Satyam Computer Service:
Think best teacher is stock market is itself. It teaches us new lessons everyday. It takes exams everyday. One who scored more then 90% yesterday may even fail today. But it watches very carefully. It passes only those students who prepare well before the exams. So prepare well today. Prepare well everyday.
Few lesson which we have to learn from Satyam episode:
First I have to admit that Satyam is there in Compact15 list and error of judgment by not exiting around Rs.170 few days back when the list return was 39.8% is misjudgment. Due to 15stock the risk is divided and even after major correction the list gives good return.
Error is human when one is judging stock market he can never be prefect or 100% right, if one is right 50-60% of the time itself returns should be high.
If some one is above average he will not be advising he will be counting M3.
Quote: Man's greatest enemy in speculation is 'hope.' We refuse to face facts, and facts are stubborn things. Hope spurs us on. It may be an anchor to the soul, but it's a very slim anchor in speculation when those facts are against us."- W.D. Gann (1955)
Few things to recollect on 07/01/2009
Many calls which I got "can I buy Satyam"?
This was difficult question to answer- 1) if I say buy and if the stock becomes zero.
2) If I say don't buy and if the stock doubles due to any take-over. Both chances were bright as we have seen both many times and it was hard decision to take during market hours. So I replied I didn't understand buy other stock like Infosys, Wipro or TCS.
Data says total 70% of the paid-up capital was traded in both exchange on 07/01/2009 and 43% delivery has been lifted (30% of company stake)
Founder and Chairman B Ramalinga Raju resigned after saying he falsified earnings and assets to the tune of Rs 5,500 crore. Institutional shareholders sold 8.62% of their combined holdings. Abardeen, one of the largest shareholders, sold the entire 5.6% stake it had in Satyam, and Swiss Finance also exited. Stock Exchange data showed huge sales by Morgan Stanley and Fidelity as well.
Then who brought 30% of Company stake in a single day?
Retail investor! This is the big possibility as far as my understanding goes, Many want to take instant decision which is harmful and only retail can take decision even without a 2nd though. And many would have brought in excess of there capacity and now this would create some payment problem for investor and as well as broker.
Then why didn't exchange stop trading in Satyam?
-No Answer-
Does history repeat on a regular basis?
From 1990 till date 2009 I have been seeing the same kind of mistake in stock market in different form many times I have strongly advised many things but on few occasions it becomes too cumbersome or emotional or lack of information to give an opinion. Global trust bank, SquareD, Silverline, PentaMedia are few stocks which eroded value of investor in similar way.
What about Satyam I have invested?
I have no comment on this, as Govt will be more interested in 53,000 employees than the Equity holders at this point of time. Previous many instances like Global trust Bank has showed that Equity investor are least preferred and there are many other priority and that is what Company Act1956 also says.
Now many ask is Indian corporate trustable?
This kind of corporate fraud happen world over (Enron is standing example) and things like this has been eye-opener and will improve systems over a period of time. Important lesson from this episode is that any promoter who are pledging there holding should be asked to disclose as we have seen many corporates getting into trouble.
Rating agency or Auditors have miserly failed, now who has rate the rating agency and who will audit the audit firm.
Indian stock market from 1988-2009 has seen remarkable change, there were days when a stock brought will take 3-6month to reach and when we send registration will take few more months. So when we buy people we had next few years in mind. Now investors never look beyond few more days and many call them investor and buy in derivative (Which has expiry).
Investment wisely made has always rewarded highly and that has made many turn to investing in stock, Risk is part of life and only understandable calculated risk has been rewarding….Invest wisely with longer term objective use fear to your advantage invest in staggered manner in Quality stock.
Basics of successful investing in my preview:
· Divide risk-A portfolio should have basket of stock minimum of 15 to maximum 40; too many stocks also will be difficult to monitor.
· Understand Risk- Stock market is always called risky asset for many reason there are chance many companies can fail. Warren Buffet in one of the interview said: there were 4000 companies manufacturing car in U.S, today hardly 3 and all 3 are finding it hard to survive, and many companies produced Television including GE now none. Bottom line when Risk is divided overall return should produce excellent result.
· Buy good Companies in bad times: This has been totally mis-understood many think a company which was Quoting around Rs.500 if it comes to Rs.50 we should buy 1/10 of value. Good management means Best corporate practice, long standing management, good dividend paying track record, highest disclosure norms.
· Never invest with-out prior home work and never get carried away by news or rumors many are misleading and it normally blocks us from thinking rationally.
· Invest in a staggered manner to get a better price.
· Invest in simple business, as peter lynch used to say; "Go for a business that any idiot can run – because sooner or later, any idiot is probably going to run it."
There is a theory called the Pareto Principal also known as the 80/20 rule and it goes something like this: in any human activity a few (20%) are vital and many (80%) are trivial.
* You wear 20% of your clothes 80% of the time
* 20% of stock produces 80% of sales in a normal retail store.
* 20% of sales people make 80% of commissions
* 20% of authors sell 80% of all books
* 20% of what you do in the day will result in 80% of your success
* 20% of traders take 80% of all profits from the markets.
Aberdeen Asset Management Asia said on Thursday it no longer owned any shares in India's Satyam, Aberdeen owned about 9.2% of Satyam as of October last year.
http://business-standard.com/india/news/raju-confesses-to-fraud-quits/00/47/345600
http://www.mydigitalfc.com/companies/third-mess-pwc-after-gtb-dsq-soft-210 Third mess-up by PwC after GTB, DSQ Soft
During market time we send a list: TCS, INFOSYS, WIPRO, MARUTI, ITC, TATAPOWER, SBIN, ICICIBANK, PNB, THERMAX, HINDLEVER, CROMPTON, BHEL, LT, TATASTEEL, RCOM, RPL, RELIANCE, SAIL, NALCO, ACC, GRASIM, IDEA, CAIRN, ABB, SIEMENS, GAIL, ONGC, BEL, BEML, NTPC, NALCO POWERGRID, HDFC, HDFCBANK for investing.
Please understand we are in bear market which will continue for another 15months and in my view there can be minimum for 6-9rallies which can fizzle out similar to this, so buying in panic and holding few months would normally give good returns. This market is like a rocking chair will be moving up & down but end result will be it will be here, and in my experience bear market give safety returns as a investor…. Buy only in cash have minimum of 20-30 stocks. I have selected Govt PSU stock, MNC & stocks long standing promoters.
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