Gold is going bonkers. At present, all it knows is how to climb up. Central banks around the world seem to have caught the bug of buying gold. China wants it, India bought it, Sri Lanka bought it, Russia openly expressed interest, and probably few more. One common theme in all central bankers buying gold seems to be the desire to maintain the value of its assets. Since the continued supply of printed dollar is flooding the global markets, individual nations believe there will be reduction in value of dollar. And hence these central banks want to hold their assets in gold (rather than dollar). Few other factors that one can think of are as follows:
- Historically, gold is a perceived as safe harbor against collapsing economy, political unrest, collapsing currency, etc. And situations like US/UK sovereign debt, Dubai, Japan’s losing economy, etc does not help. This kind of environment only fuels the gold binge. Continue reading rest of this article…
One of the most neglected aspect do-it-yourself investors is performing a realistic assessment of their portfolios. I have adopted a very disciplined approach to make sure I follow my quarterly regime of reviewing the progress. First step was to check out the status. Second step is to understand risk, and third step is to make changes (or execute or re-balance if necessary).
In earlier post, I presented the progress update of TIPBlog portfolio. The next step is to analyze risk in the context of my personal risk profile parameters. The objective of this risk analysis is to make sure that TIP portfolio is not exposed to any particular event, or company, or any other aspect that will affect portfolio performance.
My portfolio management process has a risk management process in which I try to:
- Maintain pre-determined asset class allocation;
- Maintain pre-determined diversification, any sector should not exceed 10%;
- Any single stock should not exceed 7% of the portfolio; and
- Dividends from a single stock should not exceed 5% of total dividend cash flow.
Continue reading rest of this article…
In last few months, quite a few Indian business houses embarked upon fund raising for one reason or the other. Some businesses raised funds for debt financing needs, some needed operation cash, some needed working capital, some need for growth needs, and many needed it little bit for everything. Furthermore, the method adopted by business houses have been varied such as qualified institutional placements (QIPs), american depository shares (ADS), global depository shares (GDS), non-convertible debentures (NCDs), asset sales, stake sales, and public offering (IPOs). In general the response has been tremendous and quite a bit of capital was/is being committed by all the participants, including retail investors like you and me.
In April/June 2009 timeframe, it is estimated that a total of $24 billion was raised by Indian companies, while it is estimated that $30+ billion was raised in first six months of 2009. Now this is just the amount raised and does not include the amount committed. The table below shows the some the companies that have gone to capital markets for raising funds. It is not comprehensive but shows the level of capital raised in foreign markets, and in Indian markets.
Continue reading rest of this article…
Any investor investing for long term (i.e 10+ years) must use the principles of asset allocation and diversification in their portfolio management process. These are two aspects that help investors to manage risk of investments. This has been said many times, presented many times, and we individual investors still continue to make mistakes. On a personal front I have been guilty of it in recent past. Both asset allocation and diversification are two different aspects and hence they have different objectives. The primary reason individual investors get exposed to downside risk is because many are unable to differentiate between these two aspects.
Asset allocation is a strategy of allocating capital to different types of assets which are either non-correlated or at least have low correlation. The notion here is that, over time, the volatility in returns will smooth out if they have low correlations. The different types of assets that I am discussing here include, cash, government bonds, corporation bonds, common stocks, preferred stocks, real estate, private equity, natural resources, commodities, partnerships, etc.
Continue reading rest of this article…
Every financial literature and tutorial has drilled into our brains that asset allocation is one of the basic fundamental tenets of portfolio management. Financial publications, peer-reviewed literature, and books have observed that asset allocation is the significant contributor to the total return. This contribution factor varies anywhere from 50% to 95% depending upon how the data is analyzed with reference to timescale, markets and asset coverage, dividends, inflation, and what not parameters.
What intrigues me is following two issues:
(1) Look at any historically successful and well known investors in US, e.g. Buffet, Lynch, Ross, Pickens, etc., and one will find that none of them followed asset allocation principles. In fact they were highly concentrated in few businesses or companies. E.g. Buffett’s portfolio shows 10 companies represent 85% of the portfolio. Continue reading rest of this article…
