|»5 Minute Wrap Up by Equitymaster|
On This Day - 21 MARCH 2011
Should investors look for listing gains from 'bond IPOs'?
In this issue:
Trading on the exchange has been suspended.
Television anchors -- the cheerleaders for the rally thus far -- are looking as though they have seen a ghost.
But here's what matters the most- "How have YOU been impacted by the crash?"
If you want to be one among the very few who are geared up for any adversity, then, you need to see this right away!
Hurry... This opportunity will soon disappear forever!
But is "listing gain" the right way to look at a bond IPO? Bonds typically represent long-term investment opportunities. They are the safer investment destinations as compared to equities. The underlying principle of investing in a bond is to earn a stable income, through interest rates, and get back the principal investment at the time of maturity. However, by treating it as any other IPO and looking at the listing gains only, the entire purpose of bond investing gets defeated. The investment mentality switches to the short-term investing and that is not what investing in bonds is about. One may make some gains through listing but one may also end up getting stuck with a terrible issue that falls flat on its face. And this one issue is enough to wipe out all the gains made.
Therefore, it is important to remember the basic principle. When investing, whether it's a bond or an equity stock, one must look at the fundamentals of the underlying asset. Once the investor is sure about the fundamental strength then the best way to maximize your gains would be to remain invested over the long-term.
* Data for 2010
However, doomsayers and panic mongers are using the current situation to their advantage. The impact of panic selling on Japanese and global stock markets was evident in the past week. Panic stricken Chinese hoarding iodized salt to protect themselves against radioactive substances is another instance of herd mentality. The stock price of salt processors in the country rose and fell by more than 10% in the past week. Having said that, such instances are not unknown in times of distress. What they do is potentially cause more damage to economies and lives than the actual disaster did!
Who else other than Buffett can vouch for this? After all, he has created his fortune identifying and acting on such asymmetries in the stock markets. As we've seen in recent times, he is looking at markets outside the US to identify such opportunities. Currently, he's on a visit to Asia and will be soon in India to visit Berkshire's operations and look for opportunities. We hope he does find some investing opportunities here!
Already, 14 PSUs have paid Rs 120 bn for FY11 as dividends. The large caps under BSE-A group are expected to pay Rs 657 bn, while those under the B-group may get only Rs 120 bn. We believe that well run PSUs and largecap stocks are the best place to park your money if you are looking for stable, and safe returns. But, buying them when they are priced reasonably is the key to multiply wealth.
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