The myth of investing in small companies and hitting the jackpot

Most people have heard about the story of, if you had bought Infosys shares at the time it went public and just held them, it would have made you x lakhs through dividend, stock splits / bonuses and appreciation. Example here

It is the traditional rags to riches story. However, I have a few major issues with the argument.

1) What never gets told is the number of companies that never made it big. There are lots of statistics that most of the start ups fail. I have a few friends who bought into small companies and the companies have just gone bankrupt. Unproved companies can go both ways. That is exactly why they are "Unproven"

2) The romanticizing of the story has people convert Rs 10,000 in today's terms. If I had 10,000 to invest in a unproven company in 1980 I would have already been in the top 1% of the country's earners. In 1980 people still talked in 4 annas and 8 annas. In 1992, we still had 5ps and 10ps coins. I remember saving them for Bubble gum and other small stuff. 10,000 was a princely sum.

Extending the idea above, to make any meaningful returns on 200% or 300% increases, the initial capital commitment is high. The 10,000 in 1982 (noted for Wipro) is 78,500 now. The 10,000 in 1992 for Infosys is approximately 60,000 now. ( For the mathematically inclined, the inflation index I used is here

3) As anyone who has traded in the market will tell you, the moment your investment doubles or triples, it is a little difficult to stay unemotional. We think of the spectacular crashes that have happened and cash out with handsome gains of 200 - 300%. The problem is that seeing the investment go to 600% causes us to look back at 300% with disdain. No matter that 300% bought us 3 times as much as what we could have hoped to buy. We feel stupid and foolish at missing out 600%

Thus take a closer look at numbers offered to you and don't blindly follow the herd. Definitely aim for the stars. But realize the dangers lurking along the way. While I am a staunch supporter of the buy and hold strategy, I think the investment in small companies is over rated.

mGinger and opt in Advertising

Most people I know end up having a lot of SPAM in email and SMS advertising. While email filters in Gmail and Yahoo do a pretty good job in moving them where they belong SMS is a completely different ball game. You end up opening that message and looking at it before realizing that it belongs in the trash bin or realizing that the event / item is not available in your city. It was during a time like this that I wondered what would happen if advertisers had to pay for each of the emails / SMS's that they had to send. Would this reduce the amount of SPAM that all of us are grappling with? What if we took this to the next level and the money that the advertisers paid got channeled to your pocket?

Well, it isn't a wild fantasy anymore. mGinger actually does the same with opt in advertising. You sign up and provide your preferences. Advertisers then have to pay per sms in order to provide targeted advertising. In an ideal world, this kind of targeted advertising thus means that you would not have to receive advertisements from products you are not interested in.

What I liked about mGinger is that they have taken a page out of the book from sites like Groupon, Snap Deal and My Dala. Imagine that instead of just getting deals in your city emailed to you, get deals in your city based on your preferences emailed to you.

CNBC TV 18 covered mGinger sometime ago and has a lot of explanations for the doubting Thomas in you. The amount per ad is pretty small (Rs 0.20). But like my primary school teacher used to say "Little drops of water, little grains of sand, make the mighty ocean and the beauteous land"

P.S. If you decide to sign up please use this link and I will be able to make a little money at no extra cost to you.

Power of Choice

I have always been a staunch supporter of choice. I have felt that it is better to educate people and let them make the choice rather than push it on to us like we are kids. Previous post title Grow up here

However, as per Psychologist Barry Schwartz this might not be the best idea. http://www.youtube.com/watch?v=VO6XEQIsCoM

Another blog post that I came across was on the freakonomics blog on whether it is better for the Government to behave like a Kind mother or a Big Brother here

What do you guys think?

Spamming by so-called MBA Colleges

In a recent discussion among friends I heard that a lot of them were getting sms's / emails from second and third rung colleges from last years admission process. Several of them have their numbers on the national Do Not Disturb registry. (You can check if your number is on the DND registry here )

I find this trend disturbing. I have also noticed sites where their terms and conditions state that they can send sms's even if registered under DND. While most people do not really read the terms and conditions, I find that a lot of people are still being spammed without consent.

I was given to believe that there exists a market for people's personal information. Email addresses and Cell phone numbers are being bought by colleges / agents and are used to harass students. Authorities are reluctant to crack down since it is not worth their time.

What can we do to make it worth their time? A protest fast at Jantar Mantar manages to grab eyeballs but is difficult to organize. Thus I have an idea for our media folks. Can you get a separate cell phone number and email address and register for the CAT in November 2011? The total cost would be about Rs 2000 (SIM + Registration). The total time investment would be about 10 hours (Register the sim, create and email address, obtain the CAT form, give the exam, etc). However, at the end of July 2012 you have a full page story with a lot of hard facts. Any body interested?

Facebook's Zuckerberg now richer than Google founders - No. Not Really

A friend posted this on FaceBook today.

Zuckerberg now richer than Google founders

A quick Google search showed me that almost all the news papers were running this story (Money Control, Times of India, The Hindu, Business Today etc). It being a lazy Sunday morning I decided to do some math on it and it went as follows

If GSV bought 225k shares at $29.28 that is hardly an investment of 7 million. To say that this implies the company is worth 70 Billion is just a play with numbers. It means that because I bought 0.009% of the company at that price I am willing to pay that much for the full 100%.

Facebook is not publicly traded. So using the premium that someone might have paid to obtain shares can hardly be used to justify the price for the remaining 99.991% of the company.

Anyway, Going further into Price to Earnings ratio's I found that it is now beinghttp://www.blogger.com/img/blank.gif dubbed the Tech Bubble 2.0 since they are trading at a P/E ratio of over 100+ when the average P/E should hover around 20. More details are present at this NASDAQ story

I have to also add that the $2 billion in revenue is again just a estimate. Is it an estimate like the $70 billion worth of the company or is it more solid? I do not know.

With Google+ Being launched, GSV may end up being the poster boy for the slogan there is a sucker born every minute.

New Year Resolutions

One of the forums I visit regularly had a long post on New Year Resolutions. It does seem pretty similar to the Wikipedia entry for New Year resolutions. (Links below)

Anway, After going through it I feel that I should update my blog more often. (Possibly once a week). Considering that I usually watch a movie or two over the weekend, there should be enough food for thought.

What are your New Year Resolutions?

http://www.pagalguy.com/forum/chit-chat-your-interests/61047-whats-your-new-years-resolution.html
http://en.wikipedia.org/wiki/New_Year_Resolution

A New Year's resolution or a commitment is done to make your new year a better one. If someone makes resolutions to reform a habit, then there are people who want to make changes in their lifestyle. These promises are made on New Year's Day, the first day of a brand new year. These resolutions are supposed to be either fulfilled or abandoned by the end of that year.

The list of resolutions in New Year never ends. Different people come up with thousands of innovative resolutions every year. Some remain abandoned, while some get fulfilled. The New Year resolutions help plan for the next year.

These resolutions made during the New Year have a religious connotation. This secular tradition started during Judaism's New Year, Rosh Hashanah, when one was supposed "to reflect upon one's wrongdoings over the year and both seek and offer forgiveness." This ritual helped in one's self-improvement annually. Following this tradition, today everyone makes their own resolution every New Year, be it on the 1st of January or by late January, and set their goals.

Megamind (3D)

One line review - Watch in 2D if you like witty one liners and don't mind cartoons.

Long Review: I ended up watching this by accident. However, I was pleasantly suprised at the movie story. There are well written dialogues and sequences. 3D hardly makes an impression. There are hardly two or three sequences that actually make you realize that it is a 3D movie.