My 2 dimes

Collateralized Debt Obligation (CDO)

noreply@blogger.com (Nitin Rao) — Wed, 22 Oct 2008 22:35:00 +0000

Today I was watching the questioning of Credit rating agency chiefs by the Congress members. They had to justify on why the rating calls could not pick up bad instruments much before the system collapsed. All I heard was diplomatic answers to the questions from the members of the congress. None of the answers would conclusively result in solutions to avoid such events in future.

While hearing all of this, there is one more instrument, which is Collateralized debt obligation (CDO) which could result in the ripple effect from the failure of a Credit Default Swap (CDS). A CDO is an instrument where debt of firms is clubbed together. What makes this instrument sweeter is the was in which they are packaged; the debt of 100 or more companies is clubbed together such that the companies with a higher default risk are compensated by companies with lower ones. This results in higher credit rating eventually. Wachovia tells Bloomberg that $254 billion worth of CDOs have defaulted so far. Today in the questioning the President of the credit rating agency division in Standard & Poor’s, who joined the firm in September last year told the Congress people that on an average the model of rating of instruments was revised as many as 2.5 times in a year. One could very well infer here that the experts could have caught the bad debt and the resulting systemic collapse well before, as the model would have evolved with respect to changing (deteriorating) economic conditions. Even though these instruments can be very complex in nature, hence difficult to rate; definitely it should not be used as an excuse by people who make a living off rating these instruments. Now a buyer of these instruments has no direct exposure to the underlying debt / loan instruments but relies solely on the ratings assigned to the CDO as a whole and would fail to correctly access his risk exposure.

The banks in Iceland too have been reported to have heavy exposure to the CDOs and it’s sad to see reports such as an entire country going bankrupt. As reported in Bloomberg, Barclays Capital estimates that 70 percent of synthetic CDOs sold swaps on Lehman. So it is not hard to understand what kind of mess Lehman was in. As selling the CDO is relatively simpler due to nature in which they are packaged, the seller normally an investment bank would make a commission. On the other hand it allows firms to pool their debt and hide away their losses. What makes this instrument more prone to failure is the mark-to-market accounting basis. The domino effect would come now as the CDOs have part exposure to fixed income products in the form of a Credit Default Swap (CDS). The the CDS mess has already become like a folklore and will be used as case studies in times to come.

The Nerd is Cool

noreply@blogger.com (Nitin Rao) — Fri, 17 Oct 2008 19:23:00 +0000

I feel like I am sitting in the cockpit of a F-16, the jet engines roaring, the adrenaline gushing and the crazy G-Forces, only thing it seems like a tailspin. What a time to be in the US; you get a box seat view of the events, the feeling is of your team losing. Let’s be practical, everyone is in a fix so how do we rectify it?

For starters there has already been a lot of financial slicing and dicing the financial mess on the Wall St and the Main St and I am no expert on taking full stock of the situation. As I write this there is a $675 billion bailout happening in Germany. Repeatedly, Warren Buffet has reinstated his stock buying ideology – When there greed it’s time to panic and when there is panic it’s time to be greedy and buy stocks. But I am sure not many people are willing to tread the waters in times like this. But let’s not focus on that now.

Had you been conservative and thoughtful of the long term, would you have been in panic. It pays to follow investment strategies of successful investors in the long term and read great books. Like one of the most amusing story I read about – When Warren Buffet’s father took him to meet the CEO of Goldman Sachs when he was 10 years old and then the Sage of Omaha himself coming out for the rescue of Goldman Sachs with $5 billion. Fascinating. What should we all learn from this? Patience, that’s what matters. Your thoughts and actions on your investing habits will pay off rich dividends when you will make value buys with a really long term horizon. Buffet says – when we buy a stock, think of that as if you were buying a business. Such that your whole life depends upon it. Not only you will tend to make a better informed decision but thoroughly research it before buying it.

Here are My 2 dimes in these rough times.

1. Spend conservatively. Don’t spend on things that won’t put you in a more comfortable position than you are already in.
2. Analyze more. See how many assets you have. By assets I mean what is earning you money.
3. Prioritize what matters. Think of the final goal and not just the journey.
4. Learn about your risk appetite and strike a balance between that and being risk averse.

Be more productive …

noreply@blogger.com (Nitin Rao) — Mon, 14 Jul 2008 18:11:00 +0000

The next time you have trouble reading The Wall Street Journal on the crowded New York subway, here is a quick tip. The folks at Real Simple have put together a simple tip with screenshots to make your ride on the Lexington Ave Express to Wall Street more productive. Do check out other handy tips on the site.

This kind of reading has already turned into an art form on the crowded Mumbai locals.

How ya doin’

noreply@blogger.com (Nitin Rao) — Thu, 10 Jul 2008 19:51:00 +0000

To start with, apologies for my prolonged absence here. I have had the opportunity in the last couple of months to see the financial and energy crisis unfold from the Big Apple. Here in the US, people are very polite and friendly to each other – asking How ya doin? To anyone who catches your eye. Usually the answer happens to be - I am fine.

There have been 2 long weekends in the US past me now, Memorial Day and the other American Independence Day. The gas prices here have risen by more than 30% since I landed. So there were fewer cars planning long trips on these weekends. Oil prices have already started their round of Beijing Olympics, smashing one record after the other. The prices at the supermarket too have been rising, with a woman balking at how much a bunch of asparagus costs. Since start of this year, around 500,000 people have lost their jobs in the US. Some of the companies are rethinking their strategies of manufacturing in China, as the cost of shipping goods to US offsets the cost advantage. It’s pretty much the downward slide which has been ongoing.

So what’s the real deal? People here are taking a more pragmatic approach towards things instead of believing in blind pessimism. They are just avoiding what hurts the most. Like the gas prices. Instead they just choose to stay back and go for dinners with their families at closer locations. It helps to look around for pockets of opportunity, like today Warren Buffet is financing a deal for Dow Chemicals, even though he has long concluded that US is in recession. Job data today, shows there has been a biggest drop in claims in over 3 years. The economic stimulus package seems to have worked for the retailers. So there are indeed reasons for hope. The Presidential elections are around the corner and people are hoping that things will turn around for the good.

So where are we headed. As for the oil scenario, which is the cause for bad sentiment all around, will only get worse with speculation due to winter approaching in the US. The financial crisis seems to worsen day by day – the latest being government bailouts feared for Fannie Mae and Freddie Mac. It’s a period of incertitude and hoping for the best.

So the real answer to the question above is – Not so good.

PS: Recession or otherwise some people can still afford to pay $2.1 million for a lunch with Warren Buffet at Smith & Wollensky.

US Home Loans vs. Indian Home Loans

noreply@blogger.com (Nitin Rao) — Wed, 02 Apr 2008 10:19:00 +0000

Swaminathan S Anklesaria Aiyar in The Sunday Times has written a great article by reasoning why a Subprime mess is not likely to take place in India. Is this definitely an eye opener.

Read the article here.

Also, I feel he’s a great writer and some of his earlier articles are also gems. So please find the list of other articles here.

Here’s a small excerpt.

A housing boom-and-bust has engulfed the US financial sector in crisis. India, too, has experienced a runaway real estate boom, which in a few areas is going bust. The share prices of real estate companies have crashed. Yet, India has no mortgage crisis or financial sector crisis.

Why not? Mainly because of the huge amount of black money in Indian real estate. This has saved the Indian financial sector in unexpected ways. Traditionally, US mortgage lenders checked the creditworthiness of borrowers, and then made the borrower pay at least 20% of the house value, loaning the remaining 80%. So, even if the price of the house dipped, it would still be higher than the bank's loan, and the borrower had an incentive to repay it.

Also if I may add, buying a house in India involves a lot of sentimental factors associated with it. The strong family ties, concept of a joint family or living with your parents also serve as a deterrent to just switching houses or walking away from one. While the amount of black (illegal) money in circulation in India is certainly not advocated it’s an interesting outlook into how the home loan market in India works.

On Financial Independence

noreply@blogger.com (Nitin Rao) — Sun, 30 Mar 2008 17:53:00 +0000

Laura Rowley in Yahoo Finance has written an excellent piece on financial freedom and how to use it responsibly. I think it's a must read. Here's the link.

One of the interesting excerpts from the passage:

A study by Thornburg Investment Management in Santa Fe, found that from 1976 to 2006, $100 invested in the S&P 500 in a taxable account would have grown to $3,225 -- a 12.26 percent nominal rate of return.

Factor in fees, taxes, and inflation? The real rate of return is a meager $456, or 5.19 percent.

Something on the same lines I had written some time back can be found here.

Is JP Morgan in a Quagmire?

noreply@blogger.com (Nitin Rao) — Sat, 29 Mar 2008 19:57:00 +0000

Mr. Jamie Dimon, Chairman and Chief executive of JP Morgan recently raised the bid price for Bear Stearns to $10 a share which takes the bid to $2.1 billion. This is supposed to be a fair deal, or at least fairer than the last offering, much to please the investors and the employees. But still a third less than the valuation on March 14, 2008. Valuations and the actual crisis at Bear Stearns aside the earlier valuation of $240 million or so was really a joke for a firm like Bear Stearns. The bailout by the Fed will be in end be financed by American tax payers money. One can argue that the actual fall would have been even more damaging to the American financial system.

Bear Stearns currently owns $30 billion of least liquid assets out of which $29 billion will be financed by the Fed and JP Morgan will bear losses of $1 billion. JP Morgan already has set aside $6 billion for lawsuits and merger costs. This is three times more than the cost of acquisition itself . Besides being big in home equity loans (read subprime mess), it is number one in the US in Credit Default Swaps. This really should be worrying.

What is a Credit Default Swap (CDS) anyway?

It’s an agreement between two parties to take responsibility for the credit risk for a third party entity can offer.

Alright, so what does it mean?

For a buyer:

A buyer will pay a periodic fee to a seller of a CDS to offer him protection in case a third party is to default on a payment. This offers him guarantee that his liability over this credit risk is limited.

For a Seller:

In case a third part defaults on credit taken the seller of a CDS has to pay the buyer of a CDS with whatever sum agreed. The seller here can either take over the defaulted credit position or pay upfront to the buyer of a CDS whatever is the difference.

Mr. Dimon has sure has a tough task at hand at merging Bear Stearns and keeping his own firm in sound financial health.

Time magazine here has an excellent write up regarding a potential CDS crisis.

Timing the Stock Market

noreply@blogger.com (Nitin Rao) — Wed, 26 Mar 2008 16:03:00 +0000

The money blog fivecentnickel which offers smart ways to invest and make money has pointed out a great excerpt from the book The Bogleheads' Guide to Investing which offers practical advice to investing where some real luminaries share their thoughts about timing the stock markets and by the look of things it’s definitely not a good idea.

“I never have the faintest idea what the stock market is going to do in the next six months, or the next year, or the next two.”

Warren Buffett, CEO of Berkshire Hathaway

“Market timing is a poor substitute for a long-term investment plan.”

Jonathan Clements, Wall Street Journal Columnist

“Market-timing is bunk.”

Pat Dorsey, Director of Morningstar Fund Analysis

“I’ve learned that market timing can ruin you.”

Elaine Garzarelli, Stock Investing Analyst

“If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting what’s going to happen in the stock market.”

Benjamin Graham, Investor and Author of The Intelligent Investor

“The market timer’s Hall of Fame is an empty room.”

Jane Bryant Quinn, Columnist and Author of Smart and Simple Financial Strategies

So still think you can get away with timing the markets?

Time to Cheer and Buy?

noreply@blogger.com (Nitin Rao) — Tue, 18 Mar 2008 17:12:00 +0000

The US stock markets are pleased with better than expected earnings from Lehman Brothers. This is despite the fact that it has taken a hit of $1.8 billion. It has also assured investors that its not facing a crisis like Bear Stearns and is not insolvent.

The crisis at Bear Stearns also didn’t seem huge when it reported a loss of $854 million on January 8. The Fed for sure is taking steps to ease liquidity with UBS advocating a 100bps rate cut for things to smoothen out. But it should really be also taking care to prevent such liquidity crisis from happening again.

Our Indian stock markets will surely rally tomorrow based on positive cues from the US. Even though this is a thin ray of hope. So do we go out and buy the fundamentally attractive looking stocks? Yes wise men have always said - Buy on dips. But I guess the trend is negative and there is more to come. The subprime mess in the US is going to take some untangling. So we better be vigilant with all the data coming out of the US and not get foolhardy.

Slam Dunk on Wall Street: Coming Soon

noreply@blogger.com (Nitin Rao) — Mon, 17 Mar 2008 19:45:00 +0000

Slam Dunk – It almost seems as Kobe Bryant did a slam dunk on the Indian indexes today. Only thing in basketball it’s supposed to be a good thing where you score points. Here we have lost and lost big time. Close to a 1000 points. Whoa! Somebody better catch this or as they say in basketball - DEFENSE. We seem to have none of it at the moment.

The shocking growth in Indian capital goods at 2.1% vs 16.3 in the previous year has really spooked investors and market watchers. This is really bad news as capital goods are the very basis on which the Indian economy has to move ahead. Some market commentators were even talking of 4 digit figures on the Sensex soon. What’s worse is an incident which is indicative of the bureaucratic nature of our economy and the Government failing to do enough to support the economy. L&T which was the contractor for the BIAL Airport finished the project well on time. But the government citing lack of infrastructure facilities around the airport has post phoned the opening to around May 11, 2008. I have personally visited the site at Devanahalli, Bangalore and it is anything but far away from the city. The airport provides nowhere the facilities like at Hong Kong and other major airports offer to reach Central Business districts from the airport in no time.

The past week has been terrible for the Indian economy and US alike. My Twitter (my2dimes) updates say that Goldman Sachs and Lehman Brothers are about to report real bad earnings. Blackstone has already reported shocking earnings. Bear Stearns is done with and right now it’s taking stocks down with it. The dollar has sunk to its lowest in 12 years and that can’t be music to exporters in Japan and India. Chinese commodities also are facing the onslaught of US recession. The subprime write offs have actually exposed the reckless functioning of money markets in a developed economy such as the US. The surrogate bailout of Bear Stearns by the JP Morgan and the Fed, has revealed huge cracks in functioning of the financial firms in US.

The big firms in US better subscribe to lesser aggressive ways of functioning. This means cutting exposure to bad loans, positions in currencies, mortgage backed securities (a prime reason in the Carlyle Capital fallout) etc. The Fed also has to be vigilant in monitoring bad practices and give a rap to the firms who don’t comply. There just cannot be an excuse or else the fallout will be huge and the meltdown will result a Slam Dunk for many of the stocks on Wall Street.

PS: Read interesting analysis for the Indian growth story by Swaminathan S Anklesaria Aiyar

BBC on US Fed's Injection

noreply@blogger.com (Nitin Rao) — Thu, 13 Mar 2008 10:59:00 +0000

A day after Fed's injection of $200 billion dollars BBC's Business Editor Robert Peston here explains why even $200 billion won't make any sense and on Carlyle Capital which is on the brink of a collapse.

Robert Peston's Blog on BBC

Subprime Equilibrium

noreply@blogger.com (Nitin Rao) — Tue, 11 Mar 2008 19:43:00 +0000

Credit crunch, liquidity being sucked out of the system, FIIs not pumping the money, more bad news in the form of Blackstone profits (one of the major investors in India) and crude oil trading at $108 - 109 levels. Life on the stock markets is really tough these days.

Today though, the Indian stock markets showed some signs of recovery. There should be more on Wednesday based on US Federal Reserve decision to lend up to $200 billion to banks and lenders and ease liquidity. The Dow too as I write this is posting good gains based on the central bank’s decision. The US Fed Reserve is really taking some steps to thwart recession and hopefully it works for the US economy and of course that would mean good news to us too.

Point is when the Indian economy was in such good gear just 2 quarters back, has the tide turned really and all developmental activities leading to India’s growth halted. Or is it just a case of the confidence being low all over, more so because of global factors. Such that it has become a wait and watch game for Indian investors. However strong the domestic growth story may be, there is no denying the impact of the rupee on exporters even others than in the services sector. Their margins have got squeezed and which in turn has affected the local players supplying them.

So when is all this going to balance out? How long is long term to stay put in the stock markets. The rupee is going to get stronger as soon as FII start pumping money again on account of Indian growth story which in turn would hurt exporters or till the FIIs don’t pump in money the stock markets will keep searching for directions and which will hurt investor sentiments. It’s time to get the fundamentals in shape such that the Indian growth story remains intact and still provides value. It’s a time reassess business strategies and growth drivers such that investors have confidence in India and come in droves.

Dynamics of Demerging

noreply@blogger.com (Nitin Rao) — Sun, 09 Mar 2008 19:38:00 +0000

The Forbes list of the wealthiest people on the planet is out. Alright the whole world knows about this now. Warren Buffet, with a net worth of $62 billion dethrones Bill Gates as the richest man in the world. Bill Gates himself couldn’t care much or would he. May be not the rate at which he is donating money. It’s best answered by him.

The question is, can we have a new number one soon? Who can dethrone Mr. Buffet? We can certainly take pride on the fact that we have 4 Indians on the list, Lakshmi Mittal courtesy his Indian passport, the richest. The Ambani brothers are 4^th and 5^th with net worth’s of $50 and $48 billion. Put together $98 billion dollars and Mr. Buffet’s fortune seems a far cry from that of the two Ambani brothers. If these two brothers get together, which is highly hypothetical, Warren Buffet would get dethroned. It would take some while before someone over takes the Ambani brothers. Considering the fact that the Reliance demerger was announced not so long ago that’s a mind boggling amount of wealth created in about 2 years. January 17, 2006 was the last day when the Reliance stock traded on the bourses after which it was split into various businesses.

The two stocks which traded already, have got revalued - Reliance Capital and Reliance Energy. Save for the recent fall in the markets listed companies from both the camps have made investors and promoters alike, rich to a great extent. One could not think of this before demerger, may be only Mr. Mukesh Ambani would have been picture perfect on the Forbes list. While from a family perspective not the best of things to happen, kudos to both the brothers for master minding this.

While all things considered, it remains to be seen how much our Indians contribute to philanthropic deeds as compared to Bill Gates and Warren Buffet.

Read here: Appreciation for our Indian billionaires.

On why, if the US sneezes

noreply@blogger.com (Nitin Rao) — Thu, 06 Mar 2008 12:41:00 +0000

… India can catch a cold. The phrase that if US sneezes India will catch a cold is very popular in the Indian media these days. It’s very true in the present global economy where businesses are no longer isolated from each other or from other parts of the world. This being evident by the hit taken by ICICI Bank. Especially true in the case of our services sector where now it has become one of the major contributors to India’s GDP.

The Oracle of Omaha, Mr. Warren Buffet has spoken. He says the US with a $9.5 trillion economy is in recession, even though technically it may not be, since it has not recorded two straight quarters of negative growth. This has to be taken seriously coming from a man whose organization’s per share book value has compounded 21% annually and who recently overtook Bill Gates to become the richest man in the World.

US GDP growth in the last quarter (Oct ’07 – Dec ‘07) has risen by just 0.6% and the IMF forecasts US GDP to grow by 1.9% in 2008. China on the other hand is looking at cosmetic ways of cooling down GDP growth. One of the biggest trading partners of the US is China and while in 2007 US exported goods worth $65.2 billion it imported goods worth a staggering $321.5 billion from China. That accounts for 40% of the exports from China. China has recorded double-digit growth in exports in almost every major sector to the US. If US growth is indeed slow; trade from both the countries India and China with the US will slow down. China would not get affected much as it’s anyway looking to cool down it’s booming economy but if it decides and grabs this opportunity to provide more value than India to the US it’s a cause for worry. China can very well force its muscle to get a bigger pie and India better watch its step.

One of the star performing sectors for India is the services sector, read IT and IteS, which is a big chunk. Already the local players in China are giving a tough competition for Indian players who want to establish a presence in China. Not that the Chinese aren’t experts at fields other than the core sectors. China’s search engine giant Baidu is giving tough competition to even the Internet behemoth Google.

While the Chinese growth has largely been government led, Indian organizations will have to find their own feet and keep going without the government’s help while they are busy playing their bureaucratic games.

As the Chinese say - “May you live in interesting times”.

FM delivers what was expected

noreply@blogger.com (Nitin Rao) — Fri, 29 Feb 2008 19:25:00 +0000

Yes our FM has delivered what was expected and that is a populist budget. With the assembly elections looming ahead, the timing couldn’t be more apt and he is right on cue to please the Indian populace by raising the income tax limits to Rs. 180, 000 and Rs. 150, 000 for women and men respectively. Or maybe, he could have raised the tax exemption limit from Rs. 100, 000 to Rs. 150, 000 to encourage savings. This is open for debate.

The one thing that definitely doesn’t make sense is the raising of Short Term gains tax from 10% to 15%. This can have two fallouts; either it doesn’t encourage day traders and a lot of people who are new to the stock markets to book profits early and periodically or a lot of people who book handsome gains but would shy away from actually disclosing their profits to avoid tax.

Yes one might argue this would do well to cultivate and inculcate values of long term investing which is free from any tax. The Great Indian middle class who is slowly waking up to virtues of investing in the stock markets would be wary of these kinds of taxes. It’s generally seen these tax structures are a big deterrent to a layman who has never invested in the markets and such news would certainly add to the confusion. The recently listed Reliance Power IPO has also dented many a first time investor’s confidence. Also it’s a little harsh on the day trader who handsomely contributes to the volumes in the stock markets and lends liquidity.

Meanwhile let’s celebrate, after all our wallets are going to a little heavier this year J

Mutual Funds in Volatile Markets

noreply@blogger.com (Nitin Rao) — Sun, 24 Feb 2008 15:35:00 +0000

The past 3 months at the stock market have been very volatile to say the least. At times like this can we trust the experts to conjure up a decent rate of return for us? Let say instead of investing in the equities directly and we hand over this task over to the experts i.e. invest in a Mutual Fund, to be specific an Equity Diversified Fund (EDF).

Analysis shows this may not be a good idea after all. Almost none of the EDF have given positive returns, at times when a common man would have found the going tough in the markets. Only one EDF, Reliance Regular Savings Fund has given a return of about 7.5%. The performance of some of the Gold Funds has been better, with some of them giving up to 18% returns. One may choose selectively going further then.

Meanwhile in a panel of speakers hosted by the The Economic Times, Tata Mutual MD Ved Prakash Chaturvedi is of the opinion that the market will be at 18000 levels on December 31, 2008. But still feels the mutual fund managers can beat that and deliver positive returns for the investors.

Here’s a light excerpt from one of the related articles.

After Albert Einstein died and reached the gates of heaven, St Peter asked him to temporarily share lodgings with three others till he was alloted space. St Peter introduced the room-mates by their IQ levels. As two of them had IQs of over 200, Einstein decided to discuss his theory of relativity and global warming. St Peter then pointed to the third person and apologetically said he had an IQ of just 60. “No problem,” said Einstein, “We can discuss where the stock market is headed.”

DISCLOSURE: All investments are subject to markets risks and should only be done after through consultation with a registered financial planner.

REC: Is the Retail Investor Missing Out

noreply@blogger.com (Nitin Rao) — Thu, 21 Feb 2008 18:11:00 +0000

Before the Reliance Power IPO a lot of investors seemed to be sitting out of IPOs for some totally different reason; to avoid the anguish of not getting allotment. But post the Reliance Power IPO, the same investors are staying away from the fear of getting an allotment and a volatile market.

It seems like the retail investor is missing out on a decently priced issue. As of the 3^rd day it has been subscribed only 0.78 times in the retail section. Also the PE of the stock is quite lower than that of the currently listed Power Finance Corporation (PFC). The lending exposure of REC has also improved with a 27% share of power generation projects in its portfolio. With a strong thrust on Power related projects on which India’s future depends this seems like a decent stock if not one of those star performers.

Download the Prospectus.

DISCLOSURE: All investment decisions have to be taken only after sound advice from a registered financial consultant. This blog is in no way responsible for any investment decisions and exposure to the stock markets.

Plan Ahead. Get Organized.

noreply@blogger.com (Nitin Rao) — Tue, 19 Feb 2008 10:10:00 +0000

Well with many of us running around to meet deadlines to avail various tax benefits, can we plan and have a better year the next time around. Here are some suggestions to get in shape financially.

1) Early bird gets the interest.

With our income levels rising and many of us having some surplus cash to invest, invest early. Many of us must be owning a PPF Account (Guys, if you don't have one yet get one fast.) instead waiting for the fiscal year to end, invest by 1st week of April. This amount with your earlier invested amount is going to earn you a whole year's interest.

2) Get a contingency fund.

Many of us living a fast life and several dependants to take care of you never know what is going to strike you. Plan and park a decent amount of money in a risk free account (ideally a FD) to take care of those unwanted surprises.

3) Get a Life Insurance Policy.

A lot of us already must be having Life Insurances Policies already but is it really enough for your family? Well check out Term life insurance policies where you can get insured yourself for a larger sum for a smaller premium. Generally you won't get your premiums paid at the end of the term but there are some policies which will. Ask your insurance agent for this.

4) Invest regularly. Understand compounding.

Discipline yourself to save a portion of your money monthly. To achieve this check out various SIP schemes of successful Mutual Fund houses. Look out for a good history and a good track record. You will find loads of information. One good place to start is here.

If you are risk averse get a monthly Recurring Deposit account in a bank.

And yes most importantly understand Compounding. That's why getting a PPF account makes sense.

5) Get a home.

Though not easy but this is a great option for anyone who can avail of a home loan or with some surplus amount of money. While on the home loan front you can avail of attractive tax benefits. On the other it can become one of your assets. It can be a great little getaway when you want to retire. Happy Investing.

Mint – Organize your finances

noreply@blogger.com (Nitin Rao) — Sun, 17 Feb 2008 09:39:00 +0000

For readers in the US here's a useful site that will be able to help you out to manage finances smartly. This is a web application wherein you can find all your finances at one place. Also they provide tracking tools to see where your money is being spent through friendly charts, track your bills and plan your budgets.

Here's a link to some first impressions by Paul Stamatiou.

Or else visit the website directly Mint.

Indian Economy Slowing . . .

noreply@blogger.com (Nitin Rao) — Fri, 15 Feb 2008 19:56:00 +0000

With our markets turning the tide over the past few days not all confidence is back. With the Sensex putting a good show many wonder with glee of getting back into the market. Key economic data made available this week throws caution to the wind.

Industrial production for December '07 has fallen to 7.6% compared to 13.4% in December '06. Also the Core sector growth , comprising of crude oil, steel, cement, electricity, coal and refinery was 4% in Decemeber '07 as opposed to 9% in the corresponding month in the previous year. One might argue this is just a sign of the economy slowing in line with the global economy especially since our exports are hit hard due to a strong rupee. Our GDP too has been expected to grow at a rate of 8.7%

This does raise concerns over India's competitive relationship with China. Though China's GDP is slowing too; it is still growing at a rate faster than India's. To catch up or atleast maintain a healthy gap between India and China so as to not China get away with the cake we need to continuously clock growth rates higher than currently forecasted. As they say - We live in interesting times. Hope our FM comes up with his magic potion for the economy soon.

Reliance Power and a frivolous excuse

noreply@blogger.com (Nitin Rao) — Tue, 12 Feb 2008 13:22:00 +0000

Reliance Power today came out saying that global factors were to blame for it's IPO listing so terribly. Is it really so? It seems that the promoters have gone too far with their optimistic pricing and have been victims of their own game. Deep analysis shows that promoters after all have made money already and retail investors are left in the lurch.

By going through some reports about their current and projected capacities, NTPC seems to be available at a really cheap market price. How does one justify the excuse given as "global factors" when all of them or atleast most of the future projects are going to be based in India. So it seems not only they factored reasons core to their future plans but buoyancy in our capital markets rake in some moolah. Surely lot of the investors got allured by the Reliance brand name and especially a lot of them who got their demat accounts opened only for this IPO. This will not go well with the first time investors and create a general negative sentiment regarding the Reliance pack among these people.

Are the promoters only to blame for this? Reliance Power has for sure consulted the bankers before coming out with this issue. It depends upon the bankers to come up with a fair price for the Reliance Power IPO. Do they really feel that was a fair price band based on the company's growth prospectus keeping in mind the domestic focus, then why blame global factors.

Credit has to be given to the promoters about marketing the issue well for the retail investors. A discount on the upper limit and full payment not being required at the time of subscription. Oh yeah, that's sweet, it was for me too.

One hard truth is, a lot of investors have lost money and hopefully the ADAG group gives us some reasons to cheer in the future.

Markets searching for Leadership?

noreply@blogger.com (Nitin Rao) — Fri, 08 Feb 2008 18:19:00 +0000

The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) for quite sometime are showing a flip-flop behaviour triggered by global events more importantly worries of a US recession. This being the fact that the US Fed has cut interest rates repeatedly, which usually is a reason for our markets to cheer.

Should we really look for external factors before believing our own domestic story? Or is it the case of the domestic story hinging upon global factors upon which it bound to slow down in the times to come. Surely the consumerism shown by the present Indian middle class can vouch for a strong growth momentum being maintained on the domestic front.

Stocks like RNRL, RPL, India Infoline etc. had sky rocketed based on factors other than their current intrinsic values. Now the same people who had bet on their positive outlook for the future seem to have lost their belief for reasons unknown. Are we waiting for the FIIs to show us the way? Or is the time right to have the ball rolling for a year bigger than 2007.