Munnabhai goes to the market

There are certain topics you should not discuss during a riverside walk.
Like office work, unless you have an office that overlooks the river.
Bomb blasts, unless you are patrolling on the riverside, not just strolling. Otherwise, you will be patrolled upon.
Windows vs. Linux, because the river can change course and wreak havoc.
And Stock markets, never, even if you work for... err..had till recently worked for... Merill Lynch.

But Bablu is not sensitive to these things. Munna bumps into Bablu on the riverside often, but they come from opposite directions for opposite kinds of reflections. Munna comes to reflect and discuss with himself, because all day he spends discussing with others. Bablu comes because he spends all day discussing with himself and Munna is the only guy who is ready to discuss anything at all with him.

Whatever, Bablu brought it up. Why does he do it all in reverse ? When the whole world is pessimistic, he brings up an optimistic 'thinko' assertion, When the whole world is optimistic, he sees through it all and reflects on their transcience. The sub-prime crisis has just worsened, well, it worsens freshly everyday. The market sentiments are on a low. Aha, what a phrase to denote about being sentimental about the market. And somehow Bablu thought of asking Munna about investing in stock markets. Not that Munna is all wisdom, though he often gives such a picture, unintentionally. Not that Bablu is all naive, but he puts up a show of naivety, intentionally, whenever someone puts up a show of wisdom. Munna had just stepped into the market in a small way, but you know Munna, he thinks he is a deep thinker. On what ? Well, pretty much on anything you ask him to think.

'I just want to beat the Post Office Returns Rate by 5%', began Bablu, 'Say 20% p.a. returns in the long term, of 7 to 10 years. I am not a trader, I want to be a long-term investor'. 'Munna noticed the data mismatch, but he knew that Poet Bablu was never good at quants, so he let it go. A professional financial advisor would ask you about your financial objectives and then about your risk profile or capability. Now that Bablu had spelt out the former, Munna asked him about the latter. 'Oh, I don't rebalance my portfolio according to my risk, I rebalance my risk according to the portfolio', replied Bablu. Munna never understood what that meant, but he knew this must be one of Bablu's eccentricities of doing things in reverse. 'I should learn this way of thinking from Bablu', he thought, 'it might help me become more creative'.

Neways, Munna went on to explain how he went about investing in the markets. 'I have pretty much the same expectation, I would bet on 12% instead, based on international data for the last 30 years', he began. 'Wow, everything about Munna is international, except the river', thought Bablu.

Munna always wanted to minimize research or studying companies or regular monitoring. This trait comes from his school days, where he always crammed on the day before the exam. We carry the same traits wherever we run. You carry your Shani, even if you run to Kashi.

Munna is also slightly inclined against timing the market. Spend time in the market instead of timing the market was his central belief. Besides, He knew Bablu falls for such puns. Also, if Munna advised Bablu to buy low and sell high, you know what Bablu will do.

Munna preferred investing little amounts regularly. Ironic, since he used to be inclined against this some time ago. But did he require permission, even to contradict himself ?

There is a slight paradox here, though. Don't want to study the companies, don't want to time the market, in other words, don't want to move your muscle, this goes against "standard" practices. But it best fits a lazy investor. Munna has a faint thought that investing without studying the companies will take a toll sometime or other, but he expected to reap some merits purely by diversification and more merits by investing in the long term. Moreover, he was always at a loss to understand Profit and Loss statements, Balance Sheets imbalanced him and his dismal performance at the Accounts courses had been meticulously documented at his university. Diversification is one good practice he happened to believe in. Thank God, he agreed atleast on one thing with the society.

Munna also avoided a few other common practices :

1. Asking Bablu where to put his money. He was sure Bablu will go reverse on this. Bablu felt like jumping into the river, but his Guru Bhakthi prevented him from responding to such humiliation in his very presence. Besides, this genre of rivers were suitable for jogging or blogging but not for drowning.

2. Asking a broker. You would have to first establish evidence enough that he is better informed, not just more informed. If you are smart enough to figure that out, you wont need one anyway.

3. Buy low and sell off high. When it comes to timing the market, Munna often remembers this old joke where a car driver asks a village kid to look out for hitting the wall, while he reverses the vehicle. The kid keeps saying ok, ok as the driver reverses and finally when the car hits the wall, he says, 'Yeah sir, now it has hit the wall'. Trying to time the market is like that. You know it after it has just gone past you.

4. Believing about some "inside" information which is not published and we think are unique in having. Munna believes that market efficiency beats insider wisdom.

5. Keep a target profit and sell. Bablu raised eyebrows, after all, what are we here for ? But Munna explained that he still had a target loss, err... a Stop Loss price, at which he would sell to minimize damage. May be Minus 25% in a year ? Whatever, but don't hug a sick donkey forever.

6. General opinion like XYZ stock is "good", or, now is the time, go go, buy that horse.

7. Reading, reacting and getting worried about everyday information about the stocks you have invested. Munna liked to look only at the "strategic" type of news. Somewhat like Lehman falls, Merrill sold and AIG totters.

Munna thinks that pretty much no one, repeat no one, has actually figured out how the machine works. We can always use hindsight to say that worked or this worked, but he didn't think someone figured it out before the machine worked, atleast at the level of the individual investor. He even asked a question on this at The Simple Dollar blog, but the answer seemed to confirm his own opinion. People who study trends and spot potential winners, like the ones who made it rich just by investing, were a different kind though. They worked like people who own a company while buying, not like people who trade a company. When it's time to sell, they work like they never owned the company and they were here just to trade it. But, we were just Post-Office-Plus-5-percent guys.

Since Munna defied some common practices and seemed pretty heavy-headed, there was quite a probability that he might get into a soup. And he knew it. If he failed, he wanted to go down in history, as the one who fully documented the soup and then went into it. He also wanted to make sure he goes into a soup based on his own decisions, good or for bad, instead of blaming some Bablu, Bujji or Broker. If he succeeded, of course, there would be enough people around to document someone's success.

Moreover, the money he put in stocks was a small percentage of his total savings, so he thought he was stoically prepared for consequences. Whether he will have same preparedness when the consequences actually reach, well, he hoped so. As they say in Karma theory, you don't have to be prepared specially, the consequences will anyway reach you. :) :) , prepared or not. It wouldn't be the first time that he leaned on Vedanta to understand his misery, he had done that before. He always fantasised himself to be like King Janaka and can invest in stocks online with the Artham Anartham verse playing in the background. Why does he always bring up that Verse 30 of Bhaja Govindam, every time he discussed stock markets ?

Munna also avoids all blue-chip stocks, since he preferred to invest in them through a diversified mutual fund. Being a fan of The Simple Dollar blog, he always preferred an index mutual fund to invest in index stocks. In countries like the US, they had funds that mirrored a 500 index and diversify across all companies forming it, but in India, you have a similar index, but not a similar fund that diversifies across all those companies. Our funds usually mirror a smaller index or draw a few stocks from the index and churn within the superset, like the HDFC Top 200. Whatever, Munna believed in his principles, but he can't shift to the US for that sake. So he chose whatever diversification the indian index funds offered.

In all, Munna did a quick one-hour "research" from the Economic Times indices. Went to their ET indices page, onwards to the page listing each of the indexes, saved the page as html, took the data to excel and onwards into Access. Then ran a couple of queries to know which are those companies that fall in most indices. With a sort by market-cap, for liquidity. Some like Nestle and Hero Honda came right on top. Then he went about picking up some stocks which he "felt" like, avoiding all Sensex stocks. Partly random, partly brand recall and partly hunch. To start with, he picked just these 12 stocks, one each from a different sector for an identical investment (small) amount in each. And he hoped to repeat the same buy, periodically. May be he'll add 2/3 more stocks to the master kitty later, like steel/cement which he had left out in the initial round. No smallcaps. Most of his picks came either from the ET 100 Growth, ET Midcap Growth or ET Midcap Value indices, but he believed, some day, 'Saara Desh isko Munna Index bulayega'.

If you thought, Munna handpicked his nuts analytically, then here is more disclosure on his sentiments:

Nestle and Airtel, though part of Sensex, still find a place, because Munna loves chocolates and hates BSNL.
Munna feels off about himself as a responsible global cooling netizen, so he wanted to have a green stock. Hence Suzlon.
Bank of Baroda is there because he vowed to buy it someday, after he wrote this blog post.
He is also reluctant to buy too many stocks from the same business group, like all of Reliance or all of Tatas. One each would do.

Munna decided that he will not spend any more extra time on research but he was ready to share the fruits of his one-hour work to Bablu and give the file to him.

'See you after 7 years', said Bablu, 'I mean, we can have a discussion on the same topic only after 7 years, right? Only then we will know whether Munna was right or wrong. '. And shot off across the bridge into his rustic village.
'How about 30 years', shouted back Munna, 'it takes that long for a big recession procession to pass by!!'. And went back to the Blogger's Bench by the riverside.

Why do most discussions abruptly finish with the conclusion "It depends", "Wait and watch" or "Only time can tell" ? . Next time, why don't you begin the discussion with the same phrase, so that you can save time by not discussing at all ? :)

Munna wasn't sure about what Bablu will do with the file, let alone what he is going to do with his money. Who knows, Bablu might even share it (the file, not the money) to people who email Bablu at his blog. And he was sure, Bablu is going to find a way to use the database in some odd eccentric reverse way. He only hoped, he would share it before spoiling it by reversing the sort. At the least, Munna was relieved that Bablu won't bother him on this particular topic, of all things, during a riverside walk.

Happy Investing.

Pranks on the sands of time

In this Part 3 of a series, I think about God and suffering (in the context of killings) and the dichotomy of good and evil in the human mind. These aren't clear answers but just my 2 cents. I wrote these at this Orkut discussion thread. You can find the other parts linked from here.

Creation: Pattern or arbitrary ?

The ancient question is still being researched heavily and quite controversially.
But my take is, Yes, for the pattern part. The advocates of both sides, Intelligent Design and Natural Selection, both agree there is a pattern. One says there is a pattern by design and the other says there is a pattern in the process, in acquisition of traits. The difference, is only about, who put the pattern in ? Or was there one ?

Is God just a fabrication of the human mind in a world of random possibilities?

:) :) Well, some schools say, the world itself is a fabrication of God's Mind. Or Man's Mind, meaning Man is God.

Is God a temporary diversion from the madness of suffering ?

I don't think such a diversion would work anyway. God or not, when the madness (to mean suffering) hits you, it would no more let you bury your head in the sand nor would it spare you even if your head is in. Lot of people, choose God to cope up in times of suffering, because, well, it works for them and effectively so. If it didn't work, God wouldn't have been operating in that segment any more. There are things in life that truly help you in times of suffering. Like love and care, faith can do it to a great deal, if you have it, that is. Even if all other aspects of Faith are debatable, the therapeutic value of faith needs to be given atleast as much credit as that of love and care.

If not,then where are the answers to this dance of death, to this depletion of hope,to these hungry flaming fires of hell,to this downward spiral?

Reminds me of a quip that Ramana Maharishi used to give his disciples, when confronted with the question of how do I find out the cause of the world's suffering and alleviate it. He often said, first find out the cause of your suffering, we'll catch up with the world later.

What meaning to make of suffering...

The questions assume, to a large extent, the reality of suffering and the value of life. I sometimes think, what are catastrophies or achievements for us, are just childish pranks for God. Consider a kid, playing on the sands of the shore, building castles in the sand. He would build for a while, then he would demolish a section of it and build again. Or his friend would demolish it and they would fight about it. Or build one more together after a little while. And when it's time for lunch, they would move away to play another game, the fights fading away. Even if they fought and cried, their parents would know not to take them too seriously and would tell them so too, indicating the transience of both the castle and its demolition and the fun value behind it.

I myself find this ridiculous at times, because how can suffering be unreal ? Someone slaps you, you immediately know whether it's real or unreal. Your arthritis or asthma is quite sufficient to tell you whether it's real or unreal, you don't require news of massacres in the papers to tell. But there seems to be a school or a section of humanity, that want to question that experience and get to its deeper reality.

The whole problem is that, to understand this in actuality, we have to consider the possibility that suffering may be unreal. Or real only from a relative perspective of the kid. That's a colossal problem for us mortals, because, it requires a different plane of thinking and training. But if the Truth lies there (just in case) and if Truth is what we seek, is there an option but to look in ? Reminds me of Einstien’s quote : The problems that we face today cannot be resolved at the same level we created them.

Is that why the Goddess of the Three Worlds is also called "The Playful One" ?

What goes up, up and further up..... has to be suspended for one hour when it comes down....

I have always thought, a certain amount of stoicism about the markets is a healthy habit to develop. Recently, when the Indian Sensex fell intra-day around 1700 points hitting what they call a 10% lower-circuit, SEBI suspended trading for an hour, probably to cool it off. (For novices like me, I think the phrase 10% lower circuit roughly means that Sensex fell 10% in a single session). I wonder why they didn't do such a restrictive thing when the markets went up, up and up too ? Going up is okay, coming down is not, is it ? Or they should have allowed the free fall under gravity, come what may, so that the market finds its own realistic evaluation bottoms, whatever that might be and rest comfortably on the sofa. If indeed it is overvalued, then a prick of the balloon might actually have been helpful in knowing the solid stuff within. Looks like: It's somehow okay for the market to pick a large number of points spread over a week or so, although such pace is far different from earlier acceleration levels and not reflect fundamental strengths .... but it's somehow not okay when it falls. :). It's okay to make unusual gains when they are spread over a week but not okay to lose such gains on a single day however unusual the gains may have been.

I wonder how the free market enthusiasts would like to look at this : Is this financial systems regulation or interfering with free markets ? Another blog of Ramnath, Free Markets India, tries to keep a log of the various forces pulling and pushing, for or against the pursuit of free markets. I can understand corporate or political lobbying for exclusive economic privileges can be categorised as a pull or a push, but i think it's difficult to categorize regulatory actions. It's tough to draw a line between what is healthy regulation, developing robust financial systems, putting market infrastructure in place etc and what is just ad-hoc damage control. That day, even FM intervened to make a statement, which I thought was a little extra. Of course, I haven't researched to write this post, but I wonder if there is such a thing called breaking a 10% higher circuit, in the SEBI regulations, just like the 10% lower circuit. Asked an economics friend about whether such a thing is of importance to the free markets discussion. He said, in real life, there are a lot of constraints to free markets and these constraints are to be handled first in the pursuit of free markets. I might have to read up Raghuram Rajan to understand what these are.

I tend to subscribe more to the long term value addition approach. I think if one can:
park and wait in good (intrisically value adding) stocks/funds, stoically,
remember a bit of Shankara's references to Economics in Verse 30 of Bhaja Govindam, :) :) ,
be not worried about the everyday ups and downs,
keep cool without looking for reassurance from the FM to heave a sigh of relief,
sit on the eggs and wait for them to hatch for five or ten years,
then equity has the scope to fetch far better returns than other forms of investment in an equivalent period. Of course, this doesnt apply if one is sitting on a donkey fund or a dead stock or special disasters. Otherwise, A little peep, now and then, to just see the eggs are fine should do.

Quite possible, I am over-simplifying here what the Finance guys read across a few semesters. I have seen the non-tech guys trying to figure out a simplistic understanding of the tech abracadabra, and succeed in achieving a functional understanding and the non-finance guys try to do the same thing to finance subjects. When I was first unsuspectingly "exposed" to the verbal weapons called Debit and Credit, when the duo mockingly stared at me from the blackboard, Drawing a T-shaped organism to tally numbers used to cause nightmares and make me sit up and draw the Holy Cross on my chest. I used to cheer myself up with the Lakshmi Ashtothram, try to ignore those two words as mere hallucinations and think of it as just Inflow and Outflow. As if water flowing into a tank would be Debit and water flowing out of the tap, then, must be certainly Credit. Or is it the reverse ? :) . Well, depends on whether we are talking about the tank or about the bucket. Closing the tap and measuring the water must be.... wait, is it Balance Sheet ?. Whateva. Something is better than nothing. Of course, Everything is even better, if you can handle it. There is no powerful substitute to in-depth research into a subject.

Seeking the Source

I have a fascination for rivers. One reason is my early impressions of Cauvery in full flow at Srirangam in my childhood days. Nowadays, it's more often dry due to "known issues" but the images of the river in all its majesty have stayed. Okay, if you want, etched in my memory. It used to be mentioned in our textbooks that while in some places it can get as narrow as "aadu thaandum kaviri" (so narrow as a goat can cross it in a jump) , it also becomes "Akanda Kaveri" (so vast that you see water till where your eyes can reach). Krishna @ Kanakadurgam is very good, it's tough to be in flow all year round in the south and it's Andhra Pradesh's good fortune that it is blessed with two of them, Krishna and Godavari.

Best so far and almost matchless are Ganges and the other further north rivers that drive in to the Ganga. Mandakini @ Kedar, tops them all. Heard Brahmaputra is among the most ferocious rivers and makes it extremely tough for river-rafting. Our raft coach, whom i believe has rafted in 11 countries, rated Brahmaputra as the toughest and the most exciting raft destination. A friend who visited Beas @ Kulu, Himachal Pradesh was full of praise for it.

Two rivers I want to visit some day : Godavari and Narmada. Godavari for comparing it with Krishna, particularly, Godavari @ Bhadrachalam. Seems there is a two-day trip on boat that ends at Bhadrachalam. Narmada, for the fanciful images I have about its grandeur and also about its enormity as discussed by the NBA. Walking all the way from Kerala, Adi Shankara is said to have met his guru Gowdapada on the banks of the River Narmada. Why mention this here, well, he is one of my icons, so I have to bring in my icons and all their fascinations into my posts. Someday, I should post nice pictures from our Chardham trip, taking the blog to the next level, photo blogging. Even as I write, Ramnath has already beat me to it by posting pictures of the Bhagirathi Mountain, hopefully I will supplement that by posting pictures of the Bhagirathi River.

Chitravathi is rarely in good flow, but when it recently indeed was, we all made a beeline to the river especially to watch it flow. There was even some news/rumour that some bund/dam upstream was broken due to heavy rains and chitravathi would flood, that was not to be. Or as in local slang, antha scenu ledhu. But it was in pretty good flow. And that was good scenery. A friend of friend of somebody offered Chilli Bajjis, it aptly fitted the occasion, so we put a heheheh face and gladly accepted, munched and shot off and dedicated that day's group discussion entirely to the Chitravathi river, its origin, its problems, it's floods in the earlier years and to the responsible policemen who were warning the folks not to venture into the river. Now there is a also a nice road that runs parallel to the river, so makes it a very good stretch for walkers, thinkers, poets and meditators (as long as you are not on the road). And hey yes, more recently, for bloggers too. One of my friends mentioned it's particularly wonderful on cool early mornings. Hmm.. to confirm that personally, I will have to change my schedule and check out some day.

As kids, we were trained to chant a sloka when we are just about to finish our bath, invoking the sacred rivers. My sanskrit is poor and even worse when I put it in English, but here it is:

Gangecha Yamunechaiva Godavari Saraswathi
Narmadey Sindhu Kaveri Jalesmin Sannidhim Kuru

(The meaning is here. )

I think rivers have something ethereal about them. For one, they have a calming effect on your mind. After a brief calm, they can ignite your imagination. They make you reflect on your imaginations and prod you to seek their source, i mean the river's source, and when you reach their source, they inspire you to find the source of your imaginations. And once you are done, they make you blog about what they have done to you.