How to play the stock market game now

One doesn't need to be Warren Buffet to give his take on stock markets, so here I go!

With the recent turmoil in stock markets (falling by over 40% in a span of 6 months), most people are wondering how should I play the stock market game. I've been reading a bit on investing in stocks recently - While the recent reading did not give new insights, it certainly did reinforce few things:

Long-term investment orientation is certainly the best if one were to play stock market game - Its better to have 20% CAGR over a 3 year period than to have 50% gain in first year, lose 20% in second year and then again to gain 40% int he 3rd year - Look at the table below

	Investment	1st Year	2nd Year	3rd Year	CAGR *
Case A		20% Gain	20% Gain	20% Gain
	100000	120000	144000	172800	20.00%
Case B		50% Gain	20% Loss	40% Gain
	100000	150000	120000	168000	18.88%

* CAGR – Compounded Annual Growth Rate

Continuing on the long-term orientation, here is a statistic that is very revealing - Sharp falls in stock markets have been very rewarding for people who invested after sharp fall and had a longer term investment orientation. Table observes the returns phenomenon over the last 7 sharp falls in Indian Stock market.

As is clearly seen in the table below, buying equities, with long term orientation, when they have corrected substantially from peaks, particularly at times when valuations as measured by P/E s were reasonable, has proved to be an extremely profitable proposition for investors, earning them substantially higher than average returns.

	Date	Sensex	Fall (%)	P/E	1 Yr Later		3 Yrs Later
					Sensex	Return(%)	Sensex	Return(%)
	9-Oct-90	1559		20
A	25-Jan-91	956	-39	11.3	2172	127	3982	61
B	18-Dec-90	1112		13.5	1835	65	3346	44
	22-Apr-92	4467		41.4
A	26-Apr-93	2037	-54	13.7	3781	86	3765	23
B	26-Mar-93	2341		16.1	3713	59	3243	11
	12-Sep-94	4631		28.3
A	4-Dec-96	2745	-41	17.5	3527	28	4836	21
B	6-Feb-96	3155		22.1	3403	8	3184	0
	11-Feb-00	5934		29
A	21-Sep-01	2600	-56	10.1	3021	16	5606	29
B	13-Sep-01	2988		11.7	3099	4	5397	22
	14-Jan-04	6194		14.7
A	17-May-04	4505	-27	9.8	6466	44	14300	47
B	14-May-04	5070		11.1	6528	29	13966	40
	10-May-06	12612		18.1
A	14-Jun-06	8929	-29	12.5	14204	59	NA	NA
B	5-Jun-06	10214		14.3	14535	42	NA	NA
	8-Jan-08	20873		20.7
A	16-Jul-08	12576	-40	11.6	NA	NA	NA	NA
B	31-Jul-08	14356		14.2	NA	NA	NA	NA

I believe even the current market is good for investment. With the market trading at 14.2 times (P/E) and the Indian economy expected to grow around 7.5% - 8% (Inflation adjusted) over the next 3 years – It has to be a good case for long-term investment.

Explanation for the table:

• Row A gives the returns after 1 year and 3 years from the market’s bottom
• Row B gives the returns after 1 year and 3 years from an Index which is 15% off the market’s bottom – Reason being, for most investors catching the market at its bottom most is very very difficult and hence this column (Catching market’s bottom is liking capturing the lightning in a photo – While it is possible, its god damn difficult and one need to be lucky as well)
• Returns for 1 year are absolute returns
• Returns for 3 years are annualized (in other words, it is 3 Year CAGR)
• P/E – Price to Earnings ratio is calculated based on the combined EPS (Earnings Per Share) of all Sensex companies

Happy investing!!

Jharkhand's Return-the-favor-Politics

What is happening at Jharkahand these days can best be described as Shameless politics by Sibu Soren and his allies in UPA, especially at Congress.

Few hours ago, JMM (Jharkhand Mukthi Morcha) lead by Sibu Soren has withdrawn its support to the existing government led by Madhu Koda. Reason - Baseless, shameless stupid claim by Sibu Soren that "Poeple of Jharkhand wants him to be the CM!"

What a joke? - Withdrawing support has become a bit of mockery these days, these bastards (yes I mean its literal sense) do not seem to have any moral obligation to give the people of India, in this case people of Jharkhand, a meaningful reason for withdrawing support to the government and to top it all Sibu says it is people who want him to be CM. When did Indian people started electing a CM directly!

Part of the blame has to be taken by Congress party as well because anyone who has been following Indian politics ever since Nuke deal has emerged and the subsequent Trust vote at Parliament would know that this is a favor that Congress party is returning to Sibu Soren for his support at the Trust vote.

Sibu supported UPA government to win the Trust vote on the demand that Congress would support him to become the CM of Jharkhand and now pulled the rug under Madhu Koda. It is so blatantly evident that this a return-the-favors-politics and nothing beyond.

What bothers me most is the level to which politics by Congress Party have stooped down and the levels of regard they have for the people.

**** you guys!

Cricket - Reveiw System

I wrote in May 2008 about the introduction of review system and was damn against it (Check the earlier post "Cricket follows Tennis - What a pity & shame on ICC").

Now that we have completed the 1st test series where this system is tested, I thought it is important to review the review system.

1. No doubt that the review system works to an extent that it can find out some blatant errors. At times umpires on the field can't hear the inside edge onto a pad, due to noise in the stadium, and give batsmen out LBW - Replays can easily (though not all times as we have seen in the case of Sachin in the 1st innings of 3rd test) detect this.
2. Review system also can, in most cases, find out whether the ball pitched outside the line of leg-stump or not - Very vital information to judge a batsmen out or not in case of LBW.

This said, review system based on TV replays hasn't been 100% accurate. Consider these,

1. TV replays show us that bounce of the ball is similar on Day 1 as well as Day 5 - Any one who has been following a little bit of test cricket, particularly in sub continent, would know that bounce will never be the same from Day 1 to Day 5.
2. Review system stops at the point of impact of ball on pad (in the case of LBW) and leaves the judgment to Third umpire to decide if the ball would have gone on to hit the stumps or not. How cruel is this? The very essence of introducing the review system is to minimize the human error and here we are making things even more complicated by having a part of decision to be taken on the basis of replay and the other half on the basis of human judgment.
3. Worst of all, when a batsmen is hit on the pad/shoe by a full ball (which didn't pitch) bowled by a spinner - How does one take a decision? Replay system considers only two things in this case - Is the ball legal and did the impact inside the stumps and misses the other important thing - Would the ball gone on to hit the stumps? Because the ball did not pitch replays can't predict the amount of spin on the ball and therefore can't guess if the ball would have gone on to hit the stumps. In such situations to give a batsmen out because the impact is inside the line of stumps is a joke. At least on-field umpires will have a chance of picking this as they see the bowler closely and can pick up if he is bowling a off-spin/leg-spin or a straighter delivery and thus take a decision on whether the ball would have gone on to hit the stumps though it hit the batsmen full.

With all these, I have no hesitation in calling the review system a failure. Acid test of introducing technology into game to me is "Is the technology-based system fool-proof and is it 100% accurate?" - The moment the answer is NO and even if it misses the bar by by 1%, I'm better off with human errors than technology errors!

We all forget and forgive mistakes of fellow humans but not the mistakes of our computers, don't we?

ICC is due to review the system and decide whether to use the system in forthcoming Champions Trophy. Committee consists of names like Dave Richardson, Simon Taufel, Ranjan Madugalle, Tim May, Kumar Sangakkara, and Anil Kumble - Hopefully something sensible come out of the meeting this time.

Randy Pausch's Last Lecture - Achieving Your Childhood Dreams

Sadly he passed away recently but his lecture at Carnegie Mellon's 'Last Lecture Series' (This series, aptly named, asks speakers to talk about a topic as if it was their last chance to talk before they they die) - Fortunately, or should I say unfortunately, Randy didn't have to imagine him dying as he knew he is going to die in few months time.

Randy spoke about 'Achieving Your Childhood Dreams' and it is AMAZING. For those of you who haven't yet listened to this, enjoy it here.

THANK YOU Randy, Big time!

Suresh Kalmadi - What a shamelss character and Iditot he is?

Those of you who are wondering why I on earth did decide to write about a Suresh Kalmadi - Yes, I agree that this jerk doesn't deserve me spending few mins writing about but he had done something so shameless in the recent past that I thought it is worth publicizing it in the hope that he will learn.

For the olympics that are about to start tomorrow, Chinese government had sent invitation to Sonia Gandhi to attend Opening ceremony but not to Prime Minister Manmohan Singh. Who the heck is Sonia to get an invitation and why the hell Chinese government invited Sonia while they have sent invites to all prominents Heads of state like George Bush, Nicolas Sarkozy, Japanese Prime Minister Yasuo Fukuda, Australian Prime Minister Kevin Rudd, Finnish Prime Minister Matti Vanhanen and Mauritiun President Anerood Jugnauth, British Prime Minister Gordon Brown etc.

Dig deep into this you will find the answers:

1. Chinese government does not decide on its own whom to invite
2. Beijing Olympic Committee and the International Olympic Association have a procedure that the Olympic committee of every country to “choose its own chief guest”
3. Indian Olympic Association is headed by Suresh Kalmadi
   

I have never had any regard for Suresh. For, he has been head of Indian Olympic Association for a very long time and has done very little to India or Olympics or to the Association. He is a shameless politician who knows nothing but being on the right-side of people who matter for him to continue holding the position.

He doesn't even seem to be realizing that his shameless act is brining India to disrepute - What will people all over think when every other Prime Minister or President is being invited to Olympics and here we are - Wanting to invite Sonia Gandhi, whose claim to fame seems to be nothing but her husband's name.

What a joke? Wake up guys!

Veeru (Virender Sehwag) Blast

After a break, I' m back and what I guy to write about after a break - Veeru Virender Sehwag!

Well, he did not do anything spectacular - I mean we got used to this from Sehwag ever since he started playing cricket. The kind of innings he played on first day at Galle would have been spectaular for any other crickets but for Veeru it is just another day at office.

This guy is awesome and the quality that I like most in him is his 'short, very short, memory' - You can bowl a beauty and beat him, but he seems to forget that in no time and be ready for next ball to be dispatched for a six! Most batsmen keep thinking about the previous ball they were beaten by and end up playing their unnatural game for the next ball - No such thing with Veeru - Agar gaend marne layak ho to maaro, kuch mat karo - If the ball is there to be hit, hit it - do nothing else!

Another remarkable thing about Veeru is his conversion rate. Look at these statistics below:

• Of the 27 times that he went past a score of 50, he converted 15 of those occasions into a score of 100 or more - > 50% conversion
• Of the 15 times that he went past a score of 100, he converted 10 of those occasions into a score of 150 or more - > 50% conversion
• Of the 10 times that he went past a score of 150, he converted 4 of those occasions into a score of 200 or more (He missed one opportunity by 5 runs, he ended scoring 195) - 40% conversion
• Of the 4 times that he went past a score of 200, he converted 2 of those occasions into a score of 300 or more - 50% conversion

This is unheard of, except from a guy called Don Bradman (Don had more than 70% conversion rate of centuries - 29 centuries and 13 half-centuries) and to a lesser degreed from Mohammad Azharuddin (Azzu bhai had more than 50% conversion rate of centuries - 22 centuries, 21 half-centuries)

India is still in a delicate position as they start 2nd day at Galle and I'm hoping Veeru will give us another round of blast on 2nd day and take India into a commanding position - He has, at the other end, our own very special Lachi Bhai (Yeah, VVS Laxman)