Annual Report - 2009

PDF report: download

Wish you all a Very Happy New Year!! - Welcome 2010!!

New Year Quotes:

• Cheers to a new year and another chance for us to get it right. ~Oprah Winfrey


• Many people look forward to the new year for a new start on old habits. ~Author Unknown


• Year's end is neither an end nor a beginning but a going on, with all the wisdom that experience can instill in us. ~Hal Borland

Reflections - 2009:

2009 India Portfolio Performance compared to Index:



2009 Year End Asset Allocation Snapshot:


Sensex started the year 2009 at 9,647 and my fund at 59.1, during the course of year after a wild ride, Sensex closed the year at 17,464 and fund at 148.27. In one word - "Great Year". In terms of percentage (Sensex: 81% & Fund: 150.8%), fund beat the index by around 70% difference. But again, I consider this year to be lucky year & expect almost everyone's portfolio to be up substantially last year.

My portfolio calculations are based on the total performance of all different assets - Stocks, Cash, Preferred stocks, Corporate FDs, Mutual Funds. So it provides a complete picture of the assets which are allocated for investments rather than one asset like stocks. I think this is the only way to measure the performance and check if it justifies your time, effort & risk. If we just take high risk/rewards asset alone like stocks, I think the numbers would be higher. I have written in detail how I calculate and track my portfolio here. Its easy to do and takes only 5 mins at weekend, best of all, I did not have to do anything special at year end to see how it worked out over last year and every step of the way!!

I made couple of changes over the year and planning to go over few of those changes briefly below.

Allocated a percentage of portfolio (not hard allocation) for arbitrage/corporate action based opportunities and it worked out very well last year. One such investment was TRF when it announced 1:1 bonus shares issue. Sold the shares at 55% profit in 4-5 months (took longer than I expected to sell) which translate to around 132% annualized profits. Another one was Adlabs (now Reliance MediaWorld/Works), brought shares of Adlabs and sold Reliance World (Radio-BigFM) bonus shares received for handsome profit (still holding Reliance Media shares).

I sold very minor portion of 'Jindal Steel and Power Ltd.' shares for the first time after I started accumulating it in 2004 (6 years ago). It had a great run and the only reason for the decision to offload a little was because this single stock was growing more than 40% of my total stock portfolio. So currently I am selling it as and when it go over 40% of total stock portfolio. JISP is planning for Jindal Power IPO early next year, that may be an opportunity for next year, waiting to see the details of the issue. Over next year, I may reduce my total % of investment in JSPL even further.

Reduced the number of companies in the portfolio to 15, this may vary in future, but it was always my objective to keep the number of shares to minimum possible number.

Increased the cash allocation, trying not to hurry to invest again when cash is available. This may be good lesson from last downturn, afterall holding cash and waiting is not such a bad thing to do. I know its easier said than done!! Currently I am holding around 8.5% my total portfolio in cash.

Another opportunity which came up last year mainly due to credit crunch was corporate Fixed Deposits offering high interest rates. Fund allocated a small percentage of asset by investing in Tata Motors FD & Tata Capital NCD (Non-Convertible Debenture) which offered around 11.5% - 12% interest for 3-5 years.

IndexoMeter:
Added 'IndexoMeter' to the site, I had written a post about importance of Index PE ratio earlier. I believe that this could be used as an indicator while making investment decisions. This is not a crystal ball, but can be used as a data point along with other informations. Current Index PE stands at 22.36. IndexoMeter is designed in an easy to read and understand format and I will try to update it on every weekends along with fund prices. Look for 'IndexoMeter' on top right side on the site.

IndexoMeter - 2009 End:



Stocks positions closed during the year: Portion of Reliance Petro; remaining got converted to Reliance Industries shares, SA Petrochem, Shradul Securities, Power Grid Corp, TRF, Reliance World (Radio).

New stock added: None, but modified existing positions.

Current Holdings:
1. Jindal Steel and Power
2. Sesa Goa
3. Parsvnath Developers
4. Godawari Power
5. Sunil Hitech
6. Reliance Capital
7. Punj Lloyd
8. Reliance Media (Adlabs)
9. IndiaBulls Financials
10. Reliance Industries
11. Sanghvi Movers
12. Great Eastern Shipping
13. Tata Investment Corporation
14. Reliance Communications
15. Housing Development and Infrastructure - HDIL

Best Performers: Jindal Steel and Power, Sesa Goa

Worst Performers: IndiaBulls Financials & Reliance Communications

US Fund:
I liquidated my US Fund on Aug/07 of 2009 for personal use. The performance from Jan/01/2009 to Aug/07/2009 was 31.44% while Index (Dow) was up 6.77%. Planning to build the portfolio again from 2010.

On a personal note, I joined for MBA in 2009 Fall. Just completed my first semester (loooooong semester!!), work and studies is keeping me busy which is why the number of posts have reduced. I hope I can find more time in the future.

Again, last year was different and I consider myself lucky and next year I will have to work harder and be lucky at same time to even generate decent returns. Looking forward to a wonderful year - 2010!!

Wish you all a - Very Happy New Year!!

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Video Series: Interest rates - Marketplace Whiteboard

Source: American Public Radio www.marketplace.org

Confused about the theory of how interest rates can affect economic growth? Senior Editor Paddy Hirsch is here with a handy analogy.

Interest rates from Marketplace on Vimeo.

Click here to read the complete article....

Jamie Dimon Speaking At Harvard

Great Video, Must Watch!! JP Morgan Chase CEO Jamie Dimon speaks at Class Day 2009 of Harvard University.

Click here to read the complete article....

Index P/E Ratio and its importance

Here we are looking at the index P/E ratio and its possible use while making investment decisions. I have taken the data from Indian index (Sensex), we should be able to do similar analysis for any of the indexes.

Following chart is based on P/E ratio of Sensex from Jan 1995 to Jun 2009. Index values as such cannot be used to compare with historic data, but since P/E is a ratio, we can compare P/E with historic P/E data.



Few things to notice:
- The P/E ratio has a normal range which seems to be between 15-25.
- Every time the ratio crossed above 25, it was short and lead to a sharp fall in market.
- Every time the ratio crossed below 15, it was poised for a rise.
- Earnings ('E' in P/E), because it can be manipulated is not considered to be a very reliable number for analysis which makes P/E ratio not the best ratio to use. But when taken on a collective basis like in Index, it may offer a better indicator.
- When P/E is above 25, it does not matter if you are holding an undervalued, growth or any other type of stock, all stocks were hit sharply. Best thing at this point may be to consider selling.
- Individual company analysis is important, but factoring in the market condition based on this historic data may help.
- This indicator may be worth looking into especially when the current ratio is outside the normal range.
- Over a long duration of time, there may be changes in the what we consider 'normal range'.
- Index can go up without affecting the P/E, if there is a corresponding increase in the earnings.

- Notice that currently market P/E is around (as of Jul/15/2009): 18.52.

I will be publishing the current P/E data periodically on the site (right side) in 'Indexo Meter' graph.

Click here to read the complete article....

The Capital Requirements of a Company

Good article about "Capital Requirements of a Company" from http://www.noisefreeinvesting.com

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Video Series: Meet Cap 'n Trade

Source: American Public Radio www.marketplace.org

Cap and Trade is the linchpin of the government's effort to curb carbon emissions. Senior Editor Paddy Hirsch explains how the cap and trade model works.

Meet Cap 'n Trade from Marketplace on Vimeo.

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Video Series: Capital Structure by Marketplace

Capital Structure by American Public Radio www.Marketplace.org

"In stories about the auto companies and the banks, we've been hearing about debt-to-equity swaps and exchanging preferred shares for common stock. To understand how those work, you need to understand a company's capital structure."

Capital structure from Marketplace on Vimeo.

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Track Your Portfolio Performance.

It is important to calculate and track portfolio performance accurately. Most often the performance is assumed based on few stocks or transactions and not based on the portfolio as a whole. The portfolio tools available on different sites like Yahoo finance or brokers provide a snapshot of your portfolio at any given time and does not provide ability to track the history. It also does not take into consideration how much money you added or withdrawn during a period and its effect on the numbers.

The information Portfolio Tracker provides (which I am discussing here) is crucial in understanding if the time we spend picking our own stocks and the risk we are incurring doing so is worth or not. You can easily look at how a low cost index fund would have performed during the same period versus your own fund. It also provides information on how your portfolio performed at any given point in past. Once you have the data in this format, you can use to present it in any formats e.g. Charts.

I have been using this simple method to track my portfolio performance since last 2 years.

Highlights:
- The portfolio is tracked similar to Mutual Funds, which are based on units.
- You can keep using the existing portfolio tools (from your broker or free). No need to track individual stock transactions like purchase or sale of stocks in the tracker.
- You can decide on the frequency of updating the tracker. I update it every weekend, once every month also works. It takes only around 5 mins of your time everytime you update it.
- All you need is an Excel like spread sheet. I use Google Docs, as it allows me to access the data from anywhere. It has almost all the features including charts and works like Excel. Charts are similar to what you see in Google Finance.
- Flexible and customizable according to your own needs. We could even added other investments like fixed deposit or bonds while calculating the total portfolio value. These values may not change every week, but adding it helps calculate accurate value of your portfolio.
- Provides data on how the fund performed during any of the previous weeks or months. With current fund price, users can look for the index values and portfolio totals which corresponds to same unit price in the past.
- Ability to add multiple investors and track their investments in the portfolio. Run your own fund!
- Dividends received will get added to cash holdings and thus be part of the portfolio calculations.

Screenshot:



** Each row represent one week data and items marked in green are the only items needs to be entered manually.

Entry Types:
- Status: Weekly status of portfolio
- Purchase: New Money Addition
- Withdraw: Withdrawal of money.
*again, there are not individual transactions of shares.

Sample portfolio tracking sheet:
View as web page: http://spreadsheets.google.com/pub?key=rdBrHqAaLFO17KYydJj79iA&single=true&gid=12&output=html

View and copy as Google spreadsheet: http://spreadsheets.google.com/ccc?key=rTWMVyD677ubsd1VG8bli9Q

Download as excel sheet: Sample Portfolio Performance Tracker

Send me an email or add a comment with email id if you have trouble accessing or getting a copy of the spreadsheet or if you have any questions regarding the post.

Steps:
1. Add total portfolio and cash position and divide it by an arbitrary number (initial unit price) like 10 or 100. This gives the number of units. At this point we have the total portfolio value, unit price and number of units or shares. What are the critical values in the spreadsheet. Later when you add or withdraw money, you are adding units or reducing the number of units and the unit price will remain same.
2. Choose an interval to update the document. e.g weekly once.
3. Update the portfolio value and cash positions along with indexes values.
4. If there is addition of new money or withdrawal of money, update the document by marking it.
5. Use this information while making investment decisions.

This is a simple but very effective way to see how your investments are doing compared to benchmark like stock market indexes. The graphs on this site is generated based on this calculations.

Click here to read the complete article....

Panel: Innovation and the Economy - Video

Staying competitive in difficult market conditions. - Columbia Business School

via: Fora.Tv

URL: http://fora.tv/2009/02/03/Master_Classes_Panel_Innovation_and_the_Economy



Found at: http://www.simoleonsense.com/video-columbia-business-school-panel-on-innovation-and-the-economy/

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Two Best Shareholder Letters

1. Berkshire Hathaway - Warren Buffet - click here

2. JP Morgan Chase - Jamie Dimon - click here

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2009 Berkshire Hathaway Annual Meeting Notes.

Most extensive notes from Warren Buffet & Charlie Munger's annual shareholder's meeting:

http://inoculatedinvestor.blogspot.com/2009/05/2009-berkshire-hathway-annual-meeting.html

Source: http://inoculatedinvestor.blogspot.com

Click here to read the complete article....

Fallacy of bringing 'Averages Cost' down!!

I am sure you also have heard the reasoning "I have been investing in stock X to bring down my average cost" over and over. So I am planning to write about my thoughts on it.

Is this a rational reasoning for an investment? I don't think so. I believe that every dollar an investor invests is "fresh" money and when that "fresh money" is invested, we should look and find the best investment available at that point of time. As an investor the primary objective should be to find best value available.

The right reason for dollar cost averaging must be if the stock you are trying to cost average is the best available investment when making that investment. I think many people keep investing so that they can see that their average is coming down and they feel good seeing that their 'looses' have reduced.

E.x:
Stock X (current price): $10 * 100 = $1000
(average cost) : $20 * 100 = $2000

You can dollar cost average: $10*100
Stock X (average): $1,500
OR
You can find the best investment option available (Stock Y): $1,000

Yes, now you may feel good that my investment in Stock X is better than it was before, average now is only $15, from $20. But from this point all it matters is how stock X or the Stock Y performs.

So my point is, don't invest money to bring down the cost. Invest in the best option available, that could be same stocks or different or may be not even stocks!! If you are not holding the best investments currently, you should get out of it, let alone add more to it!!

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Those Calling for the Death of Value Investing Are Wrong

“The Death of Buy and Hold” flashes on the screen on CNBC…
Normally, seeing editorialized headlines touting the end for value investors on financial TV wouldn’t be a shock – but that latest television segment is just the last nail in the coffin for an investing strategy that’s been taking a lot of heat in the past year.

“I just don’t think that [buy and hold] is a wealth building strategy any longer,” says a major financial blogger. “These days, value as an investing strategy is dead,” says another.

Read on... http://seekingalpha.com/article/130068-those-calling-for-the-death-of-value-investing-are-wrong

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5 Points To Look For When Evaluating Management

1. Sustained Results
2. Focus on Return on Capital
3. Reasonable and Shareholder Friendly Compensation Guidelines
4. A Personal Stake in the Business
5. A Truly Independent Board of Directors

Complete Article: http://www.magicdiligence.com/articles/5-points-for-evaluating-management

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Video Explaining The “Geithner Plan.”

From Yes & Not Yes Blog

Found at simoleonsense.com

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Ben Bernanke On 60 Minutes

Very good interview with Ben Bernanke on 60 Minuites where he discusses various topics related to current financial crisis.

Interview Part-1





Interview Part-2

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Understanding Financial Statements

Articles by www.magicdiligence.com

1. Understanding Balance Sheet

2. Understanding Income Statement

3. Understanding Cashflow Statement

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