Don’t confuse genius with Bull market

Come a bull market and everything rises. One look at the portfolio gives us a feel of elation, followed by a few satisfied grunts, some pats on our own back, that in addition to our heavy work routines we have successfully used our latent genius to make a significant impact on our wealth. 

This high carries on into the office tea conversations, as also into late evening parties. Everyone is cheerful and all endings are happy.

Not to be left behind even the ladies at kitty parties are in full swing. After sharing a few success stories even start vending advise. 

The next buys slowly come in via these routes. 

Somewhere the wheel turns, blame it on an ill timed political move, some tightening here or there, a president falling sick or some strike in a far off land, whatever, but then the selling starts, in bits which later graduates into a torrent. 

The Kitty party buys you intended to hold only thus long slowly turn into real long term investments.

That’s when the popular Warren Buffett quote comes to mind " Only when the tide goes out do you discover who's been swimming naked".

Thus , whenever doing an honest assessment of one’s potential especially in the investing field or even in your respective businesses, always discount the wind behind your sails. 

To have repeated success we should bring greater objectivity to the table. It will ensure we smoothen the flukes and put the right amount of focus on our strengths as also on the areas of potential improvements.

This rigor of structured analyses leads to wealth not a temporary rise which will soon settle or change course.

Profound wisdom favoring Long Term Equity Investing !

All those who invest in the stock market should remember & understand these lines -

In the 20th century, the United States endured 

- two world wars and 

- other traumatic and expensive military conflicts; 

- the Depression; 

- a dozen or so recessions and financial panics; 

- oil shocks; 

- a flu epidemic; 

- and the resignation of a disgraced president. 

Yet the Dow rose from 66 to 11,497.

Warren Buffett 

and is 15,300 as i write this post ....

If anyone comes around and gives you another Doomsday forecast ...plenty ...just tell them to take a hike .....

Of course the story is being STOCK SELECTIVE instead of a general rise which we experienced earlier due to structural adjustments ..so you need to work hard for that ..but nothing comes easy ....not as easy as the pink papers want it to sound !

there still will be phases of a general rise ...of course but for superior returns you will have to work harder !

cheers !

Warren Buffett Hopes shares of his investment IBM Languish And Underperform For The Next 5 Years

Strange are the ways of Warren Buffett.....hoping for an underperformance that too for 5 years ...

Indians would say satheya gaya ...NOT REALLY !

This past year, Warren Buffett made a rare foray into tech investing, with a substantial purchase of IBM shares.

He explains .....

This discussion of repurchases offers me the chance to address the irrational reaction of many investors to changes in stock prices.

When Berkshire buys stock in a company that is repurchasing shares, we hope for two events: First, we have the normal hope that earnings of the business will increase at a good clip for a long time to come;

and second, we also hope that the stock underperforms in the market for a long time as well.

Let’s use IBM as an example. As all business observers know, CEOs Lou Gerstner and Sam Palmisano did a superb job in moving IBM from near-bankruptcy twenty years ago to its prominence today.

Their operational accomplishments were truly extraordinary. But their financial management was equally brilliant, particularly in recent years as the company’s financial flexibility improved. Indeed, I can think of no major company that has had better financial management, a skill that has materially increased the gains enjoyed by IBM shareholders. The company has used debt wisely, made value-adding acquisitions almost exclusively for cash and aggressively repurchased its own stock.

Today, IBM has 1.16 billion shares outstanding, of which we own about 63.9 million or 5.5%. Naturally, what happens to the company’s earnings over the next five years is of enormous importance to us.

Beyond that, the company will likely spend $50 billion or so in those years to repurchase shares.

Our quiz for the day: What should a long-term shareholder, such as Berkshire, cheer for during that period?

I won’t keep you in suspense. We should wish for IBM’s stock price to languish throughout the five years.

Let’s do the math. If IBM’s stock price averages, say, $200 during the period, the company will acquire 250 million shares for its $50 billion. There would consequently be 910 million shares outstanding, and we would own about 7% of the company. If the stock conversely sells for an average of $300 during the five-year period, IBM will acquire only 167 million shares. That would leave about 990 million shares outstanding after five years, of which we would own 6.5%.

If IBM were to earn, say, $20 billion in the fifth year, our share of those earnings would be a full $100 million greater under the “disappointing” scenario of a lower stock price than they would have been at the higher price. At some later point our shares would be worth perhaps $1 1⁄ 2 billion more than if the “high-price” repurchase scenario had taken place

The logic is simple: If you are going to be a net buyer of stocks in the future, either directly with your own money or indirectly (through your ownership of a company that is repurchasing shares), you are hurt when stocks rise.

You benefit when stocks swoon. Emotions, however, too often complicate the matter: Most people, including those who will be net buyers in the future, take comfort in seeing stock prices advance. These shareholders resemble a commuter who rejoices after the price of gas increases, simply because his tank contains a day’s supply.

Charlie and I don’t expect to win many of you over to our way of thinking – we’ve observed enough human behavior to know the futility of that – but we do want you to be aware of our personal calculus.

And here a confession is in order: In my early days I, too, rejoiced when the market rose. In the end, the success of our IBM investment will be determined primarily by its future earnings.

But an important secondary factor will be how many shares the company purchases with the substantial sums it is likely to devote to this activity. And if repurchases ever reduce the IBM shares outstanding to 63.9 million, I will abandon my famed frugality and give Berkshire employees a paid holiday.

-----------------------------

ps : this post isnt original, rightly so, as i am using what Warren said to highlight a long term strategy but incisive & highly educative , so reproduced for its educative value !

Cricket , Ant , Austerity , Eurozone & the Greeks !!!

Today is the defining day in Eurozone as they say....Greeks who now are openly protesting against the austerity measures are going to elections to elect a government which matches their aspirations.

We have all been hearing of a word Austerity ...which would mean fiscal discipline through controls on excessive spends but also puts a question mark on the life of common people. Their earnings, jobs, pensions get slashed, their way of life is hit, fine, but does this all bring about the improvement in the basic state of the economy. The answer is NO !

The nations got access to cheap funding on joining Eurozone...now its payback time..and they like the typical Cricket in "Cricket & the ant " story haven't prepared themselves for the winters....they were just too busy partying !

Now the ant doesn't want to share its reserves with the cricket...unless the cricket agrees to severe austerity measures. It had been warning the cricket all along that harsh winters are approaching.

Naturally the cricket is upset. It still wants the dole but without austerity.

In my view, what would austerity achieve ....practically nothing....it would lead to harsh cuts but would it increase business, result in growth, motivate people to do more...more importantly would it enable the affected countries to be able to repay their debts...a big NO !

It possibly would make them sink deeper.

The solution to the current situation is investing in growth of those affected countries, restore their self pride, give them the tools to stand on their feet and finally enable them to pay their debts.

Here the argument will be ...what happens to the agreed & settled deals...renegotiating them will break the Eurozone discipline ...yes it would but in the current eurozone so many other and much larger countries are affected.

The panacea to all this is growth. The zone has to usher itself into a place of growth , not for prosperity or anything but just to repay its debts to begin with and then for the overall growth & maintenance of their lifestyles.

The dubious credit for this wake up call goes to Greece but changes have been afoot in other countries to in France, in Italy and sooner or later through the power of ballot the people in the other countries will respond too.

Eurozone in its current shape is flawed , but the flaws cant be remedied over night. There should be slow progress towards that , a progress which ensures growth and dignity !

The current crises should be used to effect & elicit discipline, to build some semblance of an eco-political union, a basic pre-requisite for a common currency.

But whatever, i am a votary for an approach where the solution shouldnt be worse than the disease itself !!

Let the show begin !!!

Baltic Dry Freight Index - Confusing Signs but Grim Pointers , 3 year low

The Baltic Dry Index, fell to 974 (20th straight fall session) down 49% from its peak last year and slumping 43% in the last month only. 

This indicator is the daily average of prices to ship raw bulk materials and doesn't allow / build in any speculation, and coupled with Power & Coal rates , a far better indicator of the health of the world economy than Oil prices. Oil prices can easily be influenced by geo-political factors.

A scan on potential factors causing the fall, reveal an entire range of factors ...from economic at one end to supply side issues at the other. The following possible reasons emerge -

- Chinese demand for iron-ore cargoes is slowing - elevated inventories, reduced steel production & weakest expansion of economy in 2.5 years in the last quarter

- Delayed infra projects & restricted finance ...China trying to slow the heat of the economy

- Sluggishness in view of approaching Chinese New Year holidays (Jan 22 – Jan 28 )

- Developed economies esp. Europe not growing - decline in imports, low demand for coal

- Worsening glut of vessels on faster deliveries of new ships.- Vessel delivery went up 12% compared to 8 rise in Trade (Maersk)

- Weather / rain related disruptions of export shipments from Australia, Brazil (Iron Ore), Colombia and Indonesia (coal) 

Charter rates dropped for all four vessel types within the gauge, led by capesizes.

Capesizes – $7.793 a day, 76% down from last month’s high of $32,889 ( 40% of global fleet of commodity carriers ) Panamaxes - the largest ships to navigate the Panama Canal, dropped to a 33-mth low of $9,257. Supramax - fell to $9,695 a day, the lowest level since Feb. 6, 2009. Handysizes - the smallest ships in the index, retreated to $7,581.

Capesize rents on some routes fell below operating costs, estimated at $7,437 a day excluding fuel. The rate to hire a capesize for a round trip in the Pacific Ocean slid 9.2 percent to $5,336 a day, and the equivalent cost in the Atlantic declined 15 percent to $6,795.

Future Expectations - Growing ship supply, which is outpacing commodity demand, is set to cap dry bulk freight rate gains in the coming months, projected the BDI will remain "very low" at between 1,000 and 1,500 points for 2012. Next year will remain another challenging year for the industry

Flip side - "A decline in the BDI normally indicates a similar decrease in commodity prices. As a result, we should expect exporters to enjoy lower raw material costs, and should help the beleaguered industry.

Reliability - Recently its reliability has been called to question. When it surged to a record high in '08 the S&P 500 actually began to decline about six months before the BDI, making it a lagging indicator of the stock market. It did, however, signal that the global economy was in deep trouble as it tanked 94 per cent in 2008. The BDI also rebounded slightly before the stock market rising nearly 250 per cent before stocks finally bottomed out on March 9, 2009. 

Since then, though, the BDI has meandered at levels about 80 per cent below its pre-crisis peak, providing few glimpses into the state of the economy. One theory is that shipping prices are suffering not through a lack of trade, but through a glut of large ships. 

In other words, the Baltic Dry Index is flashing red – but no one really knows what that means, and fewer people seem to care.

Maybe our troubles are so big that this is one indicator we know will flash red while we focus on the fiscal health of Europe , Chinese slow down, worry wether US is recovering and the budgets wouldn't be struck in the congress or where is the next Friday , the 13th Downgrade coming and hitting...our plates are indeed quite FULL !!!! 

Credits - various sources chiefly Economic times, Reuters, Bangkok Post, The Business Times, The Globe & Mail, Canada, Graph Credits - BIG