Friday, April 04, 2008

10 Most Dangerous Things People Say...

Peter Lynch discusses the 10 Most Dangerous Things People Say About Stock Prices:

1.) "If it's gone down this much already, how much lower can it go?" (answer: Zero)

2.) "If it's gone this high already, how can it possibly go higher?" (some of the best companies grow for decades)

3.) "Eventually they always come back." (no they don't - there are lots of counterexamples)

4.) "It's only $3 a share, what can I lose?" ($3 for every share you buy)

5.) "It's always darkest before the dawn." (Its also always darkest before it goes absolutely pitch black. Don't buy a business just because price dropped and it is cheaper now)

6.) "When it rebounds to my cost, I'll sell." (The stock does not know you own it! Don't take it so personally Note: this comment is explained by the well documented psychological tendencies called loss aversion and anchoring bias which are talked about in Behavioral Finance. If you liked it at ten, you should love it at 6 so either buy more or sell)

7.) "What me worry? Conservative stocks don't fluctuate much." (There is no such thing as a conservative stock - the average stock fluctuates between 50% to 70% from its high to its low price every year. There is a graveyard where all the "conservative" stocks get buried. Companies and businesses change!)

8.) "Look at all the money I lost - I didn't buy it!" (Don't beat yourself up about the missed opportunities because it is not productive - when he managed the Magellan Fund, he almost never owned one of the 10 best performing stocks in a given year, but he did fine anyway).

9.) "I missed that one. I'll catch the next one." (Doesn't work that way)

10.) "The stock has gone up - so I must be right" or "The stock has done down - so I must be wrong." (Technical analysis is not worth much. So many people like something at 20 and hate it at 12 - never made much sense to him).

Peter Lynch has written (with co-author John Rothchild) three texts on investing, including One Up on Wall Street, Beating the Street, and Learn to Earn. The latter book was written for teenagers.

Read Peter Lynch's bio at Wharton here

Wednesday, April 02, 2008

Builders Capitulate, Admit Slowdown

Hang on to your real estate investment and you could get the same apartment at less than 50% within six months.

After months of living in denial, now even large builders and developers , financiers and brokers have come on record to say that there is a huge slowdown in real estate. However, they are not cutting rates because once a rate cut is advertised, the downward spiral will start accelerating.

“We have not seen any major movement in prices of office buildings over the last three months. In fact, prices in the central business district of Delhi have remained hard. Rentals in the suburbs have stagnated,” said Pradeep Jain, chairman, Parsvnath Developers.

“The days of super-high growth are over. Now developers are only going for those properties which are reasonable,” said Abhishek Kiran Gupta of Jones Lang Lasalle Meghraj.

“Companies book and lease space keeping three- to five-year horizon. But given the slowdown in economy, they tend to scale down their demand projection of space. Reduction in demand means more supply hitting the market,” said Jai Mavani, executive director, KPMG.

“Apartment sales have gone down by 20 to 30 percent in Mumbai. Developers are doling out goodies like stamp duty relief, free parking and interiors to boost sales,” said Rajiv Sabharwal, head, retail assets, ICICI Bank.

“New residential projects have slowed down. Only big developers are launching new projects. Buyers are also waiting whether prices will come down,” adds ICICI’s Sabharwal.

Speculators have exited many areas like Greater Noida, Kundli and even some parts of Gurgaon. JLLM Chairman Anuj Puri believes that investors, who comprise nearly 20 per cent of property buyers, are staying out after the stock market crash. “The absence of speculator interest has led to a 15 to 20 percent correction in areas like Gurgaon and Noida,” he said.

“No upward movement of prices has been evident in Bangalore’s commercial business district for the last four to five months. Residential realty prices have stagnated due to an increase in supply, much more than the demand,” said Samira Chandra Gupta, regional director, Colliers International.

Others concur with this view. “Prices have been generally flat. In many localities prices have fallen sharply. The reduction is greater in peripheral areas and to some extent in premium or super-luxury residential properties,” said Shivaram Malakala, executive director, Habitat Ventures. Like elsewhere, prices are expected to remain bearish, with Malakala saying they could fall further by up to 10 to 15 per cent.

"They are holding on to the prices to maintain the momentum,” said Rajesh Mehta, a leading property consultant in Mumbai, adding: “April and May are the key months as far as property deals go. If transactions do not pick up, prices of apartments will fall at least 10 to 15 percent”.

You can read the full Business Standard article here

Knight-Frank Puts up Property for Sale

I was wondering why there was a flurry of writing in the TOI for luxury homes, and then I chanced upon the edition of Tuesday, April 1, 2008. (Hope this was not an April Fool joke).

The waxing glory of luxury homes and the rise in their value was superceded with this advertisement by broker Knight-Frank.

The area is 2790 sq m. It is close to the Kaya Business Center off Veera Desai Road, Andheri (West).

If there is a mad demand for commercial property and crazy growths in Mumbai's real estate, why is a broker advertising on the front page of the TOI. Until January, the same newspaper was talking of silent big-ticket sales of apartments running in to RS 36 crore etc., and just three months later, a plot cannot be sold without advertising? Wonder which London-based NRI got conned again.

You can call Mitesh Thakkar on (M) 022-9819335359 or Vasant Sarda on 022-9820055411. If you wish to know more you can email here.

Tell me what they are saying.

India's Realty Brokers in Luxury Panic

A classic case of "Marie Antoinetteism" is taking over brokers, builders, ministers and the TOI. A few days ago, I read an amusing article, obviously twisted by someone on the desk, to focus on the availability of cake, when people have no money to buy bread.

The three musketeers of price euphoria in real estate: Cushman & Weikfield, Chesterton-Meghraj and Knight-Frank, seem to be jamming stories to keep the silly real estate mania in momentum. They achieve this by pumping information that is divorced from the simmering reality. Hard facts are either being ignored or just cannot be seen.

What's the point of saying that posh properties have risen 500% in the last 5 years. Tell me if they can achieve 50% growth in this year. And are these people referring to financial years or calendar years?

It has become a cliche and a boring joke when all corrections described by brokers are almost always not more than 10-15%. We need to talk 50% correction over next 2 years. The Hindu, speaking with HR consultants, has confirmed a 50-60% drop in IT recruitment . Why should there not be a 50% drop in real estate?

Who will be buying up the swathes of homes built in the last 4 years of euphoria, where an orgasm was equated to buying a home, and people were having so many orgasms that you would think the market for Viagra was faltering. Nothing of the sort though.

Fact is home loans are getting expensive. The High Court has put the biggest builders in Mumbai under a shadow of suspicion, for building (encroaching, in the HC words), over forest lands. This means a lot of money is going to move out of real estate and in to -- no not equity -- but bank deposits and fixed maturity plans and insurance.

In the face of this, who will be driving the great realty juggernaut?

Read the TOI story here (the print version had a misleading headline)

Read the Hindu Business Line story here

Tuesday, April 01, 2008

Bangalore Set on Ghost Town Path

"Bangalore realty developers have lost their heads," a senior contact in one of the Big audit firms told me. "They are providing their foreign investors with dreams of 100%, returns, by claiming ownership of lands they do not have in their possession," he added.

This may well send Bangalore, known as the IT capital of India, and before this, as the city of gardens, into becoming India's first city of ghost towns. Large projects in areas like Whitefield may soon be dotted with half-completed projects, leaving investors and home buyers in a state of limbo.

Many developers in Bangalore, who cannot be named, have invested in land by buying what can be called call options. They have paid a premium (or earnest money) of Rs 2 crore for purchase of land worth Rs 100 crore, and have signed up intent to purchase, developing project reports that show them as owners of these properties.

The objective is simple. Once the foreign capital comes in, the money is used to pay the land owner. This may be one of the main reasons that was driving up land prices around Bangalore.

Now, with a serious credit contraction in the US, most of this foreign capital has slowed down, as a result of which, we could soon see many such mega projects stalled.

Bangalore, as I have said earlier, has already cracked about 40% in some areas, specifically Whitefield, and if this credit squeeze continues for another quarter, developers themselves would be seen scurrying for cover.

It is only a matter of time foreign investors get wind of this scheme, which is developed by young managers of audit firm, freelancing for 3% - called carry - and local developers.

Of course, the main objective is to list the company, and exit by palming of expensive stock in to the hands of retail investors, but with the IPO market in doldrums, its a matter of time before Bangalore becomes city of ghost towns instead of gardens.

Monday, March 31, 2008

HR Firms Confirm 60% Drop in IT Hires

A new reality is dawning over India's much-pampered software programmer community.

A sharp fall in the ego index has been noticed in Bangalore, indicated by the glaring drop in cocky no-show behavior (candidates not showing up at a new job despite accepting the offer), which has fallen to 10-20% levels from 50-60% earlier.

IT recruitments to drop by at least 60%, informed Kris Lakshmikanth, CEO & managing director of Head Hunters India. This was also confirmed by Vishal Chibber, head of recruitment firm Kelly Services, who added that software companies are now trying to wriggle out of lucrative contracts committed to freshers. Pay rises may be just 5-7%, in keeping with the inflation, instead of the 14-15% last year.

Sampath Shetty, vice president of TeamLease Services, also confirmed the 60 percent drop in IT hiring. He said his company had expected an increase in the March-April timeframe, but there is no clarity from customers yet.

Balaji, who is CEO of Ma Foi Consultants said IT firms are not offering 50-60% salary hikes anymore. Neither are buyout notices paid for. If a software person cannot join, he is simply replaced by someone who can.

India's software folks are now changing track and clinging to their existing jobs, even working longer hours and over weekends. Bench utilitzation (including trainees) is up at 85%, climbing from 70% last year. At Infosys, it is up at 69.4% from 67.5% last year, and at Satyam, it is up at 78.21% from 68.49% last year.

Further, no company is accepting poor performance as a "motivation issue" anymore. Gone are the days when HR spent thousands of rupees training and retraining the "tails" -- today, they are simply being sacked.

As one industry observer quipped, "The joint-smoking "hey man" kind of programmer chilling on Church Street is simply the first one to be booted out. He's kind of person who has overdosed on a Baleno. There are going to be a lot of cars for sale in Bangalore soon."

Read the Hindu Business Line story here

Sunday, March 30, 2008

Nightmare on Code Street

Beware those in software - you could be next!

A very connected HR source in the Bangalore software industry says the nightmare has already begun. Each morning this person - a senior HR manager - sends a polite message to a software programmer to come to the conference room for a meeting.

Simultaneously, a copy of this message goes to system administrator and security. While you are in the conference room with HR. The meeting discusses how your skills are now out of sync with the company's needs and why they have to let you go. One month's salary is offered to you as severance.

While you are still recovering from your shock, your Internet and WAN connectivity is shut down, and your workstation disabled, while a security personnel empties your cabinet in to a brown box and keeps it in reception.

This incident is played out with 4-5 people in a day, and continues for the week. The revered HR manager has now metamorphosed from recruiter to terminator.

The company I am referring to has 1600 staff and is based in Bangalore. I have withheld the name on request of my source.

The conclusion is that serious retrenching is currently on in the Indian software industry. The parameters for deciding who is to be let off are performance and last-in first-out (LIFO). LIFO is one reason why the attrition rates have dropped in the IT industry, because people know that the newer ones are sitting targets in a retrenchment strategy.

It is important to note that Pune and Bangalore real estate are driven by information technology, and programmers are the most egoistic of the lot, often spending beyond their means.

If you work in software, there is every reason to dread each morning.

P.S: I advise you to negotiate hard and throw a tantrum if you are in this situation. The HR source tells me that the severance budget is 3 months pay - but this is not given to the "lambs" who leave quietly, but to the "tigers" who create a ruckus. So in case, you are called for this meeting, be sure to make it as nasty and noisy as you can. It's worth the money.




Consider how the crisis has unfolded over the past eighteen months. The proximate cause is to be found in the housing bubble or more exactly in the excesses of the subprime mortgage market. The longer a double-digit rise in house prices lasted, the more lax the lending practices became. In the end, people could borrow 100 percent of inflated house prices with no money down. Insiders referred to subprime loans as ninja loans—no income, no job, no questions asked. - George Soros in latest book

everything’s going up, there’s a feelgood factor and people tell each other how much their houses are going up at dinner parties,” says Professor Mark Stephens of York University’s Centre for Housing Policy. “Then the music stops, as it always does.”

year, Japan was a more attractive market to put money in. If you look at the US, we can now get an internal rate of return of 25% there, so why would anyone want to come to India?” - a senior executive at an international financial services group, who did not wish to be named.

people told us house prices never go down on a national level, and that there had never been a default of an investment-grade-rated mortgage bond, "Mortgage experts were too caught up." - John Paulson, trader, who bet against subprime market and made $15 billion.

most puzzling are the real-estate projects of Parsvnath. Just have a look at the Pride Asia project near Chandigarh. They are asking almost US $300K-$350 K dollars for 2 bed room apartments. They have Villas in this project that costs more than US $1.5 million dollars. It is true that some people in India have that kind of money in India. However most of their wealth is black money and that can not be used to buy these properties. Obviously, these projects have been launched keeping NRIs in mind. - Sanjeev, comment from another site

Desai, aka Bani, the star of Balalji Telefilms's soap, Kasam Se, has been house hunting for over a year. She had almost closed a 2-BHK deal last year for Rs 1.5 crore in a Oberoi Constructions' building located at Andheri, Mumbai, but when she went back to confirm it, she was asked to cough up Rs 2.61 crore. Since then, she is still house hunting. - Mumbai Mirror


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