was short-lived. After a few sips of coffee, Swami came back. “Arre Jigneshbhai – but sometimes I have seen that the same movie gets different ratings in different papers. Also, Times of India ratings are wrong also sometimes. They give 5 star and I watch the movie, it is rubbish. And they give 3 star, and movie becomes a big hit.” I could sense a mix of curiosity and optimism in Swami’s eyes as he asked this.

Now that the question was asked, my broker friend decided to go the whole distance and provide solace to Swami’s unsettled mind once and for all. “Yeah, sometimes, they can give 5 star to stuff that is rubbish, and low rating for good stuff too. Sometimes it matters, sometimes it doesn’t. Sometimes it also depends on who the producer or star actor is – isn’t it? If the season is bad, sometimes all movies flop for the time being.” I could see that this confused my south Indian friend a tad bit more, as he lost keeping track of the metaphors.

Continuing, my broker friend said, “But why do you worry about it? If a good movie gets a 2 or 3 star rating, its opening may suffer, but if it is good, people will decide for themselves, and go and watch it later anyway, no? So – if companies continue to increase profits, they will become hits, people will buy their shares and markets will go up, else they will become flop shows. So, you just focus on selecting good movies to watch and good companies to put money on” laughed Jigneshbhai, giving my south Indian friend 5 star advice.

Finally as we finished our coffee and left, he added, “The world is worried because the US went from AAA to AA+. Rather than worry about the US getting downgraded, I wish someone in our country worried about how we will upgrade from our BBB rating.”

I discovered what our cricketers drink

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I don’t know about you, but I must tell you how sad I felt for the Indian cricket team yesterday. The world champions in one day cricket and the world’s number one test side were put on the mat by the English team. So I decided to drown myself in some beer along with my … Read more

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