|»The Honest Truth by Ajit Dayal|
Our Headlines are Not for Sale
26 APRIL 2011
The evolution of freedom or the birth of rapid bondage?
Fifteen years ago, on April 22, 1996 we launched www.QuantumIndia.com, India's first financial website. We put an ad in the Economic Times announcing the birth of www.QuantumIndia.com. There were 10,000 internet connections in the country then. Yes, no zeroes missing: just 10,000 VSNL internet connections with speeds of 28 kbps and 56 kbps. Today, there are some 18 million internet connections in India with users experiencing the digital age over the computers or mobile phones.
The internet allows us to share our views faster
In 1996, our entire database of Indian companies compiled over the years was made available on the website. The Quantum Stock Market Yearbook, an annual publication which reported and analysed the result of India's listed companies first published in 1988 could only be "ready" when we had data on all the companies. Some annual reports came in on time and some we had to beg for. In addition to the challenges of gathering data, there was the physical printing, the proof-reading, and the final struggle to push the books through the distribution channels to the sleepy bookstores (they served no coffee and desserts in those days) and the newspaper vendors near the stock exchanges in 22 towns and cities. Now, with the birth of the internet, the "Yearbook" could be updated on the internet more frequently. And no need to worry about the delivery mechanisms.
And while the ability of updating information with a minimal time lag was exciting, we saw the internet as a medium that could revolutionise the way people invested. Prior to the reforms of 1991, investors bought shares on the basis of "promoter background". The reasoning was that an Ambani, Birla, Goenka, Ruia, Singhania, Tata, or Wadia would have the ability to influence government policies and this would be played out in the budget - the biggest racket in those days. So, by investing in companies run by the powerful families, profits for investors were assured. And competitors - local or foreign - would be kept out. Metrics such as PE ratios and earnings growth had no relevance.
Rapid changes in the information age were matched by sudden change in the real world. With the reforms forced upon us by the IMF in July, 1991 the profitable barriers to business were destroyed. The Indian business landscape began to change dramatically with the entry of more multinationals and the birth of new business groups. The power of many of the old industrial families declined. HDFC Bank, Infosys, and Zee were new-generation companies. Some of the old families had seen their industrial fortunes decimated (Goenka, Ruia, Singhania) and some had mixed results: Tata had to shut down their textiles businesses, Tata Steel was then one of the most inefficient steel companies in the world and barely made it, but Indian Hotels was still a great business. Investors would need solid, unbiased information on how to invest their hard-earned savings.
With the birth of the internet, we surmised, investors would have access to quality information from more independent sources like www.equitymaster.com than that offered by the traditional media like newspaper and TV. This enhanced quality of information would help create a generation of long-term investors focused on making sensible investment decisions.
The power of the media to fool you still exists
But the evolution of the internet does not seem to have translated into a universe of sensible investors. In fact, the mainstream media has grown more powerful and feeds us with myths. Look at the way the mainstream media still paints the reforms of July, 1991. There was no grand plan for India's economic reform thought of by a fictitious Dream Team. India was bankrupt and had no choice but to listen to the IMF. Having been bailed out, the IMF's "rescue India" project was over sometime in the late 1990's. And the Dream Teams - across governments in power - went back to being the Cream Team. India's politicians, bureaucrats, and its ignoble industrialists went about their normal business of raping national resources for private benefit. Whether it was fodder, gas and oil fields, iron ore mines, prime real estate, or spectrum India has been robbed of its wealth by a favoured few. Just as investors continue to be sold a pack of lies in the investment world.
Trading volumes on the Indian stock exchanges were about Rs 4,000 crore per day in 1996. Today, they are about Rs 20,000 crore per day - a jump of 500%. In 1996, there were no derivatives and options. Today, the daily trading volume in these financial explosives is Rs 50,000 crore. All this movement; all this finger-clicking on the computer, all this trigger-happy button-pressing on your mobile has only caused a surge in mindless activity. Not in wealth creation. Well, maybe for your broker, but not for you. The NSE and the BSE have much money to spend on their investor-education campaigns. The only ad that they should spend money on is an ad that explains the virtues of not trading every day. Of how rapid trading leads to hire profits for the brokers and the exchanges. And could lead to high stress, broken families, and high debts - and possible death. But, if they did come out with that ad, trading volumes would decline. Their broker members would be upset. And the NSE and the BSE would collect lower fees. Sponsoring such honest ads to kill one's own business is generally not a good business model.
Being honest is considered a "niche" quality?
So, it has been 15 years that www.equitymaster.com has been on the internet. And the power of the internet has grown beyond imagination; as have the ability of the mainstream brokers and media to mould our minds. Technology has its advantages and its virtues. But the biggest virtue of all is common-sense, coupled with integrity. There are still dishonest folks; there is still a lot of risk trying to invest in a stock market that has become a casino den full of gamblers, card-sharks, and pick-pockets - with no pretty ladies to lessen the pain of poverty. Hopefully, we can still guide you through these unknowns.
I do not write any research reports anymore for www.equitymaster.com and I do not edit or read any of the material that goes out to you - but I know that the principles on which we founded www.equitymaster.com have not changed. Rahul Goel, the CEO, and the team of research analysts led by Rahul Shah and Tanushree have sustained the spirit on which we were founded. Our desire to give you independent advice based on the judgement of the analysts who track the different stocks has not changed. We make our fair share of errors - but, hopefully, our good calls are more than our poor calls. No headline is for sale; no praise is paid for; our views are our views. Honest and straightforward.
Any fight against the established and the wrong will be messy and needs sustained support through its ups and downs. Anna Hazare's fight against corruption is being twisted by a media that was, at first, enthralled with the idea of a corrupt-free India but is now choked by the reality of its own monetary interests. Corruption and big business is good for advertising and media profits. A victory for Anna Hazare - and us - will be a threat to the established status quo. The seduction of daily trading and the next IPO is great for the ethically compromised financial services industry. The continuing growth of www.equitymaster.com and other high-integrity driven financial companies is a source of worry for the financial geniuses who want your wallet.
I have helped set up 3 businesses in the financial services sector. Quantum Mutual Funds, PersonalFN, and Equitymaster. Sadly, in each of the three, we are fighting a debased and debauched system. In each of the businesses we are classified by the press reporters as "niche" or "maverick". I ask them bluntly: isn't it strange that a company which is trying to work in an honest way on behalf of their clients and investors is classified as "niche" or "maverick"? Of course, we wish to make money - we are not a charity. We have expenses to meet and a desire to make profits from our enterprise. But why can we not achieve our goal for profits by being honest, by giving you honest advice?
So, we remain the outcast of our industry - no one will invite us to their annual Sunday brunches, their Diwali dinner parties, or their award ceremonies. Our views are radical. They go against the accepted norms of the willingness to compromise ethics for a monetary gain.
The internet has been a powerful tool for us to reach out to you but, in the end, the choice is yours: where you click and what you do is under your control.
No regulator can regulate your greed.
No regulator can punish the powerful.
In the US and Europe, the same companies that stole from investors have emerged stronger and are reaching out for your wallet with renewed vigour. The Lehman crisis was a blip in their bonus pay-out trend lines. But nations and citizens are still hurting from that pain - and will hurt for an entire generation. Yes, beware the crooks with global and local brand names. Let your brokers and their armies of sell-side research analysts become rich - but not at your cost.
This honest view has struck a chord with you, our dear subscribers.
In the end a business can exist because it serves the purpose of its customers and clients. We have evolved over the years with your growing support - and we thank you for that. Our journey to work in your interests will continue. Meanwhile, focus on building a portfolio that can give you sensible long-term returns from India's long term economic growth.
Suggested allocation in Quantum Mutual Funds (after keeping safe money aside)