Bini's Blog

Shorting Time - High-Time??

2008-01-06T14:39:00.002-05:00

I have traditionally been a buy and hold investor for the last few years. However, with the experts predicting slow economic growth and/or recession for 2008 combined with the housing drop, I have been selling off my profitable positions for the last 2-3 months. I still hold some international positions that I think dont have too much downside and a good long-term outlook, and of course some laggards. I have been sitting mostly on cash and watching the markets. I added money to couple of CDs before the two rate drops we had recently - which have given me better returns than the S&P 500 in the same timeframe.

As true as it might be that timing the markets is futile, I think time has now come when I think I should try my hand at shorting/trading in the direction of general market fundamentals. I have been observing the stocks/ETFs that I'd like to short, and my general thoughts and ramblings are below.

How shorting works:
For all practical purposes, shorting is exactly the opposite of buying a stock now, and selling it in the future for a profit. Shorting is a strategy that can make you money when you think that a stock is destined to fall further. You first borrow shares from the brokerage, and sell them off. You then buy these shares back at a lower price(theoretically and hopefully) and return them to the brokerage, pocketing the difference. Keep in mind that shorting is risky, but can work great in a bear market.

I have been thinking about the following strategies:

Shorting ETFs: If I want to start with low-risk, shorting ETFs might not be a bad idea. Two housing ETFs that come to mind are iShares Dow Jones U.S. Home Construction ETF (ITB) and S&P Homebuilders SPDR (XHB). If you think the economy is headed for a tank, you can also short ETFs like the Financial Sector Select SPDR (XLF).

Buying Short ETFs: ProShares has a number of ETFs whose performance is inversely proportional to the underlying index performance. If you buy the ProShares Ultrashort Real Estate (SRS), and housing keeps going down, SRS goes up in value. Same is true in the Financial Sector for ProShares UltraShort Financials (SKF).

Shorting stocks: Shorting housing stocks seems like a good strategy at this point, considering the housing has still not bottomed, and they all have room for further downside. Shorting stocks like Lennar (LEN), Centex (CTX), DR Horton (DHI) seems like a good strategy. Graph below shows the continuous drop in these three, and from all the negativity around housing, this graph should maintain its downtrend atleast for the next 5-6 months:

Few notes:

Do not, again, do not let a trade become an investment. This is not buy and hold. Decide on a percentage and sell it off after that. I think my initial limit would be 5%.
Average over 2-3 buys and buy on up-days (for shorts) and down-days (for longs).

Voluntary disclosure: I do not hold a position in any of the securities mentioned above, but might start one soon.

Sterlite Industries India - a Strong Buy

2007-12-23T17:18:00.000-05:00

This post is dedicated to Sterlite Industries India (SLT), a leading producer of copper, aluminium and zinc with mines across India, Australia and Zambia, and more recently its forays into the highly attractive electric power generation business. I first heard about this company from a friend who runs his own blog - Rant About It, so I will give him due credit for recommending this to me, and I followed it up with my own research below.

Business:
Sterlite India is a subsidiary of the London based Vedanta group of companies. It engages in production of copper, zinc, aluminium and electric power. It ranks #3 globally for zinc production, #5 for refined copper and on the way to becoming #10 for aluminium production. Graph below shows Sterlite's metal production plan, phase 1 of which has been delivered on time and within cost.

(Source: company website)

This increase in production is facilitated by Sterlite's commitment to increase smelting capacities in planned phases. Sterlite holds excellent reserve positions with #3 in iron ore, #4 in coal and #5 in bauxite reserves. Sterlite also recently acquired Sesa, a debt-free, cash-rich company to get an entry into the highly attractive iron ore business.

The company recently announced its intentions to enter the coal-based power generation on Nov 7, through its subsidiary Sterlite Energy, with plans to aggregate a total capacity of 10000 MW. The current capacity of India's largest power generator Tata, is about 2400 MW. Plans are to complete the 1215 MW Jharsuguda commercial power project in two phases, with Phase1 to be completed by mid 2009, and Phase2 by mid 2010. This foray into the power sector positions Sterlite to capitalize on the power shortage in India, with supply outweighing demands over the last few years. Rumours have it that the company plans to offer another IPO for Sterlite Energy sometime in the future.

Financials:
Sterlite (SLT) started trading on the NYSE back in June '07, and plans to use its proceeds to fund its recent entry into the electric power market. It has appreciated 60%, since being listed. Sterlite's parent company Vedanta is listed on the London stock exchange - it started trading back in December '03, and has appreciated 460% since. Sterlite is also listed in India on the Sensex, where it has delivered returns of 4000% over the last 5 years.

- 2007 revenue and EBITDA are up 84% and 152% respectively, over 2006.
- Strong balance sheet with net cash position
- Trailing and forward P/E at 12 and 16 respectively
- Debt of $2.2 bn as of March 2007, with 65% being long-term debt
- Revenue/EBITDA graph shown below:

(Source: company website)

Positives:
- Sterlite India is positioned excellently to take advantage of Indian as well as global growth in infrastructure, with rising demand for copper, its primary production.
- With the Indian ecomony growing at 9% in 2007, and predicted to be 10% in 2008, Sterlite revenues and income should grow accordingly.
- Management only invests in debt instruments, where asset protection is guaranteed.

Negatives:
- Vedanta's revenue base is largely in US dollars. With the Indian rupee rising against the dollar, export margins could be hurt.
- Short trading history on NYSE, and no analyst estimates.
- If the global economy goes into a recession, Sterlite's returns might turn out to be lackluster.

Overall:
- 3 analysts follow SLT on yahoo finance, with a rating of "Strong buy"
- Overall factors look good for Sterlite India, and I highly recommend it - buy on dips and average over 2-3 buys

Voluntary Disclosure: I currently do not own a position in SLT, but plan to start long one soon.
Sources: Sterlite corporate website

Mutual Funds in India - Part 1

2007-12-09T17:19:00.000-05:00

NRIs who live in US and are considering returning to India at some point, should give a serious thought to investing in India through Indian mutual funds:

-Why mutual funds in India vs. Indian mutual funds in US?
# Long term capital gains taxes in India on equity schemes are 0, thats right, nil. So, considering India's GDP growth, and the fact that this growth shows a promising future, it makes sense to invest in India and take advantage of this 0% long-term capital gains taxes. Long term capital gains tax in US is 15%. Long term refers to any investment over 12 months in both countries.

# Taking a bearish view on the dollar long-term vs. a bullish view on the rupee, you are probably better off investing in funds in India where your rupee will only grow, vs. investing in dollars which probably will fall. This will leave you with a bigger portfolio when you return to India vs. trying to convert all your assets into rupees when returning to India. Five year chart of US dollar converted to Indian rupees is shown below:

-How to buy mutual funds in India?
#The very first thing you will need is a savings account - you can easily open one through either ICICI or HDFC or any other bank offering this service. If you are considering buying mutual funds through your income here, then you need an NRE savings account. If you already have income in India through any source, you can open an NRO account.

#PAN cards are becoming increasingly mandatory for any kind of investment/tax payment in India. To apply for a PAN card, you can fill out an online application here.

# Once you have this savings account, you can buy mutual funds by issuing a check or demand draft from this account, some mutual funds also allow online payments

# You can buy mutual funds through a lot of places like ICICI Prudential, Tata, Birla, Reliance etc.

-NRI Resources
# Reliance has a good guide to NRI investing here

ETF Investing - Part 3 (Addendum to your existing portfolio)

2007-11-24T14:59:00.001-05:00

This is Part3 in a multipart series exploring ETF investing. Click to read Part1 and Part2.

If you have already established a core portfolio and are looking for something that would let you get a quick exposure to say, another country, or another asset class, without taking on a significant risk, you can use ETFs. Certain scenarios include:

International Exposure:

If you own only domestic US stocks, and are looking to diversify into international markets, an ETF like Vanguard All World Except US (VEU) can be a good bet. For that matter, using only 2 ETFs like Vanguard Total Stock Market ETF (VTI) and Vanguard All World Except US ETF(VEU), you can gain a diversified exposure to the entire world's capital markets.

If you are looking for a specific region exposure like Europe or Asia, you can take a look at the Vanguard European ETF (VGK) and SPDR S&P Emerging Asia Pacific(GMF) respectively. If you are bullish on Pacific countries like Australia, New Zealand etc, you can invest in Pacific-ex Japan ETF like iShares MSCI Pacific ex-Japan (EPP).

If you are looking for country-specific exposure like India or China, you have the iPath India ETN (INP) (currently there is no ETF for India, but for all practical purposes, you can consider this ETN as a viable alternative) and iShares FTSE/Xinhua China 25 Index (FXI) respectively. However, if you think that India and China are bubbles, and would like to invest in Malaysia, South Korea or Middle East, you have the iShares MSCI Malaysia Index (EWM), iShares MSCI South Korea Index (EWY) and SPDR S&P Emerging Middle East & Africa (GAF)respectively.

Market Cap Exposure:

Market caps can be divided into three categories - Large-cap, Mid-cap and Small-cap. Lets say that you have been a cautious and conservative investor so far and have a lot of large-caps like GE, Exxon Mobil (XOM), Verizon (VZ) etc., and now you decide to move into a slightly more aggressive field like mid-caps. However, you might want to be aggressive with minimum risk exposure by diversifying into a broad range of mid-cap companies - and guess what, Vanguard mid-cap growth ETF(VOT) comes to your help. Or you might want to have 50-50 exposure to mid caps and small caps, in which case you can invest in Vanguard mid-cap ETF (VOT) as well as Vanguard small-cap ETF (VBK).

Sector Exposure:

If you are bullish on a specific sector, but dont want to risk your investment in just couple of stocks within that sector, you can choose to diversify using ETFs. If you are like me, you are probably bullish on oil and energy, and you can gain a good exposure to this sector using Energy Select Sector SPDR (XLE). If you are bullish on world technology, you can take a look at Technology Select Sector SPDR (XLK). If you are bullish on steel considering the rising demand from emerging economies, especially China, you can invest in the Market Vectors Steel ETF (SLX). If you like the prospects of healthcare companies in general, you can research more about Vanguard Health Care ETF (VHT).

Shorting Exposure:

If you are bearish on the US Economy, just like Asif Suria is, you can still make money by shorting the entire S&P using UltraShort S&P500 ProShares (SDS). This ETF works inversely proportional to the S&P 500 index on a daily basis. If you think that small-caps have had their run and its once again time for the large-caps to run, you can invest in the UltraShort Russell2000 Growth ProShares (SKK). Instead of investing in short ETFs, you can instead also short any regular ETF - however, there are restrictions on doing this within retirement accounts, and thats where the short ETFs come in handy.

Part1
Part2
Part3

Interview with SINLetter's Asif Suria - Part 2

2007-11-15T23:50:00.000-05:00

For Part 1 of this interview, click here.

Q. What is your general outlook on economy at this point in time - for the world in general and US in particular?

A. My general outlook for the US is negative. The GDP number that came out recently probably benefited more from inflation than it did from actual growth. Some market participants are speculating that the growth component was probably less than 1%. We have a huge budget deficit, a couple of wars with almost no allies, high personal debt through credit cards and HELOCs, low wage growth and still have to work off the excesses of the housing bubble (I am still seeing "cost per click" bids in the range of $13.83 to $19.53 for the keywords "no equity home loans" on Google). The only bright spot was the unusually high job growth number that came out last week. In case you are interested, the sponsored links for the search term "no equity home loans" on Google are from LendingTree.com (a division of IAC/InteractiveCorp that is hurting right now) and Countrywide Financial (CFC). I sometimes regret not rolling my Countrywide puts into new puts as I mentioned in this blog entry.

As far as the world is concerned, I believe that India and China are currently overvalued but I like Malaysia (EWM), Turkey, U.A.E, Israel and South Korea (EWY).

Q.If you were to recommend one stock for the next 5 years, which one would it be?

A. This late in a bull market I think it may be prudent to actually scale back on positions. Instead of individual stocks, I would prefer buying the water ETF PowerShares Water Resources (PHO) that consists of a group of 25 stocks that cover various water related investments ranging from desalination to bottled water. I picked this ETF for my November investment newsletter and as I usually tend to do, will add it to my personal portfolio as well. If I had to pick a stock, I would pick children's clothing retailer Gymboree (GYMB). I realized that retail stocks are extremely out of favor at this time but I think Gymboree is attractive at these levels.

Q. Do you think individual investors can beat the market over a long period of time like 20-30 years? Or should they just stick to index funds?

A. I believe if investors are ready to work hard and do their due diligence, they can indeed beat the market over a long period of time. I do not subscribe to the efficient market hypothesis and believe that you end up getting the good with the bad in a broad index fund. Index funds are useful tools for investors who have a moderate to low appetite for risk and cannot spend considerable amounts of time researching new opportunities or keeping track of their existing portfolio. They can also be useful tools for downside protection by using one of the UltraShort index funds like the UltraShort Russell 2000 (TWM) as mentioned in the September 2007 investment newsletter. As the Oracle of Omaha Warren Buffett once said "I'd be a bum on the street with a tin cup if the markets were always efficient".

Interview with SINLetter's Asif Suria - Part 1

2007-11-15T22:23:00.000-05:00

Asif Suria is the founder of SINLetter (Suria Investment Newsletter), which is a free investment newsletter with a focus on international investing. I have been a loyal reader of this newsletter for the past several months, in which he highlights two stocks every month and provides excellent research for the same. His SINLetter picks have handsomely beat S&P, Nasdaq and Dow with total returns of 114.81% since inception in August 2005. You can subscribe to SINLetter here. He has been kind enough to agree to an interview for my blog, so folks, read on ....

Q.Can you tell us a little bit about your investing background - what got you interested, how did you start?

A.I can credit my dad for my interest in investing as some of my earliest memories were of him pouring over annual reports and financial newspapers. I used to deposit dividend checks for him in my teens and more than a decade before he retired, his income investing strategy was so well executed that he could pay for almost all our household expenses with his dividend income. I had been following the market for years and started investing in mid 2001 assuming that the dot com bear market was probably getting ready to go into hibernation. After a great start where I managed to get returns of almost 30% in a six month period (call it beginner's luck), things headed south and I lost a nice chunk of change. Thankfully this experience made me read almost every scrap of material I could find about investing and the markets. I learnt from my mistakes as well as by reading the works of gurus like Benjamin Graham and Peter Lynch.

Q. What was your first stock pick, and why?

A. My first stock pick was Oracle (ORCL). I picked Oracle because I was working as a data warehouse analyst at the time and understood the tech industry and specifically the database sector best. This has been something I have relied on ever since by picking stocks of companies that I have had some personal experience with or understand well. When I bought a Seagate external hard drive, I also bought the stock of Seagate Technologies (STX) since I realized that flash was not going to replace hard drives anytime soon as many on Wall Street feared. Since I used Ameritrade as my discount broker, I also picked up the stock after noticing their fat profit margins and high insider ownership. I often found great travel deals through Priceline.com (PCLN) and in late 2002 at a $1.51 (before the reverse split), I thought the stock was a great deal too. I have since sold all three stocks but they proved to be very profitable trades.

For part 2 click here.

Africa and Middle East - the next big thing?

2007-10-31T23:24:00.001-04:00

I first heard about Africa and its economy from Nicholas Vardy when I attended the Money Show in Washington DC sometime back. Although impressed by the talk and the numbers, I somehow kept postponing blogging about it. Turns out, the African investment has yet again been endorsed by another major source - T. Rowe Price's newly launched Africa and Middle East Fund (TRAMX). Both these sources remain bullish on Africa (T.Rowe on Middle East as well), and the numbers justify their bullishness.

African economy highlights:

African economy is currently benefiting from its natural resources like oil and gas, an increase in commodity prices, debt forgiveness and increasing political stability
Excluding South Africa, the sub-Saharan African has averaged a growth of 7% over the last 5 years
Excluding India and China, Africa is growing faster than Asia
Between 1995 and 2005, African stocks showed compound annual growth of 22%, with equity growth for 2006 in Kenya, Morocco, Uganda and Botswana being 46%, 75%, 69% and 55% respectively
China has been trying to improve its relationship with Africa (from a selfish angle of-course, to get their natural resources). Trade between China and Africa soared to $55 billion last year

Middle-Eastern economy highlights:

The rising oil prices in recent years has produced strong economies in the Middle East which include countries like Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates
Real GDP growth for the GCC countries has been 6% in 2006
Governments of these countries are opening up their economies to reduce their dependence on oil prices, led by Dubai with several high-profile projects in infrastructure, financial services and tourism

T.Rowe Price Africa & Middle East Fund highlights:

The primary markets the fund invests in include Bahrain, Egypt, Jordan, Kenya, Lebanon, Morocco, Nigeria, Oman, Qatar, South Africa and UAE
Other potential markets include Algeria, Botswana, Ghana, Kuwait, Mauritius, Namibia, Tunisia and Zimbabwe
The fund has a high risk/return profile since it can invest in small and mid-cap stocks has has a relatively concentrated portfolio consisting of 30-40 companies
Financial companies represent the largest sector exposure, as commercial banks are benefiting from rapidly growing economies.
The fund also plans to focus on companies related to infrastructure spending, and also from wireless telecommunications
No-load fund with an expense ratio of 1.75%
Current NAV: $12.07, P/E: 14.9, Earnings growth rate: 12.1
Country details:

Sector exposure:

This is a high-risk/high-return investment and serves those investors whose goals are so aligned. If the African and Middle Eastern market continues to grow significantly, this investment will provide great long-term returns.

Voluntary Disclosure: I currently do not own the T.Rowe Price Africa and Middle East Fund. Various sources referred for this article include the T.Rowe Price Investor Report, Seeking Alpha etc.

WisdomTree launches small-cap Emerging Markets dividend-paying ETF

2007-10-30T20:17:00.000-04:00

WisdomTree announced the launch of a new small-cap emerging markets dividend-paying ETF yesterday, which started trading on NYSE Arca today with ticker DGS (NYSEArca: DGS). This ETF is based on WisdomTree's Emerging Markets SmallCap Dividend Index, which, according to their calculation has beaten the MSCI Emerging Markets Index by by about 9%, when backdated for the last 10 years.

Key index facts:

Top 10 countries based on weightage include (guess what, no BRICs in the top 10):

Taiwan
South Africa
Korea
Thailand
Malaysia
Israel
Turkey
Mexico
Indonesia
Chile

The maximum weight assigned to the topmost holding is just 2.68% - which means that the fund is highly diversified, which is good, since this is a risky play.
Dividend yield: 4.39%
Companies included in the Index fall within the bottom 10% of total market capitalization of the WisdomTree Emerging Markets Dividend Index as of the annual index measurement date
IBD reports that the index includes some 369 odd dividend paying stocks across 17 different countries

Key fund facts:

The fund, being an ETF, obviously tries to track the above-mentioned index
NAV as of 10/30/07: $51.50
Price: $51.40
Expense Ratio: 0.63%

This fund is probably what some high-risk investors were looking for anyway. Since the index includes only dividend-paying companies, it offers a cushion against the volatility of the emerging markets small-caps. Also the fact that an ETF by very nature is highly diversified, the risk is further reduced.

To know more about ETFs, click here and here.

Voluntary Disclosure: I currently own WisdomTree shares.

ETF Investing - Part 2 (Sample ETF Portfolio)

2007-10-28T19:24:00.000-04:00

This is Part 2 in the series of posts about ETF Investing. Click here to read part 1 about ETFs and their advantages/disadvantages. This post is dedicated to building a sample ETF portfolio.

Some things to keep in mind:
-First things first, you got to decide if you want to dedicate a part of your portfolio to ETFs or your entire portfolio.
-Think about your risk appetite
-Think about your rewards expectation

Higher risk = Higher volatility = Higher profits OR Higher losses

Sample Portfolio 1 -Aggressive (Stock ETFs constitute your entire portfolio):
If you are like me, you would want to dedicate about 30-40% of your portfolio to US, and the rest 60-70% international. Out of the 60-70% international, I would set aside maybe 20% for developed economies like Western Europe and the rest 40-50% for emerging economies, and maybe 10-20% for sector-specific ETFs. Here are the specific ETFs I would allocate money to:
1. Domestic US ETFs:

SPDR S&P 500 (AMEX: SPY) [10%]: Invests in US S&P 500 companies, usually large caps. I would put this at low risk, low rewards. Seeks to correspond to the growth and yield of the US S&P 500 index. Expense ratio 0.08%.

Vanguard Mid-cap growth (AMEX: VTI) [20%]: Invests in US mid-cap companies, I would put this as medium risk, medium reward. Seeks to track the MSCI US Mid Cap Growth Index. Expense ratio 0.13%.

Vanguard Small-cap growth (AMEX: VOT) [10%]: Invests in US small-cap companies, I would put this as high risk, high reward. Seeks to follow the MSCI US Small Cap Growth index. Expense ratio 0.12%.

2. International ETFs:

Vanguard Emerging Markets Stocks (AMEX: VWO) [30%]: Invests in stocks of emerging market economies. I would put as very high risk, very high reward. Seeks to track the MSCI Emerging Markets index. Expense ratio 0.3%.

iShares Pacific ex Japan (AMEX: EPP) [15%]: Invests in stocks of Pacific markets except Japan. Seeks to track the MSCI Pacific ex-Japan index which constitutes economies like Australia, Hong Kong, New Zealand, and Singapore markets. Expense ratio 0.5%.

3. Sector specific ETFs:

Oil and Energy - Energy Select SPDR (AMEX: XLE) [5%]: Like most investors, I am bullish on oil and energy, since these are limited natural resources with increasing demand. I would devote 5% of my portfolio to this ETF, which invests in oil, gas, energy equipment & services companies. Expense ratio 0.24%.

Technology Select SPDR (AMEX: XLK) [5%]: Technology has become or is becoming a part of every field, and considering that tech demand will continue to increase, I would also devote 5% of my portfolio to this ETF, which invests in technology economic sector - which includes hardware, software and telecom companies. Expense ratio 0.24%.

Market Vectors Steel ETF (AMEX: SLX) [5%]: Considering a bullish demand for steel especially from emerging economies, I will also devote 5% to this steel ETF. Expense ratio 0.54%.

More sample portfolios to follow.

Part1
Part2
Part3

WisdomTree: ETFs in 401K?

2007-10-09T22:51:00.000-04:00

Yesterday WisdomTree (Pink Sheets: WSDT) announced the launch of their innovative 401k platform featuring ETFs. Although ETFs have been around since the early 1990s, this is the first time they will be offered as part of any 401K plan. Under this offering, they will also make ETFs of other companies like Vanguard and iShares available along with their own. It will also feature some low-cost, no-load, no 12b-1 fees actively managed mutual funds. WisdomTree will offer two options for the 401k plan:

The "model plan" features six professionally built ETF portfolios depending on the participant's risk tolerance appetite and target retirement date. It includes ETFs from WisdomTree, Vanguard and iShares as well as some actively traded mutual funds.
The "Custom plan" lets an investor make his own choice with available ETFs/funds and create his own customized portfolio.

About WisdomTree: WisdomTree offers ETFs that are fundamentally weighted as opposed to others that are market-cap weighted. The investing principle behind the former being that ETFs should constitute weights of companies in an index depending on their core fundamentals like earnings and dividends vs. the investing principle in the latter which constitutes stocks based on their market cap.

It seems to me like WisdomTree has the first mover advantage in bringing ETFs to 401K, when the popularity of ETFs has soared in recent years. Also smart is the move to offer Vanguard and iShares ETFs as well as some actively traded funds along with its own ETFs to appeal to a broader audience. What remains to be seen is how and when corporates start offering this plan to their employees.

For the entire press release, click here.

Voluntary Disclosure: I currently own WisdomTree (Pink sheets: WSDT) shares.

Loan $25 to fulfill dreams and build livelihoods through Kiva.org

2007-10-06T23:45:00.000-04:00

Recently, I came across Kiva, a non-profit organization, which facilitates connections between borrowers (who are owners of unique small businesses in developing countries) with lenders . Borrowers come from impoverished countries around the world, who are working class entrepreneurs in need of money. Kiva partners with microfinance institutions around the world, which in turn choose these qualified borrowers. You can only lend $25 to a borrower, and they have enforced this limit to curb the huge inflow of lenders that they are currently experiencing. Kiva includes some interesting borrower profiles, excerpts below:

Cambodia: Mrs. Yab Valin is a widow with 4 children, 2 sons and 2 daughters. She learned to sew clothes from the trainer in the village, and then she started to sew for the villagers, going from one village to another. Her sewing improved every day.
Then in 1992, she began her business in sewing clothes at home. She has expanded her sewing business by buying more sewing machines and employing the young ladies in her village. Her youngest daughter also sews clothes at home.
This is Mrs. Yab's first application for a loan from MAXIMA. She requests a loan of $1,000 to buy one more sewing machine for her employee.
Azerbaijan: Xidirov Rovshan was born in the city of Sumqayit. He is 37 years old and the father of two children. He currently lives with his family in Sumgayit, situated in the eastern part of Azerbaijan. He started his business in 2002 selling perfume and nail varnish. With this business, he earned little money. The money was enough for only some of his family's basic needs. He had difficulty covering his family's other needs including medication, clothes, schooling etc. At this moment, his best clients are young ladies who work at offices. He needs $600 to buy silver goods and merchandise in order to have a bigger inventory and be able to offer clients greater variety and quality. With the income from his business, he will be able to support his children’s studies and help with the family’s expenses. He will repay the loan within 12 months.

Again, remember this is only a loan, and will be repaid back - I have seen repayment terms of 12-14 months. You can loan money through your credit card using Paypal, and can choose to receive periodic updates about the business through Kiva. Once the loan is repaid, you can choose to either take your money out or loan it to a new business. The site currently lists 14 defaulted borrowers vs. 3105 who have paid back in time.

Would you consider this as a good way to give back and encourage true entrepreneurial spirit at the same time? Would you consider this as a good investment in society at the same time helping someone stride towards economic independence?

ETF Investing (Part 1)

2007-09-22T19:41:00.000-04:00

This is the first in a series of posts that explores investing in ETFs. I am sure most of you have heard about ETFs (Exchange Traded Funds) - which are the hottest and fastest growing financial instruments of recent times. Almost every few days I hear about the launch of a new ETF, the most recent one that caught my eye was the Nuclear Energy ETF by Market Vectors. Some of the early (and most popular) ETFs include the PowerShares QQQQ (based on Nasdaq 100 index), AMEX SPY (based on the S&P 500 index) and the AMEX DIA (based on the DJIA). Yahoo Finance today reveals a total of 565 ETFs trading in US markets.

What are ETFs?
ETFs are like mutual funds, or more specifically index funds, that trade like stocks, on the open markets. However, unlike mutual funds, the price of an ETF fluctuates throughout the day based on supply and demand. ETFs combine the diversification of mutual funds with flexibility of stocks. Interested in owning the entire US stock market? - you have the Vanguard Total Stock Market ETF (AMEX: VTI) at your disposal. Bullish on technology? - you have sector specific ETFs like the Morgan Stanley Technology ETF (AMEX: MTK). Want to allocate a bigger slice of your portfolio to emerging markets ? - go for the iShares MSCI Emerging Markets ETF (AMEX: EEM).

How do ETFs work?
In order to understand the tax-advantage of ETFs, it is very important to understand how they are created. The big mutual fund companies own a lot of individual shares of different companies as underlying part of mutual funds. So, if they decide to establish say, one unit of the S&P500 ETF, they go an authorized entity with a basket comprising of individual shares of the S&P 500 index and the authority redeems these shares for one unit of the ETF. Of course, these baskets are typically quite huge, and get redeemed typically for 50,000 or more units of the ETF. These ETF units are then floated on the open market for others to buy and sell.
Redemption is exactly the reverse - an S&P 500 ETF can be redeemed by the ETF company for an equal number/proportion of stocks.

Advantages of ETFs

Cost: Probably the biggest advantage of ETFs is the cost factor. Since ETFs are passively managed, their expense ratios are very low compared to traditional mutual funds. Of course, you do have to take the trading commissions into account since you buy ETFs through a brokerage account. However, trading commissions can be zero these days if you have a Zecco brokerage account.
Tax advantage: Mutual funds typically are actively managed, and result in large turnovers of the underlying stocks, which result in unnecessary capital gains taxes for all individuals, irrespective of whether the individual chooses to sell his own fund. Due to the very nature of ETFs (read above for how they are created and redeemed), the capital gains taxes need to be paid only at the final sale of the fund.
Diversification: ETFs are a handy way to create a diversified portfolio consisting of different indices and hence mitigate the risk of owning an individual stock.

Where can I buy ETFs?
Since ETFs trade like stocks on the open market, all you need is a brokerage account. You can discount brokerage accounts with very low or zero trading commissions at brokerages like ScottTrade, Izone, ShareBuilder, FirstTrade and Zecco (free).

ETF Resources:

ETF Center at Yahoo Finance
ETFConnect.com
Morningstar ETF section

Stay tuned for more posts on ETFs about portfolio allocation, comparison of the different fund families and more.

Part1
Part2
Part3

Asian economies - growth, inflation, interest rates

2007-09-09T19:34:00.000-04:00

Now with 6.5 sessions remaining until Fed's announcement about key interest rates, I came across an interesting table of stats from Matthew's Funds Weekly Update showing the growth rate, inflation and key central bank interest rate in some key Asian economies compared with that of the US.

As expected China and India continue to lead the growth rates at 11.9% and 9.3% respectively, with inflation at 5.6% and 3.9% respectively. In order to curb inflation, the central bank in these two countries have hiked their interest rates by 0.9% and 0.75% respectively since 08/06. This contrasts starkly with the growth rate of 1.9% in US and no change in key interest rate since 08/06 - it has held steady at 5.25%. Thailand and Indonesia are exceptions to interest rate/inflation relationship - with these two countries showing a positive inflation growth of 1.1% and 6.5% respectively, but a fall in interest rates by -1.75% and -3.5% respectively.
The interest rates in Indonesia have been lowered to account for slower price increases and fall in inflation from 18% to 6.5% since fuel subsidies were scaled back in 2005. The military coup in Thailand has weighed in on the economy and inflation and money supply have been going downwards since mid-2006.

India Investment Options in US (Part 3)

2007-08-16T23:08:00.000-04:00

This is Part 3 of the multipart series exploring investment options in India for people in US. You can check out the first two here and here.

Along with the Indian economy, Indian real estate has skyrocketed in the last 5 years. More and more people are shifting upwards from low-income to middle class, and where do you make a sensible investment for virtually guaranteed results over time? - real estate of course. Residential properties in Mumbai have reported real-estate appreciation of about 30-40% or more over the last 5 years, while cities like Bangalore and Hyderabad have reported an appreciation of whopping 60-80% as well. There have been many reports about the real-estate market being poised for a bubble burst, but if you are considering long-term prospects, real-estate still makes a lot of sense. A lot of bigger companies like Goldman Sachs have endorsed this view. Goldman Sachs recently increased its stake Indiabulls, a real estate development company in India, to 7%. The graph below summarizes the growing Foreign Direct Investment in India as percentage of the total Foreign Direct Investment, which has been 4.5% for year ending 2004, 10.6% for 2005 and 16% for the year ending 2006. Continuing at this rate, it is projected that for year ending 2007, foreign direct investment in real estate will be about 26.5% of the total USD 8 billion.

(Source: http://www.indianground.com/real_estate_fdi.aspx)

Direct investment:
Only Indian citizens, NRIs or people of Indian origin (whose parents or grandparents were Indian citizens at some point) can currently buy residential real estate in India, i.e. be sole owners. I will follow up with a post of steps involved of buying a house in India for NRIs later. Foreign investment is permitted in commercial and residential projects based on some stringent rules like:

Minimum capital requirement of US $10 million if the company is involved by itself, or US $5 million in partnership with an Indian company
Once the partnership or subsidiary is formed, capital must be brought into India within 6 months
No repatriation before 3 years on initial investment, unless approved by the Foreign Investment Promotion Board.

Some more guidelines are here. So well, if you think you can follow all the above rules and then some, you are on your way to making a great investment!

Indirect investment:
Unlike US, there currently exist no REITs in India. For the unaware, REITs (Real Estate Investment Trusts) are like mutual funds, but the underlying asset is real estate as opposed to stocks or bonds. REITs in US are involved with buying, selling, operating and managing income producing real estate like apartment complexes, shopping centres, offices and warehouses. The advantages or REITs are many including more liquidity compared to actually owning real estate, and permits small investors to participate in the real estate boom. REITs were approved by the Securities and Exchange Board of India (SEBI) more than couple years back, but its taking a lot of time to put all the financials and accounting in place for the same. Some entities like HDFCICICI-Tishman Speyer, Ascendas India IT Park Fund, Kotak MahindraIDFC, and Edelweiss Capital have received approval to establish REITs (Real Estate Investment Trusts) or REMFs(Real Estate Mutual Funds). Once established, I believe REITs are the best way for small investors to invest in Indian real estate.

iPhone's guts and component manufacturers

2007-08-03T20:50:00.000-04:00

After the long-awaited launch of the mysterious Apple's iPhone on June 29, 2007, there have been some attempts at tearing apart the phone to reveal its insides. Sramana Mitra, (I have been a loyal reader of her Strategy blog for the past few months) has done a great job at analyzing the various companies that provide these components. According to some reports, Apple's profit margin per iPhone sold is about 55%, which is greater than the profit margin her iPod sold, which is around 45-50%. Below I provide a brief summary and a link to each of these components as analyzed by Sramana. This probably serves as an initial entry point to further research for companies that serve iPhone components, and earn the reputation of being iPhone-providers. They are likely to win more business as Apple competitors plunge in to build iPhone-like phones.

Samsung (London Stock Exchange: SMSN) : made the main processor of iPhone (ARM S5L8900) and flash memory chips (2 512 MB Mobile DDR SDRAM). Samsung is the biggest player in the iPhone guts - it accounts for about 30% of the total component cost, probably best positioned to gain if the iPhone becomes a huge success. Sramana's analysis here
BroadCom (NASDAQ: BRCM): made the IO chip (BCM5973) used for video interface to the touch screen. According to Sramana, Broadcom makes about 1.15 per unit sold.
Infineon (NYSE: IFX): provides the PMB8876 S-Gold 2 multimedia engine with EDGE functionality and the GSM RF receiver. Its a Germany based company, although not highly profitable at this point, it has earned the reputation of being an iPhone provider, and also provides chips to other mobile manufacturers. Sramana's analysis here.
National Semiconductor (NYSE: NSM): provides the 24-bit RGB display interface serializer. Accounts for about $1.5 of iPhone's total component costs. Sramana analyzes it here.
Texas Instruments (NYSE: TXN): most likely provides the power management device of iPhone, although this is still not confirmed. Another contender is National Semiconductor. Sramana's analysis here
ST Micro (NYSE: STM): provides the accelerometer of the iPhone - in other words, the cool sensor that detects the orientation of the iPhone - horizontal or vertical. It accounts for 1.3% of iPhone's total component cost. Sramana's analysis here.
Balda (Germany Stock Exchange: BLDA): makes the key feature of the iPhone - the highly touted multitouch screen. This touch screen is supposed to make up about 10% of the iPhone's component cost. More analysis by Sramana is here.
Marvell (Nasdaq: MRVL): provides the Wi-Fi chip within iPhone, that lets it connect to any Wi-Fi hotspot. Sramana's analysis here.
Intel(Nasdaq: INTC): provides the wireless flash and SRAM for code execution. Who doesnt know Intel and its processors ? Sramana's analysis here.
Micron(NYSE: MU): provides the imaging chip for the iPhone 2 Megapixel camera. Micron stock has been rising since April '07 after couple of upgrades. Sramana's analysis here.
Amperex Technology Limited: a Hong-Kong based company with offices in China, provides the iPhone battery.

Target Retirement Funds: A good blend of Active and Passive Investment

2007-08-03T00:07:00.000-04:00

In this post I decided to highlight Target Retirement Funds which have become immensely popular over the last few years - thanks to T.Rowe Price, Vanguard and Fidelity.

Whats the idea behind Target Retirement Funds?
To let you pick the year of retirement and invest in a fund that has a name closest to that year, and forget about the hassles of investing in a variety of funds. A target retirement fund automatically adjusts the asset allocation for you as your retirement approaches. For example, say you are planning to retire in 2043, and you invest in T.Rowe Price Target Retirement 2045 fund, it will decrease the percentage of stock allocation and increase the percentage of bond allocation as retirement (2045) draws nearer. These funds invest in a variety of underlying funds and adjust the allocation mix to make it more conservative over time.

Who should invest in Target Retirement Funds?
As to most questions, the answer to this is - it depends. These are some situations that come to my mind for investing in Target Retirement Funds:
-Someone who wants the benefit of active and passive funds together. Active mutual funds are usually managed by a fund manager and impose higher fees on investors. Passive mutual funds include investment vehicles like index funds and ETFs, are managed by computer robots and the fees imposed on investors are much lower. A target retirement fund typically diversifies its assets among multiple funds (active and passive). Although it is managed by a human fund manager, it does not involve a lot of intervention from the fund manager, and hence results in lower fees.
-Someone who is starting out, and wants a ready-made diversified portfolio, till he can judge how he wants to actively spread his portfolio. An example would be a fresh graduate from college, who wants to start testing out the waters with a low risk exposure.
-Someone who wants target retirement funds as part of a broader portfolio (retirement or non-retirement).

Where can you buy Target Retirement Funds?
The 3 most prominent companies that provide target retirement funds are T.Rowe Price, Vanguard and Fidelity
T.Rowe Price: T.Rowe Price offers the most aggressive of all target retirement funds with a good underlying asset allocation between large cap, mid cap and international. It offers a broad range of target retirement funds ranging from Target Retirement 2005, 2010 to Target Retirement 2055. These are all no-load funds with an expense ratio of about 0.75%.
Vanguard: Vanguard remains the leader in low-cost funds with the expense-ratio of target retirement funds being around 0.21%. Underlying asset allocation is mostly devoted to index funds - mainly total stock market, total bond market index funds. Offers a broad range of retirement funds from Target Retirement 2005, 2010 to Target Retirement 2050.
Fidelity: Fidelity has its range of Freedom Funds ranging from Freedom 2000 to Freedom 2050. Fees range from 0.57 to 0.84%. Underlying asset allocation is distributed between all kinds of Fidelity Funds, with no underlying fund making up more than 10-12% of holdings.

Comparing asset allocation for 2040 funds:
T.Rowe Price: Cash 4.25%, Stocks 87.08%, Bonds 7.23%
Vanguard: Cash 1.16%, Stocks 88.48%, Bonds 9.93%
Fidelity: Cash 3.66, Stocks 83.43%, Bonds 11.53%

Performance:
Over the last 2 years (Source: yahoo finance):

As you can see, the performance of Vanguard 2040 and T.Rowe Price 2040 have pretty much mirrored each other over the last 2 years.
It looks like either T.Rowe Price or Vanguard might be a good place to start your target retirement, if I was looking for a more aggressive portfolio, I d go with TRP, if I was looking for lower fees, I would go for Vanguard.

Voluntary disclosure: I currently own T.Rowe Price Target Retirement 2040.

Indian pharmaceuticals - a growth story

2007-06-10T10:34:00.000-04:00

The prominent position that India holds in the field of IT Services is quite well known. I recently came across some very interesting articles highlighting the growing dominance of the Indian bio and drug generics that intrigued me quite a bit. I read up further, and found the following facts very interesting:

-Indian drug and bio industry mainly thrives on generic drugs. Generic drugs are those that are sold under the actual "chemical" composition name of the drug, and not the brand name. It is legal to produce generic drugs in US if a particular patent on a brand-name drug has expired, or it has never been patented. When the patent expires, the patent-holder no longer has the monopoly on sales of that drug. Biogenerics are drugs that are produced from living cells.

-According to Frost and Sullivan, the global biogenerics market is expected to hit $8 billion by 2010. India currently supplies 22% of the world's generic drugs, according to KPMG.

-Indian biotech industry grew by more than 35% for a fourth consecutive year. Indian biotech market crossed revenues of over $2 billion for the fiscal year ending March 31, 2007. "The Indian biotech industry will attain its target of $5 billion in revenue by 2010", said Dr. Kiran Mazumdar Shaw, chairwoman and managing director of Biocon, India's larget biotech company. The Indian pharmaceutical industry is ranked the fastest growing market in the world by IMS health for 2006.

-Indian pharmaceutical companies are able to provide these generic drugs at half or less than half the price as compared to the American pharmaceutical companies.

-These recent decisions have worked in the favor of Indian generics:
*US Supreme Court's ruling on April 30, which makes it easier to invalidate patents and obtain new ones works out in the benefit of the Indian generics industry.
*The recent announcement by the Clinton foundation that it has negotiated cheaper rates for costly AIDS drugs by agreeing to buy these generics from Indian pharmaceutical companies like Cipla and Matrix
*Recent decisions of countries like Brazil and Thailand to opt for Indian generic drugs for AIDS overriding the American pharmaceutical companies like Merck, Sanofi-Aventis and Abbott.

-Indian companies have been positioning themselves to get a bigger and bigger piece of the biogenerics pie by building up infrastructure and foraying into new markets.

-Indian pharmaceutical companies made $7.5 billions in sales and were involved in merger and acquisition deals of about $1.7 billion, of which 43% were acquisitions of foreign companies. These deals serve the primary purpose of entry into the much more regulated European and US markets. Some of the most recent mergers and acquisitions include
*Mumbai based Sun pharmaceuticals agreed to buy Israeli generic manufactured Taro Pharmaceutical for $454 million in an all-cash deal.
*Mumbai based Wockhardt acquired Paris based Negma Laboratories
*Mumbai based Reliance Life Sciences bought over UK based GeneMedix, a biotech company
*Hyderabad based Dishman Pharma acquired Swiss based Cabbogen Amcis

-Dr. Reddy's[NYSE: RDY ], India's largest drug company, has filed 33 patent challenges in US Court. Other Indian companies like Ranbaxy, Sun, Cipla, Glenmark, Cadila Healthcare, Aurobindo Pharma and others have also filed several challenges. US FDA figures report approval of 23% of generics in favor of these companies since December 2006.

Unfortunately for us in the US, there is only one Indian pharmaceutical company that trades as ADR in the US: Dr. Reddy's[NYSE: RDY], but that doesnt mean you cannot invest in an India fund like Matthews India fund[MINDX], which constitutes among its top 10 holdings pharma companies like Glenmark and Cipla. For my previous post on other India funds, please click here.

**Facts collated from various sources like Redherring, New York Times and others.
**I do not own Dr.Reddy's[NYSE: RDY] or Matthews India Fund[MINDX] at this time

India Investment Options in US (Part2)

2007-05-30T20:37:00.000-04:00

This is Part 2 of a multipart series that explores options to invest in India if you are in US. If you would like to read Part 1, click here.
Another option to invest in India if you are in the US, is through American Depository Receipts (ADRs) of Indian companies. These ADRs trade on the Nasdaq and NYSE just like the shares of any other regular American company. Each ADR may constitute one or more shares of the underlying company stock. To check out Indian ADRs trading on US stock exchanges for any country, you can follow the following steps:

1.Go to http://www.adr.com/
2.Click on the "ADR Universe" menu on top.
3.In the search page that opens up, change the country drop-down to your "India"(leave other drop-downs unchanged)
4.Click Submit and see the results. Although the search returns a whole bunch of names, only those companies that have a 3-letter ticker trade in the US.

Some of the popular Indian ADRs include Infosys (Nasdaq: INFY), Wipro (NYSE: WIT), ICICI (NYSE: IBN), HDFC (NYSE: HDB), Dr. Reddy's (NYSE: RDY). Before investing, do remember to do your own thorough research, especially since ADRs come with their own risks like currency flunctuations, trading at a premium to the underlying stock, foreign market flunctuations etc.

Steve Jobs' Commencement Address (2005)

2007-04-01T10:44:00.000-04:00

[Found a video of this post and thought I should link it here:]

This is the text of the Commencement address by Steve Jobs, CEO of Apple Computer and of Pixar Animation Studios, delivered on June 12, 2005. I found it very interesting and I am sure some others would think so too - to me it stresses the importance of learning in the light of any field.

I am honored to be with you today at your commencement from one of the finest universities in the world. I never graduated from college. Truth be told, this is the closest I've ever gotten to a college graduation. Today I want to tell you three stories from my life. That's it. No big deal. Just three stories.

The first story is about connecting the dots.
I dropped out of Reed College after the first 6 months, but then stayed around as a drop-in for another 18 months or so before I really quit. So why did I drop out?
It started before I was born. My biological mother was a young, unwed college graduate student, and she decided to put me up for adoption. She felt very strongly that I should be adopted by college graduates, so everything was all set for me to be adopted at birth by a lawyer and his wife. Except that when I popped out they decided at the last minute that they really wanted a girl. So my parents, who were on a waiting list, got a call in the middle of the night asking: "We have an unexpected baby boy; do you want him?" They said: "Of course." My biological mother later found out that my mother had never graduated from college and that my father had never graduated from high school. She refused to sign the final adoption papers. She only relented a few months later when my parents promised that I would someday go to college.

And 17 years later I did go to college. But I naively chose a college that was almost as expensive as Stanford, and all of my working-class parents' savings were being spent on my college tuition. After six months, I couldn't see the value in it. I had no idea what I wanted to do with my life and no idea how college was going to help me figure it out. And here I was spending all of the money my parents had saved their entire life. So I decided to drop out and trust that it would all work out OK. It was pretty scary at the time, but looking back it was one of the best decisions I ever made. The minute I dropped out I could stop taking the required classes that didn't interest me, and begin dropping in on the ones that looked interesting.

It wasn't all romantic. I didn't have a dorm room, so I slept on the floor in friends' rooms, I returned coke bottles for the 5¢ deposits to buy food with, and I would walk the 7 miles across town every Sunday night to get one good meal a week at the Hare Krishna temple. I loved it. And much of what I stumbled into by following my curiosity and intuition turned out to be priceless later on. Let me give you one example:
Reed College at that time offered perhaps the best calligraphy instruction in the country. Throughout the campus every poster, every label on every drawer, was beautifully hand calligraphed. Because I had dropped out and didn't have to take the normal classes, I decided to take a calligraphy class to learn how to do this. I learned about serif and san serif typefaces, about varying the amount of space between different letter combinations, about what makes great typography great. It was beautiful, historical, artistically subtle in a way that science can't capture, and I found it fascinating.

None of this had even a hope of any practical application in my life. But ten years later, when we were designing the first Macintosh computer, it all came back to me. And we designed it all into the Mac. It was the first computer with beautiful typography. If I had never dropped in on that single course in college, the Mac would have never had multiple typefaces or proportionally spaced fonts. And since Windows just copied the Mac, its likely that no personal computer would have them. If I had never dropped out, I would have never dropped in on this calligraphy class, and personal computers might not have the wonderful typography that they do. Of course it was impossible to connect the dots looking forward when I was in college. But it was very, very clear looking backwards ten years later.

Again, you can't connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something — your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.

My second story is about love and loss.
I was lucky — I found what I loved to do early in life. Woz and I started Apple in my parents garage when I was 20. We worked hard, and in 10 years Apple had grown from just the two of us in a garage into a $2 billion company with over 4000 employees. We had just released our finest creation — the Macintosh — a year earlier, and I had just turned 30. And then I got fired. How can you get fired from a company you started? Well, as Apple grew we hired someone who I thought was very talented to run the company with me, and for the first year or so things went well. But then our visions of the future began to diverge and eventually we had a falling out. When we did, our Board of Directors sided with him. So at 30 I was out. And very publicly out. What had been the focus of my entire adult life was gone, and it was devastating.
I really didn't know what to do for a few months. I felt that I had let the previous generation of entrepreneurs down - that I had dropped the baton as it was being passed to me. I met with David Packard and Bob Noyce and tried to apologize for screwing up so badly. I was a very public failure, and I even thought about running away from the valley. But something slowly began to dawn on me — I still loved what I did. The turn of events at Apple had not changed that one bit. I had been rejected, but I was still in love. And so I decided to start over.

I didn't see it then, but it turned out that getting fired from Apple was the best thing that could have ever happened to me. The heaviness of being successful was replaced by the lightness of being a beginner again, less sure about everything. It freed me to enter one of the most creative periods of my life.
During the next five years, I started a company named NeXT, another company named Pixar, and fell in love with an amazing woman who would become my wife. Pixar went on to create the worlds first computer animated feature film, Toy Story, and is now the most successful animation studio in the world. In a remarkable turn of events, Apple bought NeXT, I returned to Apple, and the technology we developed at NeXT is at the heart of Apple's current renaissance. And Laurene and I have a wonderful family together.
I'm pretty sure none of this would have happened if I hadn't been fired from Apple. It was awful tasting medicine, but I guess the patient needed it. Sometimes life hits you in the head with a brick. Don't lose faith. I'm convinced that the only thing that kept me going was that I loved what I did. You've got to find what you love. And that is as true for your work as it is for your lovers. Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven't found it yet, keep looking. Don't settle. As with all matters of the heart, you'll know when you find it. And, like any great relationship, it just gets better and better as the years roll on. So keep looking until you find it. Don't settle.

My third story is about death.
When I was 17, I read a quote that went something like: "If you live each day as if it was your last, someday you'll most certainly be right." It made an impression on me, and since then, for the past 33 years, I have looked in the mirror every morning and asked myself: "If today were the last day of my life, would I want to do what I am about to do today?" And whenever the answer has been "No" for too many days in a row, I know I need to change something.

Remembering that I'll be dead soon is the most important tool I've ever encountered to help me make the big choices in life. Because almost everything — all external expectations, all pride, all fear of embarrassment or failure - these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.

About a year ago I was diagnosed with cancer. I had a scan at 7:30 in the morning, and it clearly showed a tumor on my pancreas. I didn't even know what a pancreas was. The doctors told me this was almost certainly a type of cancer that is incurable, and that I should expect to live no longer than three to six months. My doctor advised me to go home and get my affairs in order, which is doctor's code for prepare to die. It means to try to tell your kids everything you thought you'd have the next 10 years to tell them in just a few months. It means to make sure everything is buttoned up so that it will be as easy as possible for your family. It means to say your goodbyes.

I lived with that diagnosis all day. Later that evening I had a biopsy, where they stuck an endoscope down my throat, through my stomach and into my intestines, put a needle into my pancreas and got a few cells from the tumor. I was sedated, but my wife, who was there, told me that when they viewed the cells under a microscope the doctors started crying because it turned out to be a very rare form of pancreatic cancer that is curable with surgery. I had the surgery and I'm fine now.

This was the closest I've been to facing death, and I hope its the closest I get for a few more decades. Having lived through it, I can now say this to you with a bit more certainty than when death was a useful but purely intellectual concept:
No one wants to die. Even people who want to go to heaven don't want to die to get there. And yet death is the destination we all share. No one has ever escaped it. And that is as it should be, because Death is very likely the single best invention of Life. It is Life's change agent. It clears out the old to make way for the new. Right now the new is you, but someday not too long from now, you will gradually become the old and be cleared away. Sorry to be so dramatic, but it is quite true.
Your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma — which is living with the results of other people's thinking. Don't let the noise of others' opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.

When I was young, there was an amazing publication called The Whole Earth Catalog, which was one of the bibles of my generation. It was created by a fellow named Stewart Brand not far from here in Menlo Park, and he brought it to life with his poetic touch. This was in the late 1960's, before personal computers and desktop publishing, so it was all made with typewriters, scissors, and polaroid cameras. It was sort of like Google in paperback form, 35 years before Google came along: it was idealistic, and overflowing with neat tools and great notions.
Stewart and his team put out several issues of The Whole Earth Catalog, and then when it had run its course, they put out a final issue. It was the mid-1970s, and I was your age. On the back cover of their final issue was a photograph of an early morning country road, the kind you might find yourself hitchhiking on if you were so adventurous. Beneath it were the words: "Stay Hungry. Stay Foolish." It was their farewell message as they signed off. Stay Hungry. Stay Foolish. And I have always wished that for myself. And now, as you graduate to begin anew, I wish that for you.

Stay Hungry. Stay Foolish.
Thank you all very much.

Borrowed from: Stanford Report, June 14, 2005

India Investment Options in US (Part1)

2007-03-31T20:39:00.000-04:00

I have been asked this question few times now by colleagues and friends, and rather than answering each one individually, I decided to make it a blog post. For those who want to take advantage of the booming Indian markets without having to do the initial research, read on. I would still encourage each of you to thoroughly investigate any particular investment option that interests you. I will present this article in parts, and this is the first part.

Background:
India is and has been an attractive investment option for foreign money for some time now. The average GDP growth in India has been 8% for the last 3 years, and the average salary increase abt 30%. This has brought about a tremendous increase in people's disposable income, and hence the purchasing power. No wonder, all kinds of international companies are clamoring to have an Indian presence. Some of these companies include well known names like Walmart and Starbucks.

Funds:
This is probably the easiest way to invest in India and to take advantage of the booming Indian markets. But you still have to have some appetite for volatility - Indian markets are quite volatile and it wouldnt surprise me if these funds took a hit of more than 5% within a span of few days. The two popular closed end funds include Blackstone group's India Fund (IFN ) and Morgan Stanley's India Investment Fund (IIF), both established in 1993. For those new to closed end funds, a closed end fund is practically similar to a mutual fund, except that it trades on the stock market. A closed end fund may trade at a discount or premium to its Net Asset Value (NAV), whereas you always end up buying or selling a mutual fund at its NAV. For a more detailed discussion on closed end funds, click here. The graphs of both these funds have pretty much mimicked each other since inception. India Fund's annualized returns for the last 3 and 5 years have been 33.20% and 36.66% respectively according to Blackstone Group's website. India Investment Fund's annualized returns have been 34% and 35.99% over the same time. As I write this, both these funds are trading at a slight discount to their NAV, which makes them worth a look. Another fund that deserves a mention here is the Matthews' India Fund (MINDX). This is a regular mutual fund, which benchmarks the BSE 100 index. This fund has been around since 10/31/05 and boasts of a 1-year average annualized returns of 36.48%. Matthews Asian Funds have boasted of a strong performance in various Asian countries and Matthews in general holds a good reputation. Matthews India Fund has also outperformed its counterparts IIF and IFN over the past 6 months. Then theres also the EATON Vance Greater India Fund (ETGIX) established in 1994. This fund invests in India as well as other countries in the Indian sub-continent like Pakistan and Sri-Lanka. This fund has returned 29.92 and 33.43% annualized returns over the past 3 and 5 years respectively. Since we are talking about funds here, one more investment vehicle that deserves mention here is the Barclay's iPath India MSCI Exchange Traded Note (INP). For those unfamiliar with ETNs, heres a quick refresher. In simple terms, an exchange traded note is like a hybrid between bonds and ETFs. This exchange traded was recently started by Barclays in December 2006. Another thing to keep in mind while investing in any of these funds is the expense ratio and other fees associated with it.

Heres a quick summary of the funds and ETN I mentioned above:

India Fund from Blackstone group (IFN): Expense ratio of 1.41% Annual Report
India Investment Fund from Morgan Stanley (IIF): Expense ratio of 1.35% Prospectus
Matthews India Fund (MINDX): Annual operating fee of 1.34% Prospectus
EATON Vance Greater India Fund (ETGIX): Expense ratio of 2.14% Prospectus
Barclay's iPath India MSCI Exchange Traded Note (INP): Yearly fee of 0.89% Prospectus

(to be continued)

The long case for ICICI bank (IBN):

2007-03-04T16:18:00.000-05:00

This article can be found on

1. Yahoo finance:
http://biz.yahoo.com/seekingalpha/070305/28674_id.html?.v=1
2. Seekingalpha:
http://india.seekingalpha.com/article/28674

What ICICI does:
Market tanking last week has brought about good opportunities and I am here to make a long case of ICICI bank (IBN). For those who don't know, ICICI is India's largest bank in the private sector. ICICI offers various products and services in India in areas of personal banking, online stock trading, loans (home, auto, personal etc), insurance, foreign exchange trading and mutual funds. It offers services to Non-Resident Indians like money transfer, NRE and NRO savings accounts and certain investment options as well. As of February 15, 2007, ICICI Bank had a network of 670 branches and 2,680 automated teller machines. It also operates in the United Kingdom, Canada, Russia, Hong Kong, Bahrain, Singapore, Sri Lanka, the United States, United Arab Emirates, China, South Africa, and Bangladesh. It closed last Friday at 37.99 from its high of 46.99, about 20% down. The downturn was not only because of the markets tanking, but also because of the recent increase in cash reserve ratio mandated by the Reserve Bank of India in order to curb inflation. You can read more about it here. Current YOY inflation rate in India stands at 6.63%, making it likely that the monetary policy will continue to be tightened.

Why ICICI:
Inspite of all this, the long case on ICICI is compelling. In my opinion, ICICI's earnings will continue thanks to the rising middle class income in India. More and more people now have disposable income on their hands to buy car(s), buy houses, invest or just plain deposit in the savings accounts. I have spoken to a lot of my friends and family back in India, and almost everyone from the younger generation prefers private banks like ICICI or HDFC (More on HDFC later). Younger generation does not like government-owned banks because they do not understand the concept of “customer service”, they treat you like they are doing you a favor by safe-keeping your hard-earned money. Average salary increases in India are currently at 30% and this alone gives people a lot of disposable income at hand.

Last quarter highlights (Source: finance.yahoo.com):
-Margins grew 42% YOY after tax
-Net interest income increased 32% to Rs. 1,709 crore (US$ 386 million) for Q3-2007 from Rs. 1,296 crore (US$ 293 million) for Q3-2006.
-Retail assets increased 50% to Rs. 117,914 crore (US$ 26.6 billion) at December 31, 2006 from Rs. 78,495 crore (US$ 17.7 billion) at December 31, 2005.
-Deposits increased 47% to Rs. 196,893 crore (US$ 44.5 billion) at December 31, 2006 from Rs. 133,881 crore (US$ 30.3 billion) at December 31, 2005.

Analysis:
Inspite of having had a good run-up, its 5-year PEG stands at 0.92. The way India is growing; I would put a conservative estimate on ICICI’s growth at 25% per year for the next five years. The two analysts on yahoo finance project ICICI's growth for the next 5 years at an average of 20% per year. Using the DCF calculator present on Moneychimp and plugging in the EPS of 1.49, growth rate of 20% per year for the next 5 years and a mere 5% thereafter gives a fair value of the stock to be at 47.9. More aggressive growth rate of 25% per year for the next 5 years and 8% after that gives a fair value of 107.94. The discount rate used in both cases is 11%.

Competition and personal experience:
ICICI faces competition primarily from HDFC, which is another growing bank in the private sector, as well as others like Canara bank, State Bank of India and Punjab National Bank. Out of these, only ICICI (IBN) and HDFC (HDB) trade as ADRs in US. HDFC bank at PEG of 0.71 looks cheaper than ICICI, but has an annual dividend yield of 0.6% as opposed to 1.9% for ICICI. Also, after having spoken to friends and family back in India, I got the impression that ICICI was more aggressive in terms of its marketing strategies as well as following-up with potential customers. When I was trying to open up an NRE savings account about a year back, I was exploring options with HDFC as well as ICICI. After having emailed both through their respective company websites, I am still waiting on hearing back from HDFC, whereas ICICI got in touch with me within 48 hours. That kind of gave me the impression that if HDFC did not care about a potential customer, it wouldn’t care much after I actually became their customer - no points for guessing where I finally ended up opening an account.

Summary:
All in all, I think ICICI has a very compelling growth story ahead of it as Indian economy continues to boom. The GDP growth in India has been an average 8% for the last 3 years. Although I think that the market has some more downside left to it, if I were to build a new position in ICICI, I would start buying here on dips maybe in one-thirds or one-fourths. I started building up my position in ICICI in June 06, and just before the market tanked last week, I almost had a bagger (95% profit). I plan on adding to this position sometime soon.

Voluntary Disclosure:
I currently own shares of ICICI as well as have an NRE savings account with them.

Online Savings Accounts

2007-02-02T16:39:00.000-05:00

In this post I decided to take a stab at reviewing the different online savings accounts. This type of investment is probably the simplest and no-brainer form of investment one can make. Now, you will probably say you dont need one, you already have your bank, which you can go to anytime you like, withdraw your money out of the ATM, can pick up the phone and talk to anyone at the branch. Let me ask you one question - how much interest do you earn ? The biggest and probably the only advantage online banks have over the traditional brick and mortar banks is the
APY - annual percentage yield or in simpler terms, compound interest.

Advantages of online savings over traditional banks, CDs and money markets:

Online savings accounts these days pay around 5% APY which is 10 times more than the national savings rate these days, which stands at around 0.5%.
Online savings banks are also better than the traditional certificates of deposits or CDs which pay around the same rates, if not less, and penalize you for early withdrawals of your money. Most CDs also need a certain minimum balance, and if your balance falls below that minimum, you get penalzied. With online savings, you can withdraw your cash anytime you like, and no minimum balance - ye!
The traditional money market average stands at around 4%, but most money market accounts need a higher minimum balance to give you that kind of APY.

Disadvantages of online savings accounts:

Except for HSBC Direct, most online savings do not offer the option of an ATM card, which means you have to transfer money to your traditional bank and then withdraw. This entire process can take anywhere from 3-5 business days. So, you got to plan accordingly to get money in hand at a particular day.

Comparison of popular online savings accounts:

ING Direct:

APY: 4.5%

24-Hour Support: No

Checking Account required: No

ATM card: No

Minimum balance to open account: $1

Online Bill Pay: No

Online CDs: Yes

HSBCDirect:

APY: 5.05%

24-Hour Support: Yes

Checking Account required: No

ATM card: Yes

Minimum balance to open account: $1

Online Bill Pay: Yes

Online CDs: Yes

Presidential Online:

APY: 5.25%

24-Hour Support: No

Checking Account required: No

ATM card: Yes

Minimum balance to open account: $100

Online Bill Pay: Yes

Online CDs: Yes

Emigrant Direct:

APY: 5.05%

24-Hour Support: No

Checking Account required: No

ATM card: No

Minimum balance to open account: $1

Online Bill Pay: No

Online CDs: Yes

Citi Direct:

APY: 4.75%

24-Hour Support: Yes

Checking Account required: Yes

ATM card: Yes

Minimum balance to open account: $1

Online Bill Pay: Yes

Online CDs: No

WaMu (Washington Mutual):

APY: 5.0%

24-Hour Support: Yes

Checking Account required: Yes

ATM card: Yes

Minimum balance to open account: $1

Online Bill Pay: Yes

Online CDs: No

All the accounts mentioned above are FDIC insured upto $100,000

Disclaimer: I currently have accounts with ING Direct and HSBC Direct

Why Invest ?

2007-02-01T12:09:00.000-05:00

In this blog I will write about investments and finance (in general, money). If I can convince some people to start investing now, my blog will have served its purpose. I know a lot of people who dont invest, for the fear of losing money or because they are just too lazy to start off. Guys think about this - $10000 invested today, at a converative rate of 10% compounded, will amount to $25,937 10 years from now. At a little more aggressive, but not unrealistic, rate of 15% compounded annually, it will amount to $40,455 (do I hear a wow now ?). And all investments dont have to be risky - you can start off with something as simple as an online savings account (which offer around 5% APY these days), then progress to bonds, mutual funds, stocks, real estate etc. There are few things to keep in mind - the timeframe of your investment, your appetite for tolerating ups and downs in your profits and/or principal amount, and your expectations. I will share my knowledge and experience about these different types of investments in future posts.

My first post

2007-01-31T20:40:00.000-05:00

So I got my own domain name http://www.binitamehta.com. I was surprised that I got this domain in the first place after so many years of the internet being around. I have been wanting to get my own domain since a long time, but always kept putting it off for no good reason. Now that I got this domain, I have promised myself to keep posting regularly (I hope it lasts!).