Timing the Stock Market

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?

Slam Dunk on Wall Street: Coming Soon

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

FM delivers what was expected

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

Reliance Power and a frivolous excuse

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.