The Chill of Politics

In a previous article, we had discussed the impact of politics on rail stocks.

Politics plays a key role in deciding the fates of companies and sectors.As such, it can lead to plenty of warning signals for seasoned investors.

Take for instance, Jayalalithaa’s massive win in 2011 Tamil Nadu Assembly elections.

Since then (14th May, 2011) to now, shares of Sun TV (considered close to DMK) have tanked by a third.

A Raja was arrested on 2nd Feb, 2011.Since then, perceived losers such as RCom (-30%), GTL Infra (-75%) etc had to suffer devastating losses in their market capitalizations.

In 2012, assembly elections in Gujarat are scheduled towards the end of the year.Narendra Modi is widely expected to win but if he doesn’t you can be sure some corporate entities will be affected.


Forget Gold.Buy Whiskey

Gold, art, coins etc fall into a category called collectibles.The value of these collectibles doesn’t depend on any cash flow but on what price the next buyer is willing to pay.

Now whiskey too is joining the ranks of collectibles.

According to an article in FT Adviser,

If you’d bought the current best performing 250 bottles of whisky in 2008 (at auction in the UK) they would have cost £42,508. In todays’ market they would be worth £94,884, an increase of 123.21 per cent.

If you’d done the same with the top 100 bottles, the increase is 162.96 per cent and the top 10 would have gained by 297.62 per cent, according to the Whisky Hignland index.

As with all investments, the risk of getting it wrong can be catastrophic, and whisky is no exception. The bottom 10 performing bottles of whisky represent a 73.47 per cent loss in value since 2008.


Now try convincing your wife to trade in her gold for whisky !!



Hot Links: March 30, 2012

Your morning financial links expertly curated:

Foreigners find India a risky business (WSJ)

HPCL’s Bhatinda refinery becomes fully operational (BusinessLine)

Suzlon Energy: The net tightens (Mint)

SEBI Watch:Insider Trading of Shri J.E. Talaulicar (SEBI)

Havard more selective than Yale (Bloomberg)

Bashing up Warren Buffett (Daily Reckoning)

What Dan Loeb learned as an investor (Market Folly)

Wtf: Urine soaked eggs sell like hot cakes in China (Mumbai Mirror)



Better to watch Lok Sabha TV?

The Cable Digitization bill was passed by Parliament on 13th December, 2011

The Bill makes it mandatory to digitize analogue cable network for the entire country before the end of 2014 in four phases.

The first phase covering the four metros of Mumbai, Delhi, Chennai and Kolkata is to be completed by 30 June 2012.

This move has proved to be a bonanza for the market capitalizations of Multiple System Operators.

Consider the increase in share prices of these companies from 13th December,2011 till now:

WWIL (14%)

Hathway (46%)

Den (89%)

Moral of the story:Maybe it’s more profitable to watch Lok Sabha TV than CNBC !!


Nifty below its 200 DMA.Should we care?

Nifty is hovering around its 200 DMA of around 5152.

The 200 DMA holds a special attraction for market observers and technicians.

Typically, if the index goes below 200 DMA, it indicates bearish times ahead and if it goes above 200 DMA, it indicates bullish times.

Is this backed by research/empirical data?

The short answer is YES.

Mebane Faber is the co-founder and the Chief Investment Officer of Cambria Investment Management.

He has authored an excellent paper titled “A Quantitative Approach to Tactical Asset Allocation”

This paper is a must read for all market observers.In this, a timing approach is compared with a simple buy and hold approach.

In the buy and hold approach, the investor simply buys the index and holds it thru thick and thin.

In the timing approach, the following simple rules are followed:


Buy when monthly price > 10-month SMA.

Sell and move to cash when monthly price < 10-month SMA.

The paper demonstrates the superiority of the timing approach over the buy and hold approach

The catch is effect of commissions,impact costs etc is ignored while computing the returns.In the long run, I am sure they will make a difference.

But the fact remains that avoiding the markets when they fall below the 200 Day DMA enables one to sit out the worst of the bearish times.