Your Broker As A Cheat (Part 9)

The News channels are flashing that SEBI has finally cracked down on companies with shady IPOs.  Readers of the blog will not be surprised as this was mentioned in my earlier write up on December 23 2011.


The entire IPO process is being reviewed.  The companies are being banned from raising further funds and some merchant banks may be banned too...  Let us hope that there is some integrity in all this.


Below are two links


http://www.moneycontrol.com/news/cnbc-tv18-analyst-markets/sebi-cracks-down7-recent-ipos_641041.html

http://economictimes.indiatimes.com/markets/stocks/stocks-in-news/sebi-bans-7-firms-from-fund-raising-pg-electroplast-one-life-slips-over-10/articleshow/11289624.cms

If your Broker did recommend this IPO, do have a word with your broker and study all the justifications provided by him/her.


Happy Investing!!

©Nitesh Kotecha

Your Broker As A Cheat (Part 8)

There is a joke…

Two women were walking through the woods when a frog called out to them and said: "Help me, ladies! I am a stockbroker who, through an evil witch's curse, has been transformed into a frog. If one of you will kiss me, I'll be returned to my former state!"

One woman took out her purse, grabbed the frog, and stuffed it inside her handbag. The other woman, aghast, screamed, "Didn't you hear him? If you kiss him, he'll turn into a stockbroker!"

The second woman replied, "Sure, but these days a talking frog is worth more than a stockbroker!"

Newspapers have reported that Equity NFOs (New Fund Offers) have reached an 8 year low.  I’d say that is good news.  You all will remember the NFO craze of 2004-2008.  This was a ridiculous time in the history of India.  There were NFOs every month.  The fund houses were advertising them like crazy.  And Indian equity investors poured out crores of savings in these schemes.

Here is the deal on scam behind the NFOs.

The SEBI allowed the fund houses to 6% of the NFO collections to be debited to the expenses account for all NFOs.  This allowed the fund houses to immediately “transfer” certain expenses to the NFO.  The fund houses had a major problem about retaining their fund managers on account of their fees.  The fund managers were in high demand at all fund houses.  An NFO would permit the fund house to nominate the name of such a fund manager and thus give a window of opportunity to indirectly hike the compensation to the fund manager.

The NFO would allow the fund house to market the NFO along with the name of the fund house.  This advertising expenditure of the fund house would be borne by the NFO and its gullible investors - the fund house would not have to debit the advertisement expenses to the existing funds.  The existing fund investors thus profited at the expense of the new fund investors.

It was a rarity if the NFO was significantly different from the existing funds in the fund house’s portfolio.  The fact that the NFO was not so different from the existing portfolio is a hint to all investors of the real intention of the fund house – basically redirect expenses to the NFO and make the existing funds more profitable as a result.

The stock brokers and the middleman played a very clever game in the marketing of the NFOs.  The standard marketing line offered to the investor was that the fund was offering its units at a NAV of INR 10.00.  Any investor worth his salt should have figured this one out as the NAV offer rate could be any amount as it makes no difference.  The investors were fooled by the perception that they were getting equity at INR 10.00 in a booming market.  The stock broker just played their clients like a song.

There are other tricks in the NFO business but the above should suffice.  SEBI cracked down hard on the mutual fund industry and thus we see that fund houses are rarely advertising their existing funds and those NFOs are rare.

Ever wonder about the crackdown on the mutual fund industry?  Is it for the investors?  “Aaah… humbug!” as Ebenezer would say.  However, I leave it to you to figure it out and ponder over the holidays.

In an unrelated story, the Times of India reports that a stockbroker in Mumbai was killed by four of his clients.  Below is a link to the story

http://timesofindia.indiatimes.com/city/mumbai/Share-broker-hounded-to-death-by-4-investors/articleshow/11287123.cms

Happy Investing!!

© Nitesh Kotecha

Understanding Positive Thinking (Part 2)

The desire and obsession with perfection can mar your thinking pattern and create a cesspool of negativity that one can drown in.

There is no problem with aiming at perfection.  It is a good way to work with your goals and objectives.  However, the pitfall lies in interpreting the outcome when things don’t shape up well.

John Lennon said that “Life is what happens to us while we are making other plans”.  There you have it – truth from one of earth’s profound poets.  Things don’t go as planned – so what?  You make amends.  Wallowing in self pity is symptomatic of our lack of understanding of the process of life.  Rolling is the dirt is not the best way of becoming clean.

Positive thinking is not about fooling yourself or rationalizing all the important feedback that you get from your friends, peers, colleagues, school, and college or from home.  Feedback has its value.  A disease is a feedback that you have not been paying attention to how you have been treating your body.  Failure is a feedback showing you that you need to prepare for something. Positive thinking is about assessing the feedback in a motivating manner and without any ridicule to oneself.  We are our harshest critics, as some say.

It’s a harsh world. There is no need to make it more so with ridicule to oneself.   However, there are times when it’s ok to Thank God that elephants don’t fly!!

© Nitesh Kotecha

Understanding Positive Thinking (Part 1)

There is a lot of talk out there about positive thinking.  There are zillions of books that talk about this.  I am taking the opportunity here to say something about it

1.        Positive thinking, first and foremost, requires that you look at your past with satisfaction and not with regret.  This means that, all incidents in your life would require you to transmute the experience from one that of gloom to that of a possible growth opportunity or learning experience.  The events may range from a divorce, death of a loved one, disease or even simple disagreements that we may have blow out of proportion.

2.       Another aspect of positive thinking is not to project the past into the future.  Negativity implies not only such projection but also a significant amount of certainty that we may tend to associate with the possible outcomes.  The mind has a task – to ensure our survival and it may be a natural tendency for us to exaggerate and stretch the possibilities of the outcome.

3 Have a sincere friend with whom you can have a chat so that you may be able to realign your own thoughts and develop a fresh perspective on the matter at hand

© Nitesh Kotecha

The Well Is Not Interested In Your Thirst

A well is filled with water.  However, it is not interested in your thirst.  You have to get the rope, the bucket and the wherewithal to access the water and quench your thirst.

Any pursuit will require initiative.  Here are the characteristics or mannerisms that indicate our ability to take initiative:

Becoming a self starter – A person with high initiative is a self starter.  He does not wait for problems to push him.  A leader sees a situation and takes control of the situation WITHOUT SPECIFICALLY BEING ASKED TO DO SO.  He sets the ball rolling.  A self starter need not be dictatorial or dominating.  He needs to clear the dust so that further action can be taken.

Contagious – A person with initiative is the envy of all.  Not only is this person proactive in terms of action, he is also contagious in the spirit of the matter. The high initiative on display unshackles the chains that bind others and propels forward a spirit of enthusiasm.

Independent – A person who takes initiative is independent of the mindset of other people.  Our ability to take initiative comes from our conviction of the relative importance and relevance of the matter at hand.  The person with initiative has the necessary nerve to take action, despite all odds.

© Nitesh Kotecha

Your Broker As A Cheat (Part 7)

There is a joke...

A centipede with arthritis sought the advice of a wise old owl. ”Centipede,” the owl said, ”you have a hundred legs, all swollen up. Now if I were you, I would change myself into a stork. With only two legs you will cut your pain by ninety-eight percent, and if you use your wings you can stay off your legs altogether.”

The centipede was elated. ”I accept your suggestion without hesitation” He said. ”Now just tell me, how do I go about making the change?”

”Oh,” said the owl. ”I would not know about the details – I only give general advice.”

Equity markets, especially when booming, breeds these kinds of general advice mongers. Brokerage houses will set up advisory services and engage in the business of selling advice.  This is something you do when brokerage is not kicking in from the volume of transactions.

Soon there are times when stocks are out of fashion.  Guess what – the advisory services have other things to you advise you on.  Commodities, Forex, Precious metals, Debt, International Collectibles, Property and what have you.

The proliferation of such junk advisors creates and environment of mass conformism which gives you the feeling that if you are not getting any advice, then you are left out.  The perception of “ being advised” (and consequently better informed) created by the advisory services gives you the illusion of being smart and actively participating in intelligent decision making.

The advice given by the advisory services suit the broker’s own philosophy and of the brokerage - not your personal goals.  The broker has a burning desire to be right.  He has a further desire of creating conformism within his clients so that there is a collective consciousness that acts as a unifying force protecting your broker’s deficiencies.

There is another thing.  It is a lot less risky ADVISING OTHERS than to put your money on the line of investments based on the advice you just doled out.

There is no better advisor than you.

© Nitesh Kotecha

Your Broker As A Cheat (Part 6)

There is a joke...

A minister dies and is waiting in line at the Pearly Gates. Ahead of him is a guy who’s dressed in sunglasses, a loud shirt, leather jacket, and jeans.

Saint Peter addresses this guy, “Who are you, so that I may know whether or not to admit you to the Kingdom of Heaven?”

The guy replies, “I’m Nirmit Pothia, stockbroker of Mumbai.”

Saint Peter consults his list. He smiles and says to the stockbroker, “Take this silken robe and golden staff and enter the Kingdom of Heaven.”

The stockbroker goes into Heaven with his robe and staff, and it’s the minister’s turn. He stands erect and booms out, “I am Simon Chacko, pastor of Saint Mary’s Church for the last forty-three years.”

Saint Peter consults his list. He says to the minister, “Take this cotton robe and wooden staff and enter the Kingdom of Heaven.”

“Just a minute,” says the minister. “That man was a stockbroker– he gets a silken robe and golden staff but I, a minister, only get a cotton robe and wooden staff? How can this be?”

“Up here, we work by results,” says Saint Peter. “While you preached, people slept; his clients, they prayed.”

An overview of the markets for the calendar year 2011 will show you that IPOs were the greatest wealth destroyers.  Did you broker ask you to subscribe to any of the year’s IPOs?  Well, if he did, you better say goodbye to him before the year is out.

I would like to introduce to you all another game player who can possibly a part of this con job.  It is not really surprising to note that many of the 39 IPOs in India this year had very high ratings.  Well, what does this tell you – the rating agencies are in on this.

There are a zillion ways in which figures can be adjusted, manipulated and reinterpreted so as to obtain a rating of an undeservedly higher level.  It’s not just a computer that calculates and summarizes a credit rating – there are people who feed the data in.

An IPO process begins very early – at least three years before the subscription date.  The order book is cooked, the sales are arranged, the balance sheet ratios are first determined and the books are arranged from that perspective, the contracts are timed etc.

If your broker is smart, he should know this.  However, your broker may have another “strategy” in place.  He will know the listing premium and ask you to make some clean money during the first minutes of the listing.  I don’t deny that you can make money this way.  However, what cannot be done repeatedly cannot be done even once.  And this is something a good broker must do – prevent his clients from ruining their own potential.

But your broker has a dinner to host.  Remember?

Copyright © Nitesh Kotecha

Living Through Our Mind

We live through our minds.  Events that seem to have a physical occurrence are deceptive and we soon see that they have a psychological root.  It is difficult to believe that illnesses have psychological roots for their occurrence.  The body has to follow the mind.  It replicates what the mind does.

Let just see one particular manifestation of some of these thoughts – the inability to accept joy.  Due to reasons of self pity, a negative mindset, or deep rooted pessimism, we coerce our mind to adopt one particular pattern or outcome.  We reject all possible hopeful probabilities for other positive outcomes and opt for the familiar negative one.

This low level thinking comes from our lower mind which triggers our survival instinct.  The brain now prepares for the survival by release grease in to our system.  This instant energy is rarely used by introspective brooder and so lies dormant.  The constant brooding instigates the mind towards constant release of such grease.

The mind blocks all “paths” through which some relief or joy can possibly pass.  Likewise, the body blocks all paths and uses only the familiar one.  The release of accumulation of such grease is what is what is known as hypercholesterolemia.

Once again, meditation comes to the rescue.  We must induce a certain state of consciousness wherein we “unblock” the paths of joy.

Copyright©Nitesh Kotecha

Your Broker As a Cheat (Part 5)

Stockbroker's creed:  A person is a client until proven broke.

When you do decide to select a broker, don’t be fooled by the big broker names.  A big brand means nothing - even more so in India where the laws are worth donkey poop.  A big brand comes from brand management and brand name extension - it has nothing to do with whether the broker made money for his clients.

Go for the broker who offers you the lowest transaction costs.  Most brokers in India charge  INR 0.50p per 1000 rupees worth of trading.  This is horribly expensive.  The justification for this kind of charge is a standard cliché – “we give strong and solid advice”.  Steer away from such rubbish.  Your broker will immediately convert your stock to a long term stock the moment you realize that he has put lemons in your portfolio.

However, often the key reason of losses is not the market, but your broker’s inability to grasp the market dynamics and his lack of knowledge and skills. Equity markets are a rapidly changing phenomenon.  SEBI rules have many loopholes that allow the high and mighty to get away with murder.

A good broker is supposed be able to provide all the necessary explanations to the client and be always available for communication.  Always check the news in the market with what your broker is suggesting.  I repeat here what I have said earlier – if the market and media is filled with hype about your stock – SELL IT.  Ignore your broker and the long term growth story that he sings to you about the stock.  You should be wary of such a broker and refuse his services.

However do keep in mind that good brokers are primarily interested in establishing long-term relationships with a client and do help clients.  Just make sure you have a good one.

Happy Investing!

Copyright © Nitesh Kotecha

Your Broker As a Cheat (Part 4)

There is a joke….

The Kapoor's invited their new friends  over to dinner. During dinner Mr. Kapoor was asked what he did for a living.

Eight years old Rohan jumped in and said, "Daddy is a fisherman!" To which Mrs. Kapoor replied, "Rohan, why do say that. Your daddy is a stockbroker, not a fisherman."

"No mom. Every time we visit dad at work and he hangs up the phone he laughs, rubs his hands together and says 'I just caught another fish'."

Many Stock brokers suffer from a disease – Lacunar Amnesia.  This is your average Ghajini kind of “memory loss” except one small thing – Lacunar amnesia refers to a memory loss about a particular event.  The particular event that I am referring to is the losses their clients took on the stock the broker recommended.

Walk into any broker’s den, and he will sing a song to you about all the money his clients made in a particular stock during the past week.  Ask him if there were any calls that went wrong, you will see him shifting in his chair and not just that - you will get a lecture from God.  “This is a market. You win some, you lose some.  But we have strict stop losses.  Would you like a cup of coffee or something else that I can offer you?”  Well, you should refuse the offer and tell him what he can do with his advice.


"The less you know... the more you believe"

There is nothing on earth that will induce a broker to be honest with you about the losses he generated for his clients.  The broker experiences dissonance this way.  The internal conflict between the self-delusion that he is a smart guy versus the losses he gave to his clients, is unbearable for these poor mortals.  The only resort then would be Lacunar Amnesia.

It is necessary for a broker to create a perception of “instant wealth” for you. People fall for it and it is that which gives him and his family the family dinners and the ability to invite friends over.

Happy Investing!

Copyright© Nitesh Kotecha

That Thing You Do

Let me narrate a familiar scene.  Two children are playing and suddenly they fight over something.  This can end up as a small quarrel or with both kids promising not to play with the other.  Soon, we find that a few hours have gone by and the kids are playing together again.

What happened?  Well, the kids chose to be happy.  They chose to forget what happened and instead are now focused on “what’s happening”.

Most of us adults have forgotten to make such choices.  Adults have somehow found the time to complicate their existence and add all sorts of drama to their lives.

We CAN chose to drop this drama and move on and be playful again.  Here are some actions that can help us take direction:

Communicate effectively – the ability to assert and ensure that the assertion is properly decoded by the recipient will allow us to manage the situations while keeping everyone’s self esteem intact

Understand that though conflicts bring in pain and discomfort, it is still a reality. One does seek a life with no conflict.  A minimum amount of conflict is healthy as it gives all the opportunity to understand each other.

Life is just too short for all of us to allow such drama.

Copyright ©Nitesh Kotecha

Be An Astronaut Of Inner Space

Some time ago, I was attending a Parent’s meet at my child’s school.  Parents were asked to give on spot presentations on topics that ranged from the mundane to the esoteric.

I was asked to talk on “How can we make sense of our senses?”  Here is the basic gist of what I said.

Our sense organs allow us to explore the world as we know it. We touch, see, taste, hear and communicate.  This involves us in the downward journey of “pravrutti”.  There is much mundane joy in the exploration of our sense organs.

However, these very organs, when withdrawn from their obligatory duty of world exploration, do not give up their basic function and take us on another journey – the journey within.  We then become astronauts of our inner space.  This astral journey has no equals or parallels.  The river then merges with the ocean, losing all its individual identity and we become one with the cosmos.

Bon Voyage!

Copyright© Nitesh Kotecha

Be Grateful

Gratitude is an attitude that we have to develop.  Our material world offers us little opportunities in this regard.  We are grateful – but we have the attitude of gratitude only towards those things and beings wherein we have received the tangible gifts that permit us to be grateful.

The idea is to be grateful for the state, our existence.  We can begin by being grateful for the air that we breathe.  If it is really so hard to do that, we can put this in perspective, by comparing our state to that of a person who was buried underground in an earthquake or a landslide.  We suddenly see the matter in a whole new light.

Let gratefulness become our very being – like it is in our genes.  We can be grateful not just to everybody, but also to everything.   This metamorphosis will culminate in to a state where we have no complaints.  The absence of complaints will remove misery.  The absence of misery allows us to be happy and then we are in the rhythm of life where we simply exist with whatever we have.

To quote Sinead O’Conner

“so I'm walking through the desert,

and I am not frightened although it's hot;

I have all that I requested,

and I do not want what I haven't got;”

Copyright ©Nitesh Kotecha