Save me Superman: The Bailout Business

“I am not normally a praying man, but if you are up there, please save me Superman” said Homer J Simpson. That was fine, but when my friend Swami sounded similar, it caught my attention.

“Jigneshbhai, I need a bailout” Swami pleaded as we were having our customary coffee over the weekend. “I have been investing in stocks of so many businesses for the past 4 years and still have losses. I also took some personal loans for a few purchases. These stocks are not recovering. I need a bailout now.”

I was a bit amused over his plea, but resisted a smile. Perhaps Swami was serious.

“I will buy your stocks at a small discount if you want, in case you need money” said my broker friend, maybe sensing an opportunity.

Not quite agreeing with it, Swami retorted “Arre no, I need more money from you to buy more stocks. Hopefully they will make money, and then I will pay you later. Maybe you can charge me interest, but then, what’s interest among friends? Isn’t that what a bailout means?”

“Good, you are learning fast my friend” my broker friend commented with a sly smile. “But I am not for these kind of bailouts. I am for the creative destruction kind of bailouts.”

Puzzled and not quite understanding it, Swami said, “But big businessmen nowadays get bailouts. Why can’t you bail me out then?”

As usual, I was watching both of them slug it out on another issue this time.

“That’s because you bought the stocks of the wrong businesses. I will buy the stocks of those businesses if I see value, but will not lend you more money to put into already failed businesses and then wait in hope. I can bail out businesses, not businessmen.” Jigneshbhai said with a tone of finality.

I realized that the discussion was taking an ugly turn now.

“But General Motors and so many US Banks also got bailed out. European banks are getting bailed out. And now they are talking of bailouts in India also. So what’s wrong with it?” questioned Swami, not quite convinced and now getting visibly angry.

Jigneshbhai was getting into one of his moods now. Getting ready for what I thought would be the next round of conversation, I was all ears.

profitloss“Hmm. You know the difference? In some of those cases, the ownership of those businesses changed. They did not find any lenders or buyers, and because their failure would have caused larger collapses that would not be in national interest – well that’s what they said at least – the government became the investor of last resort. Not the best thing to do, but it was still ok I thought, due to exceptional circumstances. And they made a killing on it, by the way later. But in your case, you are not giving me any ownership” Jigneshbhai informed Swami.

“How can I give up my ownership? That is sell my shares? What will I do then?” Swami asked, quite disturbed by now.

Jigneshbhai got up to leave and said angrily “Nothing, do something else. Businesses start and businesses fail. Your investments failed. So if you can’t see it through, give up ownership of your share, take whatever money you get and go home. Else close it down. But don’t ask for bailouts.”

Play for the Country: The Noble Intentions of our Cricketers

My South Indian friend Swami had just returned from Australia, and joined us directly over the weekend coffee, straight from the airport. My broker friend and I were discussing what’s in store for the markets, specially after this mass downgrade done by S&P to European nations, when Swami barged in. After a long time, Jigneshbhai was not in a good mood, and was telling me how Friday the 13th was turning out to be a bad omen for him. “First that S&P downgraded European nations and I don’t know what the impact on markets will be, and Second, look at what our cricket team is doing in Australia” he mused.

“They are playing for the country” said Swami.

“But that does not seem to work out. They are not winning anything. They are finishing test matches much before the five days end”, said Jigneshbhai in a caustic mood.

“Winning does not have anything to do with playing for the country”, Swami said.  Looking at our stunned faces, Swami went ahead explaining that his respect for India’s cricket team had gone up a few notches after he met them in Australia.

“I met the team at Perth just after the match got over, and passed on condolences for the defeat. But some of the players got angry at it. In fact, one of the newcomers – you know newcomers tend to be a bit raw in their reactions, I don’t remember his name now – told me that the entire country does not understand that each and every member of the Indian cricket team always puts the country before anything else, even more than the game itself.”

Continuing, Swami explained, “Apparently one of the seniors had told him that as a team, they are aware of the problems our country is currently facing, so they had decided as a team that stretching tests beyond Sundays back home does not make sense. Already we need our youth to keep working hard to get our economy back in shape, to generate employment and maintain growth rates. And if we make them bunk work in the hope of our wins on weekdays, wouldn’t it be harmful for the nation’s long-term economic story?”

“Also, our country faces such a major problem in the area of infrastructure and power. We already have power shortages back home. With so many TVs constantly on looking at our team, wouldn’t it add to the problem? People get on to our already choked roads to watch us and celebrate when we win. The team thought our country’s best interests would be served if lesser people watched them, and fewer people got an opportunity to come on the roads to celebrate. At least they will go down in history as the team that really helped the nation, albeit a little bit, in solving its power and infrastructure problems.”

“So look at it, employment, growth, power, infrastructure – the Indian cricket team is playing its part, giving a helping hand, really playing for the country. But you know what really raised my respect for them?” Swami asked, really inspired this time.

Having got no answer from any of us, he continued. “The biggest issue our country is currently facing is the problem of corruption. And the Indian cricket team has decided to join hands in that fight too.”

Looking at the surprised look on our faces, Swami continued, “They told me that they have decided not to win a single test, till Anna Hazare’s Jan Lokpal bill is passed. If that is not playing for the country, tell me what is? Is winning more important than the country?”

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

“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.”

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

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

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.

When It Rains, It Pours: What to do when things go wrong in a heap

My South Indian friend Swami had a new reason to complain since this morning – the rains. “I really got caught in the rains today – it was really bad, the weather, roads and traffic” , he told me as I met him today.

Monsoon in Bangalore is, at best, mild, so a steady bout of rain in the past 48 hours or so was enough to set the tone for a sad, wet morning for him, apparently. Unlike in places like Mumbai or Chennai, no one carries an umbrella in Bangalore. So the people with two wheelers stop in underpasses or under the remaining trees when it rains, and people with four wheelers crib about the two wheelers, and their own hardly replaced wipers when it rains. Every one else who is not on the roads and in some IT office complains about the roads and the traffic. And every one else who is not on a two-wheeler, four-wheeler or an office complains about how Bangalore is no longer what it used to be, and how it got spoiled due to the people with two wheelers, four wheelers and offices.

In Mumbai I have not seen people complain so much about the rain. The rain is heavier, the traffic is perhaps worse, and the distances definitely longer. And when it rains it really pours. So the Mumbai person resigns himself to the reality of losing a few more minutes of his daily life to his commute. Hence, people complain about the trains every year, and how they either stop or run a few minutes late when it rains. The intensity of rains in Mumbai is progressively captured when the Harbour line first gets closed, then the Central line, and finally when the Western line closes. That is when it must have really poured. Once in a while, you have really bad days when every one stays at home, or those who left early, walk back home in knee-deep water.

I may be wrong here, but like the rains, sometimes I see the same thing in the happenings around us too. When it rains, it really pours. Sometimes you get caught in the downpour unexpectedly.

So when you have Dhoni and his cricket team clicking well, you thrive on seeing them beat Australia in the quarterfinals, Pakistan in the semifinals and Sri Lanka in the finals to become World Champions. And then three months later, you have them losing Test matches badly; first by 196 runs, then by 319 runs and then by an innings and 242 runs. So when it rains, it really pours – on both sides perhaps. Looks like the world thrives on extremes.

So when you have an honest, educated, distinguished person, almost a non-politician returning to power as Prime Minister, it seems to everyone like the return of the dream team for Indian politics and economics to take us on the path of prosperity where India ‘lived happily ever after’. And then, two years later, with the economy facing problems and corruption on his back, he seems like a civics teacher with no voice, telling everyone how parliament makes laws, or an economics professor who knows the theory, but cannot quite put it to practice.

Any my broker friend says the same happens in the markets too. “When it goes up, it just keeps going up, and when it goes down it just keeps going down”, he says. But then I reminded him, “But it hasn’t gone anywhere for a while”. “Well”, he said, “when it does not go anywhere, it just does not go anywhere. Everyone is waiting for the flood or drought.” Hmm, may be, I thought.

So I told my south Indian friend Swami not to complain about rains – because it does look like when it rains, it really pours. “So I got it” said Swami – “so what’s the big deal, I still don’t like it that way. With all of us getting sticky and wet and slippery. Got to find a way out to deal with these rains!” “Do what people in Mumbai do”, said Jigneshbhai. “Carry an umbrella. Or like the ones where they don’t get enough municipal water – get your buckets out. Or better still, do this. Take a break and go to Khandala or Lonavala. At least you will enjoy the rains.”

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

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.”

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