Is it good to be a shameless stock stealer?

Apr 12, 2012

In this issue:
» Why India can beat China in the long run
» Government throws Air India another lifeline
» This city is showing how to build a world class infrastructure
» A financial innovation that is good for the society
» ...and more!

---------------------------- Yet Another Bailout... Speak out before it's too late! ---------------------------

When millions don't even have food to eat, our government is busy bailing out companies...

And this time, again, it's Air India.

This PSU gets a Rs 4,000 crore equity infusion... funded by the taxes we pay.

Not to mention the huge debt restructuring is basically a bailout in a different garb. And this runs into tens of thousands of crores.

Is this government really made up of our representatives or is it on the payroll of those corporate giants?

We at Equitymaster feel strongly about this cause, and thus have started an Urgent Poll where you can read all about this and cast your vote to make your voice be heard!

We strongly recommend every Indian, who wants to make a change, to take a look at this.

Click Here to read more and cast your Vote... Before it's too late!


We all know how incredibly intelligent Warren Buffett is. Thus, it is hard to believe that a man of his stature would feel the need to copy investment ideas. But this is something he seems to have done quite a few times we think. In fact, Geico, touted to be amongst his best investments, was a rip off from his mentor Benjamin Graham. There could be others too. Mind you, this habit of picking investment ideas from fellow guru investors is not restricted to Buffett alone. A lot of famous investors openly admit that observing what their successful counterparts are investing in forms a big part of their investment strategy.

So, have we uncovered one of the big secrets to investing successfully? Certainly we believe. Keeping a tab on the investment activities of investors with a great long term track record should be a part of every investor's stock screening armoury. Surely, the approach does have negative connotations to it, some going as far to calling it a shameless theft. But there is nothing morally wrong in it we believe. The original investor has nothing to lose from his investments being copied by others. This is because he would have already made his investments by the time his stock ideas become public. Besides, this whole approach isn't just a one way street. There is only so much even the most successful and hard working investor can research. Thus, all investors can benefit if they have access to each other's investment ideas.

And if you cast the net wider and take the big picture into account, you will realise that if there is one big reason that humanity has progressed so much, it has to do with the fact that each successive generation has copied from its previous one. Newton summed it beautifully when he said that if he has seen farther, it is by standing on the shoulders of giants.

Thus, as it is with other disciplines, in investing too, there should be no shame in copying investing ideas from others, provided it is followed by one's own due diligence. Besides, one has to also ensure that the price being paid is not way too high than what the original investor paid for it.

Do you steal stock ideas from others? Share your views with us or you can also comment on Facebook page / Google+ page.

 Chart of the day
Today's chart of the day is yet another illustration of the growing rich poor divide in India and also how costly real estate has become in metro cities. As shown, an average Indian will have to work the longest, 308 years to be precise, if he ever has to make his dream of buying a 100 sq metre luxury house in Mumbai come true. Interesting to note that despite talks of China's overheated property market, it will take much less for an average Chinese to buy luxury property in Shanghai. Thus, either property prices in Mumbai have to fall substantially or the income of an average Indian has to go up a lot to bring parity with other nations.

Source: Business Standard

As if the efforts to milk some profitable PSUs were not enough, the government has today approved the bailout plan for beleaguered national carrier Air India. Initial reports suggest that the restructuring plan involves a mix of equity support and debt guarantee. Infusing Rs 40 bn in the form of additional equity and sovereign guarantee for Rs 70 bn bond issue will give a lifeline to this perennially bleeding airline company.

But not doing so will mean bloated non performing loans for PSU banks like State Bank Of India (SBI). That infact makes the matter more imperative and urgent for the government, given the Reserve Bank Of India (RBI)'s strict norms. What is more frustrating is that this is a failure story in the making for long. However the government has blissfully ignored the same. Bankers in turn have relied on government guarantee to lend to the subprime borrower.

Despite the fact that the company has been in losses for more than a decade banks chose to fund its operations. The losses at the end of the last financial year (FY11) have not even been published! And now the government is all set to use its sparse funds to bailout the failed entity! If you feel the same way as we do, then raise your voice to Ban Bailouts. Remember, every vote counts!

It goes without saying that between the Chinese dragon and the Indian elephant, the former clearly overwhelms the latter on several fronts. Often, the reason for India's relatively timid rise is attributed to the fickleness of its political institutions. On the contrary, China's dictatorial communist regime is credited with putting the economy on the fast growth track.

Now, here is a very surprising revelation. If the ideas of a book called 'Why Nations Fail' are anything to go by, the fate of the two economies could reverse. In other words, India could beat China in the long run. And that too, because of the very same reasons responsible for its lousy rise. Let us explain how. The book argues that in the long run, democratic economies will prevail over autocratic ones. The problem with autocratic political establishments is that they tend to benefit elites. For the masses, the prosperity is mostly short-lived. On the other hand, democratic institutions tend to create opportunities for all. This in turn, brings in prosperity that is sustainable. While applying this argument for India and China, it is important to note some ground realities. One, democracies can be partly autocratic. India's myriads of corruption scandals are a testimony to this fact. At the same time, despite the communist regime, China has grown at a robust pace for three long decades.

Will India really be able to surpass China? Given all the scams, political paralysis and poor governance in the recent history, it is difficult to say. India needs a lot of political will to give it a truly democratic character.

After the global crisis, finance and financial innovations have left a bitter taste not only in the mouths of countless investors, but also other corporations and governments. Thus, the mention of any more innovations in this field will surely cause many to skeptically raise an eyebrow. But Robert Shiller has come out with a financial innovation of a different kind. This could actually change the way Wall Street operates through a concept called crowd funding.

This involves linking financial innovations to social media. In other words, many investors contribute small amounts of capital to projects that they read about online and that otherwise may be grappling for funds. The point is to democratize Wall Street. Though it must be noted that this is still in a very nascent stage and the potential benefits for investors is still hazy. The idea is that financial innovations were not always bad. They have been instrumental in kick starting businesses and providing much needed capital way back from the early 1800s. It all boils down to ensuring that innovations of any kind benefits businesses and in the end society and that it is not all about greed.

Scarcity of funds has been a major hindrance in the development of city infrastructure. The basic source of finance for any city, to create an infrastructure, is the tax revenue it has generated. Grants from state and central government and borrowings are other important avenues. However, most cities are even unable to provide the seed capital required for grants. It may be noted that sometimes government provides external support in the form of grant. But only when the city jurisdiction commits certain equity into the project. So, as seen there are many difficulties to get funds for the project.

However, the Hyderabad municipality has found an interesting concept to overcome shortage of funds for projects. It is known as Tax Increment Financing (TIF). Under TIF, the money is borrowed now for financing infrastructure and is paid once the facility comes into use. TIF uses increase in the property tax revenue to fund future capital spending. The basic rationale is that the as infrastructure improves in the TIF areas, the property values increase. And with that the taxes on property. The Hyderabad municipality has achieved a great success with this model. And we believe it's time for other city municipalities to follow the same course.

The euro crisis has been going on for a while, and it has seen no sign of abating. The European Central Bank (ECB) averted a budding credit crunch through longer-term refinancing operations (LTRO). Financial markets rallied post this move. But the fundamental issues are still far from being resolved. The gap between debtor countries such as Greece and Spain and creditor countries such as Germany continues to widen. Either way, even if the euro ceases to exist, Europe has a long period of economic stagnation ahead of it, according to George Soros. Latin American countries suffered a lost decade in 1982 and Japan has been stagnating for decades. But these countries are still surviving. The European Union is not a country, and does not have the ability to make independent policy decisions. Thus it is unlikely to survive according to Soros. The deflationary debt trap threatens to destroy this political union. A definitive deal-breaker. Bye, bye Euro, we soon think.

Meanwhile, indices in the Indian stock markets gave up some of their gains of the first few trading hours with the Sensex trading more than 120 points higher at the time of writing. Banking heavyweights were seen attracting a good deal of buyers. Most Asian markets closed strong today but Europe has opened on a mixed note.

 Investing mantra
"Someone is sitting in the shade today because someone planted a tree a long time ago" - Warren Buffett

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    2 Responses to "Is it good to be a shameless stock stealer?"

    Ragini Ghanekar

    Apr 14, 2012

    I wish to make comment about the innovation by Hyderabad Municipality. I have another idea. communities should make a deal with Municipality that they will make all necessary improvement and arrangements themselves. And they will not pay any taxes until amount invested is repaid but will pay to the bankers who will finance the project on the back of this guarantee. How municipality employees will survive will be paid apart from the bribes they are taking will be a question need to be sorted out.



    Apr 12, 2012

    "India could beat China in the long run."
    Here below 5 plus point in favor of India to beat China in the long run.
    1)Knowledge of English is better than China have.
    2)People grow under 54 years of democratic environment.
    3)Trading is tradition in people.
    4)Advantage of Geographic location between East & West.
    5)Politeness in people is batter than greediness.

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