Biking trip to Srisailam

The fresh air. The cold nip of the morning breeze. Riding in silence and early morning darkness. Jumping over unseen and unheard speed breakers. Letting the throttle go full revs once on the highway. All this is happening to me, and I can't help but smile to myself with content arising out of bliss. Life could not get better.

And thus began another biking trip to Srisailam, a small hilly town around 230 kms from Hyderabad, in Kurnool district of Andhra Pradesh, India. Good roads. Nice weather. Ideal for a weekend drive I would say.

The road we took is more commonly known as the Srisailam highway, going through Kalwakurti, Achampet, Farahabad, Mallelatheertam onto Srisailam.

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Saturday
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The tiger outside the Farahabad Tiger Forest Reserve. Going inside was a missed opportunity since none of us six knew how to speak telugu, and the game reserve personnel there could not understand a single word of hindi/ english. Next time I go out in Andhra Pradesh, I vow to at least learn some bit of conversational telugu.



















The first glimpse of the Srisailam Dam, and the Krishna river on which it is built. As can be seen from the pictures, the crest gates are closed now. Next trip to this place will have to be during the rainy season, when water is flowing through the gates.




































Glimpse of the main entrance to the Srisailam Devesthanam. One of the twelve Shiva jyotirlingams, and houses the idol of Lord Mallikarjuna Swamy. Later we found most pilgrims to the place addressing each other with the term "Swamy", whether they were respectful, or irritable.


















And then we went for a boat ride on the dam lake.





































We also found the pilgrims in various meditative moods. Most of them seemed to be Shaivites and they were beginning to gather for the Maha Shiv Raatri coming up next week.



















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Sunday
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We left early on Sunday morning from Srisailam with the intent to visit Mallelatheertam on the way back.



Another view of the Srisailam Dam, from another view point.
















Found this strange place. Seemed like there was some coal mines long time ago. Makes for some wonderful backdrop.














And then it was onto Mallelatheertam and its jungles. Yes that is what it has, coupled with a small waterfall.

The unmistakable signboard inviting you to the waterfall. Its around 8 kms inside from the state highway, and is only a dirt track. There is a village inside through which we need to go. Also there is an admission fee for vehicles somewhere midway. Additionally we need to pay a token amount to go down to the waterfall (5 rupees per person). There are some 300+ steps down to the waterfall.









But being in the adventurous way, we decided to roam the jungles, climb trees, fight forest fires and generally monkey around.






































And then we found the waterfall. And happily it not being the rainy season, we quite merrily jumped around and lazed too under the waterfall. And have to admit that the falling water was cold, and pinched us like a million needles. All in all, one of the best refreshing baths I have had in a long time. Beats a spa anyday. Add to it that it was all in the open, some of us under near-nude conditions of clothing.

Laloo Prasad Yadav in comedy mood during the Railway Budget

Thanks to Amit's post, from where I got the link to this video. As he says, I am also in awe of the oratorical skills of this man. He keeps his audience engaged.

And now for a short before budget interview with the press, where he deftly handles the "election year" question.

Subprime in a Lighter Vein

I have been reading about the subprime crisis since some time now (almost 6 months). And it has existed in the financial markets longer than that, almost a year I think. On that front I have come across lots of explanations and it takes some time to adjust to all the terminology. But occasionally I come across some posts which present it in such a manner that it makes for some easy reading.

You can find the original source of my information here. Reproducing for my benefit.

First the presentation.



And the video



Will come up with some more from what I have read.

Stock screening ideas

I have begun to heavily involve myself in stock selection. Its very interesting to learn and read financial statements, the history of a company, its current growth drivers and its competitors. Each stock has its own story to tell. And herein lies my problem. That of there being too many publicly traded companies on the stock exchange for a human to do any fruitful analysis of a stock if we select to go in any particular lexicographical order.

Apropos to this, I have been reading a bit and have learned of a few nice ideas. The foremost of the lot is proposed by Joel Greenblatt in his book titled "The Little Book That Beats The Market" http://www.magicformulainvesting.com/book.do . The strategy that the book proposes is very simple in itself. All that we need to do is look for good companies at bargain prices. And for that, all we need to do is look for companies that give a high Return on Capital Employed (ROCE) or high Return on Assets (ROA). Such companies automatically become good since they are producing better results than their competitors and have a greater sustainability to do so going ahead. And we need to get these companies at bargain. So add to it that these companies should have a high Earnings Yield or a low P/E ratio. And you are pretty much done.

All my other reading point out that this book is pretty much correct. But as Joel Greenblatt goes on to say in the last chapter, there would be a few of us (like me), who like to think that no automatic stock selection criteria is greater than our individual capacity to select good stocks in the long run. Essentially each one of us likes to belive that we are Warren Buffets all. Or the cynic in us gets the better of our logical reasoning and having read a bit more than recommended, believes that since no automatic stock selectioin criteria worked over the long term (for example the Dogs of the Dow theory), even this is not going to work. All that it boils down to is that I like to hand pick my stocks. And this above criteria comes in real handy to get me started.

Add to the above two criterias, I found some others. All common sense, no nonsense at all. I will just list them and try to rationalize them from whatever I know.

• High Return on Capital Employed (ROCE): Shows how good the managment is, since it extracts the most out of whatever resources are available to it. Return on Assets (ROA) or Return on Equity (ROE) can also be variably used. It should be fixed at a minimum of 10%.
  
• High Earnings Yield or Low Price-to-Earnings (P/E): This actually denotes how much return an individual shareholder is entitled to. I marked it to a P/E of 4. Although if you are a sophisticated investor with access to large data, you can probably go for high values of the ratio EBIDTA/EV (i.e. Earnings Before Interests, Depreciation, Taxes and Amortization / Enterprise Value )
• Low Debt / Equity ratio: Fixed at 70% and less. Any higher and there are going to be problems with the operation of the entity each time there a adverse rate move by the central banks. Although this would preclude the banking sector (which far as I know shows a high debt on its balance sheet)
• Market Capitalization: 100 crores minimum. I don't want people to run away with my money. That figure seems reasonable enough to keep the interest of other investors also piqued so that I am not the only one tracking the stock.

That's pretty much the initial screen I would apply during my stock selection. And then rank the companies on all the parameters. Those that come up higher on the list of combined rankings make the grade for my personal scrutiny and study.

That I don't fully understand the financial statements of all the sectors is a story for another day. But the above parameters at least allow me to know, which stocks I want to look at and do research on.

Disgusted with self

I have been so caught up with the corporate world of managing things, achieving results and deliverables that I forgot I used to like to learn new things. That I once took pride in the fact that I was near the ideal where if I knew something, I could explain it to my grandmother or a kid.

Lots of people, including myself, think that building an application is like gluing different parts together, without thinking about form, just based on function. And indeed that is how it is promoted today in the software applications world. This approach does indeed work towards delivering results in the form of applications running in today's world.

But I am beginning to realize the difference between a mason and a sculptor. When a sculptor build a sculpture, he has the final form in his mind. It is only he who decides the design and only he who delivers it. And then it becomes a thing of beauty to behold. A thing which lasts for generations. No wonder application architects are respected so highly (I wonder how much they are paid in monetary terms).

December 22 - 25, 2007

4 days. 1400 kms. 2 bikes. 2 riders. And lots of places. Description of the saga follows.

December 22.

5:30 am
- I manage to meet Randhir, half an hour late from the earlier designated time.
- Early morning mist on the highway. Loads of traffic. Riding under the lights. Covered barely 30 kms in one hour.
- Stop at the sign a bit out of the city saying 495 kms to Pune. Sunlight begins to show us the path more clearly. Its nearly 6:45 am

7:30 am
- Cruising at 90 kmph, when suddenly a cruiser with two people overtake us driving at 100kmph and we give chase.
- next 30-40 kms was spent in hot pursuit with bikes running at 100 kmph +, maxing out at a little over 115 kmph.

8:30 am
- Stop for breakfast. A quaint little dhaba. Puri and subjee. Just 2 more truckers besides us.

10:45 am

- Covered 250 kms when this scenery hit us.
- Not a single soul around for miles.























- Naidurg. 100 kms from Sholapur. Was sorry that we did not have time to visit.






11:00 am
- Indapur Co-operative sugar factory. Uses sugarcane from the plantations around.
- The transportation medium
- Our bike speed a measly 20kmph for 15 mins



12:15 pm

- Lunch at Kamat Hotel (not part of the chain of Kamat hotels I think)
- Fill up bike tank. Check air pressure in tyres. Zoom. Time 1:00pm

1:30 pm

- eeks! We have been dozing on the bike for the last half hour. Bike speed 60 kmph.
- realized our folly and raised speed.

6:00 pm
- Sholapur road outside Pune. 4 lane. Metalled. Divider in between. Drove at 115-120kmph for what seemed like 10 kms. Fulfilled the heart's content.

7:00 pm
- At friends place. Tired. Bums itching. Paining. etc, etc but the heart glad.


December 23

1:30 pm















- Jump into the water. But had nothing to change into.

2:30 pm
-Lions Point. Lonavala. 60 kms from Pune. 625 meters from sea level.















- Butta. Juice. Cold drinks. Against this background.

4:30 pm
- Fighting steep climbs. Non-existent roads. Not a single soul in sight.
- Mulsi Dam lake. Calendar moments.


December 24 & 25

- Random shots

These signs were visible on the part of the highway NH9 when it was part of Maharashtra state.











- Grape vines. (Probable next destination - Nashik. The wine valley of India)












- Awesome pic against the sun. Photographer - Me.














- 7:30 am on Christmas Day. Morning mist. (not fog or smoke!)











- Probably forgot to add. 100kms of the highway went through Karnataka also.













3:00 pm on December 25, 2007.

I barely managed to shrug off the shoulder pack, before collapsing on the bed. Having traveled 1400 kilometers, I realized driving in city traffic is much more taxing on your energies than the highway. The last 30 kms just outside and in the city totally wore me out. But yes! The elation remains to this day. Long standing desire done. Next target - Himalayas.

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There are some pretty high resolution pics in this post. Click on them to get a larger image.

My credit score is being tracked !!!

I always knew that there exist credit bureaus in the developed countries which track the credit score of an individual or corporation. For example I once read some where that on the Amercian credit rating scale, a rating of less than 600 is sub-prime. I had this thing at the back of my mind since a long time, and today I just happened to come across the equivalent credit site for India.

Credit Information Bureau (India) Limited aims to (in their own words) "fulfill the need of credit granting institutions for comprehensive credit information by collecting, collating and disseminating credit information pertaining to both commercial and consumer borrowers, to a closed user group of Members." The Members are institutions like banks, non-banking finance companies, Credit Card companies, Housing Finance companies amongst others. It started with the joint efforts of State Bank of India (SBI) and Housing Finance Development Corporation (HDFC), Dun and Bradstreet Information Services India and Trans Union International with a shareholding pattern of 40:40:10:10, although it now diversified amongst many more entities.

The interesting thing to note is that the bureau gives out information on the basis of reciprocity. Which essentially means that institutions which have made their complete data available to CIBIL are only eligible to receive the Credit Information Report (CIR). Additionally, if your lending institution gets a credit report on you, you can obtain a copy of the report for yourself.

So the very pertinent question that remains in this day and age of identity theft and no sanctity of private personal information is one of what is the nature of information that they collect and store about us. From the website,

The CIR includes the following information:

• Basic borrower information like:
  1. Name
  2. Address
     
     In case of individuals:
     
  3. Identification numbers
  4. Passport ID
  5. Voters ID
  6. Date of birth
     
     In case of non-individuals
  7. D-U-N-S^® Number
  8. Registration Number
  9. Legal Constitution
• Records of all the credit facilities availed by the borrower
• Past payment history
• Amount overdue
• Number of inquiries made on that borrower, by different Members
• Suit-filed status.

Doesn't leave much to the imagination of the creditor, right?? Well there is an indicative list of what it does not hold also. Again, from their website:

The CIR does not contain:

• Income / Revenue details
• Amount(s) deposited with the bank
• Details of borrowers' assets
• Value of asset(s) mortgaged
• Details of investment(s)

Some relief there! And the best point there is the amount(s) deposited with bank. It would take a finance whiz to figure out all the transactions that go on amongst us bachelors/bachelorette staying with flatmates and working with colleagues.

The question that still remains whether it is good to have an entity like this. I think it is very necessary for me. I am young and earning but at the same time I am responsible. Which means my past bank balance does not determine my credit quality. When I take a loan I am confident that I will be able to repay it. With an agency like this, it does not require lengthy explanations. The finance company would ask just to make sure I still maintain the same habits.

So when are you tracked into this database. Do you use a credit card?? Did you ever take a loan from a recognized financial institution, however itsy-bitsy it was?? Did you ever overdraw your bank account?? Well if you did do any of those things, you are already in this database. You can't go off this database. Which means you need to learn to live with this. Which leaves with the one choice that one faces with every new entity. Do you want to learn more about its functioning and make it your friend for an easier financial life or would you rather suspect its intentions at the very start and keep agonizing over it and blame it for your poor credit quality.

I think I will make it my associate for a lifetime. What do you think??

Johnny Gaddar : Movie Review

If you have read my other posts you would have hardly found any mention of cinema, let alone a full blown movie review. Which is where this becomes more special. This movie is enthralling to the say the least, and by far one of the best things doing the rounds of bollywood in recent times.

Johnny Gaddar starts with the story of a motley of five out to make quick money getting involved in a shady deal. In a span of four days they need to gather Rs. 2.5 crore and earn a 100% profit on that, with every putting up the same amount and thereby entitled to equal profits. The elder in the group is Seshadri (Dharmendra) who is the glue for the group. Due to him the club owner-cum-compulsive gambler Prakash (Vinay Pathak) tolerates Shardul (Zakir Hussain), a fellow crony and a snob. Then there is Shiva (Daya Shetty), the strongman in the group. And the new discovery - Vikram (Neil Nitin Mukesh, grandson of the singing maestro Mukesh of yesteryears), who is the youngest in the group there to earn the fast buck.

All goes fine till the money is gathered and given a send off to purchase the loot. And then all goes spine tingling. Each frame keeps you guessing, wanting you to make a prediction for the next twist. And when the actual plot unfolds you are left wondering why you missed that angle and you curse yourself. In end you just begin to accept the brilliance of direction in the movie. And no less should be expected when a movie derives its inspiration from James Hadley Chase and Amitabh Bachhan's relatively unknown "Parwana". One request: don't fall off your seats as you go wow with every murder that takes unfolds in the movie.

The plot holds on very nicely and the performances are really good. Just that amount of shock and incredulity on every one's faces to convince the characters in the movie as well as keep the audience in the loop. Besides the main cast, Rimi Sen delivers the role of Mrs. Shardul a.k.a. Twinkle very well. This lassy gal is learning it seems. And Ashwini Kalsekar is all powerful performance for the small part she has. In fact all the supporting cast has done their roles optimally.

The director Sriram Raghavan has done a very good job of the movie. And I loved the camera angles and the edits (I think it is called cinematography in the broader sense). And the background score beautifully matches the sequences (yes, that is all the music that is there, except for the ending score).

Perhaps this review is a tad too late in coming but I recommend you to definitely find time for it. One of the best in recent times that I seen to come out of bollywood. The money and time spent is worth every penny.

Dabba Trading

Although I have not written for a while, I have been reading some. And most of the stuff that I read these days an explanation can be found on the internet, most notable them is probably the wikipedia. But I came across this new term which is intriguing and for which wikipedia doesn't have an entry yet.

"Dabba Trading" is a flourishing illegal trading in the backgrounds of the stock market. What approximately happens in such transactions is this: When a client enters a trade for say 100 shares, the broker actually registers a trade for say 1 or 10 shares with the main exchange. Then at the end of the day, the total deliverables are calculated and to hedge the positions derivatives are used. With the help of the latest available software, even the screen of the investor shows that trade for 100 shares have been registered when in reality it is different.

So the question remains why people still flock to such operators. Because these operators allow you to trade on a margin of just 10%. Because larger corporate operators have to yet reach the small towns and villages where such activity is much more. According to a recent estimate, such trades run into thousands of crores of rupees every single day. No wonder the SEBI and others are trying hard to dig these people out. The actual SEBI guideline for banning of such operations were originally issued in 2003. But they are still prevalent in India, mostly in the western parts.

Far as I could find out, a certain Pradeep Kumar Bansal was the first among the dabba traders who had been banned by SEBI on the exchanges. And that was way back in 2003. Ah! the vagaries of greed and fear that drive the fools to the slaughterhouse. As Satyjit Das, of the Traders, Guns & Money fame, would say : any form of derivative instrument is designed to profit just one entity - your broker.

For the benefit of my NRI / PIO readers and friends

Now even you can invest directly in Indian equities. Earlier there were a lot of channels. Now they seem to have reduced.

NRIs can invest in domestic markets

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Update: Changed the text into an url, since some were having problems viewing.

Nagarjuna Sagar Dam n Ethipothala Falls

It had been ages since I went out of town on a pleasure trip of any kind. So the law of averages took over and I landed up in the midst of a relaxing day out with friends.

The ferry which ferried us to the museum situated on the island.

This formation looked a formidable presence on the way to the museum.

Just beside the landing of the island on which the museum was situated, this above water channel looked like something out of the Discovery channel programs on wildlife flora and fauna in dense African Jungles.

Not too much of a garden flowers fan, yet I find this pretty beautiful.

And finally the much talked about Nagarjuna Konda museum. We were not allowed to click pictures inside so had to be content with this picture. The museum contains depictions of the evolution of man since the stone age, as found from the Nagarjuna Konda valley area nearby.

This man was ready to give us a ride on his small coracle like boat, before the guard came and shooed him away. It was interesting to watch him pull his boat using two ropes tied from end to end. Some skill.

The Nagarjuna Sagar Dam. You can find a better picture here. It is the world's tallest masonry dam and is built on the Krishna River.

Various views of the Ethipothala falls. It is not big by the standards on which a fall might be judged. But when you are standing 50ft away from it, it really is big.

A downstream view of the same Ethipothala falls. I don't about others, but every time I get to get into water, there is this bliss that descends on me. As if all the worries of the world have been washed away by the flowing water and life is to be lived anew devoid of all burdens.

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The above pics are high resolution and you may download them for your own use.

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Listening to: Guns 'N Roses - Human Being.mp3
via FoxyTunes

Why I Want To Become A Professor One Day

Carnegie Mellon Professor Randy Pausch, who is dying from pancreatic cancer, gave his last lecture at the university Sept. 18, 2007, before a packed McConomy Auditorium. In his moving talk, "Really Achieving Your Childhood Dreams," Pausch talked about his lessons learned and gave advice to students on how to achieve their own career and personal goals.

Revenue Recognition Methods

Depending on the business undertaking, the revenue of a firm varies according to the time and the deal with the customer. For example, a car maker gets its payment when a customer buys its car and pays for it. On the other hand, a prepaid mobile service provider gets the payment before it has provided its services - use of its network for the limited number of minutes provided. And a very visible category in the infrastructure development scenario in India is that of part payment based on the partial completion of a project, for example construction of flyovers.

The GAAP (Generally Accepted Accounting Practice) accounting standards allow for various methods for such revenue recognition. Companies are free to choose the method that best suits their business. And thereby it becomes very essential during an income statement analysis to determine that the method followed actually reflects the correct business scenario.

Sales basis method
Under this the earnings process is complete from the company, and the revenue is reasonably assured. This is the case where an individual buys a car and pays through cash or credit. Even when the customer pays through the credit card, the revenue from sale and the corresponding cost for manufacturing is recognized in the period when the sale was made. The actual cash may be delivered at any time later.

Percentage of completion method
This is the case of the airport, bridges and other long term project constructions. In these the whole work is not delivered within one accounting period. Here the revenue is reasonably assured. So at the end of every accounting period the firm recognizes revenue based on estimates of work completion. The estimate of completed work may be based on two parameters

• Actual engineering work completed as estimated by the management/ engineering team.
• Cost incurred to date, if the total cost has been reasonably estimated earlier. In case the cost estimate is revised in the future, the revised cost estimate is used to do the calculations for the next year.

For example, if it is estimated that a company A is building a flyover for Rs. 5,00,00,000 and it estimates that it would cost it Rs. 4,00,00,000. Here we assume that the payer is genuine and will pay up. Now if in the first year A incurs a cost of Rs. 1,00,00,000, going by percentage complete method, it would recognize a revenue of Rs. 1,25,00,000, thus making a profit of Rs. 25,00,000 for the first year.

If in the second year, A's project management goes on an overdrive and it incurs a cost of Rs. 1,50,00,000 for the second year for the amount of work it has done. So the total cost is now Rs. 2,50,00,000 based on which it recognizes a revenue of Rs. 3,12,50,000 [ (25/40) * Rs. 5,00,00,000 ]. The total profit for the 2 years comes to Rs. 62,50,000 out of which Rs. 25,00,000 was recognized in the first year itself. So the profit for the second year comes to Rs. 37,50,000.

Completed contract method
Under this method, the revenue is recognized only when the whole project is completed and delivery of the goods has been given to the customer. So if the project lasts for five years, there would be no profit for the first four years and would recognize it only at the end of the fifth year.

This is used when the costs can be estimated but the work is incomplete and the payment is not assured as well. Or it can be used where the costs can't be estimated by the supplier firm before delivery of the product.
Installment sales method
For example, if the cost of product is Rs. 100 and it is sold for Rs. 150. The gross profit is 50%. So when the seller receives Rs. 50 in the first installment of payment, the firm recognizes 1/3 (Rs. 50/Rs. 150) of the profit also which amounts to Rs. 50/3. This method is used when the earnings process is complete from the supplier/seller side but the payment is not assured or rests on the credibility of the buyer. For example in the current subprime housing issue.

Cost recovery method
Continuing from the above example, if the cost is Rs. 100 and it is sold for Rs. 150. When the first installment of Rs. 50 is received, no profit is recognized. With another Rs. 60 of revenue a profit of Rs. 10 is recognized. And with the remaining Rs. 40, the rest of Rs. 40 of profit is recognized in the period of the third year.
This is used when the earnings process is complete but there are contingencies built in there.

Other Comprehensive Income

Everybody knows the Accounting Equation: Assets = Liabilities + Equity.

Now the Equity portion of the equation is what the owners puts in into the business when they start a business. It also includes the money that comes into the company by issuing common stock. So if you and I were to buy shares into the company, we would also become the owners. With this overwhelming feeling also comes risk involved. The risk of losing all the money that you and I have put into our business. If our business were to fail it would take with it all our capital. So it becomes imperative to know what are the avenues where the equity increases or decreases. There are 4 such methods in which it could be affected.

Unrealized Gain/Loss on AFS Securities
AFS is available for sale securities. These are stocks of other companies that you have bought and can be readily sold in the market, but you decide not to sell them for the entire accounting period. The accounting period may be a full year, or a quarter or whatever. For example you have 100 shares of company A, valued at Rs. 100 each. So at the start of the year the value of the securities is Rs. 10,000. Although you have not done any work, yet by merely holding the securities the value of those would have increased or decreased. That essentially increases or decreases the owners' equity.

Translation Error
Suppose you were to buy 100 bottles of Château Cheval Blanc red at the start of the year for a total of 100,000 francs at the start of the year. And suppose at the end of the year it still costs the same in francs. But you would have paid in rupees or whatever currency is local to you. Now if the currency conversion rate of rupee vs. the franc at the start of the year were to be 1 franc = Rs. 35 and at the end of the year it were to change to 1 franc = Rs. 30, the change in the value of your asset would be Rs. 5,00,000. Again no transactions but you are affected by the currency rate fluctuations.

Minimum Pension Liability
Every month your company collects a percentage of your salary as your contribution towards EPF (Employees' Pension Fund) and contributes an equal amount on its own. It then invests that amount in hopes of being able to give you some interest on that money at some later date. Now depending upon its investment, there would be a deficit or gain in the amount in the fund and the promised amount it has to give out as pension to its employees. This needs to be reported in the company's balance sheet against owners' equity.

Cash Flow Hedges
Assume the case of a manufacturing company. It runs on raw materials to produce finished goods. In most cases the production planning supervisor would know the amount of raw materials the company would need, say, 6 months down the lane. Some of the materials are to be imported and paid in dollars. The company expects that the rupee-dollar exchange rate to change drastically in that time. So the company makes a deal with someone else, that for a fixed amount of rupees that person would give the company a fixed amount of dollars with which the company can pay for the raw materials. If the reporting were to happen between now and then, and supposing the exchange rate has changed, the change is to be reflected in the accounting books. Note, that the transaction has not happened as yet. But the company has committed the money at some level to the apparent profit/loss needs to be reported. In fact this is one of the ways in which TCS recently managed to give better results than expected.


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Listening to: Creed - One Last Breath
via FoxyTunes

Stock Market Wisdom

Thousands of people will give you millions of advice on how to invest in the stock market and most of them are ready to swear by the advice of Benjamin Graham, or David Dodd. Some of them go for Peter Lynch's advice. Yet hardly any of us really follow that advice. Each of these gentlemen have always cautioned against things like day trading, futures and options play. Trading in their perspective is the sure fire way to make money, but sadly it's for your brokerage house.

While I may not be qualified to say much on the subject, yet there are tips that I picked up in the last 12 months of actively following the market's trend. And the major revelation has been that it's all a game in the short term. Real wealth building comes only in the long term.

• The Sensex/Nifty are very narrow trends of just 30/50 stocks. They do not indicate the performance of the stocks that you hold in your portfolio. Always look at the stocks you own. But if you must track indices, track the broader CNX Midcap. Better still find out the market breadth, the ratio of advances (the number of stocks that rose in today's trade) vs. the declines (the number of stocks that fell).
• Whenever you buy a stock write down why you are buying it. Even if it is a tip from someone, write it down. This helps in later analysis on what kind of reasons for buying a stock works and what doesn't. Also, always keep a small note of when you want to sell it, based either on a price and/or a event. And then sell it when that happens. Emotional attachment to a stock is the surefire way to go down. Avoid it!
• I generally don't track the value of my full portfolio. That is bound to keep my heart doing high jumps. Instead I use other online portfolio trackers. Create a portfolio of the same shares that you actually own, but keep the share units down to 1 for each. This helps in showing you the percentage increase or decrease in your holding per share (not the full portfolio). Aside from hiding the absolute value of the portfolio, something which gives me the heartburn or leaps of joy, it also trains me to handle the future larger sums of money.
• If you did not beat any of the top performing diversified mutual fund by any significant margin, then it makes no sense for you to actually put in that time and effort to select individual stocks from the secondary market. Instead let your ulip or mutual fund do that for you, while you spend your time either reading up on the capital markets or with friends and family.
• If you are from an emerging market, focus on companies that geared towards reaping benefits from domestic consumption. After all, that constitutes the major definition of an emerging market - developing economy with high expectations of growth. This helps in cushioning to a certain extent on the worldwide events, although I must admit that when panic grips people they follow the herd and lose their own mind.

In the end, for the defensive investor the best bet is to follow what Graham said. A 50-50 portfolio divided between stocks and bonds. Peace of mind, nights of good sleep - things more necessary than the extra 1-2%.

For the aggressive investor, it all boils down to if you can weather the storm that might rise from time to time. After all, the question is not whether you gain or lose. Rather it is, if you are making a loss how many lessons have you learned, and when you are making a profit how much of a profit you have made.

Two cases come to my mind in this. The first one from 3 years back where accounting malpractices were reported against Global Trust Bank on a Saturday and when the markets opened on Monday, there were only sellers in the stock. It went down from Rs. 8 to Rs. 2 and later went down to 0. So a 100% percent loss to people who thought otherwise and held on to it. But there's the second case of recent accusation of cartelization against the cement industry in India. Due to this the prices of cement stocks dropped for 2 consecutive days before rising merrily beyond their previous highs.

Why do men marry??

I was visiting a newly married couple in the evening, and as usually happens the talk got around to the experiences of marital life. Those already experienced were advising on both sides and it was a very excited and spice filled discussion. While on the way back, I began reflecting on why a man would want to marry at all. What is it that a man could get out of marriage, that he could not get otherwise!

First and foremost, at least in the formative years of a marital life is someone who would share the marital bed and keep the man happy on that respect. After all, we men are all built to function that way. Sometimes I wonder if that is all that is there for all the men to do. I even had a discussion a long time back on this with a female friend of mine on this topic. She very frankly made it clear that had it not been that only men carry the million of invaders required to infuse life into the otherwise infertile egg, there would be no need for the creed of man, per se. And with all the accessories available today, she was not far from the truth.

Coming back to the topic, the second reason why a man would want to marry is for someone who would do the basic feeding, cooking, and housekeeping stuff. Men, I admit, are not socially geared to that role, although more are picking up the basics pretty good these days. But then again, you can always hire a maid for the same purpose.

Third reason, is for that yearning for constant companionship. Somebody who would take up the emotional side of man (yeah, men do have a emotional quotient), listen with a good year. Someone who is smart, intelligent and is able to engage the higher needs of existence. Preferably someone who can also handle the finances (but then you have portfolio managers for that). Again, for this a man can have very good female company that is totally platonic.

All the reason that I have listed out above are very easy for a rich man to have without having to actually be tied to any one woman, if the man has something like a few billion dollars at the start of his career. I have earlier pondered upon what a billion dollar every year would mean. Now it seems that it would free you of constrained relationships.

There is yet another reason why a man might want to marry. And that is for an offspring. For a child that a man can call his own. For a kid, for which the man can proudly say he has fathered. I think that is the most major reason, why a man would go to any lengths of time to actually search for such a potential wife. And for this, and for this alone, I could not find any counter. I am not able to see what alternative could potentially replace this need (let's leave aside those men that choose to live the life of a hermit out of the society).

After writing such a post, I still hope that someone out there is still ready to marry me sometime in the future, if not now.

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Someday, I would hopefully find such candid discussion from a woman. Would be interesting to know and assimilate. Men are supposed to be narcissistic chauvinist. I wonder what keeps the women from being so.

Weekend Roundup

This past week has been interesting in terms of the blog world, with me reading and subscribing to a lot of blogs. Some posts have been pretty interesting.

Is it trick or treat : The Economic Times' detailed analysis reveals that there may be greater cause for concern than reasons to celebrate in the current stock market volatility in the Indian markets.

Biofuel brews up higher German beer prices : Bad news for the beer lovers. If that is the case, then it won't be far when the rippling effect reaches us. But then I am ready to pay more for a cleaner environment.

"Our most valuable resource is our... ": How to make employees believe in a slogan : Somebody believes what we have been hankering about for so long. That an employee is not just a resource, but can contribute in a more meaningful and efficient manner to an organization.

Should you invest in dividend paying mutual funds? : Readers of this blog would be aware of my bias towards growth oriented mutual funds. This article also clears up additional points.

Indian markets and the global crisis : A humorous and very balanced take on the kind of effect the subprime mortgage issue might have on Indian markets.

Top 10 Wealth Building Ways of Ordinary People : Well, I am firmly in the second part and am aiming for the first part of the topic. Interesting to note that these ways are not very out of the world. Just requires some hard work.

12 Ways to stop the telemarketers (sure shot ways to ensure you are not called again!) : A hilarious take !

The newest feather in Jumbo's cap : This roundup would have been incomplete without mention of Anil Kumble's century against England in the 3rd test at Oval.

My journey through the blogworld

As you might have guessed by this time that I keep reading a lot of blogs, or at the least have subscribed to a lot of them and read those that interest me most. There are a few categories under which those blog feeds can be grouped.

• Personal - This is the largest category I think in which people tend to discuss their personal dilemma, their hopes and aspirations, their lament and love. A couple of them are of brilliant expressive writing and I love to read them (i.e. whenever the author's grace this online world with their talents!). Most of them are from people I know personally.
  
• Financial Markets - These are content based blogs, where there is good and bad advice on which stock, mutual fund or bond investment to bet on. Some of them give a very good overall picture and some tend to lean towards one or the other.
• Personal Finance - Most of such blogs are American, very few from people in India. Well, I think if the consumerism in India keeps rising the way it is doing, it won't be far when we are also discussing issues like which debt to pay off first based on the cost of the debt, and what strategy to follow to do that. (But then there are people like me who can benefit by investing in companies involved in such operations!
• Professional Domain and Work - These are mostly blogs on SCM, and/or blogs on my current area of technical work. Heavy duty stuff, not all of which makes sense and on which I break my head to understand.
• Miscellaneous - General advice on career, life and related news.

Well, some blogs are a mishmash of things. Others portray a multitude of events on a single theme - this is what I like best. Being able to hold onto a philosophy in all walks of life, in all day-to-day activities. In all this meandering, I also leave comments on posts for discussions' sake and have managed to ruffle some feathers. There are yet others who find my posts and my comments interesting enough that I have to invited to private blogs and have readers writing to me through email, although that number is not very high

Anyways, what I wanted to do post a list of links to the good posts from what I have read over the last week. The recommendations are purely from my personal opinion. Hopefully you will be able to enjoy it!

CRR and Inflation

For the uninitiated, CRR is Cash Reserve Ratio, the amount of money that a bank must maintain as deposit with the central bank of the country (which is Reserve Bank of India in the case of India), before it can lend out any to individuals or corporations or any other customer.

The observation
Each time the central bank raises the CRR, inflation seemingly goes down.

How much money can banks lend??
Suppose you were to deposit Rs. 100 in the bank tomorrow. And the CRR is 6%. The bank where you deposited your money will keep aside Rs. 6 for the central bank. So it can lend out the remaining Rs. 94. But that's not the end. The banks are further allowed to reason this way: If the borrower of Rs. 94 decides to give out the money to somebody, that somebody may deposit the amount with the bank. So the bank can lend out an extra Rs. 88.36 (Rs. 94 - 6% of Rs. 94). And if the second borrower gives it to another person who brings it back, the banks will obviously have more to lend.

Following the calculation, it can be seen that the amount of money that the bank will be able to lend out is the sum of a geometric progression whose ratio is 0.94 (when the CRR is 6%), and the starting amount is Rs. 100
Rs. 100 + Rs. 94 + Rs. 88.36 + ... = Rs. 100 / (1 - 0.94) = Rs. 1666.67

Or put more plainly, the bank can lend 16.67 times the money you deposit into the bank. And they are legally allowed to think like that. All this time I kept wondering why banks keep getting rich! Also, the point to note that at each amount in the above sum, the bank has a debtor who carries the cost of borrowing and thereby the banks are safe (unless the people start to default on their loans).

Effect of change in CRR to the money supply situation
From above, we can deduce that if the CRR is decreased to say 5% the amount of money that the banks can lend is increased to 20 times. While if the CRR is increased to say 10% the amount of money that the banks can lend is decreased to 10. Thus when the central bank feels that the banks will not be able to handle the credit scenario, that is there is too much money in the system, it will increase the CRR and vice-a-versa. Although the central bank does not do this always. Sometimes it tries to use money market instruments such as treasury bills, bonds, repo rates and reverse repo rates, etc.

Effect of change in CRR on the credit situation (where the inflation part fits in)
Due to this increase in CRR, the ability of banks to lend money goes down. Now banks are also companies and they need to show profit for their business. So keep their profit up, they increase the lending rate which essentially decreases the availability of cheap loans. As the cost of loans go up, you and I tend to spend less on frivolous purchases or at the least try to keep them at the minimum. Thus demand of goods goes down in general. And as you know, the price of a good is driven by demand in a free market economy without price controls. So the prices go down. Consequently inflation goes down.

Effect on Stock Markets

• If there is an increase in CRR, there are chances that the profitability of banks go down. Thus sensing this loss banking stocks may take a hit.
• Parallel to this, the cost of loans that a company may have borrowed would go up. The higher the loan amount, the greater the hit on the bottom line growth of the company. With lesser anticipated profits, people may tend to sell of the stocks of the company with higher debt. This is one reason why corporations tend to prefer equity instead of debt.

Conclusion
The central bank cannot hope to increase the CRR infinitely because with that the consequent demand goes down, which in turn drive the prices into a downward spiral. This obviously leads to lesser profit and eventual losses for companies. To contain this, companies may reduce production, others may go out of business. Only the cash rich companies can afford to sit it out, or invest in newer technologies for more efficient production. In the extreme case, the market would become monopolistic. And you know who loses out in the long run. Keeping all of these factors and effects in the calculation, the central bank needs to decide its policy. No wonder, I don't envy the job of the RBI governor.

You might also want to read these articles from wikipedia:
Fractional Reserve Banking
Quantity Theory of Money
Reserve Requirements

The Science behind Astrology

As happens when old school classmates meet, there was lot of discussion today between three of us going back to school days on lots of topics, ranging from the usual how-to-convince-the-parents of the wanting-to-be-significant-other to how boring/exciting our life has become depending on perspectives to which course of work/study to pursue to the science behind astrology.

Some interesting observations from the conversation:

• Each human being is born at a different moment. Now from one moment to other the entropy of the universe changes, hence affects the life of the individual born at that moment. For example, the word lunatic has its root in lunar which means the moon. And as is obvious, the closer the moon to the earth during your birth the greater the chances that you are going to be loony.
• The only science behind astrology is statistics. All that the so called astrologers have done is charted the sky formation of a select few heavenly bodies whose relative motion through the sky are repetitive over a certain period of time. And every time somebody asks for advice all they do is pullout their voluminous books, read up the charts and spill out the readings.

One thing I do concede to is that astrology does point out the potentiality but the actuality is unknown even to the sooth sayers. For some that may be blasphemy, but I do believe that nobody can predict their own future for the next second, leave alone tell about the life happenings of the other.

An interesting side event that happened as if to prove just the point.

As the three of us were walking back to my place, an Indica taxi braked pretty hard and sudden to avoid a huge crater in the main road. Most probably the driver was new to the route and did not know the presence of the crater before hand. Well, what followed next was the most comical thing to happen. A Scorpio which was behind the Indica also braked hard and missed scratching the Indica's bumper by less than a whisker. But the Scorpio behind the first one braked also braked hard but managed to kiss the Scorpio in front, and that too pretty hard. And as if on cue a Maruti Esteem behind the second Scorpio banged into it very hard with the loudest "noise". The headlights broke and went strewing all over the place, the hood on the engine was ripped open and the front grill I am sure must have been smashed to a pulp.

While all this went on, the front car driver quietly turned his car and went along his way merrily. By the time the shock of the crash could wear off of the other three car drivers, the first car was no where to be seen. And you should have seen the look of shock and disbelief in the eyes of the last car driver. It was very obvious from his face that there could not have been a greater unrealistic event unfolding in front of his own eyes of which he was a part.

What I want to point out is who could have predicted this fateful crash beforehand. The last car owner would have to shell out more than Rs. 50,000 definitely. And that is a huge expense. I don't want anybody to predict the actual loss of the money but just the fact that you might be involved in such a situation.