Going fast - The Honest Truth By Ajit Dayal
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Investing in India - Honest Truth by Ajit Dayal
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4 AUGUST 2008

"Going fast", said my son as he rubbed his eyes "is not a bad thing."

Those were his first words of that day. He must have dwelt over the discussion we had the previous night on how fast he can ride his scooter.
"Speeding", I had cautioned, "is not a good thing. You can get hurt, break your bones, and then no more scooter-riding for a long time."

But that is the classic clash of a generational gap: the bravery of youth versus the caution of age.

And so it is in investments.
The novice enters the stock markets looking for a quick buck. Many quick bucks.
The investors who have been burnt before, approach their investment portfolios with more caution.
Yes, it is enjoyable to zip down the slopes with the wind breaking through your hair, but....where are the stones along the path? Where are the bumps that can throw you off balance? Where is the other scooter that can come zipping down from any other side and zap you?

What if...oh, so many things can go "wrong"?

A seasoned investor is a worrier. But he can still be a warrior - brave enough to head out into the battle and seek investment opportunities.
And there are many investments out there which will make investors a lot of money.
Each have their risks, each have their bumps.
Assess them yourself - or pay an advisor or mutual fund manager to assess them for you.

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Of course, everyone will make mistakes as we seek returns from our investments. That is the natural order of things. But, do we learn from these past mistakes? And have fewer errors of judgements in the future? Or, are we investment managers rolling the dice based on some "I still win, no matter what happens to your money" attitude.

External morality
"Where did you park your car" I was asked by my host - a "player" in the financial markets in New York where he worked for one of the largest financial firms in the world. He was in Miami, Florida for a holiday and had invited some friends over for dinner.

"Outside the building at a parking meter - but I need to go and fill in coins later", I replied.

"Oh, that is okay - the fine for parking illegally is only USD 15 here. In New York the fine is USD 75, so I am more careful there", he rationalised.

A good assessment of risk-return - and a price tab on doing the correct thing.
It is okay to park illegally in Miami because the fine is "affordable".
It is not okay to park illegally in New York because the parking fine is higher.

And so it must be with many of my colleagues in the field of investments.
The advice offered could be based on, "what can I get away with?"
Not based on: what is the right thing to do.

But, is there a place for morality in investments?

The role for morality in investments.
I heard the Chairman of ITC give a very interesting speech on how ITC is helping the farmers and local people in villages. It was fascinating how ITC was trying to change their lives.
And then there was a question from a member of the audience: Sir, how do you reconcile the fact that ITC makes profits from selling products that are known to kill and hurt people and then using some of those profits to help some farmers?
The response was: ITC is doing less of tobacco products and we are diversifying into making food and other products. If we were to stop selling tobacco items, there would be hundreds of thousands of people without a job and no means of earning any money.

In essence: ITC cannot stop doing a bad thing because it is bad and its "badness" is pretty popular.

True, there is no law that stops tobacco items from being sold. In fact, governments around the world collect taxes on tobacco products (and liquor and gambling) and, in some sense, rationalise the "sin" of producing a "bad" product.

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Or take the case of Ranbaxy.
The founders get to sell all their shares at Rs. 737 per share.
The rest of us are left with a public price that can be anything.
From Rs. 410 to Rs. 510 per share. Maybe more. Maybe less.

The law allows this differential treatment between "promoters" and "minorities": just as it allows growing and selling tobacco products that can seriously damage your health.

But, we will not wait for the law to change - and neither will we don the cap of an "activist" investor fighting for the change.
Our action of "not owning it" is our way of fighting for the change.
We have sold our Ranbaxy shares we owned for most of our clients.

When we invested in Ranbaxy, we were willing to live with the risk of Ranbaxy not being able to find a blockbuster drug and never seeing a great return on its PhD's.
And we were willing to see Ranbaxy fail in its attempts to fight the entrenched interests of the global pharmaceutical companies.

We had assessed the risk-return possibilities of an investment in Ranbaxy.
But we did not expect the "moral hazard" from being a minority investor.
We did not expect to be treated differently because, in the list of shareholders, our last name is not registered as "Singh".

Again, I stress, Ranbaxy has done nothing illegal.
ITC has done nothing illegal.
SEBI allows a dual treatment of "promoters" and the rest of us.
The laws allow ITC to manufacture and sell tobacco products.

But, somehow, it does not seem "fair".
It does not seem "right".

And, don't I drive fast?
Yes, I confess that there are times when I have driven fast. If the speed limit on Marine Drive in Bombay is 50 km per hour, I know I have driven faster than that. But it has been many years since I have driven at 70 km per hour or hurtled along at 100 km per hour on Marine Drive.
I was younger and, like my son, infatuated with "speed". But, yes, I have no excuse for breaking the law. And I must learn to control the very occasional desire to burst into "speed". I must learn from my past mistakes.

No, my son, going fast is not a good thing - but it is for you to learn and find that out. And, as a father, I pray for you to always be safe.
And, as a father, I pray that you heed my advice.

In the meantime, we will keep investing, make mistakes, but - we hope - make less mistakes going forward.
Investing is a tough job.
Trying to make morally right investments is even more challenging.

Suggested allocation in Quantum Mutual Funds
Quantum Long Term Equity Fund Quantum Gold Fund
(NSE symbol: QGOLDHALF)
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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