emotion and intellect...

...faith & reason, [are] at loggerheads. On the one side, [is] pale cast of rational thought, of logic suspended on a thin thread all too easily broken; on the other [is] the raging fury of passionately held irrational beliefs, reflected in the holocausts of past and present history.

(beautifully worded - a small nugget from the book - The Psychology of Technical Analysis).

Stock market & finance - totally democratic

"I did find that the stock market and finance was a totally democratic business. On Wall Street they don't give a damn who you are or what color or religion you are - they only care about whether you know anything, which I believe is one of the best things about the money business".

by Richard Russell in this note "Deep inside the Dow" by John Mauldin.

Is the "long-term" in danger?

Peter Bernstein has authored some really insightful books on finance and investments in the past. He recently penned an article in the Financial Times - "The Flight of the Long Run". As always, a thought-provoking article. I've pasted the entire article below:

Link to the original article [here], sourced from the Financial Times

---

The “long run” used to be one of the most popular topics among investors, particularly institutional investors. In recent months, discussion of the long run has disappeared from view.

Indeed, the possibility the long run has run away is one of the few pieces of good news I have been able to find in the financial and economic turmoil of recent months.

The cold statistics have hardly been encouraging for the traditional view. On a total return basis, the Ibbotson data show that the S&P 500 has underperformed long-term Treasury bonds for the last five-year, 10-year, and 25-year periods, and by substantial amounts.

These data are not to be taken lightly.

If the long-run expected return on bonds in the future were higher than the expected return on equities, the capitalist system would grind to a halt, because the reward system would be completely out of whack with the risks involved. After all, from the end of 1949 to the end of 2000, the S&P 500 provided a total annual return of 13.1 per cent, while long Treasuries could grind out only 5.8 per cent a year.

But does this history really tell us anything about what lies ahead? Neither the awesome historical track record of equities nor the theoretical case is a promise of a realised equity risk premium. John Maynard Keynes, in an immortal observation about the future, expressed the matter in simple but obvious terms: “We simply do not know.”

Relying on the long run for investment decisions is essentially relying on trend lines. But how certain can we be that trends are destiny? Trends bend. Trends break. Today, in fact, we have no idea where any trend lines might begin or end, or even whether any trend lines still exist.

As Lord Keynes in one of his best known (and wisest) observations, reminded us: “The long run is a misleading guide to current affairs. Economists set themselves too easy, too useless a task if in the tempestuous seasons they only tell us that when the storm is past the ocean will be flat.” To Lord Keynes, the tempestuous seas are the norm. We cannot escape the short run.

There is an even deeper reason to reject the long run as a guide to future investment policy. The long-run results we can discern in the data of stock market history are not a random set of numbers: each event was the result of a preceding event rather than an independent observation. This is a statement of the highest importance. Any starting conditions we select in the historical data cannot replicate the starting conditions at any other moment because the preceding events in the two cases are never identical. There is no predestined rate of return. There is only an expected return that may not be realised.

Recent experience raises a different but perhaps an even more serious question relating to the long run. How do you frame a view of the long run from early 2009? The world has a ruptured financial system showing only fragile signs of recovery. The economic recession now encompasses the whole world. The speed of economic decline is without precedent. Government intervention is also without precedent, in its magnitude, depth, and complexity. Fiscal deficits are reaching numbers no one dreamed about even 12 months ago, yet they will have to be financed.

What kind of a long run is this mess going to produce? Was Bill Gross correct when he wrote for the December 2008 issue of Pimco’s Investment Outlook that “capitalism is and will remain a going concern, that risk-taking – over the long run – will be rewarded, but only from a starting price that correctly anticipates the economy’s growth and its share of after-tax corporate profits within it?”

Can capitalism remain “a going concern” after an extended period characterised by massive government intervention into the economy – and bail-outs of firms that would otherwise have failed? To what extent will the “going” in Mr Gross’s vision be tied to government intervention in these forms and magnitude? Or is Mr Gross’s optimism justified? Will we be able to unwind the role of government in the capitalist system as we know it and go back to the status quo ante?

Will our economy and society emerge so risk-averse after these experiences that years will have to pass before we return to a system naturally generating vibrant economic growth and a renewed willingness to both borrow and lend? Or will we head in the opposite direction, where faith in ultimate bail-outs will justify the wildest kind of risk-taking? Or will the entire structure collapse from government debts and deficits that turn out to be so unmanageable that chaos is the ultimate result?

We can neither answer those questions nor can we claim they are a complete list of the possibilities. The unknown today seems more than usually unknown. Then my whole point remains the same. The long run is an impenetrable mystery. It always has been.

---

Warren Buffett's Letter to Shareholders for 2008...

...is available here [link].

Berkshire Hathaway's annual report is available too [link].

The two documents are a must read for anyone, aspiring or seasoned investors.

Greatest hits collection on Investing Widsom...

...compiled by the Value Investor Insight team, is a useful document. It's available for free and can be downloaded from here [link].

Human Nature towards money and capital remains the same...

Wall Street, is one of my all-time favorite movies. The movie describes the human nature (and its attitude) towards money and capital in the most apt (& naked) form. It's a classic and a 'must watch' for anyone whose got anything to do with the capital markets.


The following are some of the quotes from the movie -

• It's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one perception to another.
  

• This painting here, I bought it 10 years ago for $60,000, I can sell it today for 600 [$600,000]; the illusion, has become real, and the more real it becomes, the more desperate they want it—capitalism at its finest.

• We make the rules, pal. The news, war, peace, famine, upheaval, the price of a paper clip. We pick that rabbit out of a hat while everybody sits around wondering how the hell we did it. Now you’re not naïve enough to think that we’re living in a democracy, are you, Buddy? It’s the free market, and you’re part of it.

• Ever wonder why fund managers can't beat the S&P 500? Because they're sheep, and sheep get slaughtered.

• Greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms, greed for life, for money, for love, knowledge has marked the upward surge of mankind.

• First lesson in business, don't get emotional about a stock.

• What the hell is Cromwell doing giving a lecture tour when he's losing $60 million a quarter? Guess he's giving lectures in how to lose money. Jesus Christ, if this guy owned a funeral parlour no one would die!

Awesome Movie ! Michael Douglas at is best, but for this movie, Basic Instinct wud have been his best ;)

Readings: Ten Great Investors (Warren Buffet, Phil Fisher...etc)

The following links provide a brief overview of ten great investors, viz.


Warren Buffett - Buffett is widely regarded as the most successful investor of all time, with a compound return of around 22.3% over 36 years.

T Rowe Price - Price published a sample family portfolio to show how he had turned $1,000 invested in 1934 into $271,201 by the end of 1972 - a compound return of about 15.4% over 39 years.

Philip A Fisher

Kenneth L Fisher

Jim Slater

Peter Lynch - During his tenure at Magellan, Lynch averaged 29% compound over 13 years. This remains a record for funds of this size.

Ralph Wanger - The Acorn Fund returned 17.2% annually between 1970 and 1998, against a return from the S&P500 index of 14.4%.

William O'Neil - 'Neil's track record has had its ups and downs, particularly during and just after the 'go-go' years of the Sixties. But he is thought to have averaged an annual return of over 40% on his personal account in the ten years up to 1989

Sir John Templeton - From 1954-2000, the Templeton Growth Fund averaged gains of around 15% a year.

John Neff - The average annual total return from the Windsor Fund during Neff's 32-year tenure was 13.7%, against a return from the S&P500 index of 10.6%.

The entire article can be accessed here. Nice read.

Warren Buffet's Letter to Shareholders (FY2007)

Warren Buffet's Letter to Shareholders for the year ended 2007 is now available. Click here to download. The Iconic investor had yet another year of outperformance. Gain is Berkshire Hathaway's book value amounted to 11.0% in 2007, outperforming the S&P 500 by 5.5%.

3 Dumb Reasons to Sell

Read a nice little article on fool.com on three dumb reasons based on which investors sell stocks:

1. I'm selling because the price is going down
Selling Morgan Stanley (NYSE: MS) or Bear Stearns (NYSE: BSC) because you think there will be more subprime pain to come -- pain not reflected in the current price -- is perfectly sensible. These companies created a mess for themselves, and their shareholders have been feeling the pain.

But selling a stock for no other reason than that the price is declining? That's plain dumb. If you hadn't factored into your valuation Bear's subprime exposure, then sure, sell it. Fast. But if you did, and are just fidgeting at the sight of red ink, you're forgetting that you're selling part of a living, breathing business -- not trading a slip of abstract paper.

2. I'm selling because someone told me the market is going lower
If you're selling off stocks because you read in a newspaper that a recession is now inevitable, or that the subprime crisis was only going to get worse, or that a multitude of "experts" predict that a bear market is nigh, then you're overlooking the trees for the forest.

See, as a retail investor, you have no control over the direction of the economy. Get used to it and deal with it. You do have control over the companies in your portfolio. If you've bought quality companies at reasonable prices, short-term economic movements should have little effect on the long-term returns of those businesses.

3. I'm selling and buying back in when the market bottoms
In the short term, no one knows which direction the stock market is going to move, or by how much. Trying to pick the bottom of the market is an utterly futile task. In a recent article, Foolish colleague Tim Hanson cited a study that illustrates exactly how futile market-timing is:

[IESE Business School professor Javier] Estrada studied 15 major global stock markets for periods ranging from 31 to 79 years, with the full data encompassing more than 160,000 trading days. What he found is "less than 0.1% of the days considered" actually matter to long-term returns, which means that "the odds against successful market timing are staggering."

The entire article can be read here.

BEEN THERE, DONE THAT......"whats worse".......sometimes still do it (but now only in case of instance 3).

Readings: Benjamin Franklin' 13 virtues....

1. TEMPERANCE.	Eat not to dullness; drink not to elevation.
2. SILENCE.	Speak not but what may benefit others or yourself; avoid trifling conversation.
3. ORDER.	Let all your things have their places; let each part of your business have its time.
4. RESOLUTION.	Resolve to perform what you ought; perform without fail what you resolve.
5. FRUGALITY.	Make no expense but to do good to others or yourself; i.e., waste nothing.
6. INDUSTRY.	Lose no time; be always employ'd in something useful; cut off all unnecessary actions.
7. SINCERITY.	Use no hurtful deceit; think innocently and justly, and, if you speak, speak accordingly.
8. JUSTICE.	Wrong none by doing injuries, or omitting the benefits that are your duty.
9. MODERATION.	Avoid extreams; forbear resenting injuries so much as you think they deserve.
10. CLEANLINESS.	Tolerate no uncleanliness in body, cloaths, or habitation.
11.TRANQUILLITY.	Be not disturbed at trifles, or at accidents common or unavoidable.
12. CHASTITY.	Rarely use venery but for health or offspring, never to dulness, weakness, or the injury of your own or another's peace or reputation.
13. HUMILITY.	Imitate Jesus and Socrates.

AK'Nomics and Deccan Gold Mines.

Read theIPOguru's latest article in the Hindustan Times - "Muscle and Mining" under Ak'Nomics column that is featured every Saturday. In his article theIPOguru mentioned about a stock - Deccan Gold Mines, which as of 11th Jan was quoting at Rs.116. I had invested in this stock a couple of years back at around Rs.13.5 per share. It was then more of a long-term Call Option, given the tremendous upside potential for the stock, if it were to hit gold. The company's recent annual report talks in great detail about its mining operations and also offers details on the current policy regime in India. The company's annual report and website are quite informative.

At the current market price, DGML commands a market cap of close to Rs.700 crore, that for a company which has not produced an ounce of gold so far ! Looks a little far fetched, isnt it? Maybe it is. But, then like I mentioned earlier, it should be seen more as a long term Call option, which if it clicks can turn out to be a big multi-bagger!! Ofcourse, as is the case with options, one stands to lose the entire premium paid....

For those interested in having a look at this company, here are some useful links:

- Company website.
- Annual Reports
- A long and detailed interview with Mr.Sandeep Lakhwara, MD, DGML
- DGML's current projects

Thought Leader Forum by Legg Mason

The Thought Leader Forum hosted by Legg Mason Capital Management, which took place in September 2007, had some very interesting speakers, viz.

- Michael Mauboussin (author of More Than You Know),
- Clayton M. Christensen (Innovator's Dilemma / Innovator's Solution...) , and
- Bill Miller.

Read the transcripts and listen to the webcasts of these speakers here.

Readings - Carl Icahn, the shrewdest investors

CNN Money carried a long article on Carl Icahn. Read it here.