July 2011 – Page 2

Who should you listen to?

Last week Hemant wrote an excellent piece about how talking heads on TV keep getting wrong all the time, and then come back on TV, and give some more advice.

That post largely deals with who you shouldn’t listen to, and in my mind, the obvious next question is who do you listen to?

Thinking about this question led to a bit of introspection, and I thought about some guidelines that I follow and have created over the years. Obviously, I didn’t sit under a tree for years contemplating about this question, but they evolved over a period of time watching and learning what works, and what doesn’t. What you see below are 6 guidelines that are like second nature to me.

1. First, stop listening to people who get it wrong most of the time: There is no one in the world who doesn’t make mistakes, and get it wrong, so if I look for someone who never makes mistake I’ll not be able to listen to anyone at all.

However, if you get it wrong over and over again, and are more wrong than right, then I don’t want to listen to you. You will just drop off my radar, and I won’t spend any time listening to you.

2. Stop listening to people with heavy biases: For a long time, I couldn’t figure out why obviously smart people say wrong or misleading things. But when you read about things like paid news phenomenon, and about cultural, ideological and other biases you understand that your best intention is not always on the mind of people who are on TV or are writing in the news.

Being a blogger with a reasonable audience has helped me experience this first hand. I come across a few pitches every once in a while (not often) about reviewing a product in return of something. It’s always subtle, but I can only imagine the “temptations” that prominent TV personalities must have.

If I see someone harping one side of the story, and denying obvious truths then that person will drop off my radar as well.

3. Start listening to people you can understand: Clarity of thought and speech is something that I value a lot, and I believe that if someone can explain something to me in simple language that person has a really good grasp on the subject.

Complexity, jargon and high sounding words sound impressive to a lot of folks, and I feel that it’s generally true that people get impressed by things that they don’t fully understand precisely because they don’t fully understand it, and are awed by it.

However, it takes a really knowledgeable person to not only understand complex subjects, but be able to explain them in simple words so that everyone else understands them as well.

The best example I can think of is Warren Buffet. I’ve read most of his letters, and lap up everything he says, and everything is just so easily understandable. It’s incredible how easy he makes it sound.

4. Please back it up with data:Â There is never any shortage of opinions, but there is always a shortage of opinions that are backed by meaningful data.

I remember once there was an agent here harping on the benefits of ULIPS, and how they are so much better than mutual funds, and gave some six or seven points about them. I replied asking for numbers to support any of those claims, and the person replied asking what data I wanted.

If I need to tell you what data you should give me to prove points that you’re making, then I’ve already wasted time reading, and replying to one of your comments, and I don’t intend to waste any more time in that conversation.

You are welcome to have opinions, but if they are not backed by facts and figures, it’s hard to take them seriously.

5. Listen to the best: If you wanted some general advice on advertising why not read Ogilvy’s two books? Wouldn’t he be the first one you approach if you had an advertising related question, and had access to him? Why not take advantage of whatever he is written and is publicly available.

I take this example because I see thousands of bloggers following other moderately successful bloggers and “internet gurus”, but never consider reading stuff from the gurus who have handled multi million dollar advertising accounts, and have been in the business for ages. Same is true for other fields as well.

6. Differentiate fact and opinion: I read this headline yesterday:

Gold Powers To New High; No Signs of Top Close at Hand

The part before the semi – colon is fact. It’s true that gold powered to new highs, but the part after the semi colon is opinion. It might be the opinion of the columnist, a poll of economists, or some commodity expert, but it’s an opinion.

The editorial pages in a newspaper are supposed to contain the opinion of the newspapers, and the rest of the paper should theoretically contain facts devoid of the ideological or other biases of the paper, but you hardly ever see anyone practice this rigorously.

By their very nature, blogs tend to be more opinionated because they are driven by the personality of the author. This piece itself is an opinion piece which is nothing but things that have worked for me.

There’s nothing wrong with seeking opinion but it’s important to know opinion from fact, so you can decide for yourself, and not confuse the two. It would be nice if papers, and bloggers were more sensitive to this, but that’s not going to happen, so you need to develop an alertness to this yourself.

Conclusion

These guidelines have become second nature to me. I can’t read something or listen to someone without evaluating them on these parameters whether I am consciously aware of it at that time or not.

What about you? Do you have any definite thoughts on who you want to follow, and who you want to ignore?

Edit: Removed an extra “the” from the Differentiate….sentence.Â

Muthoot Gold ETF Loan

I guess it was only a matter of time before this product was introduced. Muthoot Finance, which is India’s biggest lender against gold has said that they are going to start lending against gold ETFs too.

This was reported by several newspapers last week, and it’s a fascinating development in the gold ETF world. The first thing that came to my mind was that they can’t be worried about fraud at the ETFs if they are willing to accept that as a collateral instead of physical gold.

The second thing was didn’t someone recently ask about something like this?

About 3 or 4 weeks ago someone had emailed and asked if it was advisable to take a loan against gold, and then buy more gold with it because gold can only go up, right?

My predictable response was that it was a bad idea, but until today I hadn’t realized how bad it was. The Muthoot website shows that currently you can borrow Rs. 1,100 per gram of gold at an interest rate of 12%.

I don’t think it makes any sense at all to borrow at these rates with this little for the purpose of trading in gold! I can understand someone feeling the pinch, and having to pledge their gold to get money, but for trading? I don’t think so.

Business Standard reports that Muthoot is going to allow you to get up to 85% of the gold ETF value for a loan of up to 3 years at a diminishing interest rate of 24%.

I think they might have other options as well where they allow you to take a lower amount for your ETF, and charge a lower rate of interest, but even those should be comparable to the gold loan interest rates, and therefore will be bad to borrow and trade with.

I can understand that gold loans are an important way for some people to tide over rough times, and this will only broaden the options available to such people, and while that makes absolute sense to me; I can’t see this being a good way to leverage up, and trade in gold.

But I know for a fact that a lot of the lending will happen to trade, and especially if everything can be done online. If people have to take print outs of Demat statements, and fill up forms etc. then that acts as a bit of a deterrent and ETF loans for trading may not catch as much appeal as margin trading does, but if it is all online then that is more encouraging.

What happens only time will tell, and hopefully it will prove that I’m being unduly skeptical.

Image by Hair Flick

Book Review: The Memory Book: The Classic Guide to Improving Your Memory

During the weekend, I read The Memory Book: The Classic Guide to Improving Your Memory at Work, at School, and at Play. As the name suggests, the book has techniques to improve your memory, and as someone who is really absent minded, and has a poor memory, I found it quite useful.

I was familiar with some of the techniques mentioned in the book, and while I read the first 100 pages or so I thought this was good material, but was more apt for a 4,000 word essay than a book.

The first few chapters discuss the basics of memory techniques which involve things like creating a story out of the things you want to remember, form a link between them, and I’m quite familiar with those techniques, and have used them in the past with some success. However, the authors improvised on the technique I already knew by their advise of forming truly ridiculous stories and images in your mind, and in the brief time that I’ve used this method – I can say that it works far better than just making plain vanilla stories.

I enjoyed the chapter about absentmindedness quite a bit because I could relate to that quite a bit, and there are several times when I open the fridge, and stare at it not remembering what I wanted to take out. Their advise of being “originally aware” and visualizing what you’re planning to do is quite effective, but the hard part is to remember that you have to visualize everything!

Up until this point, I thought that the book was good, but all this material could be easily condensed into a longish article, and was probably not enough material for a whole book.

The next few chapters changed my opinion as they introduced me to something I wasn’t aware of, and what I feel is a very powerful memory technique if you learn to apply it.

These are to do with remembering long string of numbers like say 432780370182733. The technique is assigning a phonetic sound to each number, and then learning to build words and phrases using these phonetic sounds, and then transposing the words back to numbers to recall the original number.

This is quite an involved method, and will probably take months of constant practice to master, and I think it will take at least a month or so to become so proficient so as to make this practical.

Whether all this work is worth it to learn a technique to remember numbers that can be easily stored in your smart phone?

I don’t know the answer to that for you.

But for me, I’ll try the technique for a month, and if I can master it in that time, I’ll continue using it, else I will probably move on to something else.

I’m happy to say that I have already memorized some of my credit card numbers using this technique; something I wanted to do for years, but found very hard.

Other chapters that I liked were the technique of remembering names and faces, and if I can master that then that will definitely be a very useful thing to have learned.

Overall, I quite recommend The Memory Book, and it is a useful read for everyone who wants some techniques to improve their memory and willing to put some work in it.

Puzzles for the week ending 16th July 2011

The small percentage of you who have Liked the Facebook OneMint page would have noticed something new this week. I created some small puzzles, and shared them there.

These are small word games that I enjoy, and I wanted to see if OneMint readers will be interested in this kind of thing or not.

They are just a few words, so don’t deserve a full post of their own, but I thought I could consolidate everything shared in the week, and publish it today.

This is just for fun, there are no rewards for guessing the right answers, just the simple pleasure of getting it right.

Here are the four puzzles.

1. What is this quote, and which famous historical person has supposed to have said this? You don’t normally associate him stock markets.

Vowels have been removed.

_ c_n c_lc_l_t_ th_ m_t__ns _f th_ h__v_nly b_d__s, b_t n_t th_ m_dn_ss _f p__pl_

2. The name of a country which was in news today is hidden in this sentence. Can you find it?

“The rebels were constantly at war, but the ceasefire landed them a deal which they could have never otherwise hoped for.”

3. Puzzle:

My 1st in Red but not in Fed
My 2nd in Eager and also in Meager
My 3rd in Ship and also in Street
My 4th in Heaven and also in House
My 5th in Figure but not in Fright
My 6th in Figure and also in Fright
My 7th in Waffle but not in Warren
My 8th in Oil but not in Food
My 9th in Tennis but not in Football

My whole is what a PM must do.

4. Puzzle: Can money buy wisdom?

Can you go from “RICH” to “WISE” in 3 steps changing one letter at a time, and making a valid word every time.

Example: CAT to DOG – 1. COT 2. COG 3.DOG

Leave your answer in the comments, and if you want to submit one of your own – that’s great too!

Pork in China, Call Centre in UK and Saris in USA

India is not the only country with inflation problems; China has its own inflation problem as well, and much like India, it’s showing up in high food prices. However, unlike India, they are worried about high pork prices. Apparently, China is the biggest consumer of pork in the world, and pork prices have risen by 40% in this year. This has the Chinese government so concerned that pork prices are finding frequent mention in their Premier’s speeches. Beyond BRICS has an interesting story on this.

BBC reports that Aegis, the Indian offshoring arm of Essar will create 600 jobs by opening up a call center in Manchester. It will be interesting to see if this trend catches on.

WSJ on an interesting start up named Borrow it Bindaas. This start up offers saris for rentals in the US. The premise behind it is that there is a big enough market in US of people who are interested in wearing saris for special occasions, but not spending a lot of money buying them.Â These people can rent out saris from the website at a lower cost, and return it after the occasion.

I’ve shared Paul Adams’ presentation on the blog before, and I was really looking forward to read what he said about Google Plus because Circles is exactly what he was talking about almost a year ago. Here is the post with his thoughts on Google Plus.

He also wrote an equally fascinating post on why he left Google to join Facebook.

Devangshu Dutta has a great article on the times when cell phone charges where Rs. 16.80 / minute. Liberalization and competition have improved the choices, options and employment opportunities for many Indians, and we need more liberalization to generate even more employment and opportunities in the country.

Finally, Hemant did a brilliant post on talking heads on TV who keep predicting market trends, keep getting wrong, and come back on TV to give some more crappy advice. It’s a great read.

That’s it for this week. Enjoy your weekend!

Shriram Transport Finance NCD Bonds Have Been Allotted

Mithlesh, Jay and Ravikumar left comments yesterday informing everyone that the Shriram Transport Finance NCDs have been allotted and can be seen in their demat account now.

I know that people who apply for bonds are often looking for this kind of information, so I thought of doing a post about it.

The good news is that bonds have been allotted and people are seeing them in their demat account, but the the bad news is that the ratio of allotment has been quite low for retail investors.

The ever reliable Shiv left a comment with the link to where you can check the allotment detail, and the ratio in which the allotment has been done.

Check Shriram Transport NCD Allotment here.

Here is the allotment ratio.

I think people who applied for these bonds to hold them for the long run will be fairly disappointed with these low numbers, and especially so because there were news reports of gray market activity on the bonds due to which brokers and speculators applied through the retail segment, and crowded out the genuine retail investors.

It will be interesting to see how much premium do these list at, and if they list at a substantial premium then it will be proof that the gray market game is working in the favor of the brokers. I hope that doesn’t happen because it will only encourage more gray market activity in future NCD issues, crowd out the retail investors, and as in the case of IPOs, we’ve seen that these things don’t end well and it’s the small guy that loses out in the end.

P.S. This is not the website of Shriram Transport Finance – this is like a news website, and I can’t send your bonds to you.

P.P.S. Here is a link to Shiv’s profile and contact numbers if you’re interested in these kind of bonds in the future, and are in the NCR region.

Do you bank with Co-operative banks?

Yesterday someone left a comment about a fixed deposit with a co-operative bank called Mogaveera. Here is what he said.

Mogaveera Co-Op Bank is offering 10.25% for normal customers and 10.50% for senior citizens. These are for a tenure of 13-18 months. Excelent yied of around 10.93% and 11.21% respectively.

They do have some Tax benifit scheem.

These guys are in the market since 1946 and are doing well.

This isn’t really that great an interest rate, and some banks are giving interest rates close to this. We have also seen that some NCDs have also been offering interest rates around this number.

In general, my perception is that trouble with co-operative banks is much more common than trouble with other banks, and at present I can’t think of any reason why I would want to bank with a co-operative bank.

This perception was only made stronger when I Googled Mogaveera co-operative, and found these results.

In 2003, 6 directors resigned against activities of the then chairman, then in 2004, the same chairman was arrested by the police for duping the bank of Rs. 7.9 crores. In 2006, RBI fined the bank Rs. 5 lacs because they were giving advances to the relatives of the promoters.

Admittedly, these are old stories, and I didn’t research more to see what happened of the cases, or what became of the people who had deposits in the banks, but if you were going to put your money in a bank you should be aware of such things.

If you have dealings with co-operative banks then another good thing to be aware of are the press releases issued by RBI on action it takes against co-operative banks. Recently it has penalized Mehsana Urban Co-operative Bank and Kodagu District Co-opearative bank. These penalties can act as an early warning system, and you can either search for them at the RBI website periodically,Â or create Google alerts for them, and have the notification sent to you if they come in the news. Creating Google alerts is probably more practical, and efficient as you will get the news in real time.

Equity mutual fund dividends will be taxed under the Direct Tax Code

Sudha wrote a comment a few days ago about the effect of Direct Tax Code (DTC) on dividends from equity mutual funds, and I’ve been meaning to do a post on it since then.

Currently, dividends from equity mutual funds are completely exempt, which means that there is no tax on them at all. Equity mutual funds are unique in this because equity shares are taxed using the dividend distribution tax, and so do debt mutual funds. This tax is collected from the company or the fund issuer, and not the investor, but reduces the money you get nevertheless.

With the DTC implementation, the dividend of an equity mutual fund will be taxed at 5%, and this will have to be paid by the mutual fund holder.

(Source: Direct Tax Code, Tax on Distributed Income, Chapter VIII)

Equity Mutual Funds Dividends Taxed at 5 percent

The capital gains on these mutual funds will be taxed at redemption as well, so with the new DTC rule coming in, it’s better to buy the growth option of these equity mutual funds than it is to buy the dividend option.

Even without this option I’ve been in favor of putting money in growth option rather than dividend option because that allows your money to compound for longer, and helps it grow.

I constantly hear people talking about getting money from dividends to pay off some other expense like a insurance payment, or an ELSS payment, but that doesn’t make much sense to me.

It’s true that you “feel” that a payment was made without money going out of your pocket, but it’s your money regardless! Now, you have that much less invested in the market and reduced from your net worth.

On a semi related note, I know that a lot of people who have credit card debt are advised to start using cash instead of plastic because if you have to pay Rs. 1,000 in cash money it pains a lot more than if you just had to swipe a card. I can understand and appreciate this psychology, and I think something similar is at play when you can use a dividend to pay off an expense, but I can’t appreciate that, and certainly wouldn’t advise a friend to choose a dividend option for just this reason.

In any case, if nothing changes between now and when DTC kicks in – you should be aware of this 5% tax on dividends of equity mutual funds, and make a decision keeping it in mind.

How much money do people spend on food?

The National Sample Survey Office (NSSO) surveys households in rural and urban areas every 5 years, and calculates the household monthly per capita expenditure (MCSE) for rural and urban households.

This gives an indication on where people are spending their money, and is meant to provide inputs in policy formulation for fighting poverty. For example, a relatively poor family will spend more on food as a percentage of their income than a richer one, and these kind of inputs can help in decision making.

There are three categories in the survey:

Clothing, bedding, footwear, education, medical, durable goods.
Edible oil, egg, fish and meat, vegetables, fruits, spices, beverages and processed foods; pan, tobacco and intoxicants
All other food, fuel, and light, miscellaneous goods and services including non – institutional medical; rents and taxes.

When I read these categories I thought that the maximum spend will be on the third category because a lot of people live in rented houses which is a major expense for many people; even fuel, travel etc. will come in that category which again forms a big chunk of most people’s expenses. However, the results didn’t show this.

Let’s look at what the survey showed, which was done for the period of July 2009 – June 2010.

At a national level, both the rural and urban areas showed growth in their monthly per capita expenditure, but the Urban per capita expense is almost twice the rural one. This can be clearly seen in the table below.

This is probably not a surprise to anyone since you have seen several examples of the rural – urban divide, and this only works to reinforce what we already know.

The next thing to look at is how much do people spend on food in rural versus urban areas.

You can see that there is quite a significant difference between how much money people have to spend on food in rural and urban areas.

So, we have a situation where 74% of our population is in the rural areas as we saw in the unemployment numbers post, and that large workforce is mainly employed in agriculture; though the share of agriculture in total economic activity is just 19%, and even while they are primarily engaged in agriculture, they have to spend a proportionately higher sum of their income on food!

I don’t know if anyone has a magic bullet to improve this situation, but I believe that when the government eventually allows FDI in multi brand retail and allows large foreign players to set shop in India – some of this will be corrected. There is a lot of food wastage today, and it’s because of an ineffective Public Distribution System (PDS) as well as insufficient infrastructure, too many middle men, farmers not getting their fair share etc.

A lot of investment in infrastructure can only be done if you allow foreign players to come in, and I think it’s only a matter of time when they are allowed to come in, and the consequent heavy investment will improve this situation.

Book Review: The Idea of India by Sunil Khilnani

I’m currently mid way through the The Idea of Indiaby Sunil Khilnani, and I thought I’d do a review before finishing the book because I don’t think I will find anything that will change my mind later on, and it’s taking longer than usual for me to finish this book, and sometimes if I wait too long I just end up not writing about the topic.

I picked up this book mainly because of its title. I love the ring of the phrase “Idea of India”, and have often heard other people refer to it as well.

My expectation from the book was that it will weave a narrative that describes and defines what India stands for, and the things which people identify with, and stories about how a country can have the richest men in the world and at the same time have no electricity for a large part of its population.

Halfway through; that expectation has not been met.

I have not come across any such narrative so far, but rather the book has focused on the history of modern India, and spoken about things from Nehru’s economic leanings, Indira Gandhi’s emergency, economic liberalization, and other such things.

I find these things fascinating, and there are several sections that throw new light on things that you’ve heard or studied before. Let’s look at a passage from the book to see what I mean.

The bright arc of the West’s history illuminated for Nehru a silhouette of India’s future economic possibilities. It encouraged him to believe that an independent India could follow three ends simultaneously: industrialization directed by the state, constitutional democracy, and economic and social redistribution. This project was rather distant from Soviet practice, and much closer to post-war European social democracy.

While I’m sure a lot of people have read and heard about our mixed economy, usually there isn’t much digging into why things came to be that way, and what other alternatives were explored, what was the rationale, the goals etc.

Further ahead, the book states that America gave India quite a lot of aid after independence and they wanted India to develop consumer based industries that yielded returns fairly quickly. India, on the other hand was more interested in developing heavy industries and becoming self reliant, but of course these type of industries had high gestation periods. The USSR was willing to extend this know – how to India, and extend its sphere of influence, and that’s how the closer ties between the two came to be.

As far as I can remember, I’ve never heard or a read such a comparison elsewhere, so these were good things for me to learn, and understand the context of our current situation a little better.

Of course, I recognize that some of the things stated here are inferences drawn by Mr. Khilnani, and will not be accepted by other people in the know.

When you’re discussing history, you will get to see it through the lens of the writer; I don’t think there is any factual history at all. Everything is laced with the writer’s view of the world.

If you’re interested in Indian history post Independence, and are comfortable in the knowledge that this is one of many possible perspectives then I recommend this book.

However, I don’t think this book will satisfy readers who are really looking for an idea of India.

It’s not a heavy book, but it’s not light reading either, so I wouldn’t expect most people to coast through it, but if you’re interested in the topic, then the The Idea of India makes for good reading.