A False Marriage - The Honest Truth By Ajit Dayal
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Investing in India - Honest Truth by Ajit Dayal
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21 FEBRUARY 2008

A marriage is a very expensive place to find out who you are.

Once the love settles down and the passion fades, the two members in a marriage are left with the stark reality of knowing that the person on the same bed is someone they need to live with for the rest of their lives.

The way the toothbrush is placed in the bathroom, the strands of hair in the sink, the partner’s attitude towards money, towards children, towards in-laws: all these factors are more important to long term survivability of a marriage than what was said on Saint Valentine’s Day.

And when the drift begins it can be painful.
Not only in the monetary sense: there is a huge emotional cost, particularly if there are children.

A marriage can be rewarding event, but – if you are not careful - it can also be a very painful experience.

Investing in stock markets is also a very expensive way to find out who you really are and what you really want in life.

Just like the two lovers who get wrapped in a passion trap, an investor tends to experience his first passion for stock markets at some party.
Friends will tell him what a great lady the market is: she gives freely and expects nothing in return. Stories of honey-laced returns and sweet happiness will glaze the mind and cloud the ability for better judgement.
Try it, they urge, you will never regret it.
A passion is kindled.
The love affair begins.
And, yes, the sweet honey flows in: whatever one invests in, soon shoots up in price.
More money is invested.
More money is put to work, with a view to getting more returns.
Success breeds success.
Greed overpowers the fear of the unknown.

The passionate love affair turns into a marriage.

And then the reality sets in. The expectations, set at unrealistically high levels, are no longer matched.
The daily ringing of the love register is no longer a guaranteed event.
More money and time needs to be invested for less satisfying outcomes.

And then there are the jarring days.
The TV anchors begin to talk hysterically about “rumours” and “global cues”.

Your love, you realise, has no loyalty to you. Her mind is swayed by so many people, so many events – what steadiness can there be from such a partner?
On some days she slaps you: the markets fall 10% for no reason.
Your broker calls – there are unpaid bills, margin calls.
Your work colleagues notice that you have been overwhelmed by some mysterious spirit and can no longer function at work.
The downward spiral is about to begin.

A stock market is a very expensive place to make mistakes.
Greed can harm you; passion will cloud your judgement.

But love does exist. There are marriages that work.
And these are built on sitting down and talking about what one wants in life – together.
There is a give and take.
There is a constant need for a dialogue, to see where you are and has there been any drift? Can the disappointments be worked out - over time?

Investing, like marriage, is not rolling the dice on some instinct or some dinner party conversation. Solid investing - and solid marriages - requires some clear goals, some realistic expectations.
If you keep that in mind – you will live to see the joy of your children playing with their toys knowing that they have a secure home to live in.
A home where they will be given roots so one day they, too, can spread their wings.

Part II.
The Truth, honestly.

Many readers have written in to ask: why is this column called “Honest Truth”? After all, isn’t “truth” supposed to be honest?
It is.
Or maybe it is better to say, it was.

There are so many truths these days that we don’t quite know which “truths” are “honest”.

For example, Credit Suisse one of the largest banks in the world had announced last week that their exposure to sub-prime loans and the credit market turmoil was minimal. The global stock markets were happy at that bit of news and all the analysts were praising Credit Suisse for its brilliant management skills at side-stepping the disasters sweeping some of their larger banking rivals like UBS.
Yesterday – only one week after telling the world that their results were an honest reflection of their financial investments - Credit Suisse announced that there was an unknown trading pool where they discovered a further loss of USD 2 billion.
In a thought process that makes my head spin in amazement, I heard an analyst tell a CNN reporter that while the analysts were disappointed at being lied to one week ago, they are now praising Credit Suisse for coming out with the truth.
Honestly!

The grey market for IPO’s gave a trading price for the Reliance Power share. The price was a truth. A “price discovery” mechansim was in place. People acted on it. The honest truth was a little different.

Or when a mutual fund announces they have declared a 100% dividend, that is not really a truth. The Honest Truth is that the real dividend yield is the dividend per unit that the fund declares, divided by the NAV of that unit. So, if they declare a Rs. 10 dividend per unit and the unit has a NAV of Rs 50, then the dividend yield is 10 divided by 50, which is 20%. That is the Honest Truth. But the mutual fund house will give you their version of the truth and calculate the dividend of Rs 10 and divide it by the original unit issue price of Rs 10 per unit. That is how they get their 100%. It is, indeed, 100% - a 100% half truth.

We live in world of many truths. But few of them are honest.
We don’ have the answers for many things. Like you, we are searching. It will be a long and difficult search. But, as we discover these truths - these honest truths - we will share them with you and equip you to be a better investor.


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