Why voting is like investing - The Honest Truth By Ajit Dayal
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Investing in India - Honest Truth by Ajit Dayal
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21 APRIL 2009

The election season has begun.

We have heard the speeches; we have heard the abuses; we have heard the allegations; we have heard the counter-allegations. Now the time has come to cast the vote. To make the decision.

Just as managements with fancy power points and high-profile investment bankers aim to pick your wallets. You can let them play on your greed or stop them.

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Picking stocks and backing managements is an imperfect science.
And backing politicians seems to be an equally challenging task.

The uncertainty principle
Politicians - and managements of many companies - seem to be a perfect example of the Heisenberg uncertainty principle: you cannot identify the position and momentum of any particle at the same time.
You can get a grasp of one metric, but not the other.

In the financial markets we have enough examples of Heisenberg's uncertainty principle at work: you cannot identify the position and momentum of the managements, a party, or a politician at the same time

The multinationals continue to fool us that they bring ethics to business and that they will enhance the life of the Indian population once they are allowed to enter India.
Yet, the first opportunity they get to take advantage of the Indian shareholders - which I need to remind them, are a part of the Indian population - they grab it.

Witness the buy-out offers of minority shareholders and the threat to enter India with 100% subsidiaries if the multinationals cannot buy out the Indian shareholders.
It is blackmail at its best.

The difference between the Somali pirates and the multinationals is that the Somali pirates probably have the quiet backing of their government, whereas the multinationals have the explicit backing of the Indian government.

The multinationals have adopted a position that is legally correct, but their momentum occupies a space in time that is immoral.

Or take the case of the ethically correct business leaders in our country: HDFC and Tata. Two groups that I respect and have, in the past, maintained are as valuable as gold.

Their position on principles is fantastic and yet, in their desire to grow assets for their AMC businesses, have they let the momentum take over? They are beneficiaries of the distribution-led, asset gathering business in India.

It took the launch of the Quantum Mutual Funds - the 29th fund house in India and the smallest in terms of size - to question the practices of the accepted, distributor-led model which the Goliaths blindly followed.

The regulator, SEBI, has now made it clear to the industry what is acceptable and what is not. So the industry will toe the regulatory line, not because they chose to.
But because they have to.
Position and momentum will, hopefully, tend to get more certain.

Globally, the financial crisis was also a reinstatement of the Heisenberg uncertainty principle.
The position of the financial service companies was that they were here to help us.
The momentum of fees they earned from shovelling loans around the world was unpredictable.
Today the honest and predictable are picking up the price of the rescue packages for the sword-waving cavalry.

Predicting politics?
What is true for financial markets is also true for politics.

The BJP states they are not against Muslims - yet they have no explanation for the recent ranting against Muslims by Varun Gandhi.
The position is "we are secular".
The momentum is, "well, maybe we are or maybe we are not".

The Congress claims that it represents everyone - yet it took a shoe thrown at the bemused Home Minister to make the party reconsider whether they should anger the Sikhs by giving a ticket to Tytler.
The position is "we are secular".
The momentum is "we don't care if we hurt your feelings, but a shoe will make us review".

The CPI (M) - alas - fails the uncertainty principle. That is because they are less of a political party, and more of a collection of thinkers who will try their best to blot out the ills of communism from our history books.
Their position is certain and clear: everything with a hint of profit must be shut down. Luckily, their momentum is also clear: they will implode and disappear into nothingness.
Or defect to China and Russia.

A few months ago, I asked some friends in the media to encourage their publications to do a fairly simple exercise to help voters make a more informed decision.
As an analyst and fund manager, I ask the managements of companies that I meet somewhat similar questions - with a focus on business strategy, of course, not politics.

Why not ask every sitting MP who is standing for re-election the following questions:

  1. What have you done in the past 5 years - and give some concrete examples and proof with bills showing money spent on projects implemented; the date the project was proposed, approved, implemented, and completed; what was the budgeted cost; what the actual cost was; list of all contractors showing amounts they got paid out for this project. If they give a vague answer like I have helped my community live in peace, ask them to stand for the Miss World or Mister World awards. They love the idea of world peace.
  2. What would you have liked to have done in the last 5 years - but could not do? Why? List all these projects or goals and a reason for why it was not done. If the Opposition parties or the local municipalities prevented you from doing it, show all such correspondence.
  3. What would you like to do in the next 5 years if you are re-elected?
  4. Your personal wealth today is Rs. X crores. It was Rs. Y crores in the year 2004. How much do you think your personal wealth will be 5 years from now? Personal wealth includes that of your immediate family, including your parents, children, brothers, sisters, nephews, and nieces - and spouses of these relatives. Please can you state the assumptions that allowed you to arrive at this estimate for the future?
  5. What support and help would you like to see from us - your voters - for the next five years?

And for the politician seeking to unseat the incumbent elected, the same five questions with question 1 and 2 being modified to:

  1. What could the incumbent have done in the past 5 years that was not done - and what steps did you take to see that the work was done? As a corporator, social worker, concerned citizen - any letters or correspondence to show what you were planning to do, or suggested should be done?
  2. If you were in power, the past 5 years, what would you have done? List all the projects, the time it would take, the cost, the contractors you would hire to execute, and the source of funding.

The local questions
All of us have "local" issues. Voters need a sitting representative to ensure that local issues are brought to the national platform. The Lok Sabha is not a solution to everything - or the cause of every problem.
Many elected MP's to the Lok Sabha take comfort in the defence that "I could not do it, as I needed local approvals for this".
That may be true, but let is know - we can make those local issues at the next MLA elections.
Or municipality elections.

The quest of any election should be to rid the electorate of Heisenberg's uncertainty principle and to know, at any point in time, what we can expect from the MP's we have elected.

As a fund manager, we have a pretty good idea of how the managements of the companies in which we own stocks will behave under varying economic and business conditions. We are buying into their thought process and their ability to deliver - knowing that they work in an uncertain world.

Sometimes we get it wrong: like the behaviour of the founder shareholders of Ranbaxy when they struck a lucrative deal for them with Dai-Ichi and left us all to rot in the stock market.

Many times we get it right: buying HDFC, but avoiding ICICI Bank.
Buying Infosys and TCS but avoiding Satyam.

Voting, like investing, requires some research into the realities and the track record.

Otherwise, keep voting on slogans.

Just as you invest in companies run by crooked managements who will steal from you the first chance they get.

Of that, there is no uncertainty.

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Note: The Honest Truth is authored by Ajit Dayal. Ajit is a Director at Quantum Advisors Pvt Ltd and Quantum Asset Management Company Pvt Ltd.. 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.


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4 Responses to "Why voting is like investing"

Ajit Dayal

May 17, 2009

Dear Mr. Radhakrisnhan:
it is clearly stated that you need to click to see how to get the Free repo rt.
We don''t believe in misleading peopl e , sir.

Dea r Mr. Krishnan:
Thank you for your comments, I hipe you are an investor in the Quantum Mutual Fund or, if you prefer to pick your own stocks, enjoy the servic

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Radhakrishnan M.R.

Apr 22, 2009

As you read the report demand for Rs 2600 appeares.
Why do you call it a free copy ? Elsewhwere it is said that it is available for EM members ! What is the Honest truth ?

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Sameer Singhvi

Apr 22, 2009

Great article Sir. The answer of MPs to these questions surely will be blame on other stakeholders of company called Government, because it’s in there nature. The problem I think is 3 tier system of governance. Even if I elect Milind Deora, I cannot blame him for pot holes and cleanliness of Mumbai, as its BMC which officially takes care of it. This BMC is dominated by Shivsainiks who in my knowledge have no understanding of economics, the basic thing required to run city like Mumbai.

As you rightly said, all parties should have printed REPORT CARDS along with MANIFESTOS. If a public limited company can describe its performance using so many ratios as indicators, government will have to calculate such important indicators and show them to public. After all it’s PRAJATANTRA. I really doubt how many MP’s; MLA’s know the meaning of Fiscal and Monetary Deficits, and the real meaning of inflation. Till date majority of them have used only RAM as there marketing ICON and saving religion as there performance. I think it’s high time that they should stop religious classes and start economics classes for all who think that they goona drive this country.
Surely, voting is very important how much ever we crib, just like investing in market is important to get healthy long term returns. May be our attitude of voting and asking back will make them do better and better.

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Krishnan R

Apr 21, 2009

Very interesting article...I have been in the engineering sector for 12 years, working with IndianMNCs. I like your articlethis was was as interesting as all previous ones. The one thing I learn't in the past 10 years in my carrier is the value of integrity honesty in every aspect of life, just not business. Your message seems to reiterate that againagain... Thanks...! Krish

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