TAP GAP EQUITY POSER 1/12 ~ Which Equity Route will Generate the Best Returns ~ Mutual Funds or PMS or Direct Equity ?

This write up on PMS by noted Mutual Funds Information & Performance Data Provider,  Dhirendra Kumar, on his website www.valueresearchonline.com  has prompted me to  revive the TAP GAP  Equity Poser Series ~ you can click on this to check his write up and also my response to it   

Also many Blog Readers had connected with me to revive TAP GAP  Equity Posers ~ Glad you enjoyed the series in 2011 and I am only glad  to continue it before 2012 ends  and sustain it with your response support in 2013 !

TAP GAP….. Equity Poser 1/12……Appreciate Response within two weeks by November 30,2012

Winning Response wins the gauravblog hamper ~ you guys know what’s in it ! 

…And Thanks Dhirendra Kumar for your above write up on PMS  on your web site that prompted this Equity Poser

Equity Poser

From the Following Three Main Routes which do you Think will generate the  Best Equity Returns over the Long Term for You ?

  • Mutual Funds ~Investing in Equity Schemes of Mutual Funds ~ if so ,which scheme type or nature would you choose ?Index Funds,Balanced Funds,Diversified Funds,Theme Funds or Sector Funds ? ~ also do you think SIP is the best way to invest in Mutual Funds ? 
  • PMS ~ Availing of a SEBI Registered Portfolio Management Service ~ This Route is open only to High Net Worth Individuals as minimum accepted is Rs 25 lakhs ~ If so,would you opt for the Discretionary or the Non Discretionary Service ?
  • Direct Equity ~ Invest Directly in Listed Equities through the Primary and Secondary Markets  ~ If so,which Strategy would you adopt for Selection ? Top Down,Bottom Up,Only Large Caps,Only Sensex or Nifty Stocks,Only Mid Caps,Consider even Low Caps etc ~ If you’re conversant with the dynamics of each Investment Philosophy,which would you adopt  Growth,Contrarion or Value Approaches ? Would you go for a well Diversified Portfolio or for Concentration in only a Few Stocks? Also would your decision making be guided by free advice offered by your Broker,Experts and Anchors who offer Advice on Stock Channels and Print and Electronic Media or would you opt for paid advice from a good Equity Advisor by subscribing to their Online Services ~ or would you prefer a paid annual equity advisory service that offers  regular personal interaction with the Expert Advisor on your Portfolio ?  
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    Just a Thought to Tickle you….If Equity is a Zero Sum Game and Retail Investors are a Dying Breed how will FIIs and Mutual Funds make Money !?…playing each other !?

    Just  a Thought to Tickle you……If Equity is a Zero Sum Game and Retail Investors are a Dying Breed how will FIIs and Mutual Funds make Money !?….playing each other !?

    Christmas Month of December begins with an Interesting Weekend… Some Research on FDI in Retail,Jupiter Bio,OnMobile Global,Jain Irrigation,Sensex Earnings….also Met some really Interesting Business Heads In India…Daughter captaining Maharashtra Football Team at the School Nationals in Port Blair…winding up with some relaxing social interaction…now looking forward to seeing where the Sensex closes in 2011

    Christmas Month of December begins with an Interesting Weekend… some Research on FDI in Retail,Jupiter Bio,OnMobile Global,Jain Irrigation,Sensex Earnings….meeting up with  some really Interesting Business Heads In India…Daughter captaining Maharashtra Football Team at the School Nationals in Port Blair….and winding up with some relaxing social interaction

    Some Research….

    • to thrash Jupiter Biosciences that has sunk from Rs 75 last December to under par Rs 10 this December…will post it soon on company website under Scrip Tease …. a USA based friend had requested to check this fall as he is a hapless shareholder who  is related to the Promoters and feels awkward  asking them about this decimation…Book Value is Rs 125 ! 
    • to put OnMobile Global at Rs 66 on Scrip Watch …Morgan Stanley currently has this as a wealth creator idea
    • to figure out Jain Irrigation…will shortly put up view on company site….Both Enam and Morgan Stanley recommend it quite strongly at Rs 120 levels
    • Sensex 30 Earnings Trends..report soon to be put up on the company website 
    • Government’s recent controversial policy announcement for 51% FDI in Multi Brand Retail…checked out Wal Mart and it’s Chinese Operations….Phew ! …they are huge…will out scale simply any competition…will put up a brief note soon on company website highlighting the Pros and Cons

    Interesting Meetings with Business Heads… 

    Met some really interesting Business Heads in India ….,

    • The CFO of a conservative mutual fund…. has decided to enter Derivatives finally
    • The CFO of listed real estate company that’s just had a name makeover…opines that the share prices of real estate companies will move in a narrow range for awhile…nothing exciting happening
    • A leading behavioural share broker….”your guess is as good as mine” on how the Stock Market will behave in 2012
    • Chinese head of the Indian Operations of a leading Hong Kong Financial Services Giant who has entered India through a JV…”Nice to be in India “
    •  Foreign Returned Indian Director of a Bill Gates Foundation aided Indian NGO who needs help on Corporate Governance Issues and going about setting up a New Board and how to deal with Interference from a leading Industrialist 
    • A leading Expert on Transfer Pricing who had retired very early in life to seek spiritual self….Is Now entering Share Trading for a livelihood !…busy attending trading courses and reading up books on Trading ! Interesting !  
    • A leading ex CA Partner of a Big Four Firm who also headed earlier a leading Diamond Group’s Global Operations…has now just entered the Construction business in New Mumbai,near the new Proposed Airport…says Rs 4500/sq feet is cheap…it is really worth Rs 15000/sq ft !….Keep an Eight Year view he asserts and you will gain multifold !…on my wavelength of a contrarion view on Real Estate for the Long Term    

    Daughter Captains the u 19 Maharashtra State Football Team….

    The 57th School National Games for u 19 Girls Football Event began in Port Blair on December 1,2011….16 year old daughter was appointed the Maharshtra Team Captain and had the honour of  holding the State Flag while leading her Team in at the Opening Ceremony…They thrashed Gujarat  7-0 on Friday,December 2,2011  and now face a tougher opponent Orissa tomorrow who also beat Gujarat 6-0 yesterday in their group…Both Maharashtra and Orissa qualify for the Quarter Final Knock Out Stage

    The Journey to Port Blair was exhausting…The Team left the Kolhapur Camp by Haripriya Express Train on Nov 25 for Renikunta,near Tirupati to catch the connecting Madras Express to Chennai on Nov 26 morning…they missed the connection and had to catch a later train….it was raining in Chennai late night when they reached…left on a 60 hour journey for Port Blair by Ship on evening of November 27,2011 by SCI’s MV Harshavardhana….excitement turned to disgust as they were travelling Bunk Class…sleeping was on steel bunk beds….the food was not edible….they survived on biscuits for three days !…….they had mobile phones and monies stolen…daughter’s phone went….we remain in touch through phones of teammates…”Like you see Jail in the Movies,Dad ! ” …A Pity that a listed PSU like SCI runs such a third rate service on their Passenger Ship to Port Blair…..but Port Blair is better…awesome view from the Ship as they came in…and the Opening Ceremony Parade was lovely….daughter says the Games are being covered on DD Sports…told her to enjoy the Games and shirk off any Captaincy Expectations and Pressures….School Prelims begin this week and she will miss a few papers….She’s in Std X and will be appearing in March 2012 for the ICSE Final Examinations….School is thrilled at her achievement as this is the first time in the history of the School that a Girl has been selected for the State Team for the School Nationals conducted by the School Games Federation of India…her poster announcing this has been put up front as one enters the School….feel warm and proud that she continues to make her School & State and Family & Friends proud….like a Business Leader Friend (not part of above people I met) and Father of her schoolmate remarked to me and a few others in our group last night “She is my hero and my inspiration ! “….well,she is mine too !           read more

    Eastman Kodak….now quoting @ US $ 3.50…..was US $ 80+ in late 1990s….. Colour Blind Faith Blinds Shareholders for years…It was not a Value Play but a Value Trap !…Bill Miller and his Legg Mason Value Fund lost US $ 551 million in Kodak

    Eastman Kodak….now quoting @ US $ 3.50…..was US $ 80+ in late 1990s….. Colour Blind Faith Blinds Shareholders for years…It was not a Value Play but a Value Trap !

    Bill Miller’s Legg Mason Value Fund lost US $ 551 million in Kodak,selling out in 2010/11 after marrying it in 2000

    Instantly recall the famous song ‘Tragedy’ by the Bee Gees and a famous quote from Monetary Economist the late Milton Friedman ” We learn from History that we don’t learn from History !”            

    Kodak has been a legendary company promoted by George Eastman in 1901…..we all have fond memories of it…in fact Kodak Film Rolls and Kodak Photo Prints have been the medium which has preserved all our fond memories…..

    The name ‘Kodak’ does not really mean anything….it is neither a family name nor a descriptive word…..George Eastman simply loved the letter ‘K’ and wanted a company name that began with ‘K’ and ended with ‘K’

    ….and Kodak has simply been sliding the past decade…..As early as 2002,the operating margins began declining…..finally Kodak recognised in 2004 that the Digital Camera will make extinct Film Roll Cameras…so it stopped manufacturing the latter….however it’s major segment of Consumer Digital ,along with the other two segments of Graphic Communications and Film,Photofinishing and Entertainment saw operating margins continue to decline for several years…..from 2008,the company has bled  and cash flows have been negative

    From a Blue Chip Share ,Kodak has now been relegated to the ‘Blues’…In the late 1990s the share was quoted in the US $ 70 and 80s….as the Millenium began the quotes dropped to US $ 50 levels…and have been dropping ever since…in fact from 2004 for several years they moved in the US $ 20s and 30s…then in 2008 when the bleeding became horribly evident the slide began to single digit quotes….today it is struggling at US $ 3.50 levels with a market cap that has dropped below a Billion Dollars 

    …and yesterday I read,with great interest,and “I told you so” attitude, that a well known shareholder Bill Miller of Legg Mason Value Fund finally let go of Kodak,selling off millions of shares at @ US  $ 3.80 levels in 2010/11 and taking a loss of US $ 551 million…he was so bullish on Kodak and had been acquiring this stock from 2000 and had held 25% of the Equity by 2005….and he had a huge fan following who followed him in buying Kodak….he had the reputation of being the man who for 15 straight years had beat the S & P read more

    United Breweries at Rs 86…Indiabulls recommends to sell…Reliance Capital Mutual Fund buys into it !

    It’s not that Reliance Capital Mutual Fund always does exactly the opposite of what Indiabulls recommends !

    United Breweries (UB) was recommended to sell at Rs 90 by Indiabulls with a target price of Rs 70,citing high Leverage and margin pressures

    Reliance Capital Mutual Fund and another Fund,Indea Absolute Return Fund ,actually went ahead and purchased 1.5 million shares and 1.3 million shares respectively of UB on February 27,2009,last week for Rs 75 in Bulk Deals of Rs 11.25 crs and Rs 9.75 crs respectively 

    It’s just that the Beauty of Equity and Diverse Views in it come into Focus…with such mixed view,who do you follow !?…..Follow what you have conviction in and what appeals to you rationally and logically…Some basic sense of Earnings and Assets Valuation is warranted as Share Price is often skewed around this….. this will also help you to do some of your own basic homework and basic research to build up a well informed view with better conviction.

     

    Just viewed Bogle v/s Seigel…Index Investing v/s Stocks

    At 1 am Mumbai Time,just a half hour ago,I got to see on CNBC TV 18,two of my favourites,John Bogle,founder of Vangaurd Group of Mutual Funds and a staunch advocate of Index Investing over specific Stock Selection and Jeremy Seigel.Professor at the University of Pennsylvania and a strong advocate of Stocks

    Both made some very interesting arguments

    Bogle said that Fund Managers had not been doing a good job at all…sometimes one strategy or sector works well and at other times they are failures…there is no way to know in advance what will work….He hates strategies in Equities and Index Investing is the way to go…15 Years and 20 years CAGR returns are postive at over 5% and over 7% respectively…Asset Allocation is important and as a thumb rule,which he has followed with great success, is that the % of Bonds Allocation in your Portfolio should be around your Age

    Seigel made a strong point on Dividend Yield of S & P 500 being at 3.7%,over 1 % of Bond Yields and at it’s highest in 50 Years…so any one in Stocks,need not need any capital appreciation in them to beat the Bond Yields…Higher Dividend Yield takes care of this…when the Anchor inquired that Bear Markets in the past has seen Dividend Yields of 5% to 6% in the S & P and should not one await such levels before entering Stocks again,Seigel highlighted the fact that when these high Dividend Yields of 5% or 6% had come about the Interest Yields were higher at 8 % and 10 %…Today the Dividend Yield is higher than Interest Yield,making Equities look very attractive indeed

    Countering this,Bogle states that the volatility even in Dividend Yield Stocks was very high…forget capital appreciation,there was a 20% drop in days in prices of such stocks…that’s a capital loss higher than the Dividend Yields on the Stocks !….so specific strategies and stock selections on whatever criteria don’t really work….what works is Index Investing over a long Time Frame

    I’m well acquainted with both,Bogle and Seigel and regularly argue them at my workshops…but it was Great hearing these guys Live on TV now