Saturday, October 11, 2008

Dinosaur Era Thinking!

There is panic selling happening all over the world. Big hedge funds and investment bankers who were filled with arrogance, ego and were on cloud nine until a year ago today have mellowed down and are filled with desperation. Arrogance which made them take excess leverage and go overboard has today caused their lives to become hell.

I remember in the first half of 2007, I was sitting with a hedge fund manager in London and he was telling me how he loves using leverage (buying things worth Rs. 100 only with Rs. 10) and how he is making billions. My suggestions for being careful and not going overboard were politely mocked. “It isn’t time to be old fashioned and follow dinosaur era thinking.” he told me.

Today we very well know what type of thinking has led to extinction of hundreds of hedge funds. Unfortunately he too has been caught up in the mess.

Because of their errors the common man feels he is in trouble too – for no fault of his. All those who entered Mutual Funds in January 2008 today are sitting on notional losses. Many people simply jumped in with all their money looking at people around them making money. A mistake several people make is they put in all their money at one go and don’t sit on cash. The money I put in at higher levels today is showing me negative returns, but that doesn’t worry me as I never deploy all my cash at one go.

Let me reassure all of you that India will come out of this much stronger and better off by the end of this. The firms and banks that will go down in India would be the ones who went overboard and grew without any proper logic and sanity. I’m almost certain one Indian bank is going to crumble down –maybe not immediately but in a few years- of course depositors need not worry as RBI/Government of India will surely take care of them. India in that way has one of the best banking systems in the world for depositors. But investors in this bank will suffer even more than they already have.

Real estate will most certainly be hit badly – I feel actual real estate prices should correct by 50%-70% across India. By now all of you might already know of this as it is all over the media. When I spoke about it almost two years ago – people playing around with leverage in real estate told me that prices will never go down and I should stop dinosaur era thinking. I shared my logic and reason behind it even in Invest The Happionaire Way where I compared EMIs to rentals. In fact quite a few readers e-mailed me and told me how they delayed their home purchases and today are getting the same homes cheaper by 15%-20%. That works out to be a saving of several lakhs and reinforces the view that knowledge is one of the most important things needed to create and preserve wealth.

I shall be sharing more on why real estate can correct that much shortly. In the short run India might go through all these challenging moments, but once again going by my dinosaur era thinking we will see that after every major crash/correction whoever bought quality assets cheap went on to make a killing -all the way back to 1909, post 1929 to the last IT bubble burst in 2001. Even when the property bubble in India burst around 1996, real estate prices in prime areas of Mumbai corrected by 70%. Whoever bought that time, went on to make sizeable amounts of profits.

I never rush in and buy assets and gradually pick them up. Post this phase I assure you we will see a much bigger and more active bull market with more domestic money coming in than ever before. There are still billions (and trillions) of dollars of local Indian money which have not been tapped. With more education and awareness I’m sure we will be able to tap into this. In the future with full capital account convertibility we could see lots of black money coming in too.

Over the past few days after my last post I have been extremely busy. I was surprised to see thousands of people showing interest and sending us e-mails even though stock markets across the world are down. I have always believed that money will run after you, if what you have is something really useful and can make a change to the world in whatever way possible. I thank all of you for your support, warmth, kindness and love. I’m sure together all of us can make India prosperous, successful and happy. We still have a lot to do and there was never a time as good as now!

Keep smiling and happy wealth creation!

Yogesh Chabria
Happionaire

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16 comments:

jatin said...

Dinosaur thinking is what caused all these hedge funds to go extinct.

What you have written is an extremely balanced view of things Yogesh, and I feel the same way. am curious to know though - which bank are you talking about? "I" wonder which bank it is...we will just have to wait and "see".

;-)

umesh said...

Very right and true. I don't think any bank will go bust though and markets can go down to 9,000 but will rise much more by 2012.

Sunil said...

Well said Yogesh ... I too work in capital markets and the only thing that is controlling the market at this stage is fear, those investors who were ready to buy in at 21000 levels are shying away from current levels, (despite the fact that most of the quality stocks are available at heavy discounts ... this DIWALI couldnt have been better for me ... LOL) On a serious note those investors who dare to invest now will reap big benefits down the line. During such times it always helps to look back at history (http://moneylife.in/CMSArch.nsf/AL3?OpenForm&Stocks~Cover%20Story~Bye%20Bye%20Bear&ISD=14-Aug-2008)

Asav Patel said...

Absolutely right..... I m agree with you...... I have recently seen your blog....nice blog man..... I have added your blog on my blog also...... Anyway buddy keep in touch.......!!!!

Anonymous said...

Nice post, Yogeshji.
Currently one can say, Diwali Bumper Sale is going on in Dalal Street, where quality products are availble at 50% discount, but there are not many buyers! It is strange, isn't it?
When Big Bazzar or even a near by store announce 50% Sale, we witness long queue, and people rushing to grab what ever they can. However, a true happionaire would be able to see an opportunity here.
As far as that "bank" is concerned, in my opnion if they still learn from their mistakes, there is still a chance for them to come out of this turmoil. Otherwise, Yogeshji's prediction would come true.
Yogeshji, term "Dinosaur thinking" is worth to have as a copyrite. It can be a head for a chapter in coming books or even as a whole book!!
Happy Investing.

karan said...

I was very eagerly waiting for your post Yogesh sir. I'm sure you must have been very busy - specially now because it is time to study more and pick up undervalued gems.

Very well put "Anonymous" - the word Dinosaur Era Thinking should be Copyrighted and is a wonderful term.

At this moment only very few will hold on and pick stocks- those people and investors will be much wealthier 3-4 years down the line. Thanks for the link Sunil too!

Info-hunter said...

Hi,

Just like depositors money is protected in banks across Europe,I wonder if we have got similar scheme by RBI?

In UK, depositors money is protected upto £50000 is the banks go bust and some other european countries have got complete protection for depositors...

Sunil said...

I guess we all know that which is this BANK, in last 2 weeks the top management of this bank has appeared on business channels number of times stating that "there is sufficient liquidity in the system", surprisingly even CHIDU has batted for them.
It would be interesting to see what would be the faith of the muched talked about Banking reforms, due next year. One of the fund managers made an interesting point that "reforms should benefit all and I mean all, people like me and you as well. If this so called big financial power houses have failed in their backyard then whats the assurance that they would succed here". Anyways my commonsense also tells me that when the dust settles on wall street and dalal street i forsee lot FD shifiting to PSU banks ... (hmmm ... do i see an oppurtunity out here)

nisha said...

Hi Yogesh,

I was lucky to read your book and delay my purchase of buying property too. Today the same property the seller wants to sell it cheaper by Rs. 20 lakhs to what he was saying it 5 months ago and even now there are no buyers. You are absolutely right and to be honest your book saved me Rs. 20 lakhs.

We have been living on rent and are quite happy that we didn't buy a place. With interest rates going high me and my husband would be in so much stress now. I'm sure what you are saying is absolutely correct and real estate will crash at least 50%.

Regarding the bank...RBI will protect it because if millions of people lose money government will have bad image.

Keep spreading this wonderful knowledge and motivating and inspiring millions of Indians with he lovely Happionaire way!

investor_sam said...

we indians are different thinkers than others so dinosaur way is good for capital protection.. i am directed to paypal account when i want your reports so do i have to pay $ ?
do you have a local acount where i can deposit the rupees .

Anonymous said...

Hi Yogesh
As the markets have crashed, lot of stocks will be good bets for the long term.Please give us more of your educational reports to enlighten us on what stocks to buy.

pranoy said...

Hi,

Just the fact that we all know which this bank is - is enough reason to pull your money out.

Here are some views of people from IIM :

http://spparekh.blogspot.com/2008/10/icici-gets-desperate.html

http://ttrammohan.blogspot.com/2008/10/icici-banks-woes.html

When public loses trust - even people from IIM - then no need to take risks. better to be safe than sorry.

Huge losses to be made by this bank once property crashes in India as they have given loans of almost 90%.

We all investors need to be informed.

Regards,

Renu said...

I am so thankful to have found ur blog:), thanks a lot for giving so important info. My hubby says that this bank is not going to bust while i keep telling him to take out the money.

kripa said...

One thing I have learnt from you Yogesh, is that as you said most probably after we buy a stock it goes down. That is why never go out and buy the entire stock in bulk and gradually over a period of 6-9 months accumulate it. And still never put 100% cash - always have spare cash.

This is so simple, yet people get tempted to buy in one go.

We all make mistakes, but am glad that we are all learning. To be honest this is the best time in market to learn, read and gather knowledge.

Keep up the good work and spreading the Happionaire way!

mahesh said...

I was completely bowled over with your lovely article on Lehman on Moneycontrol. I am eagerly waiting for your next book from the world of Happionaire!

Please make it fast, I can't enjoy reading any other author on finance and investing. You have me spoilt!! :-)

Keep spreading the Happionaire way!

mehul said...

Excellent post Yogesh!

Please share what you are buying now as this is the best time to buy. Really looking forward to more wonderfully imformative and educative research reports.

Thanks!