Category: Macro Concepts

Is it time to buy gold ?

Why this question and why now?

My views on investing in gold have been very clear, I am not a being fan of investing in gold. You can read my previous post here or watch a video I recently did here

But being not a fan is one thing and understanding contradictory view points from experts who sit on the other side of fence is another and as investors when facts change we should change our mind.

Most returns in investing are cyclical as the below picture depicts

image source – Motilal Oswal

Even within an asset class the winners keep changing

Image source – Vanguard Australia

Knowing above information, we know that timing can really improve one’s return. Many market participants would say time in market is more important than timing market. However there are small sub set of investors who have done well using rules to move in and out of asset classes

See below screen grab which shows results of timing and riding up cycles in stocks and gold

image source 

I think you should spend 15 mins to watch this full video from Mike Maloney to appreciate the concept

In what works on wall street Jim … Read the rest

Tax

Will government’s tax rate cut be game changer ?

In last budget government announced a key intention to reduce corporate taxes to make India par with other emerging nations

Tax-1

Note this is only proposal and there is no guarantee that this will fructify in next 4 years. Now imagine in 2019 that this becomes a reality

How will it improve CAGR returns from companies ?

5% is big saving and can fill corporate coffers tremendously with direct impact to FCF available to owners

So I did a thought experiment on how this tax edge could impact investor returns

Read carefully – Few key assumptions that you are making when relying on this analysis

  • would stick to its promise of reducing corporate taxes by 5% in 4 years – To me this is biggest risk
  • Predicting profit growth for next few years, in most business this is difficult if not impossible
  • Assigning an PE exit multiple, this requires years of practice, we would be wise to be conservative on this
  • Margins would be remain as 2015, for cyclic business this would lead to faulty outputs again if business had an extremely good or poor 2015 then results would be skewed on either side
  • There would be no equity dilution, which

… Read the rest

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How Inflation kills investing returns

Inflation and investing , I often revisit this quote when I am reviewing my portfolio

Inflation is a tax one has to bear irrespective of whether one is investing or not.
The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislature. The inflation tax has a fantastic ability to simply consume capital. It makes no difference to a widow with her savings in a 5 percent passbook account whether she pays 100 percent income tax on her interest income during a period of zero inflation or pays no income taxes during years of 5 percent inflation. Either way, she is ‘taxed’ in a manner that leaves her no real income whatsoever. Any money she spends comes right out of capital. She would find outrageous a 120 percent income tax but doesn’t seem to notice that 5 percent inflation is the economic equivalent  ~ Warren Buffet

 

I had an opportunity to visit India after almost a year and I took this opportunity to do a dip stick test on inflation

Cautionary Note : I was in Kolkata for 15 days and my experiences may be totally irrelevant and … Read the rest