A post without a title? Nonsense!

“I pretty much try to stay in a constant state of confusion just because of the expression it leaves on my face.” - Johnny Depp

Since some time I was away from blogging – although I was fully invested and active on Facebook. Now I have decided to stay away from market for a while. This is not because of the fact that I suffered significant loss, not because I was bearish and market hysterically went up, but because I realized that probably there is something else more worthwhile to do.
Previous month’s market movement surprised everyone…the speculation of economic recovery was gaining currency. We are receiving mixed economic data from the US and other countries as well, but still not sure if we are out of wood yet. So I’m still bearish.
In past, I have tried my hands at many things – investing, trading, writing, poetry and politics among others. Just to find out what I want to do with my life, but nothing was able to keep myself engaged. So thought rather I should keep myself free…just wander…just like that for a while.

Purchased lot of new releases from Amazon - felt bored – put them on the shelf…purchased more titles – some yet to be received.
I was wandering…surfing net just to pass time. In old days people use to wander in jungle but nowadays we wander on net. Suddenly realized that Eva Mendes looks beautiful and watched her interview videos on youtube. It was surprising to know that she is suffering from Arachnophobia. Watch her interview video.

One of my friends is getting married, I was somewhat puzzled what to gift her on this occasion – first I thought I will write a poem for her, which she has been requesting since some time. Started but got lost…then I thought what about naming a star on her name. This idea I stole from the movie A Walk to Remember. I googled for the service provided and lol! I came across a bunch of them. I was surprised how so many companies can have right to name the starts. Then I found Robert Roy Britt’s article on this issue and realized that only the International Astronomical Union (IAU) has the right to officially name celestial objects.

I’m still undecided on this…I mean on the idea of gift. I want something unique, something special and something original. But unfortunately not able to find any “wow” idea, certainly not talking about this idea!

Recently I stared working on an internet start-up idea and was following news to see what kinds of internet ventures are getting funded these days. Most of funded start-ups failed to impress upon me. But some of them were absolutely outrageous. Minglebox.com is one of these… they got $7 Million Funding from Sequoia Capital. What is happening guys to networking and social media sites in India? Isn’t this space over-crowded? International players like FB or Twitter is yet to monetize their models…or are they least bothered to make money? Reportedly minglebox.com’s founder Kavita Iyer is married to one of the Sequoia executives…

I was searching for a good book on online marketing / advertising. Found many on Amazon but was not able to decide for which I should go for. I also came across Avinash Kaushik's book on Web Analytics, placed an order, waiting to be delivered. Joined Avinash network on linkedin, asked him to suggest some good book on online marketing. He referred to Seth’s Blog.

One of my friends suggested why I don’t write a book…I asked him what the use is; I don’t have anything interesting to tell the world. He told that it not about telling the world which you know and they don’t know. He suggested it is simple “Write a book, give few chapter free, blog about it, create a fan page on Facebook – become an expert and earn money”.

Recently in a discussion forum on linkedin, I asked group members that I’m planning an online venture and how to go about it; I mean the technology side of the venture. Someone replied me that I sound naïve and I should read Guy Kawasaki’s The Art of Start. I purchased The Art of Start and Reality Check. Both books suck, I was not able to finish them…I wish I had read these reviews- link1, link2

Guy Kawasaki is a genuinely smart guy but his only meaningful contribution, I think, is bringing the concept of evangelism to the high-tech business, when he was with Apple.

Finally ended up buying The Online Advertising Playbook by Joe Plummer et al. yet to receive from Amazon…by the way did you notice that Amazon has increased the shipment duration for international delivery.

Funny Videos...

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Make Me a Trader

This video was posted by Michael Covel on his facebook; just thought to share it. Other parts of this can be found on youtube link.

In criticism of Modern Financial Theory

Probably, I’m among the few readers who don’t buy a book, unless he reads a lot of customers’ reviews. I cultivated this habit unless I realised that my shelf is full of unreadable books which I brought either because the title was very catchy or the editorial review was brilliant or some noble laureate has written the forward. For customers’ review I prefer Amazon and blogs; but sometimes it occurs that you will find conflicting customer reviews. Readers start taking sides – some readers say book is brilliant and raises important points; other would say this book is infuriating, the book is written in a smug and obnoxious style. In such situation what will you do? I prefer to read such books.

Black Swan by Nassim Nicholas Taleb, was among such book which is being discussed with contempt and respect equally by various group of readers. But what is Black Swan all about? Mr. Taleb explains himself in the following video:



In 2006, in The Black Swan he writes;

“Globalization creates interlocking fragility, while reducing volatility and giving the appearance of stability. In other words it creates devastating Black Swans. We have never lived before under the threat of a global collapse. Financial Institutions have been merging into a smaller number of very large banks. Almost all banks are interrelated. So the financial ecology is swelling into gigantic, incestuous, bureaucratic banks – when one fails, they all fall. The increased concentration among banks seems to have the effect of making financial crisis less likely, but when they happen they are more global in scale and hit us very hard. We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogeneous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur ….I shiver at the thought.”

Another book of his, Fooled by Randomness also gained huge popularity and also attracted equally vociferous critics.

What I understand is that Mr. Taleb has an idea and the idea is that financial market returns don’t follow a normal distribution and also how do we quantify the risk of outliers—meaning, very rare but very important events. He becomes angry while explaining the same:



But similar issues were raised by Benoit Mandelbrot in his book The (Mis)behavior of Markets, he was one of the most vocal critics of the modern finance theory, including CAPM, the Efficient Market Hypothesis, and the Black Scholes model. He points that all these theories rely on the assumptions that market prices are normally distributed. He demonstrated that market prices do not follow a normal distribution, but instead a Cauchy distribution.
Other authors have also written about this; Robert Shiller's "Irrational Exuberance” Roger Lowenstein's "When Genius Failed: The Rise and Fall of Long Term Capital Management" are other few books on this topic

But the question is if independence and normality are not sound assumption, so what? These assumptions help to simplify the math of modern financial theory. Or we have some other way out? Do you see any problem with these assumptions?

Banker Begs On Wall Street

FamousAndrew Episode 3: Andrew Goes Begging on Wall Street from Famous Andrew on Vimeo.

Who needs an Equity Analyst?

In recent time we have seen growing criticism of equity analysts among all classes of investors, particularly among retail investors. Mr. Bhavtosh Vajpayee, became best equity analyst by downgrading IT sector last year (what is happening to IT sector now compared to other sectors). Our friend Mr. Arjun Narayana Murti, analyst at Goldman Sachs became a doomsday prophet for forecasting oil prices (where the oil price is heading now?). Were these analysts just lucky or their analysis was worth the attention?
What caught my attention was an equity report by Mr. Akshay Soni of Morgan Stanley India on Suzlon Energy (Reuters: SUZL.BO, Bloomberg: SUEL IN) released on November 3, 2008, in which he changed the Price Target from Rs450.00 to Rs52.45!!! The major reason stated for this drastic change was increasing risk to wind energy business from changing macro particularly massive downtick in oil prices.

When I looked into the historical prices of crude oil and stock price of Suzlon Energy, I found a very weak relation between the two, refer the graph below:

Apparently, this report was updated just to justify the current stock price of Suzlon Energy. But this analyst was not as lucky as Bhavtosh Vajpayee or Arjun Narayana Murti. This report came out on November 3, 2008 and as on today the closing price is Rs70.6, see below the weekly performance of Suzlon Energy after the report:

On November 4, 2008, the news came that Suzlon and Martifer has entered into an agreement in August this year to complete an early purchase of Martifer stake of 22.4 percent in REpower Systems AG in mid December 2008 which was initially due in May 2009. On last Thursday, the company informed BSE that the New Zealand based TrustPower Ltd has started the stage 1 of its first Australian wind farm located at Snowtown 170 km north of Adelaide. The said wind farm comprises of 47 numbers of Suzlon S88 turbines.

Have these news driven the stock up? Were these news not known to the analysts? Two other reasons stated for this cut in the target price were given as:

· Leveraged Balance Sheet and the cancellation of the rights issue.
· Suzlon decision not to try to exercise the domination and profit transfer agreement with REpower, due to opposition from lenders who will be financing the next rounds of growth for REpower.

Mr. Krishnakant Thakur of Edelweiss released a similar report on October 11, 2008 and gave a much reasonable target price of Rs94.0, lets see the major forecast of these two reports:

I have always believed that these reports are written for other purposes, purpose other than that of providing guideline to fund managers and investors. First and foremost purpose is to provide employment to equity analysts.

My understanding is that macroeconomic and political factors play more important role in the stock price movement of a company, for short or even medium term the company fundamentals becomes mostly irrelevant.

Some of fellow bloggers have been forecasting Sensex at below 4,000 level in near future, I don’t know if their prediction will become true or not. But when some of them predicted that Sensex will reach 12,000 level when it was around 20,000 level I criticised them (Link1, Link2).

Keeping I mind the current financial crisis and impeding global recession, I don’t see a quick recovery of the market. May be the US economy will recover within two years and subsequently the stock market. But for Indian stock market, I’m not very hopeful. Ideally Indian stock market should also be recovering along with that of the US; when I compared the Nasdaq composite index and Sensex and found a good correlation between them.

But when I say I’m pessimistic about Indian stock market, I have certain macroeconomic and political reason to believe that Indian stock market will not improve along with that of the US market. But I also think that Indian stock market may not go down much from here. Some of the reasons I see are:

· Earning growth will be really affected in coming years: I feel from next quarter onward, most of the Indian companies will see negative earning growth. Particularly companies operating in real estate, IT, BPO, Banking, Export and probably metal and cement will be most affected.
· Political instability: Coming general election will see rise of small regional / religious political parties taking centre stage. Congress or BJP may emerge as biggest political party but they will not be able to form the government. BSP, SP, Left Parties will gain substantially in the coming general election.
· Political Change in US: The new government in the US may adopt a protectionist approach, which will hurt the Indian IT and BPO industry. Export oriented companies will also affected.

Disclosure: Suzlon Energy, Long Position

Me, my friends and the mess!

The nightmare is over?

Since sometime I was away from blogging; moreover, I’ve never been a prolific blogger. In recent weeks we all have seen history in making. Nightmare on Wall Street has just subsided; the collapse of Lehman Brothers and weeks of high bail-out drama perhaps reshaped American finance.

Subsequently, stock markets tumbled across the world and the oil price plummeted as well; the dollar fell sharply but rupee’s fall was faster. Obviously; we are living in a wonderful time, we are seeing this all happen and getting a first-hand experience of all this rather than reading in case studies of macro-economics books.

Some of my friends were of opinion that this is the end of the crisis and Asian markets have just started to bottom-out. Some were holding very negative outlook – they believed this will last for years to come and in coming months it will even become more severe and employment outlook will become grim.

Some of my friends were happy that reality prices are falling and now they can afford to buy an apartment of their own. It is widely believed that economic meltdown will hit realty sector hard; Indian reality sector is believed to suffer a lot - Realty sector analysts are of the view that the slowdown will carry a double edge impact to it. One, as banks, financial institutions and IT companies are reducing their headcount, the market will lose some of the possible buyers and secondly, the NRI community will have second thoughts about property purchases here in India not because the market is uncertain but because if they wait they can get a better deal.

Indian stock market was also witnessing bloodbath on Dalal Street, even Prime Minister's Economic Advisory Council (PMEAC) Chairman, Suresh Tendulkar, acknowledged that Global financial crisis following the collapse of US investment bankers Lehman Brothers will adversely impact the portfolio investment in India.

To cut the story short, we have seen a month of historical importance and lots have been written and being written everyday in every newspaper and all over the internet. So for me it is probably useless to stretch this post.

Young and restless!
So what I was doing all this time? In office also there is not much work to be done because of the current market situation (so what I’m doing in office, well, this we will discuss later). I was busy analysing the current market situation and trying to find some value picks. But now I’ve almost fed-up with this value investing style and probably I don’t have patience for this.
I tried my hands at different things – mostly trading – equities, derivatives, currency, commodities and CFDs. I found derivative trading more suited to my personality - mainly CFDs. I learned (?) technical analysis – the inane chart patterns and obscure indicators, the thing which I hated mostly during my MBA days.

I thought I will start CFD trading and searched internet for information, I was surprised to see that there is not much quality information available on the net. I spent so much time to decide the broker – market maker or DMA or STP, and all the other factors like commission, slippage, order execution and spread. Deciding a service provider has never been so difficult.
I consulted one of my friends who was trading CFDs and he told me don’t get into it. He just lost AED 240,000/- in this! I was little bit confused if this product is for me or not, but finally I liked this product and the leverage it provides.

So I decided that I will try to provide some information on this product through my blog, and decided to change my blog title to “Chronicle of an Unknown Trader”.

I find the world of CFDs like the world of pirates – the excitement and the reward – all suits my style. I decided to just get out of this pseudo-academic blogging. I have made certain change to this blog and will keep updating regularly. I have also allowed un-moderated comment again.