Safal Niveshak Stream – September 26, 2016 - Vishal Khandelwal

Some nice stuff we read at the start of this new week…

Investing/Stock Market

Stop craving excitement in the stock market! Jason Zweig writes in WSJ how a bored investor is a dangerous thing…

…this is a good time for investors to remind themselves that an idle mind is the devil’s workshop.

Scientifically speaking, boredom is a mildly unpleasant state of mind usually triggered by a monotonous environment. Experiments have shown that it can increase your heart rate and raise your levels of cortisol, a hormone associated with stress…

Fixating on a dull market can leave you restlessly craving excitement that just isn’t there. A bored investor is probably more likely to succumb to the whims of other bored investors moving in a herd…All of this is true for professional as well as individual investors.
When stocks crash, should you buy them or sell them? Rajeev Thakkar of PPFAS Asset Management provides some answers…

…a steep fall in a stock price is not a cause to blindly purchase a stock. Questions pertaining to survival and customer loyalty have to be clearly answered. For most investors, discretion may be the better part of valour.

Reading/Thinking

An interesting insight on Lindy Effect from Nassim Taleb. Read more about Lindy Effect here…

Behaviour

Seth Godin writes about the three things you must keep in mind about your reputation. Hope more corporate managers were to read and practice this…

Your reputation isn’t merely based on your work, it’s often the result of biases and expectations that existed before you even showed up. That’s not fair but it’s certainly true. Now that we see that the structures exist, each of us has the ability to over-invest in activities and behaviors that maximize how we’ll be seen by others before we arrive.

Be your reputation, early and often, and you’re more likely to have a reputation you’re glad to own.

Business

Staying with reputation, here is what I found in the value statement of the scam-tainted Wells Fargo, which was recently caught having appropriated customers’ information to create millions of bogus accounts…

Our ethics are the sum of all the decisions each of us makes every day. If you want to find out how strong a company’s ethics are, don’t listen to what its people say. Watch what they do. This is even more important in our industry because everything we do is built on trust. It doesn’t happen with one transaction, in one day on the job, or in one quarter. It’s earned relationship by relationship.

Our customers trust us as their financial resource. They trust our tellers to complete transactions accurately and promptly. They trust our bankers to provide them with products and services to meet their needs. They trust our financial advisors to give them sound advice. They trust our mortgage consultants to manage their application process completely, accurately, and as quickly as possible. They trust our investment bankers to build financial models to analyze business trends, shape investment ideas, raise capital, and meet their strategic objectives.

And they trust all of us to act as risk managers — to ask the right questions, protect their assets, and help them reach their goals. We have to earn that trust every day by behaving ethically; rewarding open, honest, two-way communication; and holding ourselves accountable for the decisions we make and the actions we take.

Surely, as mentioned in the above statement, if you want to find out how strong a company’s ethics are, don’t listen to what its people say. Watch what they do. Wells Fargo’s top managers seemingly ignored this. Anyways, this also hold true as far as individuals are concerned – People don’t listen to what you say. They watch what you do. So be watchful of what you do.
And here’s another kind of scam that’s very common in corporate India – If you wish to borrow, borrow so much that if you don’t repay, not you but the lender is in a soup. Extract from Jaypee Infra’s FY16 annual report…
Chanakya, an Indian economist of the fourth century, wrote in his Arthashastra that detecting corruption among revenue officials is as impossible as knowing when a fish is drinking water. The same holds true for bankers, especially those holding top positions. Many of them are corrupt. But how corrupt? Here is an article that sheds some light on corruption levels in India’s banking industry…

Typically, a corrupt boss uses senior executives such as general managers and deputy general managers for sanctioning loans to undeserving borrowers and pocket a small portion of the loan amount. It could vary from 0.5% to 2-3%, depending on the profile of the borrowing company. This means for a Rs 100 crore loan sanction, the “earnings” could be Rs 50 lakh to Rs 3 crore. The money could be paid in cash or in an overseas bank account (one banker is known to keep this money in his own bank overseas, through the so-called hawala route).

In most such cases, the pressure on giving loans without proper risk assessment mounts on senior executives just ahead of their interviews for promotion. If they don’t oblige, the risk of missing promotion is high. The senior executives also run the risk of being transferred to places not to their liking if they reject a loan proposal, recommended by the boss. The current boss of a government-owned bank has recently told his executives to sanction loan proposals that he recommends (of course, verbally) and not bother about whether they will turn bad. His philosophy is: As long as the loan book is growing, none should bother about non-performing assets as bad loans as a percentage of overall loans can be contained through aggressive loan growth.

Now you know what to hear or read between the lines when bankers boast about their “industry-beating loan growth.” Banking is a corrupt business. I hope if you are invested in banking stocks realize this for a fact.
Why are people corrupt? Why do they scam others? Here’s Dilbert with an answer that makes sense…
If you want to build a business that lasts, there may be no better place to look for inspiration than your own immune system. In the video below, strategist Martin Reeves shares startling statistics about shrinking corporate life spans and explains how executives can apply six principles from living organisms to build resilient businesses that flourish in the face of change…

If you can’t watch the video above, click here to watch.