Stoic Investing

“Realty” strikes hard !!!

Its interesting times in Indian political and economic scenario and stock markets… Every day there is atleaast a couple of headlines with threatning words like “Fraud, Investigation, Arrests , CBI etc “… and the market of the companies involved goes -5%, -10% and so on.. But the biggest of all the scams that brought a lot of “cockroaches of the kitchen” out in light is the “2G scam”.. and the worst hit are some real estate companies entering the telecom domain.. (like DB Realty , Unitech etc ) . Not only the scam but the fundamental of the companies and the utter lack of corporate governance and aptly oxymoroned opaque “transparency” in the dealings have resulted in what Charlie Munger would call ” The lollapalooza outcome ” .. and not only the companies involved but complete the Realty sector (which was already in trouble for sometime now) is down and out atleast in stock prices.. stocks are down more than 60% from there yearly highs and the problems continues…


Here is a brief of some major ones:


Company 52 week high 52 week low All time high CMP


DB Realty 540 100 540 110


Unitech Ltd 98 30.7 546 38.1


DLF 397 209 1225 228


JPAssociates 162 70 340 84


Ansal 97 33 567 36


Indiabulls 218 99 847 114


As you can see most of the stocks are close to their 52 week lows (in fact they have just rebound after touching those lows).


A lot of my friends have lost a major portion of their money investing in the companies named above. Even though some of them are decently managed others have been known for anti shareholder actions of the promoters and their propensity to take money out of the shareholders pocket and into their own. This is what happens when in good period one ignore the importance of management and corporate governance and let just the % increase in market prices drive ones investment decisions. Well Buffett was spot on when he said ” It’s only when the tide goes out that you learn who’s been swimming naked. ”


So the most important question here is : Isn’t it what Value Investors look for , a industry which is down and out and everybody is fearful.. isn’t it the right time to get greedy for these companies ???


The answer is yes and no. Graham asks you to look at such sectors but there is a very crucial caveat in this case. The utter lack of transparency in numbers and no proper method to value such companies. Even the real estate analysts have no consensus on the method that should be used to value such companies.. and even the range of possible values (if there is one) is very wide. Sure there is pessimism and fear and unwillingness of banks to give credit and disinterest of private investors to give money to these companies and a lot of promoters seeing there personal wealth vanishing every moment. All these makes it an interesting domain to look for potential buys but with utmost caution and putting money only where you are sure that if things do go better, the money is made for every investor in the company and not just the promoters or else…“Realty” will strike you again and even harder

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