Sorry, we messed up! - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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Sorry, we messed up! 

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In this issue:
» FIIs continue to pump up Indian stocks
» Charlie Munger favours well-run companies over charities
» Indian generic pharma companies get an African push
» Gold bull-run far from losing steam, says Jim Rogers
» ...and more!!


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00:00
 
The companies we meet these days have a lot to share from the crisis of 2008-09. While most of them blame the crisis for their poor performance during that period, there are some who talk about the lessons learnt from the same. But there are none who are willing to accept their mistakes.

See, we all make mistakes. But not many are willing to own up and rectify them. Even just a plain - "Sorry, we messed up!" - comes hard to come by. We believe companies are no different. So whether it is ruining shareholders' returns by stretching the balance sheet, or playing around with the financial statements, an apology is a no-no.

Managements might argue that even Mr. 'Asatyam' Raju did not say sorry for his misdoings and just confessed his crime. But they need to realise that they are responsible towards the society in general and their shareholders in particular. Simply committing the crime of playing around with shareholders' faith and money, and then blaming everything on the global crisis, is not the right way to go.

What do you say? Do you want any Indian company to say sorry to you for the mistakes it committed in the past? Share with us, or post your comments on our Facebook page.

00:53  Chart of the day
 
The markets have been inching upwards quite rapidly in the past few weeks, that too from a base which was made up of some already robust valuations! This seems like a scenario that has an uncanny resemblance to the heydays of year end 2007 and the beginning of 2008. Another similarity to those days is the way FIIs are fervently pouring money into Indian market again. They've poured in almost US$ 2.7 bn in the first 20 days of this month alone, thus fueling a part of the rise we've seen lately. This makes the total quarterly FII inflows during the current quarter as the highest over the past two years.

Source: SEBI; Data for Sep-10 is till 17th Sep.

Not surprisingly, the biggest question that is being debated in market circles these days is whether markets will go higher from here on. We believe it is best not to get caught up in this debate. This is because there are no predictable limits to both pessimism and optimism. And prices will go as high as the most optimistic investor is willing to pay right now. If you feel he's giving you a good deal on the shares that you hold, its best to sell to him and book profits rather than trying to predict just how much more optimistic he will get next.

01:45
 
Anyways, the rally in the Indian markets continued today as well. The BSE-Sensex was trading with gains of around 250 points (1.3%) at the time of writing this. FMCG and realty stocks led today's gains while banking stocks performed the worst. India was in fact the best performing Asian market today. Other key Asian markets closed mixed. While marginal losses were seen in China, small gains marked trading in Korea and Singapore.

02:03
 
Warren Buffett's inclination towards charity needs no introduction. But it would be interesting to see what his partner Charlie Munger feels about the subject. And he spilled the beans on this one at a recent public gathering. Munger observed that he is not a big fan of charitable organizations like the World Bank and the famous Rockefeller Foundation. Instead, he believes that extremely efficiently and honestly run companies like Costco does more for civilization than the Rockefellers of the world.

We urge you to think twice before dismissing this comment as ruthlessly capitalistic in nature. We believe Munger has a point here. You see, profitable and well-run companies are win-win situations for all the stakeholders involved. They are quite adept at using the finite resources of the society in the most productive manner possible. Hence, in the long run, they end up making more contribution to society than say a charitable organization, which may not use its resources as efficiently as a profit seeking firm.

This does not mean that Munger is completely averse to bail-outs. He is in favour of using them but only when the troubles become very big like what happened when the sub-prime bubble burst. "I think when you have troubles like that you shouldn't be bitching about a little bailout. You should have been thinking it should have been bigger," Munger is believed to have said.

03:01
 
Indian pharma companies have always been at loggerheads with global pharma players. After all, the former has been launching cheaper generic version of drugs, and that too in countries across the world. This has seriously undermined the revenues and profits of global pharma. In Africa especially, global pharma have been trying to equate Indian generics with low quality drugs. As a result, some African countries have come out with stringent anti-counterfeit measures.

However, the African continent is poor. Many are not able to afford high prices of medicines. Availability of cheap generic drugs from India is important, as it will go a long way in making healthcare accessible to the continent. What is more, Indian pharma companies have actively launched awareness campaigns in Africa, with the focus being on the strong quality of Indian generic drugs. This has then compelled many African nations to reconsider the anti-counterfeit measures introduced by them. Africa is an important market for India. The realisations are not much to talk about. But strong growth in volumes will certainly have a positive impact, especially on the overall revenues of Indian pharma companies.

03:47
 
Much of India's industrial, financial and media elite are concentrated in the larger Indian cities. But a large part of India exists far beyond the municipal borders of these mega cities, and in smaller towns. The tier II or tier III centres as they are called. And then, there are the villages. These places are slowly making their existence felt, in a way corporate India understands - through economic activity. Anyone who visits these places after a few years will notice the changing landscape - higher disposable income, and changing lifestyle.

The increasing consumerism in small town India is attracting the Indian retail sector in particular. They are tweaking their collections, keeping a wider entry-level merchandise mix, leveraging local franchisee know-how and opening more outlets. Everyone, from the Future Group and Shoppers' Stop, to ITC, is interested. It may be recalled that Wal-Mart achieved its iconic status through the smaller centres in the US. As the Indian growth story trickles inwards, it seems the hinterland will go through a retail boom.

04:29
 
The usual investing mantra is to 'buy low and sell high'. However gold is turning this mantra on its head. People are buying high, hoping that prices rise even higher. Leading commodities guru, Jim Rogers also echoes this sentiment. He recently stated that a bubble will form 'one day' for gold, but this won't be taking place anytime soon. The yellow metal is at its all time high, but Rogers believes that it is still 5-7 years away from a 'hysterical bubble state'.

Japan and the US plan to print more money, thus fueling inflation. More Asian banks, after Bangladesh's recent 10 ton gold purchase, are expected to follow on the same lines. With these events on the anvil, it seems that the gold bull-run is far from losing steam.

04:58  Weekend investing mantra
"Investing is simple, but not easy." - Warren Buffett
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15 Responses to "Sorry, we messed up!"

C V Ramachandran

Sep 22, 2010

If a mistake is brought to notice, general reaction is irritation or unrepentant and uncocerned attitude. As a result mistakes are repeated and new mistakes are committed with impunity, leading to CHAOS. Preparation for the Delhi CWG is a classic and fresh example. On the contrary, if we are thankful that somebody is interested in our betterment and immediately correct the mistakes, we will progress tremendously.

Like 

mrugen

Sep 22, 2010

now a days companies don`t consider the stakeholders as an owner of the companies to the the extent of their investments and they are just considering retail investor`s fund as an easy fund access with which they can play like anything

Like 

joher madraswala

Sep 21, 2010

I believe the institutional investors who has huge clout
are in hand in glove with the management of most indian
cos visavis the individual shareholders who are at the
mercy of these sharks.If institutional investors play
thier role then no management can get away.It will not
be easy to sorry which is just an empty word without any
meaning to most of the management at present.

Like 

LostOpportunity

Sep 21, 2010

A sincere apology is critical - it proves that you too are human and prone to make mistakes. It also sets the stage for setting things right and should be backed up by a firm commitment not to repeat it.

Like 

LAKSHMAN PARDHANANI

Sep 21, 2010

Asking a Corporate offender to say sorry is rather like asking a rapist to say sorry to his victim. It has no meaning, as for people like them sorry is just another word.
I believe a large number of misdemeanours could be avoided if the punishment was made to fit the crime and was tailored to really hurt the offender.
Financial misdemeanour is not only hard to prove but seems to enjoy a fair degree of tolerance/immunity. As a society we have long forgotten the meaning of being/feeling ashamed and its impact.
The trouble is that people at the top, corporate bosses,politicians more so, successful professionals seem to have joined up in a club where like the Mafia or the Masonic Lodge they look after each other's misconduct. Take this for example:
The editor of Indian Express on a Walk the Talk Interview sometime back asked Mrs. Ambani if she felt sorry for Lalit Modi. She replied yes, without hesitation!!
Makes you feel like resigning from the human race?!!

Like 

imran

Sep 20, 2010

It is essential to accept the mistake. It removes half the burden, but their mistake makes the losses to the shareholders.

Like 

Yogesh

Sep 20, 2010

one should rectify a mistake

Like 

HARINATHAN.K

Sep 20, 2010

I agree with u 200%. As per Hindu Religion as well as Christianity, owning responsibility for mistakes committed are always excused and forgotten.

Let us cultivate the habit of saying SORRY for all our wrong doings with immediate effect and without any further delay.

Like 

Ashutosh

Sep 20, 2010

Playing with shareholder's money is terrible and punishable crime. It distroys and swipe out their's hard earned money that caould have been educate their childerns better or used in daughter's marraige. Ramalinga Raju must not be grant bail. This way we can lay down example so anyone in future can afraid to commit such henious crime.

Like 

Shankar

Sep 20, 2010

The worst offenders of not owning up to their mistakes are investment portfolio managers and fund houses. The public uses these people and services only because they don't think they have the professional edge and expertise to deal with the financial markets. However, we find that even these so-called professionals cannot manage funds or portfolios for their clients. If they were only as good as the retail investor, they should hang themselves for not being able to do their jobs and view themselves as utter failures in life, let alone drawing salaries or bonuses. Think of this - wouldn't a pilot be fired for being able to fly an aeroplane? So why would a fund manager or house operating a mutual fund or a portfolio manager operating a PMS scheme be allowed to continue if they are doing as badly as the professionally untrained retail investor or even worse? Till date, we've only heard even these fund houses stating the "economic crisis" as an excuse. Okay, maybe that was unprecedented but shouldn't these people have at least prevented portfolio erosion or minimized it as compared to achieving portfolio gains in regular years? Or the least they should do is refund their service charge fees, which obviously they will not.

Like 
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