Category: Observations

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Observations

Does tracking insider buying and selling work in India?

In theory, insider buying or selling is supposed to be a great indicator of future stock performance.

But I wonder if it works in India.In India, insiders (aka ordinary employees) are usually the last to know anything !!

Some real life anecdotes to illustrate my point:

1.Some friends worked in Financial Technologies when all it made was Odin Software.They got stock options in the 20/30 Rs range.As soon as the stock hit 100, almost all the employees sold their shares…thinking yeh sau se upar thodi jayega.Within a year or so, FinanTech crossed into 4 figures or more !

2.Another friend worked in WNS.He had a ton of stock options.WNS listed handsomely and once the lockin period was over, he had an opportunity to sell at 40$/share.He held on as he read a research report (!) which said that WNS would be the Infosys of the BPO sector.He got out a few years later around 9$/share

3.This is an example of classy inaction.eClerx provides KPO services to clients such as Lehman,MS etc.In the financial crisis of 2008, the stock was hammered out of shape and reached sub 100 levels.No one,not the employees nor the promoters bought their own stock in their own company which they know so well.Around 2 years later, the stock crossed 700 Rs !

These examples suggest tracking insider buying/selling in India is probably a huge waste of time.You are better off doing your own research and following your own processes.

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Observations

Should fund managers declare their assets?

One of the astonishing aspects of the Indian Capital Markets scene is the abysmal size of the Indian Mutual fund industry.

The total asset size of Equity funds (including ELSS) is around 190,000 Crores Rs (around 35 Billion $) as of Nov, 2012. (source AMFI)

This is approximately 55% of the annual turnover of Reliance Industries !

While many people have blamed distributors/fund houses/Govt/SEBI for the mess that Indian MFs are in, one section that has been immune to criticism are the fund managers

There was a conference couple of years back where the panel consisted of fund managers.The moderator asked the panel about their personal asset allocation.It was shocking to hear that some fund mangers had less than 5% of their personal portfolio in equities.For most of them, their biggest asset was the house they lived in Mumbai !!

Its fairly clear that Indian fund managers don’t eat their own cooking and don’t have any skin in the game.

If ordinary muncipal corporators/govt employees are asked to declare their assets publicly, shouldn’t fund managers who manage thousands of crores in assets do the same?

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Observations

So should farmers invest like Adi Godrej ?

In an earlier post, I had written about the hypocrisy of Adi Godrej wherein Adi had told that farmers should give up their land for compensation which should then be invested in mutual funds.

Well, funnily enough,Adi Godrej does not invest in mutual funds himself.In an interview to Outlook Business, he mentions:

“By and large we don’t invest outside of our group, except for a couple of family members who may have bought shares in some other companies. We have never relied on professional wealth managers for advice and we know that the best investment for us is our own group.”Godrej invests in jewellery and homes for personal use. But that apart, he’s not a big fan of either bullion or real estate, perhaps because the group itself owns vast tracts of land (3,500 acres) at Vikhroli in suburban Mumbai and also has a realty development arm. “While equities in the short-term may not have delivered, over the long-term they definitely have outperformed other asset classes, including real estate,” says Godrej. He explains with an example. In 1963, Godrej paid Rs 1 lakh to buy his first house, a 2,916-sq ft apartment at Usha Kiran, Carmichael Road, in tony South Mumbai; early last year, he sold it for Rs 25 crore. “On the face of it, it looks like a stupendous gain but the fact is, the appreciation is just around 20% CAGR,” he points out. “Now, after we demerged Godrej Consumer from Godrej Industries in 2001, in just 11 years, the CAGR in the share prices of Godrej Consumer and Godrej Industries has been upwards of 40% and 50%.”

 

So should farmers now give up their land and buy Godrej group stocks?

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Observations

Stocks that go up 100%

When Charlie Munger started out his career, he was on the lookout for stocks which will go up 100% in the next one year.

That thought somehow stuck in my mind and I always like to analyze stocks which had an incredible run.

The list of NSE stocks that have gone up by 100% in the last year (Nov 09 2011-Nov 09 2012) are around 41:

HOTELRUGBY
PONNIERODE
ONELIFECAP
RSSOFTWARE
VAIBHAVGEM
RAJTV
JKLAKSHMI
STOREONE
JKCEMENT
GRANULES
AGCNET
AKSHOPTFBR
20MICRONS
DEN
HERITGFOOD
KSCL
VGUARD
DENORA
SEINV
PRAENG
AARTIDRUGS
ATUL
DCW
DISHMAN
HELIOSMATH
SHASUNPHAR
GEOMETRIC
SHREECEM
SANWARIA
KOLTEPATIL
SANGAMIND
WHEELS
ZICOM
RELAXO
STAR
SOMANYCERA
THINKSOFT
TIPSINDLTD
ASTRAL
HATHWAY
AARTIIND

As per academic research, these stocks should continue to rise in the next 12 months as well.It would be interesting to revisit these stocks again next year to see if that really happens.

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Observations

Investor behavior has not changed since 1688 !!

Joseph De La Vega wrote a book on the Amsterdam Stock Exchange in 1688 called Confusion de Confusiones.

Some of the behavioral insights written in his book are still valid hundreds of years later.Sample this investor behavior

Some people are always unhappy. If they have bought and the prices fall,they are unhappy because they bought; if the prices rise, they are unhappy because they did not buy more. If they have sold they are unhappy because they sold for less than they could have; if they did not buy or sell, they are unhappy because they did not do anything; if they receive a tip and they did not follow it, they are also unhappy. Everything produces unhappiness”