Who's the best investor in the world?

Jun 9, 2010

In this issue:
» Gold - The way forward?
» World is full of dirty shirts, says Pimco's Bill Gross
» Jim Rogers is long on commodities, short on stocks
» Crash course in losing reputation-Lessons from Goldman Sachs, BP
» ...and more!

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 Chart of the day
You might be looking for investing ideas around the world. But you know what? Your mom or grand-mom must have been the best investor after all! See today's chart. It shows the movement of gold prices over the past 39 years (when the gold-US dollar parity was broken). The rise has been nothing short of meteoric. From Rs 10 per gram in 1971, gold prices currently stand at just under Rs 2,000! That's a return of 14% on an average annual basis...much more than the average inflation in India during these years!

Data source: Gold.org; Note: Data is for gold prices denominated in Indian rupee

As we stand today, global economic fears are making investors nervous about the safety of assets other than gold. And as such, it is trading at its all time high of above US$ 1,250 an ounce in the international markets.

So where is gold heading from here on? As you would be aware, we have always shied away from giving a definite target for gold prices. However, as Mr. Ajit Dayal, Director of Quantum Mutual Funds and founder of Equitymaster, pointed out in a recent WebSummit hosted by Equitymaster, gold definitely has a role in one's portfolio. Not as an asset maybe but as a pure insurance policy.

As per Ajit, if the world economy sinks, stocks will no doubt collapse and fall to half. But
gold prices will surge and hence, the portfolio with 20% gold (and 80% stocks) is likely to end up with a lot better purchasing power than the one with 100% stocks. Hmm, interesting thoughts indeed!

Missed the Equitymaster WebSummit? Catch the repeat telecast on June 11, Friday, 9:30 am. To sign up, just SMS EQ SUMMIT to 56070. Exclusively for readers of The 5 Minute WrapUp!

Well, if the following view is considered, gold prices still have a lot of steam left in them! We are talking about Bill Gross's view on the upcoming debt crisis the world faces. Gross, as you know, runs the world's biggest bond fund Pimco.

In a radio interview with Bloomberg, Gross has said, "The world is full of dirty shirts in terms of excessive debt, and the United States is one of those countries, but it still remains the reserve currency and still remains the flight-to-quality haven. The US is the least dirty shirt."

Gross' views stems from the debt fueled spending the governments across the word are employing these days. He doesn't see this as sustainable, given that the ratios of government debt to GDP and to revenue are deteriorating sharply. Concerning views indeed!

As we write this note, Bharti's stock is among the top gainers within the large-cap space. These gains have been on the back of the company completing its acquisition of Zain Africa's assets. The company has now officially become the fifth largest player (by subscriber base) in the world! Over the past few months, many were concerned over the debt Bharti will be taking on its books. Plus with the 3G spectrum being sold at astronomical prices, the concerns increased. Bharti is believed to have debt of US$ 10 bn on its books. Quite a big sum for a company that had negative net debt a few weeks ago! However, it's quite likely that concerns over interest costs hampering the bottomline have been mitigated. This we say because the debt is taken at a cost of less than 2%.

However, the real challenge for Bharti's management shall begin now. That is of integrating Zain Africa's operations with itself. After all, not many Indian companies deal with 15 different currencies, regulators, cultures & languages! These are all major roadblocks along the way for the company. It remains to be seen how it gets over these challenges.

Anyways, Indian markets had a volatile day today. After being up by around 200 points at one time, the BSE-Sensex was trading with gains of just around 45 points (0.3%) at the time of writing this. Mid and small-caps were also trading marginally in the positive. Among other key Asian markets, strong gains were seen in China (up 2.8%). Japanese markets however closed in the red, down 1%.

In a recent interview with the Economic Times, Jim Rogers, legendary commodities guru has advocated going long on commodities and short on stocks. Since the world is currently in turmoil, Rogers believes that stocks will continue to take a beating. He still doesn't find stock valuations attractive enough. However if the global situation improves, Rogers believes that commodities will do very well. He is especially bullish on agricultural commodities.

We have long maintained that it makes a lot of economic sense. But when it comes to the politics of it, it is another matter. We are talking about the deregulation of fuel prices in India. An empowered group of ministers was supposed to meet on Monday and make a decision. Many members simply did not show up. They were leaders of important ally parties, which the government must listen to. This once again highlights the difficulty in gathering the political will to bite the fuel price bullet.

To any impartial observer, it is clear that the oil marketing companies - Indian oil, BPCL and HPCL - cannot keep running crores of losses forever. Government finances are also badly hit by subsidising fuels below their input cost. Something's got to give! Hence, many jump to the conclusion that prices will be hiked. We are not holding our breath. Even if the government were to make the decision, the chances are there will be hidden details, nation-wide agitations and future roll-backs/re-regulation in some form. The politics involved is just too hard to predict. Investors would be better off recognising this reality.

"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently." These words of Buffett carry more weight today than they did ever before. But unfortunately companies that enjoyed a lot of repute seem to be taking it for granted. Be it poor credit tarnished Goldman Sachs. Or oil-spill tarnished British Petroleum (BP). One is a Wall Street investment firm accused of failing to properly disclose details about a mortgage securities deal. The other is the largest operator of offshore oil rigs in the Gulf, behind one of the largest oil spills in history. Both have ruined the reputation they had built for decades in a very short span of time. And both will lose much of their profits to litigations.

Investors in these stocks have already had to pay for the loss of businesses. Difficult to say which of these companies will have it worse. What is however sure is that large companies do need to take home some learning from these instances. Business reputation is difficult to build but very easy to lose!

 Today's investing mantra
"Surprise and shock are endemic to the system, and people should always arrange their affairs so that they will survive such events. They will end up richer that way than focusing all the time on getting rich." - Peter Bernstein

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4 Responses to "Who's the best investor in the world?"


Jun 9, 2010

reputation is difficult to build but very easy to lose!
this is universal truth and applies not ony to business but also in each and every field of life be it business, society ,politics!!!!! and day 2 day life,
So one should always be very very careful


Harish S. Kawalkar

Jun 9, 2010

I think GOLD definately be a best thing to invest, nobody print it, nobody is manupulating it. Gold will be double from current prices within 2 to 3 years period.

Like (1)

sunilkumar tejwani

Jun 9, 2010

to my mind, the government can fix the oil price problem by reducing taxes, cess & different levies which can lower the petroleum prices substantially without having to resort to hike in the price of petroleum products. At present, almost 55% of the cost of diesel & petrol comprises of taxes. Government should learn to curb its greed first.

Like (1)


Jun 9, 2010

GOLD will underperform once the instability in the world economies is over.Indian stocks will be a good place to be invested once the correction is over. I think 13-14k level for Sensex is excellent for 20% return over next few years.

Like (1)
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