How not to trade ;)

How Capitalism Works

Source: https://medium.com/i-love-charts/7478affb7f2a

‘What People Learn from Financial Crises’

Heh. So True. 

When he was asked what people would learn from the whole financial crisis, Jeremy [Grantham] said, “In the short term a lot, in the medium term a little, in the long term, nothing at all. That would be historical precedent.”

-James Montier to Kate Welling, via FT Alphaville

Policy Realism in India

Shamelessly lifted from here but it really struck a chord. I fear I might be turning into a cynic myself. 

A cynic’s perspective on robust policy design

The first law of policy realism
A policy that relies on the Indian citizen to act in selfless public interest will not work. In fact, a policy that expects an Indian citizen to act in anything but self-interest and relative gain will not work.

The second law of policy realism
A policy that expects Indian citizens to adhere to a process—any process—will not work as intended, because people will ignore, work around or actively undermine the process.

Implications of the above:

1. Policies must be designed to appeal to self-interest and maximise relative gains (in other words, the citizen must feel s/he will get more out of it compared to others).

2. Policy design must incorporate processes that are consistent with people’s mindsets and are resistant to being undermined.

It's China's world.

And we're just living in it. Really, how could you see this picture below and not come to that conclusion?

You might also want to read this NYT article, which is the source for the above. We're so far behind in this game its not even funny. 

Murugappa in The Economist

The Murugappa Group has been featured in a pithy 600-word article in The Economist with the lead: 

A rare south Indian business house does things the difficult way. 

I'm just curious, how did this happen? How did they get picked up to be featured in the issue? I'm not implying any dishonesty, honestly, I'm just curious. I don't know why this particular article aroused my curiosity. 

I didn't know they had such a reputation for honesty. But then, there's a lot I don't know.

Would you buy Ranbaxy's drugs?

If there's just one thing you read this week or even this month, read this long and damning article over at Fortune about Ranbaxy and the fraud for which it actually paid USD 500 million. I'll leave you to your own conclusions, but I couldn't resist making a list of some of the most damning lines from the article. And after you finish reading the article, tell me this:

a) Would you be comfortable buying Ranbaxy's drugs ever again?

b) Would you be comfortable buying any Indian manufacturer's drugs? 

For as I read the article, I nodded along. All the while. That is how it is in India. And not just pharma, every manufacturing industry has companies like this, yes? No documentation, forged stuff, backdated stuff, cutting corners wherever possible. 

I hate the word jugaad. I hate what it implies, I hate its connotations. People have written whole books about it and it just makes me sad. Jugaad is alright as long as its temporary. Jugaad isn't permanence. It shouldn't be. Jugaad just means that the system got so bad and so out of hand that you had to do something, anything just to get the slightest amount of work done. Jugaad means you've given up on the system or what's more likely, there's no system in the first place.

I'm not sure where I'm going with this. Here are your quotes:

1. On May 13, Ranbaxy pleaded guilty to seven federal criminal counts of selling adulterated drugs with intent to defraud, failing to report that its drugs didn't meet specifications, and making intentionally false statements to the government.
2.  It is not a tale of cutting corners or lax manufacturing practices but one of outright fraud, in which the company knowingly sold substandard drugs around the world -- including in the U.S. -- while working to deceive regulators. The impact on patients will likely never be known. But it is clear that millions of people worldwide got medicine of dubious quality from Ranbaxy.
3. The official explained, Thakur says, that the company culture was for management to dictate the results it wanted and for those beneath to bend the process to achieve it. He described how Ranbaxy took its greatest liberties in markets where regulation was weakest and the risk of discovery was lowest. He acknowledged there was no data supporting some of Ranbaxy's drug applications in those regions and that management knew that, according to Thakur.
4. The company manipulated almost every aspect of its manufacturing process to quickly produce impressive-looking data that would bolster its bottom line. "This was not something that was concealed," Thakur says. It was "common knowledge among senior managers of the company, heads of research and development, people responsible for formulation to the clinical people."
5. Lying to regulators and backdating and forgery were commonplace, he says. The company even forged its own standard operating procedures, which FDA inspectors rely on to assess whether a company is following its own policies. Thakur's team was told of one instance in which company officials forged and backdated a standard operating procedure related to how patient data are stored, then aged the document in a "steam room" overnight to fool regulators.
6. The confidential report laid bare systemic fraud in Ranbaxy's worldwide regulatory filings. It found that "the majority of products filed in Brazil, Mexico, Middle East, Russia, Romania, Myanmar, Thailand, Vietnam, Malaysia, African Nations, have data submitted which did not exist or data from different products and from different countries ..." The company not only invented data but also fraudulently mixed and matched data, taking the best results from manufacturing in one market and presenting it to regulators elsewhere as data unique to the drugs in their markets.
7. Sometimes all the data were made up. In India and Latin America, the report noted the "non-availability" of validation methods, stability data, and bio-equivalence reports. In short, Ranbaxy had almost no method whatsoever for validating the content of the drugs in those markets. The drugs for Brazil were particularly troubling. The report showed that of the 163 drug products approved and sold there since 2000, only eight had been fully and accurately tested. The rest had been filed with phony data because they had been only partially tested, or not at all.
8. For its HIV drugs, the report found that Ranbaxy had used ingredients that failed purity tests and blended them with good ingredients until the resulting mix met requirements. Such a mélange could degrade or become toxic far more quickly than drugs made from the high-quality materials required.
9. Six other pharma veterans who worked for Ranbaxy in the U.S. as recently as 2010 tell Fortune they found themselves in a corporate culture like nothing they'd ever experienced. Executives approached the regulatory system as an obstacle to be gamed. They bragged about who had most artfully deceived regulators. Until 2005 the company didn't even have a functioning patient-safety department, and patient complaints piled up in boxes, ignored, uncategorized, and unreported to the FDA as required.
10. In entire markets -- including Brazil, Kenya, Ethiopia, Uganda, Egypt, Myanmar, Thailand, Vietnam, Peru, and the Dominican Republic -- the company had simply not tested the drugs and had invented all the data.
11. Everywhere the FDA had looked, its inspectors found fraud. Four months earlier, at a unit of Paonta Sahib, agency investigators discovered that supervisors who had supposedly overseen critical manufacturing steps weren't even at the plant on the days they signed off on the tests. "The culture of the company was corrupt to its core," says Nelson.
12. The congressional inquiry into the FDA petered out over the years. But under the direction of David Nelson, investigators interviewed the FDA inspectors who went to Paonta Sahib and asked them a simple question: Would they feel comfortable taking Ranbaxy drugs? "Every single inspector that went to India said they would never take a Ranbaxy drug," says Nelson, "like eight out of eight."They were not alone. One by one, each of the former Ranbaxy executives Fortune interviewed had determined, while still at the company, to stop taking Ranbaxy drugs.

This doesn't cover all the parts, just the juiciest bits. Really though, you should read that article. Even the FDA doesn't come out very well, and it shouldn't. 

Also, here's the official Dept. of Justice press release. You should just go through it, because. And of course, think about these two things as well:

a) The company admitted criminal fraud, and no one's going to jail.

b) How much of this have you heard in the newspaper you read / TV news show that you watch? 

Happy thinking, everyone. 

Two Cows...

The latest in the always-interesting lives of Two Cows... I'd suggest clicking on it to get a better look.

How Corporate Logos evolve

An illustration by the team at The Logo Company.

Also check out this link which shows the evolution of the 3M logo, its cool!

Smackdown

Dr. Jeffrey Sachs, a very influential/well-known professor from Columbia University, absolutely laid the smack-down on the American banking system. In case you have around 30 minutes to spare, do listen to this.

Examples:

• Wall Street is full of “crooks,” and it never properly cleaned up its act after the financial crisis of 2007 and 2008.
• What has been revealed, in my view, is prima facie criminal behavior
• It’s financial fraud on a very large extent. There’s also a tremendous amount of insider trading — you can even watch when you are living in New York how that works.
• We have a corrupt politics to the core, I am afraid to say, and . . . both parties are up to their neck in this. This has nothing to do with Democrats or Republicans.
• They have no responsibility to pay taxes; they have no responsibility to their clients; they have no responsibility to people, to counterparties in transactions. They are tough, greedy, aggressive and feel absolutely out of control in a quite literal sense, and they have gamed the system to a remarkable extent.

Remarkable. Do give it a look.

Not again, not again...

But yeah, again.

More than 4 months now, and no posts here.

But as usual, I refuse to do the humane thing and let this die.

Game of Phones (and content) (and hardware) (and search)

A great article by The Economist:  Another Game of Thrones

And it has this kickass image as well. Make sure you enlarge and enjoy!

The Derating of the MBA

This is being passed around MBA circles. Can't disagree with much of it. 

***************************************************************************************

The derating of the MBA

The MBA damages society in many different ways. The first of which is such misallocation of talent.

A cousin of mine, who is the Head of Risk at a leading Indian fund house, met a bright young graduate from Kolkata’s elite Presidency College a few years ago. This encounter took place in Mumbai and my cousin, already well established on the corporate ladder by then, advised the young man to pursue an MBA. The youngster replied that he had come to Mumbai to become a Music Composer and had no intention of pursuing an MBA. You, I and my cousin should now be thankful for the Presidency graduate’s determination – had this youngster become a corporate drone, we probably would have never heard about Pritam Chakraborty, my current favourite Music Composer.

As I go on to explain in this column, the MBA damages society in many different ways the first of which is such misallocation of talent – people who have deep talents in a variety of different spheres of life get sucked into the MBA because it represents what appears to be a relatively low risk route to a meal ticket in the corporate world. The damage that this apparently low risk meal ticket inflicts at a personal level was captured beautifully in the highest grossing Bollywood movie of all time, “Three Idiots” (although, I confess that the focus of that movie is more on IIT than on the MBA).

In my line of work, investment advice, and more generally, in investment management, the MBA is arguably even more damaging. My reading of the most successful investment managers is that they tend to be patient, level-headed, resilient individuals who have the fortitude to stand their ground in the face of waves of fear and greed that sweep through the market. The MBA represents the anti-thesis of this mindset – in the words of one of India’s most successful fund managers, “An MBA wrecks your mind…it instils in you all the wrong things about corporate life and does not teach you what you actually need to know about Finance, about Balance Sheets, about investing, about patience.”

Thirdly, the MBA is a bad investment for the majority of those who do it. Through entrance exams – CAT, GMAT, etc – the MBA filters the best brains of a generation into a classroom where Economics & Finance 101 is imparted in dressed up format with overheated business jargon for one or two years. Then everyone is packed into a pen, spruced up and readied for recruiters to come and choose. Now, let’s segment the kids in the pen into two lots to see how this game works.

The winners, i.e. the whizkids, the real superstars of the generation, would have got a job anyway regardless of whether they had spent two years in business school or otherwise; for them the two years is pure “opportunity cost”. These people had the aptitude to structure mergers, analyse investments, create marketing plans, etc – the MBA simply delayed their entry into the labour market and made them enter on terms specified by the recruiter.

The losers i.e. those without innate talent would have struggled in any case to enter the elite professions. The MBA is unlikely to change that – last I heard, the qualification is not known to increase intelligence. But by giving them hope of rising above their limitations, the MBA basically played a confidence trick on them, the same confidence trick that the advertisers of hair tonic or quacks peddling “get rich quick” schemes sell.

Hence for neither category does the MBA really deliver long term cashflow uplift – what it does is use the success of the winners to suck in the next generation of losers. I appreciate that there will be a small minority of people for whom the MBA was a life changing experience and allowed them to switch to a more lucrative profession but, unless these people were oblivious to basic Finance and Economics, that “switch” is unlikely to have come from the content of the MBA.

The good news is that India seems to have wised up to the adverse effects of the MBA. In 2008, 2.76 lakh unfortunates registered for the CAT. After steadily falling for three years, in 2012 the figure has perked up a touch to 2.10 lakh. My high school statistics tells me that this is a CAGR of negative 7%. If this trend continues for another 10 years then only half the number of bright young Indians (around 1 lakh youngsters) will be subjected to the competitive drudgery of CAT. The possibility that within the next decade, less than 100,000 Indians will sit for CAT every year is a very happy thought; that is the sort of change I would like to believe in.

BY SAURABH MUKHERJEA, HEAD OF EQUITIES, AMBIT CAPITAL

(Saurabh Mukherjea is the Head of Equities at Ambit Capital. The views expressed here are his own and not Ambit Capital’s. The author confesses that he does not have an MBA).

What are corporations?

Apparently, the answer is Clinical Psychopaths.


Created by: OnlineMBAPrograms.org

Brilliantly Ballsy

This article is an absolute blast: http://skift.com/2012/09/05/ryanair-boss-michael-oleary-gives-best-quotes-in-the-industry/

Michael O'Leary might just have become my new favourite CEO. He's the CEO of Ryanair, a low-cost Irish airline. His approach to customer satisfaction is: "I'll get you there. For everything else, you pay me." I find it hard to disagree.

Some of his best quotes, taken directly from the above link:

On passengers who forget to print their boarding pass: “We think [they] should pay 60 euros for being so stupid.”

Ryanair CEO Michael O’Leary poses with a friend. Photo by Forbes/Newcred.

On refunds: “You’re not getting a refund so **** off. We don’t want to hear your sob stories. What part of ‘no refund’ don’t you understand?”

On customer service: “People say the customer is always right, but you know what – they’re not. Sometimes they are wrong and they need to be told so.”

On overweight passengers: “Nobody wants to sit beside a really fat ****** on board. We have been frankly astonished at the number of customers who don’t only want to tax fat people but torture them.”

On beginning a press conference to announce the annual results: “I’m here with Howard Miller and Michael Cawley, our two deputy chief executives. But they’re presently making love in the gentleman’s toilets, such is their excitement at today’s results.”

On apologies: “Are we going to say sorry for our lack of customer service? Absolutely not.”

On Ryanair’s image: “One of the weaknesses of the company now is it is a bit cheap and cheerful and overly nasty, and that reflects my personality.”

On Guardian readers: “The chattering bloody classes, or what I call the liberal Guardian readers, they’re all buying SUVs to drive around London. I smile at these loons who drive their SUVs down to Sainsbury’s and buy kiwi fruit from New Zealand. They’re flown in from New Zealand for Christ sakes. They’re the equivalent of environmental nuclear bombs!”

On environmentalists: “We want to annoy the ******* whenever we can. The best thing you can do with environmentalists is shoot them. These headbangers want to make air travel the preserve of the rich. They are luddites marching us back to the 18th century. If preserving the environment means stopping poor people flying so the rich can fly, then screw it.”

On protesters: “The Swampies of this world are climbing up trees to protest about airlines and airports. They should all get a job and get a ******* life.”

On consultants: “I believe hiring consultants is an abdication by management of their responsibilities. If the consultant is so good at managing change, then why not hire him to run the company and do it himself? Every idiot who gets fired in the industry shows up as a consultant somewhere. I would shoot any consultant who came through my door.”

On turbulence: “If drink sales are falling off we get the pilots to engineer a bit of turbulence. That usually spikes up the drink sales.”

On corporate life: “The meek may inherit the earth, but they will not have it for long.”

On travel agents: “Screw the travel agents. Take the ******* out and shoot them. They are a waste of bloody time. What have they done for passengers over the years?”

On ordering aircraft from Boeing: “The message to Boeing today is: ‘You keep building them, we’ll keep buying them’, and together both of us will kick the crap out of Airbus in Europe. We love Boeing. **** the French.”

On not ordering more aircraft from Boeing: “Boeing had their chance. Eventually you lose interest, dealing with a bunch of idiots who can’t make a decision. They are a bunch of numpties out in Seattle.”

On transatlantic flights: “Ryanair will never fly the Atlantic route because one cannot get there in a Boeing 737, unless one has a very strong tail wind or passengers who can swim the last hour of the flight.”

On the airline industry: “There’s a lot of big egos in this industry. Most chief executives got into this business because they want to travel for a living. Not me, I want to work.”

On European expansion: “Germans will crawl *******-naked over broken glass to get low fares.”

On Ryanair in the 1990s: “Ryanair will never make money. It will always lose money. It’s an airline. Forget it.”

On Ryanair in the 2000s: “We expect our profits to grow by 20 to 25 per cent. That’s not just good, that’s practically obscene in an industry in which few people make money. This isn’t an airline, it’s a drug baron’s business.”

On charging passengers to use the loo: “One thing we have looked at is maybe putting a coin slot on the toilet door so that people might actually have to spend a pound to spend a penny in the future. If someone wanted to pay £5 to go to the toilet I would carry them myself. I would wipe their bums for a fiver.”

On upright seating: “I’d love to operate aircraft where we take out the back ten rows and put in hand rails. We’d say if you want to stand, it’s five euros. People say ‘Oh but the people standing may get killed if there’s a crash’. Well, with respect, the people sitting down might get killed as well”

On the in-flight experience: “Anyone who thinks Ryanair flights are some sort of bastion of sanctity where you can contemplate your navel is wrong. We already bombard you with as many in-flight announcements and trolleys as we can. Anyone who looks like sleeping, we wake them up to sell them things.”

On low fares: “I don’t see why in 10 years’ time you wouldn’t fly people for free. Why don’t airports pay us for delivering the passengers to their shops?”

If you can’t find a low fare on Ryanair: “You’re a moron.”

On publicity: “I don’t mind dressing up in something stupid or pulling gormless faces if it helps. Frankly, I don’t give a rat’s arse about my personal dignity.”

With Ryanair’s marketing manager, Sinead Finn, addressing an all-male press conference when she said: “I’ve got nine men in front of me. I don’t know where to start”: “They’re hardly all men. One of them is from the Guardian.”

At an over-hyped press conference: “I’m a bit disturbed – the rumour went round we would announce my resignation and the share price rose three per cent.”

On Ryanair passengers: “Do we carry rich people on our flights? Yes, I flew on one this morning and I’m very rich.”

On BAA: “BAA want to spend £4 billion on an airport which should cost £100 million. £3.9 billion is for tree planting, new roadways and Norman Foster’s Noddy railway so they can mortgage away the future of low-cost airlines. This plan is for the birds. BAA are a glorified shopping mall.”

On breaking up BAA: “A break-up of BAA would be the greatest thing that has happened to British aviation since the founding of Ryanair. Then airline customers would not be forced to endure the black hole of Calcutta that is Heathrow or the unnecessary, overpriced palace being planned at Stansted.”

On how to settle differences with Dublin Airport: “With Semtex. Preferably during a board meeting.”

On new routes: “Sometimes there is not even a road to the airports we fly to. It is immaterial.”

On expansion: “We would like to base more aircraft here in Belfast and are working with the City Airport to get the runway extended. Let’s get the planning permission through and let’s ignore the mewling and puking from local residents which is a load of nonsense. If you don’t like living beside an airport, sell the house and move.”

On flying to Cornwall: “Newquay is the surf and dope capital of Britain. There’s next to frig-all way of getting to Cornwall unless you fly. It’s a ******* impossible nine-day hike. Closing that airport would be a disaster for surfer dudes, but also to loads of wealthy types who use us to commute up and down. I tell you, we’ll have a bloody dogfight with the RAF. Watch out for those 737s on your wing, flyboys!”

On pilot’s wages: “People ask how we can have such low fares. I tell them our pilots work for nothing.”

On his popularity: “I don’t give a ***** if no-one likes me. I am not a cloud bunny, I am not an aerosexual. I don’t like aeroplanes. I never wanted to be a pilot like those other platoons of goons who populate the airline industry.”

On his bride arriving 35 minutes late for their wedding: “She’s coming here with Aer Lingus.”

On paternity leave: “We have paternity leave but it’s a bloody joke. It is bull**** legislation. You need a couple of days off because you’ve had a baby, but this nonsensical rubbish that you’re entitled to days off for the first six years of a baby’s life. Go and get a bloody job – get a life.”

On wealth: “I buy everything low-cost. I buy cheap shirts. I buy cheap shoes. It’s a philosophy. I’m just cheap.”

On Ireland: “The airline industry is full of bull*******, liars and drunks and we excel at all three in Ireland.”

On retirement: “It would be very difficult for me to don a tie and go on to committees. Could you imagine me getting a knighthood? Puke. The weakness of British Airways is that everyone is looking for a knighthood. I plan to go on and on, like Chairman Mao.”

On free speech: “I upset a lot of people because I tell them what I think. I’m disrespectful towards what is perceived to be authority. Like, I think the Prime Minister of Ireland is a gob*****.”

On politics: “I think the most influential person in Europe in the last 20 to 30 years has been Margaret Thatcher, who has left a lasting legacy that has driven us towards lower taxes and greater efficiency. Without her we’d all be living in some French bloody unemployed republic.”

On the European Commission: “They are ******* Kim Il-Jungs (sic) in the Commission. You cannot have civil servants trying to design rules that make everything a level playing field. That’s called North ******* Korea, and everybody is starving there. The EU are pursuing some form of communist ******* Valhalla.”

On EU Commissioner Neelie Kroes’s approval of an Alitalia/Air One merger: “She”ll be rolling over like a poodle having her tummy tickled and rubber-stamping the thing.”

On how to keep employees motivated and happy: “Fear.”

On British Airways: “BA have got waterfalls in their head office. The first thing I’d do if I were in charge of BA is turn off the waterfalls. The only time we have waterfalls in the Ryanair office is when the toilet leaks.”

On the British Airways/Iberia merger: “It reminds me of two drunks leaning on each other.”

On Ryanair’s pilots: “If this is such a Siberian salt mine and I am such an ogre, then why are they still working for the airline? If any of our fellas aren’t happy with the current arrangement then they’re free to go elsewhere. Godspeed to them.”

On Aer Lingus’s pilots: “Overpaid, underworked peacocks”

On employees: “MBA students come out with: “My staff is my most important asset.” Bull****. Staff is usually your biggest cost. We all employ some lazy ******* who needs a kick up the backside, but no one can bring themselves to admit it.”

On cost-cutting: “We use our own biros and I tell the staff not to buy them, just pick them up from hotels, legal offices, wherever. That’s what I do. Recently I did an interview and I was sitting there with a hotel pen I’d nicked from somewhere. I was asked why and I said: ‘We at Ryanair have a policy of stealing hotel pens. We won’t pay for Bic biros as part of our obsession with low costs.”

On Sir Stelios Haji-Ioannou, founder of easyJet: “Those of us who sell the lowest fares just get on with it, and those who do not, write whingeing letters to newspapers.”

On intelligence: “easyJet are not the brightest sandwiches in the picnic basket.”

On Southwest Airlines: “We went to look at Southwest Airlines in the US. It was like the road to Damascus. This was the way to make Ryanair work. I met with Herb Kelleher. I passed out about midnight, and when I woke up again at about 3am Kelleher was still there, the *******, pouring himself another bourbon. I thought I’d pick his brains and come away with the Holy Grail. The next day I couldn’t remember a thing.”

On Alitalia: “I would not want it if it were given to me as a present.”

To the boss of regional airline Aer Arann: “**** off back to Connemara where you come from!”

On offering advice to other airlines’ bosses: “They can **** off and do their own work”

On air marshals: “Air marshals are a complete waste of time. I can’t think of anything that would reduce security more than having a guy on board with a gun.”

On a bomb scare in Scotland: “The police force were outstanding in their field. But all they did was stand in their field. They kept passengers on board while they played with a suspect package for two and three quarter hours. Extraordinary.”

On closing Ryanair’s check-in desks: “This isn’t the end of civilization as we know it.”

Investor Sentiment Wheel

Wow, how did they learn of my strategies?

Via Trustable Gold


Trustable Gold

22,451 (Crores)

Largest ever quarterly loss in Indian corporate history? Check.

Calling for your product to be regulated again because its only nudge-nudge-wink-wink ‘deregulated’ now? Check.

The people supposed to pay you money not having any because they paid you out last time? Check.

Running out of cash to pay your suppliers? Check.

IOCL’s quarterly numbers are a disaster, to put it lightly. Its easy to read a number and go whoa, without really understanding anything about it. Let’s put it in context, shall we?

You read about the latest, greatest mobile phone going around? A little birdie called the Samsung Galaxy S3? It retails for around 38,000. This loss could buy 59 lakh of those and dump them in the Arabian Sea. Or wait, IOCL’s a oil company right? With this much money, you could buy around 300,000 Honda City and dump them too. I’m sure neither Honda nor Samsung would mind.

Actually, the most interesting part of this for me is the news that soon IOCL will run out of limits to buy stuff. Then what happens? Its not like we’re self-sufficient or anything. Does crude oil inflow just stop? IOCL supplies around 40% of India’s total crude requirement, so if something’s not done soon, we’re stuffed.

Plus a 4000-crore asset writedown and 3100 crore forex loss? Surely, surely these two could’ve been minimized? Maybe not the inventory writedown (Brent prices fell 20% during the quarter), but the forex loss?

And yes, nothing is going to improve till prices, especially of diesel, are raised. Prices can’t be raised because that loses you votes stokes inflation. And so on.

Another side-effect is that with these kinda losses, they can’t even go in for capex, which would have helped them to increase the complexity levels of their refineries (higher the complexity, the lower the quality of crude oil it can turn to final products, low quality raw material costs less, hence lesser costs and more profits) and this leads to GRMs in the range of 4 dollars or so, which is not quite great, in the spirit of putting things mildly.

Quick question, just how the hell do equity analysts suggest a price for these oil marketing cos.? Isn’t just about everything determined by the government? Dunno…

In a couple of days there will be a lot of equity research reports coming your way, if you’re into those and I’ll be damned if this isn’t the gist of all of them. Everyone needs to make a living.

Bear Cartel - II

So as I'd written earlier, I went through the SEBI order on the sudden mid-cap stock crash and as is the case with most SEBI orders, I found it written up beautifully. You should really try reading some of these sometime.

I'll try to quickly summarize; my thoughts at the end.

• On July 26th, between 9.15 and 9.50 am, prices of Pipavav Defence (PDO), Parsvnath Developers (PVD) and Glodyne Technoserve (GDT) fell suddenly and without cause by 20% and that of Tulip Telecom (TLT) by 25%. The marke, and SEBI, went WTF?!?
• NSE and BSE both dug into the list of sellers and came up with the list of 19 entities which I'd posted here.
• The net sales by these entities in those four stocks ranged from 51% to 95% of the market on NSE and 31% to 58% of the market on BSE. They underbid on the stock by as much as 36% in some cases. They were acting in unison i.e. one after the other. One would place an order and after that got executed, someone else would place another order and so on. And as one or two were driving prices downward, other group entities were buying up the shares. 
• SEBI dug into these entities and came up with inter-linkages between them such as:
• Common phone numbers
• Common address
• Directorship in other entity
• Common CA (I found this brilliant)
• One of the guys, Ajit Kumar Jain, was found to have links with companies that had been banned in the past for price manipulation.
• A particularly neat touch was when SEBI pointed out that these guys don't really have the stated income to be trading in crores of rupees. Most of them were nil or upto 5 lakhs, with two or three above 25 L.
• These companies, since Jan. 2012 were totally into trading these four scrips and nothing else. 11 of them traded these 80% of the time or above.
• From the order, directly,

22. In my view, generally, a seller would rationally seek a higher price to sell his shares; however, in this case the clients were placing sale orders at prices lower than LTP, thereby bringing down the price of the scrips. More importantly, normally a seller would desist from revealing its entire sell quantity since that may cause the supply-demand balance to immediately become unfavourable to the seller. The data for the short period of time in each scrip indicates several instances of fully disclosed orders which were also a significant factor in causing the sharp decline of approximately 20% in price of each scrip.

23. One basic premise that underlies trading on the stock exchanges is that the clients conform to standards of transparency and ethical behavior prescribed in the various regulations and statutes, relevant in this regard and do not indulge in fraudulent , manipulative and unfair trade practices while dealing in securities. In this case, the above trading pattern of the clients’ prima-facie indicates that there was a concerted attempt to artificially manipulate/depress the prices of these scrips in a disorderly fashion thereby adversely affecting the integrity of the securities market.

• And then, BOOM, you're barred from the markets pending further investigation.

But seriously, what were these guys thinking? Did they really think they could get away with something as blatant as this? I am also thinking of the ways in which they could have pulled this off without alerting the regulator.

First of all, get different SIM cards. In today's day and age, that should seriously not be a concern. Register different addresses. I'm sure these guys have enough bogus addresses or shell companies listed anyway. So choose carefully. These two should be no-brainers, really. 

Now it should get interesting. They'll need different companies, obviously, operating out of the different premises and having different phone numbers, but they'll need different directors too, or else they are related parties. A public limited company needs seven minimum while a private limited needs two. That gives a minimum of four people, in two pairs, establishing a buyer and a seller. Because if they short a stock and someone else buys it up they’ll end up losing loads of money. The timing has to be co-ordinated. You need to establish a pattern of trading across various stocks before zeroing in on the two-three you want to short. Don’t concentrate 80% of your trading in those.

I’m still not convinced. If one set of companies does all the selling and another apparently unrelated group of companies does the buying, doesn’t it become obvious? Maybe the ‘operators’ should settle on less greed. If you end up causing 20% price-drop in 30 minutes, you are bound to raise eyebrows. Why not 5% across multiple scrips, snap ‘em up and sell them back at normal price? Given the crores in which they deal, even 5% would be a significant amount. But 20% is pushing it a bit too far, I think. Plus it gets you debarred.

Use different CA’s for the companies. That also should not be a problem, ideally.

Ideally, you’d have 5-6 different set of companies, 6-7 companies constituting a set, operating throughout India (think Golden Quadrilateral), co-ordinating via Skype (no telephone trails), selling and buying throughout a session (this would require some serious cash, but I think they might have that covered). Choose your timing, in the best case scenario, you should only trigger the selling and spook the market enough so that they start panicking and selling. That might be a tough nut to crack. Make sure the individuals and companies involved trade across a range of scrips before settling on the one you want to manipulate. Random distribution of profits would ensure everyone gains in the long-run, and collusion is difficult to prove. This is all a bit too simplistic, yes?

Establishing 30-40 private limited companies in India would not be a big issue for the concerned parties. An enquiry here would involve seizure of communication equipment and I don’t think SEBI is authorized to do that. SEBI’s the regulator, not the police. How do you prove collusion when there is (apparently) no contact between the parties? They might be best friends but in the absence of documentation, even friendship is hard to prove, no?

If you’re a party who knows how shit goes down and are laughing your guts out at me, let me know. I’d love to learn. (Not that I’d use it, of course, but knowledge and power and all that jazz...)

If you’re SEBI, what’s your workaround for this? Do you even need a workaround for this?

Again, putting it on paper is a gut-wrenching reminder of absolutely how much I have no idea.

Bear Cartels?

I'm such a noob in the stock markets that it hurts to even think about it.

This is what I came across today: Sebi bars 19 entities for involvement in mid-cap stock crash. Might be the first time I've noticed a 'bear cartel' in action.

I'll try to dig into it for more. In the meantime, if anyone has anything they want to share about these 19 entities, lemme know, yes?

1. 4a Financials Securities
2. A To Z Steels, 
3. Ajit Kumar Jain
4. Cheminare Trade Comm
5. G N Credits
6. Gajria Jayna Precision Industries
7. Kuvam Plast Pvt Ltd
8. Littlestar Vanijya Pvt Ltd
9. Manish Agarwal
10. Milestone Shares & Stock Broking Pvt Ltd.
11. Neelanchal Mercantile Pvt Ltd
12. North Eastern Publishing & Advertising Co.
13. Passions System Solution
14. Premium Hospitality Services
15. Ramkripa Securities
16. Umang Nemani
17. Venus Infosoft 
18. White Horse Trading Co.
19. Yashika Holding Pvt Ltd.

It seems there is quite a lot of cross-holding between these. SEBI's website is down right now, so not able to read the order. Will check it out soon and we'll see how that goes...

42/1712

Remember the Fortune Fantasy Executive Game I'd mentioned some days back?

Well, my team finished 42nd out of 1712 teams... Not bad, eh? Although I'm miles away from No.1, that's gotta be improved upon.

See the Top 50 here.