Category: Investments

Algorithmic trading or algo trading is the use of computer programs and software to execute trades based on pre – defined criteria and without any human intervention. High Frequency Trading (HFT) is a subset of algorithmic trading, and this type of trading involves buying and selling thousands of shares in fractions of seconds.

HFT came into spotlight about two years ago when Goldman Sachs sued one of their former employees for stealing code that was used in one of their programs used to execute this type of trade.

For a while, newspapers were all over this story, but with time the attention faded. This event helped bring to light something that most regular investors didn’t know about – that large institutional investors have been allowed to place their servers in the same building as the stock exchanges, and they are able to gleam at transactions a few milliseconds before the other market players do.

The NYT later did a full story on HFT and while the actual way HFT works remains a bit of a mystery, it did help clarify that these big players get trade information milliseconds before other players, and as a result they can trade on this information and trade on the spreads that exist at that point in time. That article had an example of how this affects share prices and they used a $1.4 million order on which they said the slow moving investors had to pay $7,800 extra because of high frequency traders which is about half a percent more on the trade than they would have otherwise had to. An ET article that appeared recently quoted NSE’s Chief Technology Officer stating that the impact cost of high frequency trading on the NSE is 0.07% – 0.08%.

Since these operations are rather opaque, and these are just two numbers I think it’s not reasonable to compare them, but in terms of the impact that they currently have on prices, I think a long term investor is not impacted a whole lot by the small price changes either in India or in the US.

However, in May 2010 – a flash crash took place in the Dow in which several companies and blue chips lost a lot of their value in a matter of minutes, and the NYT reported that shares of big companies like P&G and Accenture saw ridiculous prices like a penny or a $100,000. The prices were later restored to more usual levels.

The SEC investigated this, and said that while the starting point of the flash crash was a mutual fund legitimately hedging its position by selling mini S&P Futures – a confluence of factors, primary among which was HFTs getting in on the trades, and then suddenly stopping altogether caused this market distortion.

Although, there weren’t any reports of regular investors losing money because of these events, it does show that these computer trading programs pose risk, and can cause damage because of the way they are structured. Even in India – BSE canceled all the futures traded on muhurath trading this year, and at least an initial report blamed an algo trader from Delhi for causing havoc because of their trades.

Since no one wants to talk about actual volumes that can be attributed to algorithmic trading – it’s hard to say how big it is in either India or in the US, but I think the fact that no one wants to disclose it shows that it must be reasonably large.

These were the similarities between the US and India, but there is a difference too. It appears that while it’s only a question of how profitable these operations are in the US and whether the profits of firms that engage in this runs in billions or tens of billions; in India – the profitability is itself questionable.

I don’t know how far this is true, and I’m certainly skeptical about it – but maybe they don’t have enough volumes or enough of an edge to be as profitable as they are in the US.

To summarize what we know:

Algo and HFT exists in good volume in India, and while the difference it makes on an individual trade is very low, it is capable of causing wildly large market movements. So far, we have not seen any real damage because of these swings, and exchanges seem to have things under control.

Now, as far as a small investor is concerned, unfortunately even if you don’t agree with the argument that HFT provide liquidity to the market, and are an essential part of the market there is not much you can do about it and you need to really focus on stuff that you do have control over.

What you can do is always place limit orders, and not sell in this kind of panic – that’s all which is in your control, and rather than fretting over half a percent I think small investors are better served focusing on things that are in their control.

Personally, I don’t see any utility in HFT and find it unfair that someone should get information before others, if only for a few milliseconds, and don’t buy the argument that they really do contribute to liquidity. The markets were working quite fine without them for decades, and that someone by virtue of their size gets an edge on other market participants seems unfair to me.

This post was from the Suggest a Topic page.

After creating the Nifty Index Funds list, it was only natural to create a Sensex ETF and Index Fund list. For some reason, there are a lot less Sensex funds than there are Nifty Index funds.

I could only find a couple of Sensex ETFs, and 5 Sensex Index funds as opposed to over 15 Nifty Index funds.

Of these funds, Franklin Sensex fund is the biggest with about Rs. 58 crores in asset under management, and Kotak is the next with Rs. 36 crores, LIC has 25 crores, and after that all of the funds are fairly small.

Here is a chart that shows the asset under management of these Sensex funds and ETFs.

It’s clear from the above chart that Nifty Index funds are a lot more popular than Sensex funds and the biggest Sensex fund – Franklin doesn’t even have a tenth of the assets that the biggest Nifty fund GS Nifty BeeS has.

Now, here is a chart that shows their performance in the last 3 years.

 

Kotak is the best performing of these funds, and even when you look at the one year return data it has fallen less than the other funds. That combined with the fact that it has a low expense ratio of 0.50% makes it a good option among these funds.

Here is the table that shows the 1 year returns, 3 year returns, AUM as well as expense ratios of all these funds.

S.No.	Mutual Fund	1 Year Return	3 Year Return	AUM (In Rs. Crores)	Expense Ratio
1	SENSEX Prudential ICICI ETF	-15.34	15.01	0.99	0.80%
2	Kotak Sensex ETF	-15.8	15.08	36.08	0.50%
3	LIC Nomura SensexÂ	-16.46	13.77	25.27	1.37%
4	Reliance Index Sensex	-17.12	—	2.69	0.40%
5	HDFC Index Sensex	-17.06	15.01	0.99	1%
6	Tata Index Sensex – A	-16.75	13.4	5.55	1.50%
7	Franklin India Index BSE Sensex	-16.31	14.21	58.64	1%

Looking at these numbers, and data I feel that if I had to take a position in a Sensex fund – I would get into the Kotak Sensex ETF, but then if I had to take a position in an index fund at all – I’d probably choose a Nifty Index ETF or fund rather than one on the Sensex because of the higher liquidity and volumes on those.

After writing about the IIFL Nifty ETF last week – I realized that the Nifty index fund list needs to be updated as there are a few more index funds based on the Nifty that have been launched since then.

I started researching Nifty ETFs and mutual funds in India, and found that there were indeed quite a few. Goldman Sachs Nifty ETF is by far the biggest one in them at assets under management of about Rs. 650 crores or Rs. 6.5 billion, and that also shows that Index funds or Index ETFs have not really caught on in India.

In fact some Nifty index funds are really struggling with the Quantum Index fund and Taurus Index Nifty fund managing funds of just over a crore.

The competition in this space is quite intense and that has led to lowering of costs but I still see a lot of index funds charging over a percent and there is really no reason to opt for them at all.

Here is a chart of the assets under management of the various funds.

As you can see Goldman Sachs Nifty Index Fund is ahead by a big margin, but if you look at the returns of these funds then you will see that the returns are not that different because all of them track the same index and are invested similarly.

Here is a chart that shows their returns for the last 3 years.

As you can see Quantum did the best, and Goldman Sachs Nifty BeeS came a close second. When you compare the returns data with the volumes data – GS Nifty BeeS comes out to be a pretty good option in this space.

The only other thing of interest in these index funds and ETFs are the expense ratio, and instead of a separate chart – I will include it here in this table that has all of the above data as well.

Mutual Fund	3 Year Return	AUM (In Rs. Crores)	Expense Ratio
Franklin India Index Fund – NSE Nifty Plan – Growth	14.69	134.71	1%
UTI Nifty Index Fund – Growth	14.33	186.9	1.50%
Tata Index Fund – NIFTY – Option A	14.12	8.98	1.50%
HDFC Index Fund – Nifty Plan	13.55	68.8	1.00%
Nifty Benchmark Exchange Traded Scheme – Nifty BeES	15.39	652.21	0.50%
LIC Index Fund – Nifty Plan	13.15	30.85	1.16%
IDBI Nifty Index Fund – Growth	–	134.93	1.50%
Taurus Nifty Index Fund – Growth	–	1.32	1.50%
Reliance Index Fund – Nifty Plan – Growth	–	62.45	0.40%
ICICI Prudential Index Fund	–	90.36	1.50%
Quantum Index	15.4	1.53	0.50%
Canara Robeco Index	14.86	4.47	1%
Principal Index	14.15	15.76	1%
Birla Sunlife Index	–	7.08
IDFC Index Fund	–	10.92	0.25
Kotak NiftyÂ	–	106.91	0.5
ING Nifty Plus Fund – Growth	–	–	–
Magnum Index	–	–	–

All the data has been sourced from Value Research, and I will continue to update this list from time to time. If you know of any fund that is missing here then please let me know and I will update that information as well.

I think one of the more interesting things that have happened during this market fall and the panic that surrounds is it that there is a lot more hysteria than the actual downfall itself.

It seems to me that the parallels to the 2008 crash are quite exaggerated, and personally things don’t seem nearly as bad as they were during the Lehman crash.

The Nifty has fallen a little over 20% and the Dow has fallen less than 5% for the year, but when you look at all the doom and gloom stories you would feel that the fall must be much steeper.

This sentiment made me curious to see how the major world stock markets have performed year till date. The worst that I could find was Greece that has fallen about 46% and the only one that I could see positive was New Zealand with about 1.7% gain this year.

The best source for global stock market indices data is Bloomberg, and I used data from there combined with mapping tools from Chartsbin to create this world map that shows how the major market indices fared this year.

Looking at this data on a map nicely illustrates three points:

1. Europe’s woes.
2. Emerging markets have fallen a lot more than the developed ones.
3. Maps are cooler than graphs.

via chartsbin.com

Also, here is the raw data in a tabular format if you wanted to use this for something else. This can also make for an easy reference for the names and countries of major stock market indices in the world, and here is the link to the Google Spreadsheet.

Country	Index	Current Price	Beginning Year Price	YTD Gain / Loss	YTD Gain / Loss %
Americas
US	Dow Jones Industrial Average	11,103.10	11670.75	-567.65	-4.86%
US	S&P 500 Index	1,155.46	1271.89	-116.43	-9.15%
US	NASDAQ Composite Index	2,479.35	2691.52	-212.17	-7.88%
Canada	S&P TSX Exchange	11,588.40	13395	-1,806.60	-13.49%
Mexico	Mexico IPC Index	33,005.10	38542.16	-5,537.06	-14.37%
Brazil	Brazil BOVESPA	51,243.60	70317	-19,073.40	-27.12%
Europe
UK	FTSE 100 Index	5,303.40	6043.86	-740.46	-12.25%
France	CAC 40 Index	3,095.56	3916.03	-820.47	-20.95%
Germany	DAX Index	5,675.70	6975.35	-1,299.65	-18.63%
Spain	IBEX 35 Index	8,798.40	9888.4	-1,090.00	-11.02%
Italy	FTSE MIB Index	15,529.00	20547.03	-5,018.03	-24.42%
Portugal	PSI 20 Index	5,921.13		5,921.13
Netherlands	AEX Index	288.31	358.86	-70.55	-19.66%
Stockholm	OMX Stockholm Index	918.28	1165.8774	-247.6	-21.24%
Norway	OSE Benchmark Index	395.59		-395.59
Switzerland	Swiss Market Index	5,652.23	6494.31	-842.08	-12.97%
Ireland	Irish Overall Index	2,562.74
Denmark	OMX Copenhagen Index	294.45
Greece	Athens Stock Exchange General Index	744.37	1390.9	-646.53	-46.48%
Israel	Tel Aviv Exchange	1,036.76
Russia	MICEX Index	1,351.42	1759.46	-408.04	-23.19%
APAC
Japan	Nikkei	8,605.62	10228.92	-1,623.30	-15.87%
China	Hang Seng Index	17,707.00	23436	-5,729.00	-24.45%
Taiwan	Taiwan TAIEX Index	7,211.96
India	Sensex	16,232.50	20950.5	-4,718.00	-22.52%
India	Nifty	4,888.05
South Korea	KOSPI	1,759.77	2085.14	-325.37	-15.60%
Thailand	Stock Exchange of Thailand SET Index	636.07	733.98	-97.91	-13.34%
Singapore	FTSE STRAITS TIMES INDEX	2,640.30	3250.29	-609.99	-18.77%
Pakistan	Karachi 100 Index	11,853.80	12110.26	-256.46	-2.12%
Australia	S&P ASX 200 Index	4,162.90	4714.9	-552	-11.71%
New Zealand	NZX 50 Index	3,383.64	3326.71	56.93	1.71%

 

As always I am interested to hear what you say, but this time I’m also interested to hear from you if this data surprised you and if you felt that the fall was really a lot more than the 20 odd percent that we have seen yet?

India Infoline is going to launch a Nifty ETF soon, and the NFO has opened on the September 28 2011, and will close on the October 12 2011.

This is going to be the 14th Nifty Index fund (I have a list of 13 other Nifty Index funds and ETFs here), and to compete in such a crowded space – India Infoline has come up with the lowest expenses of any ETF so far.

The IIFL Nifty ETF will charge 0.25% expenses which is lower than the 0.50% currently charged by the Benchmark Nifty ETF.

This is great because the expenses charged by the sponsor or mutual fund eats into the returns of the mutual fund / ETF, so the lower the expenses – the better it is.

It will be like other Nifty ETFs in all other respects meaning it will own stocks in the same composition as the S&P CNX Nifty and try to track the performance of the Nifty as best as it can.

There will always be some difference between the performance of an index fund or an index ETF and the underlying index (usually the fund under-performing the index) because of expenses, and the fact that the fund can’t own 100% of the underlying asset, and has to put aside some money for redemption, and expenses etc. Kiran had done a pretty detailed analysis of this phenomenon some time ago, and I recommend reading that.

There is no need to buy the IIFL Nifty ETF in the NFO period since you don’t get any benefit of investing in ETFs or mutual funds in that period, and it’s much better to buy it after it has listed and has been around for some time.

I would say that you need to wait a little while before investing in this even after listing because you want to make sure that there are good volumes in the IIFL Nifty ETF, and you don’t get stuck in an illiquid ETF of liquid underlying. I see that the Nifty BeeS which has expenses of 0.50% has about Rs. 650 crores under management, so I would personally feel comfortable investing in IIFL Nifty ETF only if it managed to reach at least a third of that amount, and until then pay a little extra to hold the bigger fund.

Since this is a fairly straight forward product I can’t think of including any more details, so please leave a comment with any questions or thoughts you have, and I will respond to them.

After creating a list of the dividend yields of the largest 100 companies in India – I now move on to the dividend yields of the next 100 companies, and this data belongs to companies 101 – 200 on the BSE 200 Index.

Like last time – I’ll first present a list of the companies that are yielding more than 2% and then the entire list. Getting an idea from @UnuUnc on Twitter – I have also created a Google Docs Spreadsheet of this data that you can access here, and that has the list of all of the 200 shares.

Initially, I thought I would stop at 200, but I have gotten really curious about this information now, and would like to cover all the companies in the BSE 500 Index. 

That means a little over 300 companies more. That’s because in comparing the BSE 200 and BSE 500 indices – I see that the first 126 companies are the same, but thereafter the composition changes somewhat so I will also include those companies that haven’t been included in this table (and are in the top 200 list of BSE 500).

But all that is for a later time, for now, here is the list of all stocks yielding more than 2%.

A word about these companies – I see a lot of companies over the 3% yield in this list than there were in the 100 list, and I also see a lot of banks here as well. The market has fallen a bit since I created my last list so to some extent that may be the cause for the +3% yields.

Now, here is the list with the highest dividend yields in the BSE 200 index.

Scrip Code	Company	Close Price	Dividend Paid	Div Yield	Notes
523598	SHIPPING COR	83.2	5.5	6.61%
532388	INDIAN OVERS	92.65	5	5.40%
532505	UCO BANK	65.55	3	4.58%
532401	VIJAYA BANK	54.65	2.5	4.57%
532418	ANDHRA BANK	123.85	5.5	4.44%
512579	GUJARA NRE C	24.15	1	4.14%
532480	ALLAHABAD BK	157.75	6	3.80%
532733	SUN TVNET	232.2	8.75	3.77%
500315	ORIENTAL BK	292.35	10.4	3.56%
532276	SYNDICATE	104	3.7	3.56%
532814	INDIAN BANK	212.8	7.5	3.52%
500116	IDBI BANK L	102.75	3.5	3.41%
500302	PIRAMA HEALT	356.2	12	3.37%
500106	IFCI LTD	30.7	1	3.26%
532544	INDIABULLS	157.15	5	3.18%
513683	NEYVELI LIG.	78.45	2.3	2.93%
532121	DENA BANK	77.85	2.2	2.83%
532779	TORNT POWER	223.3	5.5	2.46%
500800	TATAGLOBAL	85.55	2	2.34%
506395	COROM INTER	304.25	7	2.30%
532524	PTC INDIA	68.1	1.5	2.20%
532654	MCLEOD RUSSE	237.7	5	2.10%
530005	INDIA CEMENT	72.6	1.5	2.07%
500111	RELIANCE CAP	315.2	6.5	2.06%
532391	OPTO CIRCUIT	221.05	4.5	2.04%
500411	THERMAX LMTD	441.35	9	2.04%
500085	CHAMBAL FERT	93.45	1.9	2.03%
500477	ASHOK LEYLND	26.1	1.00	3.79%

Update: Added Ashok Leyland per comment.

Here is the complete list.

Scrip Code	Company	Close Price	Dividend Paid	Div Yield	Notes
532939	RPOWER	76.8	0	0.00%
532779	TORNT POWER	223.3	5.5	2.46%
500219	JAIN IRRI SY	152.6	1	0.66%
532522	PETRONET LNG	159.3	2	1.26%
500111	RELIANCE CAP	315.2	6.5	2.06%
500315	ORIENTAL BK	292.35	10.4	3.56%
500850	INDIAN HOTEL	71.15	1	1.41%
507878	UNITECH LTD	26.2	0.1	0.38%
500493	BHARAT FORGE	268	3.5	1.31%
500302	PIRAMA HEALT	356.2	12	3.37%
500002	ABB LTD	692.5	2	0.29%
500116	IDBI BANK L	102.75	3.5	3.41%
500870	CASTROL INDI	475.7	0	0.00%
531642	MARICO LTD	143.4	0	0.00%
500477	ASHOK LEYLND	26.1	1	3.79%	See Ashok’s comment below
500800	TATAGLOBAL	85.55	2	2.34%
532544	INDIABULLS	157.15	5	3.18%
532480	ALLAHABAD BK	157.75	6	3.80%
513377	M M T C LTD.	655.95	0.25	0.04%
532839	DISH TV	76.9	0	0.00%
532702	GUJ PETRONET	104.9	1	0.95%
532466	ORACLE FIN	1894.6	0	0.00%
532754	GMR INFRASTR	27	0	0.00%
532418	ANDHRA BANK	123.85	5.5	4.44%
532391	OPTO CIRCUIT	221.05	4.5	2.04%
532720	M&M FINANSER	659.6	10	1.52%
508869	APOLLO HOS E	518.6	3.75	0.72%
500049	BHARAT ELECT	1532.7	21.6	1.41%
532978	BAJAJ FINSE	524.95	1.25	0.24%
506395	COROM INTER	304.25	7	2.30%
532514	INDRA GAS	425.45	5	1.18%
532667	SUZLONENERGY	36.55	0	0.00%
533107	PIPAVAVDOC	78.7	0	0.00%
500620	GREAT EASTE	250.3	4.5	1.80%
531807	ING VYSYA BK	298.55	3	1.00%
532873	HOUSING DEV	98	0	0.00%
500575	VOLTAS LTD	111.4	2	1.80%
526299	MPHASIS LTD	342.05	4	1.17%
500055	BHUSH STEEL	333.15	3	0.90%
502742	SINTEX INDUS	127.45	0.65	0.51%
500271	MAX INDIA L.	188.2	0	0.00%
531213	MANAP FIN	52.4	0.6	1.15%
517334	MOTH SUMI SY	176.9	2.75	1.55%
523574	PANTAL RETAI	197.5	0.9	0.46%
532234	NAT ALUM CO	61.65	0.5	0.81%
532478	UNITED BREW	374.5	0	0.00%
532523	BIOCON LTD	336.95	3	0.89%
533155	JUBL FOOD	793.45	0	0.00%
532627	JPPOWER	34.1	0	0.00%
533148	JSW ENERGY	54.5	1	1.83%
532670	RENUKA SUGAR	55.2	1	1.81%
532832	INDBUL REAL	73.1	0.3	0.41%
532755	TECH MAH	573.6	4	0.70%
500106	IFCI LTD	30.7	1	3.26%
500411	THERMAX LMTD	441.35	9	2.04%
532276	SYNDICATE	104	3.7	3.56%
526881	FINANC TECHN	812.3	8	0.98%
500840	EIH LIMITED	88.15	0.9	1.02%
532388	INDIAN OVERS	92.65	5	5.40%
520077	AMTEK AUTO L	127	1	0.79%
532678	BOMBAY RAYON	275.2	1.5	0.55%
532733	SUN TVNET	232.2	8.75	3.77%
532814	INDIAN BANK	212.8	7.5	3.52%
524804	AUROBINDO PH	124.25	1	0.80%
511389	VIDEOCON IND	168	1	0.60%
500085	CHAMBAL FERT	93.45	1.9	2.03%
500084	CESC LTD	276.65	4	1.45%
532524	PTC INDIA	68.1	1.5	2.20%
500040	CENTURY TEXT	305.8	5.5	1.80%
500378	JINDAL SAW	136.1	1	0.73%
500290	M.R.F LTD	6590.4	47	0.71%
530005	INDIA CEMENT	72.6	1.5	2.07%
500877	APOLLO TYRE.	55.3	0.5	0.90%
532178	ENGINER IN	247.05	4	1.62%
500134	ESSAR OIL LT	80.55	0	0.00%
500109	MANGALORE RE	62.15	1.2	1.93%
532947	IRB INFRA	163.25	1.5	0.92%
522275	AREVA	217.9	1.8	0.83%
523598	SHIPPING COR	83.2	5.5	6.61%
500164	GODREJ INDUS	194.6	1.75	0.90%
532636	IND INFOLINE	69.75	0	0.00%
532505	UCO BANK	65.55	3	4.58%
532654	MCLEOD RUSSE	237.7	5	2.10%
517354	HAVELLSINDIA	363.1	2.5	0.69%
500483	TATA COMM	186.2	2	1.07%
532885	CENTRAL BK	102.4	1.5	1.46%
513683	NEYVELI LIG.	78.45	2.3	2.93%
500294	NCC	60.3	1	1.66%
532696	EDUCOMP SOLN	238.4	0.6	0.25%
532309	ALSTOM PROJE	519.45	10	1.93%
532121	DENA BANK	77.85	2.2	2.83%
532693	PUNJ LLOYD	54	0.15	0.28%
532401	VIJAYA BANK	54.65	2.5	4.57%
532778	LANCO INFRA	15.75	0	0.00%
500185	HINDUS CONST	28.7	0.4	1.39%
532708	GVK POWERINF	15.8	0	0.00%
500305	JSW ISPAT	13.04	0	0.00%
513599	HIND.COPPER	226.9	0.5	0.22%
530773	IVRCL LTD	35.15	0.6	1.71%
500186	HIND.OIL EXP	108	0.5	0.46%
532517	PATNI COMPUT	288.85	0	0.00%
523204	ABAN OFFSHO	351.4	3.6	1.02%
512579	GUJARA NRE C	24.15	1	4.14%
512237	JAI CORP LIM	78.95	0.5	0.63%

About ten days ago – I opened up the Perfios contest where three lucky winners will get a free one year subscription to the popular money management software.

There are still 5 days left to participate in the contest so please do so if you haven’t done it already.

I have compiled a list of people who have already participated and I want you to verify that your name is present in that list.

If you did both things then your name should appear twice, so if you see your name missing or appear only once where it should appear twice please leave a comment and I’ll update the list.

Here are the entries so far.

(Updated List at Sep 30 2011)
1    Rajat Gupta
2    Rajat Gupta
3    Aashish
4    Ashish
5    Sivakumar
6    Ani Patharathil
7    Ani Patharathil
8    R K Tripathy
9    R K Tripathy
10    Uma Kanth
11    Uma Kanth
12    Raja52
13    Raja52
14    Alka
15    Harsha
16    Harsha
17    Aravind
18    Kiransunku
19    Kumaran
20    Vamsi
21    Vamsi
22    Manish Sep 20, 2011 7:34 PM
23    Manish Sep 20, 2011 7:34 PM
24    Vijay
25    Dr. Biju Paul
26    Dr. Biju Paul
27    Prashant Agrawal
28    Prashant Agrawal
29    Amit Tamhankar
30    Manish Sep 22 2011 at 12:17 AM
31    Rajesh Kabra
32    Rajesh Kabra
33    Kumaran Ilangovan
34    Akhilesh Shah
35    Ashish Balachandran Valiyaveedu
36    Anil Kuppa
37    Anil Kuppa
38    Parag Gupta
39    Abhinav Behari
40    Abhinav Behari
41    Chandrasekhar Joglekar
42    Ravi Kukreja
43    Anurag Sharma
44    Anurag Sharma
45    Anirban Chowdhury
46    Saumya
47    Kumar
48    Kumar
49    Sagar Biyani
50    Ams
51    Ams
52    Prashant 2011 9 30
53    Prashant 2011 9 30

Please leave a comment if you notice your name missing, and if you haven’t still entered the contest — there is still time.

A friend of mine had gone to the US to work when I was in college and one day I told him that he can buy stock in Warren Buffett’s company – Berkshire Hathaway, and that will take care of all his stock market related investments.

He asked his boss about it who told him that you need at least $50,000 to invest in it. I was a little confused when I heard that because I didn’t know that one share cost that much!

This was more than ten years ago, and the stock trades at more than $100,000 now!

That’s because Warren Buffett has never paid out a dividend, bonus or stock split or reduced the face value – things that are seen very often by other companies who want to increase liquidity, and the stock price as well.

He does have a Class B of Berkshire Shares that trade at a significantly lesser price of around $70, and that was also after a lot of small Berkshire shareholders wanted him to split the shares so that they could gift them or inherit them to their children.

Even these shares were priced much higher, and when they were introduced they had 1/30th value of the Class A shares, but only 1/200th of the voting rights. That means that until recently – the Class B shares traded at over $3,000.

Then last year when Buffett wanted to buy Burlington Railroad he had to split the Class B shares into 50 – 1 and thus the class B shares now trade around the $70 range.

With this backdrop, the world was surprised when Berkshire announced a stock buyback program for Berkshire Hathaway today.  What I found most interesting is that Berkshire has got about $47 billion of cash, and at current market capitalization and exchange rate – India’s biggest company – Reliance Industries is worth some $50 billion in all!

So, Berkshire is a very big company with cash reserves which can be matched by just a handful companies, and they have capped the buyback to a limit of cash reserves of $20 billion which is serious money in itself!

I read a lot of stuff about this today that made absolutely no sense at all, and I think people who wrote it were motivated more by their biases than facts.

However, I did read one article by the Pragmatic Capitalist that was devoid of all hyperbole, and presented two simple takeaways from this news which are that Buffett thinks Berkshire is selling a lot less for what it’s intrinsically worth, and relatively speaking – the rest of the equity market is not as attractive.

I can’t really think of anything else beyond this and rather than thinking too much about this decision, and what it could mean for the direction of the markets, the fate of stocks or in fact the fate of the man himself – people are better off accepting that not every action needs to have a complicated or sinister reason behind it, and these two simple factors could just be what prompted the man to take the decision.

I have discussed several stock portfolio tools here, and most of them give you a lot of options, and help you maintain your data the way you want. However, there are always some things that you wish the tool had that it doesn’t and it sometimes forces you to maintain Excel spreadsheets of your own.

The number one issue that I have had using Excel is that I couldn’t build one that auto – updated the stock quotes when I opened it. I know there are ways to do it, but I was never successful in it. I don’t mind entering the initial data there myself because I don’t have many transactions, but if the prices don’t update automatically then it becomes pretty much useless.

That’s why I created several Excel portfolio tools over the years, but never really used them frequently.

But I recently checked out Google Spreadsheets, and the feature of automatically updating stock quotes there is simply amazing. It’s very easy to use, and it works for Indian stocks as well.

I have a basic portfolio setup there now, and I think I’m going to use this for a long time to come.

You need a Google account to get started, which I’m sure everyone does, and then you need to go to Google Docs, and open up a new spreadsheet.

You can then setup your columns any way you want – but you would probably want these at the minimum:

1. Name
2. Quantity
3. Cost
4. Market Price
5. Value at cost
6. Market Value
7. Profit / Loss

The one that I set up looked like this.

The most important thing in this is the market price column – which is the column that has the latest market price of the stock you want to track, and you can see that highlighted in the blue.

The red ellipse shows you the formula that you need to input in the cell to get the market price.

It is simply:

=GoogleFinance(“Stock code”, “Price”)

You can find the stock code from Google Finance by typing the name of the share in the search bar, and Google will return you a list of matching names along with their codes. You can then use that code in this spreadsheet to get the price.

I’m sure this has been around for some time now, but I didn’t discover it until yesterday and I was really happy to see how easy it was to setup.

I’m going to make a lot of use of this going forward, and I hope you find it useful as well.

This is another post from the Suggest a Topic page, and today I’m going to write about how you an access the P/E ratios of various Indian sectoral indices and a few thoughts on this data.

The new NSE website makes it quite easy to get the P/E, P/B, Dividend Yield on all the main indices and here’s how you can do that.

First go to the NSE website and look for Products –> Indices.

Next, look at Historical Data, and View P/B and Dividend Yield.

And finally select an index and a time period to generate data for that.

The second part of the question was what is the average of the various indices, and if this information is even useful.

I don’t know how useful the average will be and my guess is that you are better off looking at a median and that too just for reference, and specifically to tell you of extreme situations.

A chart that I have used here quite often is the historical Nifty P/E Ratio data, and here is the latest chart for data from Jan 2001 till yesterday.

If you look at the chart above you will see that the Nifty P/E has never gone above 28, and has never fallen into single digits either.

So, when the P/E of this index is close to these numbers it gives you an indication that the market is cheap or expensive.

But, that’s only in hindsight.

In real time – you can’t be sure if the world is going to come to an end or if the world has discovered a new system whereby old economic cycles don’t matter anymore.

I think a great example of this is my own post from October 2008 in which I wrote about P/E ratios being the lowest in the past 8 years, and despite that investor interest being very very low in the stock market.

If you can remember the mood, and I certainly can – you will remember that the share market was the last thing that anyone wanted to talk about.

So, my take on the P/E ratio is that it can be and is indeed a useful measure but I’m really skeptical of people who say we will start investing when the P/E falls below this level, and start selling when the P/E rises beyond that level because I haven’t seen that working well in the real world.