Humor Investing

Monkey Theory of Stocks

Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for Rs10.

The villagers seeing that there were many monkeys around, went out to the forest and started catching them.

The man bought thousands at Rs10 and as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy at Rs20. This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further and people started going back to their farms. The offer rate increased to Rs25 and
the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!

The man now announced that he would buy monkeys at Rs50! However, since he had to go to the city on some business, his assistant would now buy on behalf of him.

In the absence of the man, the assistant told the villagers. Look at all these monkeys in the big cage that the man has collected. I will sell them to you at Rs35 and when the man returns from the city, you can sell it to him for Rs50.’

The villagers squeezed up with all their savings and bought all the monkeys. Then they never saw the man nor his assistant, only
monkeys everywhere!! !

Welcome to the ‘Stock’ Market!!!!!

This is also called Greater Fool Theory



This image correctly and accurately captures the essence of what I always wanted to convey. Almost all Indian cities are crowded and the only cost effective solution to that is to privatize public transport. For a small license fee/tax allow anybody and everybody should be allowed to operate a bus to where ever they want to, whenever they want to.

Reason: A bus occupies far less space then what cars/autos or even motorcycle does. Also the per passenger fuel consumption, air pollution is also very less. The best part is that office goers can also catch a nap, make a few friends or even read the newspaper while in the bus. Hence making them more productive in office as compared to those who were behind the wheel for hours before they reach their destination.

Currently very few people commute by public transport because either there is no bus in their direction or when there is one, its frequency is too low or its too crowded. But that is because most bus services are in govt hands. The government administration kills creativity. It does not have enough resources to satisfy the needs of the public, the routes and stoppages are decided by a babu who has never been to that locality hence does not properly represent the needs of the public… and hence poor service.  Unfortunately, the political nexus and the pilferage does not allow the city administration to be able to run their mass transit services profitably. Hence in most places they are in the state of neglect.

The government could continue to subsidize this poor service, or simply allow private operators to supplement their operations. A private bus operator will run his busses for longer hours, design his routes and timings more efficiently resulting in converting it to a profitable venture (while charging the same fares). So essentially any city administration can reduce its traffic congestion without spending even a single penny 🙂 The people get benefited because now there always will be a bus in their direction of travel so they will not have to resort to more expensive means. Not only that the license fees, and the taxes paid by the bus operators would pay for the much needed development of the city roads. But alas, only if the people and the politicians listen 🙁


Self-sufficiency is the road to poverty

Here is an extract from a wonderful article by Russell Roberts

We don’t export to create jobs. We export so we can have money to buy the stuff that’s hard for us to make—or at least hard for us to make as cheaply. We export because that’s the only way to get imports. If people would just give us stuff, then we wouldn’t have to export. But the world doesn’t work that way.

It’s the same in our daily lives. It’s great when people give us presents—a banana bread or a few tomatoes from the garden. But a new car would be better. Or even just a cheaper car. But the people who bring us cars and clothes and watches and shoes expect something in return. That’s OK. That’s the way the world works. But let’s not fool ourselves into thinking the goal of life is to turn away bargains from outside our house or outside our country because we’d rather make everything ourselves. Self-sufficiency is the road to poverty.

And imports don’t destroy jobs. They destroy jobs in certain industries. But because trade allows us to buy goods more cheaply than we otherwise could, resources are freed up to expand existing opportunities and to create new ones. That’s why we trade—to leverage the skills of others who can produce things more effectively than we can, freeing us to make things we otherwise wouldn’t be able to afford.

here is a nice aitel advertisement that explains “There is no wall, that can keep us apart if only we talk to each other”



An Irish Ghost Story

This story happened a while ago in Dublin and even though it sounds like an Alfred Hitchcock tale, its true!

John Bradford, a Dublin University student, was on the side of the road hitchhiking on a very dark night and in the midst of a big storm. The night was rolling on and no car went by. The storm was so strong he could hardly see a few feet ahead of him. Suddenly, he saw a car slowly coming towards him and stopped. John, desperate for shelter and without thinking about it, got into the car and closed the door.. only to realize there was nobody behind the wheel and the engine wasn’t on. The car started moving slowly. John looked at the road ahead and saw a curve approaching. Scared, he started to pray, begging for his life. Then, just before the car hit the curve, a hand appeared out of no where through the window and turned the wheel.
John, paralyzed with terror, watched as the hand came through the window, but never touched or harmed him. Shortly thereafter John saw the lights of a pub appear down the road, so, gathering strength, he jumped out of the car and ran to it. Wet and out of breath, he rushed inside and started telling everybody about the horrible experience he had just had. A silence enveloped the pub when everybody Realized he was crying and….wasn’t drunk. Suddenly, the door opened, and two other people walked in from the stormy night. They, like John, were also soaked and out of breath.
Looking around, and seeing John Bradford sobbing at the bar, one said to the other… “Look Paddy…..there’s that f*king idiot that got in the car while we were pushing it!!!!”


A pair of Congressmen met for lunch to hash out their political differences. Ten minutes into the meal, one angrily pounded the table. “You’re lying!” he shouted.

“Of course I’m lying,” replied the other, “but hear me out…”


Stock Split/Bonus Explained

This a a beginner’s guide to the stock market which advanced investors can safely skip.

What is a bonus issue?
This a mere book manipulation where a company increases the number of shares outstanding by giving a bonus share in a ratio called the bonus ratio and such an issue is called bonus issue.

What is a split?

Split is book entry wherein the face value of the share is altered to create more number of shares outstanding without calling for fresh capital or without altering the share capital account.
For example if a company announces a two-way split, it means that a share of the face value of Rs.10 is split into two shares of face value Rs.five each and a person holding one share now holds two shares.

Usually it is a much welcomed development and leads to a surge in the stock price. However, both of these are mere book manipulation the extra shares one gets due to these issues neither increase one’s holding in the company, change the company fundamentals, or create any extra wealth for the company.

Then why do the company does it:
1) To enhance liquidity:
Buying a stock is like carrying the currency notes. If you want to carry cash: you might not like to carry the entire amount in 1000/- bills for changing them for small bills would be cumbersome, nor you would like to carry then in 10p coins for that might mean lugging a sack around.
Similarly people often have reservations in investing in companies like Berkshire Hathaway because 136,500 USD per stock is much more than what many of us want to invest. nor do we want to invest in penny stocks… for it would be too cumbersome. Hence the companies come up with splits/bonus etc to modify the face value of the stock to keep it in the liquid range.

2) Tax Implications:
In India, tax on stocks is computed at the time of sale. So day traders often utilize this opportunity. They buy the stock before the record date and sell it the next day. So their book shows a loss on the difference in the price of the 2 shares + some shares (of the value equal to the loss) obtained at zero cost. This gives them tax breaks and is usually the reason why the prices surge before the split.

3) Generate PR:
There are over 800 stocks listed on the sensex and their numbers increase every day. So one of the best way for a medium size company to advertise itself and encourage people to invest/analyze its stock is to announce a split/bonus.

All said and done, the long term valuations/fundamentals of a company remain unaltered due to these cosmetic book changes. Hence an investor should not time his investment decisions based on a rumor/news of a split.


Over 50% MFs are underperformers

Strange it may sound, but in spite of all the hulla gulla, jazzy marketing, more than half of the mutual funds perform far worse than how the BSE performs. And whats worse is that its almost impossible to find out which fund is good and which one is not. If you give me a stock, I can find out whether it is undervalued/overvalued etc. but these analysis does not seem to work for mutual funds… for almost all of them are traded at the NAV (net assets value). (except some wonderful closed ended funds like Morgan Stanley Growth fund which is now trading at a discount of 10% from the NAV)

I think its high time that these mutual funds should stop concentrating on collecting funds, creating new funds and jazzy advertisements and start concentrating on creating wealth… because end of the day this is what matters.


metrology and stock markets

It was autumn, and the Red Indians on the remote reservation asked their New Chief if the winter was going to be cold or mild. Since he was a Red Indian chief in a modern society, he couldn’t tell what the weather was going to be. Nevertheless, to be on the safe side, he replied to his Tribe that the winter was indeed going to be cold and that the members of the village should collect wood to be prepared. But also being a practical leader, after several days he got an idea. He went to the phone booth, called the National Weather Service and asked ‘Is the coming winter going to be cold?’
‘It looks like this winter is Going to be quite cold indeed,’ the meteorologist at the weather service Responded.

So the Chief went back to his people and told them to collect even more Wood. A week later, he called the National Weather Service again. ‘Is it going to be a very cold winter?’
‘Yes,’ the man at National Weather Service again replied, ‘it’s definitely going to be a very cold winter.’

The Chief again went back to his people and ordered them to collect every scrap of wood they could find. Two weeks later, he called the National Weather Service again. ‘Are you absolutely sure that the winter is going to be very cold?’
‘Absolutely,’ The Man replied. ‘It’s going to be one of the coldest winters ever.’

‘How can you be so sure?’ the Chief asked. The weatherman replied, ‘The Red Indians are collecting wood like Crazy.’

This is how stock markets work!!!


Bond Market

I was reading this article at Bloomberg and it made me think that how much is the lack of a well developed Bond Market hurting we commoners.

Although some of our money is invested in risky financial instruments like Stocks and Mutual Funds, the bulk of our funds are usually parked in fixed return instruments like Fixed Deposits, NSC, ppf etc. Now although it always feels good to have as much wealth as possible, what good is the money if it is not there when you need it.

It is then when we realize that how the government and the banks exploit lack of market tradeable bonds for their own selfish needs. Money parked in NSC is locked for 6 years and no matter what one does, we cannot get a penny out of it. The only way one can take money out of a LIC policy or ppf is by taking a loan… So effectively I pay interest to LIC for my own money??????

In eras of fluctuating interest rates, banks should be grateful that somebody is prematuring closing a fixed deposit.
eg: I had a 6 month old fixed deposit which gave me 9.5% rate of interest. Since current rate is 8.5%, by closing this FD, I effectively save the bank 1% p.a. on interest alone. However instead of being happy about it, the bank coolly deducted half of the interest which I had already earned as preclosure penalty.

Had I had invested in bond market, I could have easily gone and encashed these bonds at NSE/BSE and even made a handsome profit because these high interest bearing deposits are worth a lot more than what bank gives me credit for.



Website Down

ICICI Direct is one the most expensive brokerage sites. It charges almost 1% as brokerage, and 500/- p.a. to maintain an account and then on that of it, although NSE and BSE work on T + 2 system (the payment/share transfer happens 2 working days after the transaction date) ICICI wants all the shares/money upfront (even before the actual transaction happens)

I was living to all this crap thinking that since I do not transact very often, this high brokerage should not reduce my profitability much. If you charge premium prices, then give service worth it. But all you will get from ICICI is either very slow website or website down. Market (esp the midcaps are up today, but ICICI website was down all day. Hence I could not make the sale on time. 🙁

here is the snapshot of the most familiar page on ICICI-direct.



The government and religious fanatics (VHP, Bajarang Dal, Shiv Sena) have set the standards of what an Indian citizen and try to control what we should do and what we should not do. And any deviation is severely dealt. The situation in the country is so bad that even a Chinese has more freedom that what an average Indian citizen enjoys.

A classic example is that Movies like Da Vinci code can be screened in the Vatican City, but not in India.

Gambling is human instinct and bookies do a fantastic job in chanalizing it to the much needed events like sports. Its a universal truth that in areas where bookies are allowed, there is higher attendance for sports… not only the national level games, but also the college and district level ones. the teams have more sponsored, players have more generous contracts and also the city gains more taxes (income tax from the earnings, license/turnover tax from the bookies) so its a win -win situation for everybody.

Basically Indian sports which is facing a rot because of lack of interest can benefit tremendously by the legalization of bookies…
Then why are bookies banned?

Whats worse is that government thinks that if it rounds up and arrests a couple of bookies before any important cricket series, they can cure the problem of match fixing……

Well they are seriously mistaken:
1) For the tech savvy, there always exists online betting exchanges and bookies (links at the end of the post) who are more than happy to add a few new clientèles. For those who are not so tech savvy, all they need is a trip to the local paan (beetle leaf) shop and when the running cricket commentary is being played, say repeatedly… “I can bet that India is going to win this match”
2) Banning is never a solution… all it does is that it forces the entire industry to go underground and encourages the mafia and goons to manipulate it make it into a cash-cow.
3) Match fixing is as easy to detect and prevent as insider trading in the stock market… and by banning the bookies, the entire industry simply vanishes from the books of the government and law enforcing agencies. Now SEBI can regulate the BSE/NSE because they exist… but how can one regulate a industry that does not exist?
4) How can government assume that its only the indian bookie that is involved in match fixing? Cricket is a global sport played by almost all of the Common Wealth nation and the uncertainty of the sport and various twists and turns in it make Cricket an ideal place to bet.

Here are links to some of the leading betting exchanges: