Honest and Competent - The Honest Truth By Ajit Dayal
Investing in India - Honest Truth by Ajit Dayal
Honest and Competent A  A  A
22 OCTOBER 2013

When Manmohan Singh was sworn in as Prime Minister, there was a general expectation that India would have a great future because an honest and competent individual had taken over charge of the country.

Today while there is no proof of any single act of dishonesty; few would stand up and support the thesis that the leader is honest. That is the power of perception. And probably no one would stand up and support any claim of competence that may still be bandied about on the TV shouting matches. That is the power of fact.

Not that Manmohan Singh is alone in his predicament. He joins a long list of political leaders who were voted into power on certain assumptions and - as time evolved - have proven themselves to be a part of the tribe of typical politicians: dishonest and self-centred. In India we had the infamous Indira Gandhi who butchered the economic foundations of India with her nationalisation plans and ruthlessly destroyed our freedom with the imposition of an Emergency. Before the BJP makes political mileage of that, they should remember their own failed experiment with power in the states which are ruled by BJP governments.

Can businesses claim to be honest and competent?
If the political leadership has failed us, have the business leaders done any better?

Business, we have been reminded, is in the business of doing business. Loosely translated this means that maximising profits is the end objective of any business - by means fair or foul. Of course, to keep the masses quiet - and to give the spouses of business leaders an opportunity to appear on a TV channel or on the society pages of a newspaper - there will be some adoption of schools and hospitals and sponsorships of cricket teams.

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To legitimise what are questionable sources of profits for many business groups, the government has initiated a Corporate Sin Redemption (CSR) initiative. To make it more saleable and palatable to society at large, they have called it a Corporate Social Responsibility initiative. If 2% of the 100% of questionable profits of many business houses are directed towards a CSR initiative, the business house will have just legitimately laundered its reputation and can retain the other 98% for its future growth in "business".

What the Swiss have done to master the money laundering business, the government is doing to master the reputation laundering business. Just as a bank is asked to do a KYC to know its customer and the source of the deposit, should an NGO be asked to do a KYD or Know Your Donor and the source of the donation?

None of this should take away the efforts being made by some very (few) good people who have made their wealth by legitimate means and whose families have a genuine desire to give back to society. Their stories need to be told but - in the true spirit of giving - these good people wish to remain unknown.

The reality is that the profits made by most business houses in India are not made on any skill set - unless you call the art of influencing policy and partnering families of the well-connected as a "skill set". Despite all the drumbeats on the hollow business channels which project business leaders as some sort of geniuses, the profits of many business groups are a function of who they met and what they were willing to share with those they met. Honesty is not a criterion for worshipping most business groups.

But are the business houses competent? Or, like most politicians, do they fail the litmus test of delivery?

Unlike a politician who promises a certain outcome of free food, free diesel, or free bank loans and can be measured by a demanding electorate, measuring the promise of a business is a little more complex.

For example, the Mukesh Ambani Reliance does not promise you free petrol or free gas. Nor does it promise you an exact return on its share price - it cannot by law. Tata Steel does not promise you free steel for building your home. Nor does it promise you an exact return on its share price - it cannot by law.

Since very few businesses promise that they will build their business in an honest way, measuring them for their competency is all the more important. If we need to be a crooked society, we may as well have the best crooks running our society.

Three paths to a crooked nirvana?
So, how do you define the best crook?

Is the best crook (sorry, "business group") that business group which sees the wealth of the founder surge manifold far more than that of the employees and shareholders? Look at the names of listed companies and you will see the obvious ones.

Or would a Robin Hood approach of sharing the spoils of a theft with an equitable distribution between their own gang and society at large be the signs of a more competent business group. There may not be many companies in this list.

There is a third, more recently tested model. You may also call this the Wall Street model. There are millions of employees of Wall Street firms who continue to work in what must be one of the most legalised forms of daylight robbery and organised racketeering on a global scale. But their model is successful because they share the spoils with the employee pretty well. This sharing of the spoils locks in the employees who wish to maintain a lavish lifestyle - which can only be fulfilled by being a part of the theft machine. The seduction then moves to a global scale. The Indian parent of the successful NRI child gets the new cars and the new flats paid for by a child who has also already bought his many new cars and many new houses from being part of an immoral machine. The press worships the NRI son as a "competent" and iconic figure for the masses to aspire to. Some of these NRIs move back to India and set up very successful businesses and some may even apply for a banking licence. The wide-eyed business school hopefuls have their path to the future lit in front of them and all they need to do is follow the beacon of illegitimate trade practices. Regulators globally - including SEBI - help light the path. Substitute the Indian parent for the parent from China, Germany, Philippine, Singapore or Trinidad and the world is in the pocket of the 1%. It's what they would call a move to a "globally sustainable model".

As an English commentator suggested on a BBC show recently, if J P Morgan has a balance sheet of USD 4 trillion and they were to earn a profit of 1% on that every year, this translates to a profit of USD 40 billion annually. With that sort of ammunition, they can pay any fine to any regulator in the world - not admit any wrongdoing - and then carry on with their "business as usual" approach to business. As I write this, there is the breaking news that J P Morgan is willing to settle a fine of USD 13 billion with the US Justice Department. This USD 13 billion will be adequately covered by the USD 40 billion they can make in any given year. Furthermore, it sounds like J P Morgan still has the license to carry on with the bad stuff. By the way, in case you are planning to file suits against your local financial firm for some wrong doing, you just missed the boat. A Mumbai Mirror article on October 16, pointed out that SEBI has asked the Mumbai police to be sensitive when dealing with complaints against brokers and financial firms. SEBI's logic is that there is an internal and well-oiled redressal system available to the investors within SEBI and the stock exchanges. Why get the cops involved when they need all their resources to catch the famous politicians speeding on the Worli Sea Link?

With the proof that these big financial firms can never be shut down and never be jailed, the shareholders around the world love the stocks of finance companies. The circle of perpetual immortality is complete: unlimited talent from global sources plus unlimited access to global pools of capital mixed combined with access to local regulators and politicians is a winning combination. Nirvana has a sound financial business model. Buddha would be proud.

Can you trust anyone?
This trust deficit that you hear about has a direct or indirect impact on you.

The money you save is lying in banks, invested in properties, yo-yoing in mutual funds, roller-coasting in individual stocks, or lying subdued in gold.

What are the banks doing with your money? Which company is your mutual fund manager investing in? Which individual stocks do you own in your portfolio? Is it invested in companies which depend on favours for their growth? Do those founders share the spoils of their business fairly with you?
It is your money and you should know how it is being treated.
Or mis-treated.

For all their genius and for all their impressive degrees, the Finance Minister and policy makers in government have not yet understood that the social and political environment has a huge influence on how you invest. They never teach that in any finance or economics class.

But you live in the real world with no side-deals to bolster your income and no lucrative post-retirement job as a consultant or director with a coal company, a real estate company, a stock exchange, or an oil and gas company. You are buying gold and putting money in bank deposits because you don't trust the system. And you are correct in your judgement.

So, in this challenging world which worships the qualities that I shun and shuns the qualities that I hold dear, I helped build Quantum Mutual Fund: on the foundations of honesty and competence.

Be the change you wish to see, said the sensible Gandhi, and we followed his advice.

We cannot promise you any returns on your investments (beware the sorcerer who does!) - but we hope we can demonstrate our competence over long periods of time.
And I hope that our honesty and the desire to work for your benefit are never in doubt.

The question really is: now that we have built an alternative way to looking after your savings, will you use it?
Will you read all the scheme documents you need to read and dip your toe in the water and test us with a small investment?
Or are you enamoured by the Great Business Houses and the Great Financial Firms.
You may correctly have decided to distrust them, but will you choose to trust us?

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Suggested allocation in Quantum Mutual Funds (after keeping safe money aside)
Quantum Long Term Equity Fund Quantum Gold Fund
Quantum Liquid Fund
Why you
should own
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% 20% Keep aside money to meet your expenses for 6 months to 2 years

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"

Disclaimer: The Honest Truth is authored by Ajit Dayal. Ajit is a Director at Quantum Advisors Pvt. Ltd and Quantum Asset Management Company Pvt. Ltd. The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and has not been authenticated by any statutory authority. The author, Equitymaster, Quantum AMC and Quantum Advisors do not claim it to be accurate nor accept any responsibility for the same. Please read the detailed Terms of Use of the web site. To write to Ajit, please click here.

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9 Responses to "Honest and Competent"


Oct 27, 2013

oof late i hv seen a change in yr aproach,may b u want to give us information at a price . I appreciate the move until misinformation is not supplied.my view is that the realty firm u hav recommended in hidden treasure may go wrong as realty is most opaque sector.still u r better than the lot and can b trusted to some extent


Rishi Poddar

Oct 26, 2013

I am a regular reader of your column and also invest in your MF on regular basis. I have received the best returns on my investment in Quantum Long term Equity MF. Apart from one or two other websites, I think Mr. Dayal talks a lot of sense with honesty and integrity.


Prasad Khanolkar

Oct 25, 2013

Dear Mr. Dayal. I request you to consider registering Quantum Mutual Fund in HDFC Internet Services Accounts Section (ISA). This will help us in directly investing in Quantum Mutual Fund thru our ISA

Like (1)


Oct 23, 2013

I do trust you and I have a lot of money invested with your equity fund and have received the best returns.

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Oct 22, 2013

We believe in you Mr. Dayal. Why don't we start a new bank, say Quantum Bank? With RBI in the process of issuing new licenses, now is the time.

Like (1)


Oct 22, 2013

Yes. I would trust you, the EM Group and your Quantum MF to invest a good portion for long term, If only i had enough money to try various options of investing. But, definitely not all eggs in one basket in an era of mistrust, dishonesty, conspiracy, lack of transparency and last but not least the unlimited printing of artificial fiat currency of paper money which is the root cause for all evil in today's highly civilized world with cold barbaric acts.

Like (1)

kesavan nair

Oct 22, 2013

Mr. Manmohan Singh wants to keep his chair by facilitating those who keep him there. Is this honesty?

Like (1)


Oct 22, 2013


Like (1)


Oct 22, 2013

Yes i trust you. But i do not trust the figures and numbers given in the P/L account and balance sheets of 99% of the companies in the country. These numbers are cooked up by the companies and auditors connive with the promoters and cheat the general public. Even intelligent and brilliant fund managers have gone wrong believing the bogus figures. The accountants and auditors go Scot-free not only in our country but all over the world. Unfortunately you and i have to rely on these for our analysis.

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