Does your portfolio have such poisonous stocks?
In this issue:
» Gold bull run has not yet ended
» Aadhar is tasting success in India's hinterland
» A silly looking comment from a central banker
» Bankers request RBI to lower rates
» ...and more!
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You see, there are many reasons a firm can count as a bad investment. High leverage, eroding market share and reducing profitability are just amongst the few. But if there is one reason investor should have absolutely no tolerance for, it is the quality of the management we believe. This is because a risk to the business from a bad management is a risk that is present at all times. One would never know when the management decides to allocate the profit from the business in a disproportionate way. And take the minority shareholders for a ride in the process. Thus, it does not matter how strong the financials of the firm and how cheap the valuations. In fact, the company we met had financial and valuations that would make a value investor drool. But still, an investment in a firm that has a history of bad management practices should never be considered. Just as any number multiplied by a zero is zero so is the return for a minority shareholder from a business with unethical management. Even if the firm becomes one of the biggest in its industry, there is always a risk that minority shareholders will get a big zero at the end of the day.
Do you think the quality of the management is the most overriding criterion for investing in a stock? Let us know your comments or post them on our Facebook page / Google+ page.
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Chart of the day | |
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Source: ACE Equity |
01:44 |
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But it is no joke when central bankers also start pulling off similar tricks. We have often written about how US central bankers have been fooling the masses by recklessly pumping cheap money into the economy. In the process, they have only aggravated the problem further instead of solving it. But we just came across a shocking news report that reveals that such outrageous monetary policies are not just the monopoly of central banks of developed economies. The newest central bank to join this notorious group is Argentina. The President of Argentina's Central Bank (BCRA) opines that printing money does not cause inflation. According to her, inflation is caused by "other phenomena like supply and external sector's behaviour". Such erroneous statements force one to doubt the sanity of individuals heading powerful organisations. Either they are plain stupid. Or, we fear they are impeccable tricksters. Our gut slants towards the later. And this is dangerous. We cannot afford to cheer and applause.
02:22 |
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According to empirical data from Casey Research, gold has always performed well when real interest rates are at or below 2%. When real interest rates are negative, cash or bonds are worthless investments because their return is lower than inflation. Gold emerges as the true winner as it can hold on to its purchasing power. Politicians in the US, EU, and a number of other countries are hell bent on keeping interest rates low to spur growth. Inflation is still above comfort levels. Thus, real rates may be in the negative zone for some more time. So is it time to buy more gold? We sure think so.
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03:31 |
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04:00 |
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The Indian stock markets were marginally up 0.5% during the week. The market shed gains in the last trading session after a three day winning streak as investors booked profits. The next few weeks will determine the course of the markets from here on as investors keenly await the Reserve Bank of India's (RBI) monetary policy and fourth quarter results of the FY12.
Amongst the other world markets, Hong Kong (up by 1.1%) was the biggest gainer for the week followed by India (up by 0.5%). France registered the worst performance during the week and was down by 3.2% followed by Japan (down by 2.6%).
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Source: cnnfn, yahoo finance, kitco
Note:- Indian stock markets are shut on April 05 and April 06 2012 and hence we have taken the closing as of April 04 for all markets to maintain uniformity in comparison. The Chinese stock markets were shut during the first three days of the week due to public holiday. |
04:52 |
Weekend investing mantra |
Note: We regret to inform that there will be no issue of the 5MinWrapUp on Friday (6th April, 2012) & Saturday (7th, April, 2012) on account of holidays.
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33 Responses to "Does your portfolio have such poisonous stocks?"
BAPTY.S
Apr 12, 2012PREFERABLE TO GIVE NAMES OF SUCH STOCKS.OFCOURSE TELCO COULD BE A RARE EXCEPTION, SIMILARLY WE CANT BRAND ALL SUCH MGMT AS BAD FOR REASONS BEYOND CONTROL. BUT PL GIVE NAMES OF SUCH STOCKS.
SN RAO
Apr 10, 2012I have seen the caption "Does your portfolio have such poisonous stocks?" in your website and eagerly searched for such stock names so that I can verify whether such stocks are in my portfolia. But I am unable to find the answer. It consumes lot of time to make thorough search and your subscriber will feel lot of inconviniance. At least hereafter furnish direct answer in the beginning of the article itself and then proceed with the article.
Santhana
Apr 9, 2012If you really care for the minority shareholders of this company, reveal the name and let them get out at the earliest. By NOT disclosing the name of the company, you are aiding the (mis)management, in duping the public. Unless you have made up the whole story!We respect transparency in every thing.
Deepak Jain
Apr 9, 2012I am trying to get rid of these type of poisonous shares. I was a share holder of one such auto ancillary company based in Gurgaon. But the management sold a part of their profit making subsidiary, without any information to their shareholders.
sethu
Apr 8, 2012I wonder whether these uestions were really asked by the management because thes managements are normally smart enough not to ask such uetions to research firms/analyts.is it a story made by you to emphazise an important point.However I fully agree that uality of management is the most crucial thing .
N.M.R.Shreedhar
Apr 8, 2012Hi, totally agree that management needs to follow certain ethics in all their dealings whether with FII's, minority shareholders or even customers. The day management resorts to unfair dealings with stakeholders, it digs its own grave. Philip Fisher used to call this "scuttlebutting" wherein he used to enquire about the company with sales staff,customers, minority shareholders and even competitors before making a major investment. regds
g r chari
Apr 8, 2012There can be no two opinions that the quality of the Management is the most important factor in decision making. I am sure that the company you visited is no exception to the avaricious type of businessmen who run many public-listed cos' as their personal fiefdom. The management culture in most Indian cos' is of low-grade quality and one of the reasons may be proprietary mind-set of the Indian businessmen and the loose political & bureaucratic set-up prevailing in the country which makes them feel that money power can buy businesses and competition. With market valuations becoming the criteria to judge a company's success rather than its Management or profit, it's not difficult to manipulate share prices (given the low floating stock) with a view to sell or off-load a part of the promoters stake at a high premium or through a QIP. In such a situation, it's no wonder that cos' which have been running losses for ages are quoting at hefty premiums and many analysts (not Equitymaster) also run after and recommend such cos' leaving the ordinary investor at his wits end.
Kathrecha
Apr 8, 2012Yes, ofcourse if management is not interested in sharing profits with minority shareholders, minority shareholders should think 100 times before investing in such a company even if they have great financials and performance.
giresh
Apr 17, 2012WASTE OF TIME!!!