Wise Wealth Advisors

The Tao of Warren Buffett (Money Mantras….(16))

Muthukrishnan — Tue, 03 Nov 2009 01:43:06 +0000

Today (3′rd November) is my birthday and I want to begin the day by sharing with you ‘ The Tao of Warren Buffett’.

October’09 has not been a great month for my blogging. I just posted one article. This is my primarily due to 2 reasons.

1) My inconsistent health

2) Yahoo rejecting my bulk mails repeatedly as Spam thereby preventing me to send mails to you. My Wisewealthadvisors domain (from Indiatimes) does not allow me to send to more than 20 mail ids at a time. Considering the volume of people who read my mails, this was also not possible due to the limited energy levels and patience I have. If Yahoo route does not work, I’ll resort to the above model, though it is time consuming because I enjoy immensely sharing the knowledge with you. What I’m today is because of all of you and this is one of the small way of showing my gratitude.

There is a book called ‘The Tao of Warren Buffett’ written by Mary Buffett & David Clark. I read this book recently and wanted to share on my birthday some gems from my master, which I’ve not shared previously. This becomes the Money Mantras series…(16).

As my birthday gift to you all, I’ve given below 20 quotes instead of usual 10, all new ones.

1) You don’t have to make money back the same way you lost it.

2) Someone is sitting in the shade today because someone planted a tree a long time ago.

3) You pay a very high price in the stock market for a cheery consensus.

4) You want to learn from experience, but you want to learn from other people’s experience when you can.

5) We enjoy the processes far more than proceeds, though I have learned to live with those also.

6) If calculus or algebra were required to be a great investor, I would have to go back to delivering newspapers.

7) It’s hard to teach a young dog old tricks.

Can you really explain to a fish what it is like to walk on land? One day on land is worth a thousand years talking about it, and one day running a business has exactly the same kind of value.

9) If you hit a hole in one on every hole, you wouldn’t play golf for very long.

10) A friend of mine spent twenty years looking for the perfect woman; unfortunately when he found her, he discovered that she was looking for the perfect man.

11) Forecasts usually tell us more of the forecaster than of the forecast.

12) The less prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs.

13) In the search of companies to acquire, we adopt the same attitude one might find appropriate in looking for a spouse: It pays to be active, interested and open-minded but it does not pay to be in a hurry.

14) When you combine ignorance and borrowed money, the consequences can get interesting.

15) The most important thing to do if you find yourself in a hole is to stop digging.

16) If you don’t make mistakes, you can’t make decisions.

17) Any business craving of the leader, however foolish, will be quickly supported by studies prepared by his troops.

18) I’m very suspect of the person who is very good at one business-it could also be a good athlete or good entertainer- who starts thinking they should tell the world on how to behave on everything. For us to think that just because we made a lot of money, we’re going to be better at giving advice on every subject- well, that’s just crazy.

19) The smartest side to take in a bidding war is the losing side.

20) No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant.

Money Mantras….(15)

Muthukrishnan — Wed, 14 Oct 2009 07:59:39 +0000

It’s good to be back after a gap of 2 weeks. I was down with viral fever for last 2 weeks and hence this gap.

I am pleased to start this month article with Money Mantras, timeless wisdom from Masters.

Please read and enjoy the wit, wisdom and insights.

1) Value investing ideas seem so simple and commonplace. It seems like a waste to go to school and get a Ph.D. in economics. It’s a little like spending eight years in divinity school and having someone tell you the Ten Commandments are all that matter.- Warren Buffett

2) You can’t see the future through a rear view mirror.- Peter Lynch

3) The critical investment factor is determining the intrinsic value of a business and paying a fair or bargain price. – Warren Buffett

4) The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. – Warren Buffett

5) In a bull market, one must avoid the error of the preening duck that quacks boastfully after a torrential rainstorm, thinking that its paddling skills have caused it to rise in the world. A right-thinking duck would instead compare its position after the downpour to that of the other ducks on the pond – Warren Buffett

6) In a finite world, high growth rates must self-destruct. If the base from which the growth is taking place is tiny, this law may not operate for a time. But when the base balloons, the party ends: A high growth rate eventually forges its own anchor. – Warren Buffett

7) First, beware of companies displaying weak accounting. If a company still does not expense options, or if its pension assumptions are fanciful, watch out. When managements take the low road in aspects that are visible, it is likely they are following a similar path behind the scenes. There is seldom just one cockroach in the kitchen. – Warren Buffett

If the misery of the poor be caused not by the laws of nature, but by our institutions, great is our sin. – Charles Darwin

9) There are people in the world so hungry, that God cannot appear to them except in the form of bread. -Mahatma Gandhi

10) Fate often puts all the material for happiness and prosperity into a man’s hands just to see how miserable he can make himself with them. -Don Marquis

A Bomb scare of different kind and the ’short’ of the Century

Muthukrishnan — Tue, 29 Sep 2009 00:24:12 +0000

On the eve of the auspicious Vijayadasami day, which is supposed to be good for starting any new initiative or activity, I start this article in an auspicious way I know- by providing a nugget of wisdom from Buffett

“Speculation is most dangerous when it looks easiest.”

All the stock market traders whom I’ve been in touch with regularly are now saying that the time is ripe for speculation and make some quick money. Please read the above quote and ‘let the buyer be beware’!

We’ve been a kind of doom’s day prophet as far as the Financial future of U.S. is concerned. We’ve written in the past how mounting public debts is making U.S., an emperor of debt and how it may end up being a Banana Republic and a Bankrupt country.

However we honestly wish that the above should not happen, U.S. being one of the world’s best liberal democracies which encourage talent from worldwide, a technology leader and has created a great country by encouraging immigration and making it a multi ethnic and multi cultural state. Collapse of U.S. may also mean collapse of various good institutions and collapse of liberal values and Freedom.

Despite our wish, the way U.S. economy and Financial system is moving, it looks like U.S. may end up either disastrously or create enormous problem for world countries (it’s so called enemies with whom it always wages ‘war to end all wars’) through its military might.

I’ve given below opinions from two great brains as to how a bomb scare of different kind is tickling in U.S. and how ultimately its financial system would have a complete break down.

‘Bomb scares from terrorists have unfortunately become ubiquitous in recent times. But according to Russell Napier, strategist at CLSA Asia-Pacific, mankind is now faced with a bomb scare of a different kind – that of the ‘public debt bomb’. He believes that within the timeframe of a decade, the public debt bomb in the US will explode and push the US government into bankruptcy, thus forcing it to impose capital controls to prevent a ‘flight of capital’ to Asia. This is because Asia will be one of the few places in the world where currencies and asset prices will appreciate even during this time.

By flight of capital, he means that private capital may cease to be willing to finance US government debt, and may even stop wanting to hold currencies of the Western countries, rather preferring to hold currencies of Eastern countries like India and China. To put a check on such a flight of capital, he expects the US government to go to the extent of imposing capital controls. While economic forecasts are usually quite unreliable, what does seem plausible in his argument is the unnerving fact that credit in the US is today bigger than what it was when the recession began. Public debt is thus certainly a hazardous bomb set to explode!’

‘The US has launched a massive offensive in Latin America and has bombed its key cities’. Well, this might be a figment of our imagination right now but if veteran investor Marc Faber is to be believed, the event could actually play out in reality in few years. Speaking to a leading daily, Faber, the author of the Gloom, Doom & Boom newsletter believes that the fiscal and monetary responses in the US and elsewhere have solved nothing and postponed everything. And hence, when the moment of truth will finally arrive, there will be a total breakdown of the financial system. But before that, it is highly likely that Governments will continue to print more money, leading to high inflation rates, lowering of standards of living and eventually, wars. Faber heaped further criticism on the US dollar and believes that it is a doomed currency and is in fact, the ’short’ of the century.

However, people staying in Asia especially in countries of China and India have little or no reason to fear as he believes that these countries are living in exciting economic times and these regions could see continued prosperity for years to come. Of course, as he very rightly pointed out, Asians should learn to grow from within the region rather than through exports to sick countries.’

(with inputs from Equitymaster)

This is how Buffett makes his Billions

Muthukrishnan — Fri, 25 Sep 2009 13:04:23 +0000

We were all surprised a year ago, when Warren Buffett bought US$ 5 Billion of Goldman Sachs preferred stock. After all, Lehman Brothers had just collapsed and Wall Street was tottering. Moreover, Buffett’s past involvement with bankers like Salomon Brothers had turned out to be time consuming affair.

But then, he rarely passes a good deal, even if there is bad news all around. In fact, especially when there is bad news all round. The next day Buffett had said, “The price was right, the terms were right, and the people were right.” Buffett also secured a margin of safety from the terms of contract – a 10% dividend and also the right to buy US$ 5 Billion of common stock at a strike price of US$ 115 per share.

A year later, his decision has turned out be correct. Buffett’s investment in Goldman has made Berkshire Hathaway richer by US$ 3 billion in twelve months! Given the current share price of Goldman Sachs at US$ 183, the warrants alone are worth US$ 3 Billion ((US$ 183 – US$115)*45 m warrants). Of course, the warrants were not available to the ordinary investor in the US . But then, all he needed to do was buy the common stock to comfortably outperform the broader market. Easier said than done! Don’t you wish that Buffett could invest for you too?

(Courtesy: Equitymaster)

We need Trillion Dollars- How much you are Saving and Investing?

Muthukrishnan — Fri, 18 Sep 2009 00:51:25 +0000

It is not surprising for us to find that the per capita consumption for Indian households in almost every category of consumables is amongst the lowest in the world. While one might think that this is because of our colossal population, let us assure you that is not the whole truth. This is because even as a percentage of GDP our consumption expenditure has fallen from 77% in FY02 to 67% in FY09 (source: CMIE). This is because Indians have been more inclined towards saving. So much so, that we are today amongst the highest per capita savers in the world. And now, we are expected to save even more! A trillion dollars over the next ten years to be precise.

As per the latest Goldman Sachs report, India will require US$ 1.7 trillion in financing over the next decade to meet its infrastructure needs. This estimate tops both Goldman Sachs’ earlier estimate of US$ 620 billion as well as our government’s 11th Five-Year Plan (2007-2012) infrastructure spending of US$ 500 billion. Even if the financing for the 11th Plan have been accounted for, we will need at least a trillion dollars more to execute the investments required.

Goldman Sachs expects most of the infrastructure investment to be funded by India’s domestic savings without significant recourse to external borrowings. This belief stems from the trend of rising domestic savings rate and robust balance sheets of private sector companies. Goldman Sachs has pegged the gross savings rate in Asia’s third largest economy to rise to 40% of GDP by 2016 (from 38% in FY09) and remain at high levels for well over a decade. These savings will be pertinent to fund public private partnership (PPP) projects that are estimated to fund 30% to 50% of the total infrastructure investment in the next decade.

While there is no denying the fact that India’s favourable demographics has the potential to deliver the savings required, whether the same will be optimally utilized is the question. Doubling the country’s electricity generation capacity and the length of paved roads besides adding substantially to our railway, irrigation, port and airport networks in 10 years seem uphill tasks given our poor track record. However, as per Goldman, these are all required to achieve better GDP growth rates in the next decade.

What is even more important to note is that for this plan to fructify, India’s household savings must be intermediated through the financial sector (pension funds and the like) to the government, which then spends on infrastructure. India’s infrastructure build up and financing thus presents enormous opportunities, not just for producers of capital goods, developers and raw material providers, but also for financial intermediaries. However, in the same breath we need to mention that red-tapism and corruption could erode plenty of these savings. Quoting an earlier Goldman report “Indian companies on average lose 30 days in obtaining an electricity connection, 15 days in clearing exports through customs, and lose 7% of the value of their sales due to power outages”.

The conflux of the increased infrastructure spending requirements and the burgeoning fiscal deficit leaves India with only one viable option to meet its forecasted growth – substantially stimulate the private sector’s participation in infrastructure. The PPP route is being touted as the best bet at leveraging private sector participation into the sector.

So, how much are you saving and investing?

(Courtesy: Equitymaster)

Global Financial System needs more Failures & How Good Regulations saved us!

Muthukrishnan — Thu, 17 Sep 2009 07:38:23 +0000

It’s been a year since the demise of Lehman Brothers, a catastrophic event that deepened the credit crisis, sent the financial markets into a tailspin, froze credit and caused governments across the world to bail out big institutions that were hitherto deemed ‘too big to fail’. What is more, since then a debate has raged worldwide whether preventing Lehman Brothers from bankruptcy would have alleviated the crisis that ensued.

As reported in the Economist, while from a purely economic point of view the failure of Lehman hit global economies very badly, from a political point of view bailing out financial institutions then drew considerable criticism as it created moral hazard. Infact, the Economist further reported that at some point political pressures would have required a big firm to go bust. After all, it was only after the Lehman incident that global governments got into damage control mode.

Interestingly, investment guru Jim Rogers believes that the global financial system needs more failures like Lehman Brothers to restore a functioning free market. This is what he said, “Market fundamentals are that failures should collapse and be replaced by creative new forces rather than being propped up as zombies. Financial institutions have been failing for centuries and the world has survived.” We believe that bailing out the financial system was inevitable given the enormous pain that would have followed. Having said that, mechanisms will have to be built into the system that will ensure that such a financial blunder is not repeated in the future.

Good regulation is what saved the Indian banking sector from throwing up the likes of Citibank after the global subprime crisis. While the formal Fed chief Mr. Alan Greenspan has criticised the excessive regulation in countries like India, we also have credible voices supporting our cause. Mr. Raghuram Rajan, the former chief economist of the International Monetary Fund (IMF) who also chaired a committee on financial sector reforms in India, believes that all India needs is ‘clever’ regulations. The economist who was amongst the few to predict the financial bubble in the West, has in an interview to a business daily, said that the global economic damage was largely inevitable due to the underlying rot already present in the system.

According to Mr. Rajan while government intervention, particularly in Western economies has helped quell the panic, the same was not without having long term impact on fiscal balances. Further, Mr Rajan has advocated RBI’s focus on expanding access to financial services like savings and insurance rather than pushing credit down the throats of the poor. His views certainly hold significance in the light of financial sector reforms required for the evolution of Indian banking sector.

Also please refer to the article I wrote in October’08, how RBI, particularly the then RBI Governor Dr.Y.V.Reddy saved our banking system from collapse, when world over Financial institutions were crumbling. This article was appreciated by many and I’ve given the link below, if you are interested in reading the same.

http://wisewealthadvisors.wordpress.com/2008/11/29/thank-you-drreddy/

(with inputs from Equitymaster)

Money Mantras….(14)

Muthukrishnan — Tue, 15 Sep 2009 02:13:24 +0000

Here are the ‘Money Mantras’ for this month. Surprisingly, this article does not contain any quotes of my dear master, Warren Buffett. Just for a change ! Relax, Read and Enjoy.

1) The safe way to double your money is to fold it over once and put it in your pocket. – Frank Hubbard

2) Inflation hasn’t ruined everything. A dime can still be used as a screwdriver. – Anonymous

3) They who are of the opinion that Money will do everything, may very well be suspected to do everything for Money. -George Savile

4) The only reason a great many American families don’t own an elephant is that they have never been offered an elephant for a dollar down and easy weekly payments. -Mad Magazine

5) “Your money, or your life.” We know what to do when a burglar makes this demand of us, but not when God does. – Mignon McLaughlin

6) A bank is a place that will lend you money if you can prove that you don’t need it. -Bob Hope

7) If you lend someone $20, and never see that person again, it was probably worth it. -Author Unknown

Money is neither my god nor my devil. It is a form of energy that tends to make us more of who we already are, whether it’s greedy or loving. -Dan Millman

9) Women prefer men who have something tender about them – especially the legal kind. -Kay Ingram

10) Money frees you from doing things you dislike. Since I dislike doing nearly everything, money is handy. – Groucho Marx

Tidbits : George Soros, Police Station for Power Theft & Micro Enterprise Employment

Muthukrishnan — Tue, 08 Sep 2009 00:09:25 +0000

1) This man surely knows how to profit from both, stock market boom as well as bust. Take the case of the latest financial crisis. Last year, when most of the hedge funds were in damage control mode, trying to avoid bankruptcies, this man went ahead and returned a hefty 10%, which investors in the developed markets would accept gleefully in good times let alone the cataclysmic 2008. We are indeed referring to the hedge fund titan George Soros. As per a leading financial portal, Soros, also known as the man who broke the Bank of England, had 14% more assets to manage in the month of July under his eponymous fund as compared to the start of the year. On a YoY basis, the growth in assets is even more impressive at 41%, easily making him one of the most powerful hedge fund managers in the world.

Indeed, during this entire financial crisis, the man’s clairvoyance has shone through. He was not only among the few to successfully predict a big financial tsunami but was also among a select group of people to argue earlier this year that the world economy has hit a bottom and that stocks could rally. And he seems to have put his money where his mouth was.

2) After police personnel posted especially to guard politicians, India is now going to have its first police station exclusively to guard electricity. Yes, you read right – electricity. At least three sub-inspectors and a dozen constables would comprise this station, which is slated to come up in Agra where power theft is the cause for almost half of the electricity consumed. But power theft is not the only major problem that is facing the country. The cost of power sold by a number of power generating companies, especially during periods of high demand, has been extremely high, thus leading to huge jump in prices. Seems like as much as India needs power, it is being deprived of the same!

3) When it comes to manufacturing, size does matter. And this is the mantra that the Chinese policymakers have adopted to such devastating effect that they have left competitors like India far behind. A recent study by the ADB (Asian Development Bank) and analyzed by LiveMint, has revealed that -micro enterprises that employ less than five people account for 61% of manufacturing employment in India as compared to just 8% in China.

Now, combine this tiny piece of statistic with another one which says that on an average, labour productivity in micro-enterprises is just one third of that existing in small enterprises (establishments that employ less than 50 people) and it becomes clear why India lags China in manufacturing. Not only this, there is enormous wage differential between micro and small and large enterprises, thus giving rise to huge inequality.

Clearly, if India has to become a force to reckon with in manufacturing and foster an environment of more equitable income distribution, constraints that prevent larger enterprises from taking shape like restrictive labour laws, red tapism and many others will have to be removed on a priority basis. Otherwise, the huge demographic advantage that we have is in danger of grave under utilisation.

(Courtesy: Equitymaster)

India’s worst monsoon!

Muthukrishnan — Tue, 01 Sep 2009 10:23:08 +0000

The anxiety over the monsoons remains as water levels in India’s main reservoirs are still at only 42% of capacity as on August 27. This is on the back of India’s poor monsoon season this year, which is set to be the worst in last 40 years.

What’s more, the slow filling of reservoirs is also putting winter crops and power generation in the limbo. The weather bureau has said that September rainfall may improve, but even then, this year’s monsoons would still be about 20% below normal.

The deficit rains have badly affected India’s rice crop and have also hit soybean, cane and groundnut crops. They have also disrupted the flow of water into the main reservoirs that are vital for hydropower generation and winter irrigation.

Though India emerged relatively unscathed from the credit crisis when compared to the West, the monsoon related problems might just end up being the country’s biggest problem area.

(Courtesy:Equitymaster)

The Truth about Inflation

Muthukrishnan — Tue, 01 Sep 2009 09:37:49 +0000

In the September issue of ‘Gokulam Kadir’ (A DinaThanthi Publication), my interview on ‘the truth about inflation’ has been published.

Please see the page numbers 28 & 29 of the magazine for reading the above article. It is not possible for me to attach the PDF file along with this article. Kindly bear with me for the inconvenience.

Please read the article and feel free to share your feedback.