Masters of the Purse. - The Honest Truth By Ajit Dayal
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Investing in India - Honest Truth by Ajit Dayal
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7 APRIL 2008

Wealth is not a bad thing to have.
And money is a good thing to have to spend.
There has been a lot of wealth creation these past few years.
A few have donated vast amounts to charity and hope to make the world a better place to live.
Many have chosen to spend. And there are new ways to spend your money.

Take the 21-day world tour offered by super-luxury tour operator Abercrombie & Kent. They use a Boeing 757 airplane that normally carries 300 people but, given that they cater to the super-rich, this luxury-fitted airplane seats 52 passengers. USA Today reported that the plane will have a crew of 12 people which includes a dedicated baggage handler, four tour guides, and five in-flight staff. I presume the other 2 staff members are pilots to take the passengers around the world.

When Abercrombie launched this luxury tour a few years ago, the price tag was USD 50,000 (about Rs 20 lakhs) per person. I wonder whether hotel, food, and tips are included - or does one have to pay extra for that. But that doesn’t matter when the base price is so high, I would imagine. Or when I know I cannot afford such a holiday.

Like J. P. Morgan said: if you ask what it costs to maintain a yacht, it means you cannot afford one. So, since I need to clarify what the "all in" cost is, I am not eligible for this tour.

But that was then. When the plane carried 88 high-paying passengers.
Now, with only 52 passengers, the price tag has been upped a little - to USD 100,000 per passenger.

Will they be affected by the economic slowdown, is demand slackening? After all even Porsche has seen demand for its well-known cars slip by over 20% in USA.
Not affecting us, was the response of the company spokesperson: "Collecting things has become passé for people with this level of wealth. People are looking to collect experiences. The good life is all about doing and experiencing more."

Churchgoers in England are also having an experience, but of a different kind. The International Herald Tribune reports that the boom in Asia is destroying churches. The practice of going to a church has reached the lowest levels recorded with some churches holding services only six times a year. This leaves the church buildings unattended and vulnerable to theft. So, when the village turns in to sleep, vandals climb up on the roof and tear up the lead (the metal) from the roof.

Lead is in great demand mostly for its use in batteries for automobiles and motorbikes. And China and India are producing a lot of them every year. The price of lead has gained 600% in five years, said the article, so there is an incentive to steal from god. The people who still go to church now have to worry about holes in the roof and cold winds or wet rain as they pray for mankind. I hope they pray hard.

As hard as Ben Bernanke is probably praying (Please read Ben and Britney). For the band aids may not stick long enough. The patch-up deal hustled over a weekend to save Bear Stearns is already being looked at with suspicion. How did a share that close at USD 30 on a Friday, get sold at USD 2 on a Sunday? Is there some after-hours market being run outside the stock exchanges? And then the buyer, J P Morgan, agrees to pay 500% more a few days later. But that is still 67% lower than the USD 30 it was last quoted at. And the Fed is guaranteeing USD 29 billion. Hmmm.

In Germany, the regional banks that had little reason to be affected by the mortgage mess and credit squeeze that has enveloped the US are busy announcing higher losses. And are indicating that more may be on its way. In Switzerland, UBS announced more losses. The numbers don’t matter anymore - I rarely look at them. Because I know they will be revised "upwards" the next time the CEOs meet the analysts. Maybe USD 200 billion has been announced so far. And USD 100 billion of capital has been raised from sovereign funds. The final losses may end up at over USD 400 billion. Praying to all gods in all languages known to mankind will help.

There are other numbers being revised "upwards" with regularity. Inflation is still heading up. So not only has the air fare for that luxury tour with Abercrombie & Kent increased but so has the price of milk, rice, and wheat. I haven’t yet checked on the price of samosas (Please read Samosas and Gold) as yet but they may have shrunk a bit in size.

Well, we live in a strange world. The good life, according to Abercrombie & Kent, is all about experiencing more but, for some reason, the money in my bank account seems to give me less of an experience. My piggy bank must be smaller.

But not everything has increased in price. Take the Quantum Long Term Equity Fund. The Fund is down from its peak Net Asset Value of Rs. 17.43 on January 2, 2008 to a NAV of Rs. 13.59 as of April 4, 2008. That is a decline of 22%. And the price of the Quantum Gold ETF (which is quoted on the NSE and can be bought for you by your stock broker) has declined from a peak of Rs. 672.41 to Rs. 584.02; a decline of 13.15%.

Thankfully, there is still something that we can buy a larger quantity of - for the same amount of money. So, until you have that USD 100,000 for that luxury holiday, keep investing your hard-earned money.

There may be many ways to spend money but there are only a handful of ways to earn it: stealing lead from the roofs of churches; being a dedicated baggage handler on a super-luxury airplane tour and getting some fat tips; being made a CEO of a Wall Street firm and getting paid to blow it up; or investing sensibly for the long term.

I chose the "investing sensibly for the long term" option but if you know any Wall Street firm looking for a CEO, please chuck my name in as a candidate. I may get a booking on the next super-luxury world tour.

Table 1: Suggested allocation in Quantum Mutual Funds
Quantum Long Term Equity Fund Quantum Gold Fund Quantum Liquid Fund
Why you should own it: An investment for the future and an opportunity to profit from the long term economic growth in India A hedge against a global financial crisis and an "insurance" for your portfolio Cash in hand for any emergency uses but should get better returns than a savings account in a bank
Suggested allocation 80% 15% 5%

Disclaimer: Past performance may or may not be sustained in the future. Mutual Fund investments are subject to market risks, fluctuation in NAV's and uncertainty of dividend distributions. Please read offer documents of the relevant schemes carefully before making any investments. Click here for the detailed risk factors and statutory information"

Note: Ajit Dayal, the author is a Director in Quantum Information Services Private Limited and Quantum Asset Management Company Private Limited. Views expressed in this article are entirely those of the author and may not be regarded as views of the Quantum Mutual Fund or Quantum Asset Management Company Private Limited or Quantum Information Services Private Limited.

Mutual Fund Investments are subject to market risks. Please read the offer documents of the respective schemes before making any investments.


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