Some food for thought
"Theories are patterns without value."
—Constantine Brancusi (Romanian Sculptor, 1876-1957)
Word for the day
Suffragatte (n)
A woman who advocates suffrage for women
First thought this morning
I visited a prominent private school in West Delhi area
yesterday morning for a story telling session. There I had a chance to meet few
students admitted under the economically weaker section (EWS) quota. The
interaction was quite revealing. I wonder how come the policy makers have not
think about so many aspects while framing rules under the Right to Education.
Or may be rules are in place but no one is bothering about the enforcement.
I would in particular like to highlight the following three
issues:
(1) Many of EWS
students appeared lost and out of place amongst their wealthy peers. No one has
counseled them about the situation they would be facing as "imposed"
burden on the school.
(2) The students in
government schools get many benefits like weekly Iron supplements, mid day
meal, books, uniform, shoes, and even cash subsidy. As per the RTE rules, the
government is responsible for providing funds to private schools for arrange
for uniform and books for the EWS students. But many schools complaint that
since they do not receive funds from the government hence they are unable to
extend the benefits.
Moreover, the amount fixed for uniform (Rs1100/yr) and books,
stationary & exam fee (Rs2200/yr) is totally inadequate to meet the
standards of private school.
The matter was referred to the Delhi High Court, and is still
pending there. In the meantime, both the students and parents are suffering.
(3) After 8th
standard, these students are required either to migrate to government schools
or pay full fee. This is most insensitive arrangement viewed from any angle. As
the fee and other expenses (coaching, exam fee, extra books etc.) rise
materially from 9th standard, it is unreasonable to expect the parents to
afford the cost. Besides, considering the huge cultural difference in the
private schools and public schools, forcing a vulnerable teenager to migrate
against his/her will, could have dire consequences. Again no counseling is
provided for such migration.
I think, a serious review of the entire RTE framework is
long overdue.
Chart of the day
Keep it simple
The past 3-4months have been particularly painful for investors
in Indian financial markets. Both debt and equity investments have performed
poorly. The performance of few asset managers (MF/PMS/AIF tec.) has matched the
benchmark indices. Most of them have severely underperformed. A spate of rating
downgrades/defaults post IL&FS bankruptcy filing, and sharp correction in
broader markets are being cited as the primary reasons for this
underperformance and pain.
As per various media reports and gossip on social media, many of
the celebrity asset managers, investors and trader who have wide following
amongst investors and traders, are getting dethroned from their high pedestals.
Some who were widely touted as most discerning stock pickers till couple of
months back are being accused of malpractices like connivance with unscrupulous
promoters, front running, insider trading etc.
Many investors who had taken mutual fund route to build a strong
investment portfolio are already disenchanted with the poor performance. The
anecdotal evidence suggests that many of them are bewildered as to whether they
need to review their investment strategy & style.
Unfortunately, I am in position to help anyone in this matter.
What all I can say is as follows:
(a) Investing with a
good asset manager is a very good idea. Most good asset managers are not
celebrated as they never claim to be great stock pickers or masters in finding
multi baggers. These managers keep their head down and chest deflated while
doing their job.
(b) Once you have
identified couple of good managers and entrusted your money to them, allow them
reasonable time to show performance. If you give him money at the top of the
cycle and ask him to show report card near the bottom of the same cycle, it is
an unreasonable demand.
(c) If you fail in
finding a trustworthy asset manager, and wish to invest on your own, you may
want to keep your life simple. Zest to find multi baggers will only lead to
disappointment and losses.
The life of equity investors in India could actually be very
simple. Operationally, there are only a handful of companies that have
performed consistently. About 2/3rd of these companies have performed well in
stock markets also. Investors would be better off choosing a few from this
small universe and sleeping tight. An annual review would be just fine. No need
to watch NAV of your portfolio daily, monthly or quarterly.
For example, consider the following universe of 51 companies.
(a) These are the
only listed companies in India which have earned more than $25mn (Appx Rs180cr)
in profit for each of previous five financial years, and also gave an ROCE of
more than 20% for each of those 5years. Out of these 44 companies have listed
on stock exchanges for 5years.
(b) Stocks of these
companies have given a return ranging from -1% to 45% CAGR for past 5years.
2/3rd of the companies have given CAGR return of more than 10%.
(c) All IT sector
companies, media and two-wheeler have been notable underperformers. Consumer
discretionary firms have done significantly well.
(d) Only two
companies have given negative return.
(e) A basket of 20
stocks, equally diversified across sectors, could have given a return of
14%CAGR even if one had both the negative return stocks in the portfolio.
If you are wondering, it may not be as easy as it sounds,
but certainly not too difficult!
(Note: This is only for illustration purpose. Please check
the authenticity of data from other sources.)
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