August 29, 2009

Why there is no word called ‘Bear-sh*t

To start with, let me put the disclaimers first:

1. Normally I don’t talk about markets in this blog, as this is my gate away from the world. However, this thought came to me on a lazy Saturday morning while sipping a cup of tea, and hence I thought it qualified for being put here.

2. I have a very strong belief that most of the asset classes in the world always trade at a premium over their fundamental value – defining fundamental value as what people would earn if they indeed keep the asset till perpetuity. I have a term for it as well – the ADR phenomenon. It goes like this – any ADR can anytime be converted into the underlying stock, and hence the value of an ADR will seldom fall below whatever an investor can earn by buying the ADR and then immediately converting that into stock. So, ADRs most of the time trade at a premium to the intrinsic price of the underlying share. The price of the stock here is the ‘Opportunity Value’ of the ADR – which could be derived any time the investor wants to. The same rational goes for the stocks or any other asset class – they always trade at a premium over what people can earn by holding them to perpetuity (their “Opportunity Value’). Only in times of deep recessions and market crashes do they trade below their values. So, more than 80%-90% of the times there is a bubble in the market.

Now building on my belief about the perpetual asset bubble in the world, any rational person would most of the time expect the market to correct (looking deeper into the terminology here – market falls are called ‘correction’, while the rise in markets are given terms like ‘bubbles’, ‘frenzy’, and ‘euphoria’). So, there is an inherent bias in the market where more people always believe that markets should fall. Whether they expect the fall to happen immediately or later is where the opinion differs, but they are all united in their belief that they are over-valued. There seems to be slight sophistication in thinking ‘Bearish’ – anyone who thinks markets would keep on rising is termed a naive retail speculator, whereas anyone who can substantiate a market fall is an ‘Economist’ or a ‘Trader’. So much are the professionals in the field biased against the bulls that they have named the ultimate description of crap as ‘Bull-sh*t’.

So, little wonder that all the ‘E’s and ‘T’s of the world are united in terming the latest rally as overdone, and are predicting another crash to happen ‘any moment’. No one likes a rising market – anyone can make money there. The dumbest of people end up making the most mullah in a bull market – as they don’t have the slightest of fear about a market fall. If one was born in US in the last 1970s, and discovered their senses in mid-1980s, then he/she saw was an ever rising market. How on earth would someone explain him/her that markets could fall as well. They were living in a ‘fool’s paradise’. NNT also warned against the bull markets, and bought deep OTM options – in the full knowledge that markets one day would fall big, and he would make a killing. He did make it, but that came after years of painfully watching the market move up, and seeing all his options expiring worthless (he did get all his money back, but that was from the sale of his books, rather than from the markets). No one ever loses everything in the market – either you make money, or you learn.

In the end, everyone is right about it – but seems that if you do not think about it too much, you are right on more occasions than the rational thinkers. You might lose everything you made in just one bad year, but then, its the same with the other side as well. So next time an expert warns you against a crash, just tell him that you would rather lose money in a couple of crashes, than being worried about it for all your life. And for all the ‘bears’ in the world, there is one simple answer - ‘Ignorance is Bliss’.

August 1, 2009

IT Returns and Bills

Now I’m relatively at peace with myself. Somehow I lose it when there are too many pending things, specially things which are out of my control. Now, I have settled quite a few of things which were nagging me.

One of these were the IT-returns. Even though the process is decently simple, the complicated part was getting in touch with the CA, and then getting all those photocopies and bank statements. It was getting nightmare-ish for me to get everything at one place, and so I decided to do away with the CA. I think it makes much more sense to file your returns yourself (much like my belief that people should invest their money themselves, rather than going through consultants and mutual funds)

Other disturbing things were pending utilities bills, and a fine of the Credit Card delayed payment. I absolutely hate to pay fines, for monetary as well as disciplinary reasons. More so in this case as I had actually made the payment on time, and for some reasons the payment failed, and they had reversed the transaction in my account a couple of days later which I didn’t check. So, I had to fork out a fine of Rs 600 on a Rs 800 bill. I find this completely outrageous – and the funny thing is that inspite of this daylight robbery these banks lose billions every quarter :).

Went on to watch Harry Potter yesterday at IMAX, and the 3D part was absolutely amazing. I think the movie was decently good, though am still not sure if it was as good as the hype. This was my first Harry Potter movie, and even though I ideally planned to watch them in order, I realized that way I may have to watch all of them on small screen.