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Friday, August 08, 2008

Happy Olympics to you!!!

I was in the host country of an Olympics for the first time in my life (and maybe even the last time). Being in Beijing during the Opening Ceremony would have been the best bet. Not to worry, I'll be there next Saturday :-). We did the next best thing to being there. Went over to Delaney's (A Sports Bar in Wan Chai), found a decent spot to view the giant screen and guzzled a few drinks down.
Our three member strong Indian Contingent at Delaney's (The other Desis in there who did not have pride to cheer were either non-Indians or maybe non-Indians I'm guessing) cheered as the 56 member Indian Contingent marched forward. We also cheered for some of the countries including Bangladesh, Srilanka, Nepal and of course my new home country - Hong Kong/China along with some countries I'd not even heard off and some super-small contingents of 4-5 participants which will probably end up beating India in the medals tally.

Other Side Notes: Joe Banana's in Wan Chai the worst place to go to. How can they not have the Olympics Opening Ceremony showing. The worst part was they were trying to mislead the guests by showing some events from probably a similar event in the past which led us to believe we were at the right place - so what even if it was such a small screen TV. But then, at 8:08:08 on 8/8, we realized that this was just a trick, quickly wrapped up our drinks and sprinted across the Delaney's across the street. Never again - Joe B.

Thursday, August 07, 2008

Ahead of the curve ... A book review!!!

As I was chatting with Jo on a typhoon-hit lazy morning, HNY walked in with this book he’d just picked up from the book store on someone’s recommendation. The book – Ahead of the Curve was about a Harvard Grad and his life in B-School he said. I got interested and asked Jo if I could borrow it after he’d finished. Before I could finish that sentence, both of us realized, I was here at SKCC and Hong Kong for less than a week. It was obvious that some re-ordering had to be done and I was given preference. Thanks Jo and Yowie!!!

I quickly wrapped up my Noodles Brunch and started reading it in the Common Room which almost has become our day-long hang-out place if nothing else for the free AC there. Once I started reading the book, I just couldn't put it down and read it non-stop (excluding the dinner/bathroom/common room gossip/e-mail/phone call breaks) till about 4:30 am this morning. I finally decided to crash since I'd to wake up by 07:30 to make it on time to work. I finished the last two chapters in the MTR on my way to work.

Ahead of the Curve is overall a very nice read, giving us a good insight into life at HBS, the challenges faced by people and how most people cope with it and overcome the challenges that the school throws at them. There is still room for improvement in terms of the overall flow in the book, several gaps unfilled and efforts to hide the identities of his classmates making most of the characters almost seem fictional. I would still recommend this book as a must-read for any MBA (Past or Present) or any MBA wannabe.

This is a book by Philip. D. Broughton – the New York and Paris Bureau Chief of "The Daily Telegraph" of London about his tryst with Harvard Business School from 2004-2006 and his journey through the MBA along with the experiences of his classmates. Even though, I'm no journalist or writer, there are so many similarities between the experiences he went through and the ones I am going through here at HKUST that I felt for Philip, and I really felt a part of the story as he ran us through the entire two years and the experiences during the period.

Some things I always knew that got re-emphasized. Harvard is no different from HKUST

1.    The same or similar courses

2.    The same or similar cases

      *     The same debates

      *     The same conclusions

3.    Similar experiences in terms of faculty quality, reputation, experience and student respect

4.    Similar talks by industry leaders

5.    Similar events and programs - Industry Visits, Alumni Events, etc throughout the year.

6.    Larger class-size divided into sections of around 100 - but the section remains together through the core/required courses making it similar to HKUST's class strength of 75-80 per year.

Some differences:

1.    HBS is a longer program (2 years vs.. 16 months here at HKUST)

2.    Has a longer queue of IB/Consulting firms lining up to hire the students.

3.    Stronger Brand - Obviously resulting in (2) above and finally

4.    A larger Alumni Network to bank upon

But the pains are the same. Some bad courses, some classmates speaking in class just because they love listening to their own sweet voice, and the herd mentality towards Finance Jobs (Consulting is a little less in HKUST since HKUST is renowned as a Finance School) causing immense pressures and turmoil among the ones who are not initially keen on IB/Consulting but end up getting sucked into it.

Thanks to this book, I am under a lot less pressure to go for a consulting or finance position and continue to look for my passion. Also found Philip's profile on LinkedIn and a few of the characters as his connections - his title still says "Writer and Entrepreneur". Let's see how long it remains that way. Only regret is probably that I should have read this before my MBA and I could have wasted a little less time on some of the Bank Apps which I anyway sent in half-heartedly late last year.

Tuesday, August 05, 2008

Life's simple pleasures - A Typhoon!!!

It's Typhoon Signal 8 Raised - And I don't have to go to work today!!! One more reason I love Hong Kong. It gives you these extra special holidays when you least expect it.

Here I am in my night-dress half-asleep blogging instead of in the crowded MTR just about managing to sneak in before the door closes on my face and hanging onto dear life amidst the crowds that might not give the Mumbai Trains a run for their money but will surely run the BTS/BMTC buses close.

Life's Simple Pleasures!!!

Saturday, August 02, 2008

Investing in the stock market ... science of it!!!

Lazy Man Technique - No Stock Picking:

In a developed market like the EU or US, invest in an Index Fund (If in the US). Index funds have still not matured in India. So pick a Mutual Fund with at least a 10 year history of good performance and start a SIP on it.

Never have more than 75% of your portfolio in Equity. You should have 75% when you are most bullish about the stock market. When you think the stock market is most over-valued, cut down your exposure to 25% of your portfolio. The rest is of course in safer investments like Bonds, Savings Accounts, CDs, etc depending on your financial needs over the next few years.

Do not do re-adjustment of portfolio more than once a month. This ensures that you don't get addicted to doing changes everyday and fall into the trap of over-doing the rebalancing.

To avoid the Home market bias, invest atleast 33% of your Equity investments abroad (Choose Emerging Markets ETF or S&P500 or MSCI EAFE to get non-US developed market exposure).

The next step you could take based on how lazy or active you want to be is to mimic portfolios that have known to out-perform standard indexes in the past. Examples of this would be GDP weighted indexing, Dogs of the DOW, Highest Dividend Yielding Stocks, Small Cap Index exposure, Emerging Markets exposure


Now if you have decided to go to the next step and start investing in individual stocks, here are some characteristics of the stock you should look to invest in:

  1. Margin of Safety
    1. The stock should be off its 52 week highs and closer to its 52 week lows. This is a general guide-line - there will always be exceptions.
    2. The dividend yield on the share should be at least equal to the interest rate for a savings account (4-5%) if it is a company that consistently pays dividends. This ensures that there is low downside risk even if the stock does not go up too much in the short to medium term.
    3. Do not speculate and do not buy a rising stock unless you have strong reasons to believe the stock is still under-priced.
    4. Buy with the intention for holding for at least a year (To avoid ST Cap Gains Tax – Ideally forever)
  2. Intrinsic Value
    1. The earnings should show a consistent growth pattern over the last 5 (preferably 10) years. Use this to predict a LT CAGR. Research the industry it is in to see if this can be confirmed.
    2. This will rule out certain sectors like Pharma which have a strong variance in earnings especially in the early stages of industry maturity.
    3. Grow the current earnings at the calculated CAGR to get an estimate of earnings over the next ten years.
    4. Find the industry P/E ratio pattern over the past few years and apply a number closer to the lower end of the range to get the stock price = EPS * P/E.
    5. Apply margin of safety rule
  3. Company Characteristics
    1. At least 15-20% Return on Shareholder Capital
    2. Industry leader with a sustainable advantage over competition
    3. At least 33% of its 52 week high and preferably within 50% of its 52 week low
    4. Add other rules ... based on experience.
  4. Due Diligence
    1. Read management reports and annual reports to study how honest the management is.
    2. Review credentials of Independent Directors and how often they attend the meetings
    3. Are there any reasons for the stock price falling to recent lows (read news articles, message-boards, etc)?
    4. Check out the investor relations section of the company’s website. Run through the material available there.
    5. Read Press releases and look for consistency and honesty
    6. Look for scandals and controversies the company has been involved in and avoid all companies that stink of dis-honesty or manipulation of financials.
  5. Always track your annual short term capital gains and be ever-willing to lock in ST Capital losses to reduce your taxes. e.g. A stock you bought at 100 less than a year ago is down to 50. Just sell it right now and buy back the next day. The gain in taxes will more than make up for the transaction charges that result. Of course, do this only if you are going to have capital gains. 
The No.1 Rule of Investing should be "I shall not lose my Capital". 
Rule No.2 reads "I shall not forget Rule No. 1"

If you like this post, buy me a beer!

PS: This is a post written exclusively for my own reading in the future. Excuse me for some of the terminologies I used that might not make sense to you. I'll come back and clean it up some day soon.