irrational....exuberance....and not so much..and that crystal ball

[Corporate India's ebitda margins are bottoming out and the risk of any further material decline is limited - a leading rating agency research report.

See the bse sensex at 23000 levels in the next 12-18 months. Expect a 5% up move in the markets before the winter session of the parliament - head of equities of a brokerage firm.

Expect the current level to extend. Support for nifty is seen at 5600 and one can expect it to breach the psychological level of 5850 going ahead - a leading bank and brokerage firm.

Nifty may see 5600; market set for new high in 12-18 months - a leading bank and brokerage firm.

India can achieve 9-10% gdp growth - chairman of a leading global investment bank.

Hold Tata Power; buy Tata Motors - a leading analyst.

Enter Coal India below 350 - a leading analyst.]

These are just a sample...the opinions go on..but did you get the point?

It is amazing to see how people show off their abilities to predict!

There is so much noise in all forms of media that even a rational investor has difficulty in controlling his emotions. The internet and television, in particular, have that mystical ability to (over) influence gullible public and to drive them into maniac..optimists at one point and ....pessimists at another just so easily.

The reason: that so-called greed and fear within humans. Brokers and analysts know this weakness (which is of course within them as well) and try to exploit it. As a wise man said, demand being there, it must be supplied.

Why can't these predictors, if at all they know it all, sell their assets and put all their money into these stocks or market? Why can't they borrow some (or more) and put in their (battle) field? If they did this, they could be so rich that they don't have to come on tv or elsewhere to show their prediction. The reality is they know for fact that they are as ignorant or less knowledgeable as anyone is. If not, they wouldn't be on tv in the guise of helping you to be rich. You can see that their intentions are as bad as it can be: if they knew everything, they would be rich anyway and wouldn't be so large-hearted to tell you their secret; because they do not know it all, they want to take a piece off you.

It does not take so much intelligence to know this simple thing that there is no such thing as a sure thing with foresight. These (predictor) analysts are out there to loot the public, it's nothing but a camouflage.

So next time, if someone tells you to buy this or sell that, you should be asking him this question: why don't you borrow some money yourself and do that transaction if you are so sure of this? And if you are not so sure, why are you telling me to do this?

Consider this: If that person/institution is a broker, he wants to make money irrespective of your buy or sell transaction and your profit or loss as his aim is to get those commissions from you. If that person is not a broker and simply wants to show off his predictive abilities and public image, you should just laugh lightly. It's time for you to do some serious work, watch your favourite movie or take a walk!

It is far better to know that all of us can be super-intelligent with hindsight. If we had done that back then, we would be this by now. But with foresight, you are kidding. 

As another wise man said, what you need is neither hindsight nor foresight, but insight, vision in the moment; what you do at this point of insight determines your future. 

There are exceptions everywhere, but at least you got the point by now. What investor needs to do is to decide what he wants to do - passive investment or active investment. This discussion is for another blog.

Lest we get faraway, I close this saying, caveat emptor! 
 

property prices... and that delusion

We have been witnessing some unprecedented boom in the real estate sector, not only in metros, but also all over the country. Such has been the rise in the prices of land and buildings that it makes one wonder whether this whole thing is rational and justified.

An apartment that was bought, say, 10-12 years back would generate about 17-18% returns compounded annually by now. The one that was bought about 5-6 years back would give about 25%.

Good stuff! But how about if one is to purchase it now? For one, is that kind of money available for investment? Second, is it possible to service that money (debt)? Then, how long one will have to be in the rat-race in order to be able to continue to service that money? And still more, is it really worth it?

Sure income levels have shot up considerably over the years in India. A couple, say, qualified professionals, should be able to afford the mortgage. That does not stop one from asking, is it really worth it?

Is there something through which we can gauge the differences in price and value? There are no earnings projections here for the residential; prices are only perceptions-driven.

Why should prices of residential plots even in small towns should rise to the level that makes us uncomfortable?

Is the real estate bubble in the process of being formed, if not already formed?

It is difficult to understand why one is willing to put so much money in, say, an apartment where one is stuck for life. This is home, which the family considers precious. Fair enough. It is not an investment for that person; he is not going to sell it unless under dire situation. Hence, the rational thing to do would be to buy a house (apartment) which keeps the family cool during summer and warm during winter, and have some fun. Before the purchase just ask 'how much?'

If this is followed the prices might not move so much higher than say, inflation. However, the public frenzy has been so much that, due to various reasons, peer pressure being one, it is ready to pay any price for the property as long as the developer / builder is able to supply it.

No consideration is given to whether the family is going to use the amenities, such as gym, pool, car park, etc. All these come at a cost.

Businessmen know how to make money on their business; they buy low and sell high. These very people, however, are ready to pay any price for a real-estate property.

The problem with real-estate in India is that it is very difficult to assess its value. Prices are all over but value is not to be seen on many occasions. Property market here is unregulated (unlike the developed markets); it is not possible to consider rental yields as the basis for assessing value, unfortunately. Due to this, it is left to the developers to fix the price and the buyers to be in the frenzy and envy (wants it better than friends) to accept it. The market then goes in that direction, up.

Justifications are given: growing economy; increasing income; aspiring youth - India shining. However, history suggests that all booms end in busts! It is just that no one knows when.

Absence of quoted prices provides some kind of relief to the buyers as they do not have to keep thinking about it.

What if the prices fall? Well, since the property is not meant for sale (but to live) one could probably live with it. But in hindsight one would surely repent. Money lost could have been invested elsewhere to provide additional income. This could be a huge opportunity cost. What about that additional interest paid?

Buyers should be careful enough to check value in advance lest they suffer heavy losses.

If only someone could discover the tool to assess value here or still better if only the government implemented some grand reforms in land and building sector.

Wishful thinking, is that?