Thursday, December 18, 2008

"Collapse" by Jared Diamond, A book review

Having read and liked "Guns, Germs and Steel" by Jared Diamond, I went on to pick his book "Collapse". In midst of all this crazy growth happening, sometimes it is critical to see about why certain societies collapsed and could we also go along the same path. This book strives to answer that particular question. And while there can be no simplistic one word answer; the book definitely succeeds in enabling the reader to think the answer for himself. The book is a grand sweep from old societies to new: from Easter island, Anasazi, Maya, Greenland Norse to modern ones such as Japan, China, Rwanda, Netherlands etc. And while not all of them are given equal space, the failures are vastly more analyzed than the successes and, in my opinion, rightly so.

While the author starts with Montana and ends with Australia (the two places the author has personal affinity for), the reader will find certain example more interesting and appealing than the rest. Personally, I liked the Greenland Norse and Rwanda examples better than the other (especially Rwanda since it is contemporary and easy to identify with. My next viewing of the movie "Hotel Rwanda" will be on a much more knowledgeable level).As for the reasons for the decline, the author upfront outlines five reasons ("templates") and proceeds to analyze each example in context of the five reasons. The reader can clearly follow this approach and hence not get too confused especially in light of so much detailing in the book.

The last section is on our current state of the world. Does technology actually help in avoiding collapses or our population growth defeat any technological growth. Also the fact is today environment is not a local issue any more. The globalised world ensures that we fall or rise together as a single entity given sufficient damage anywhere in the world. And given the sheer amount of resources that we consume now and will consume going forward, are we heading towards an environmental disaster? Read the book for more clarity.

Well, there are some aspects of the book that I found a bit dry: The example on Montana (of course since most of the readers will be from US they will not have any complaints on this count) was too long and too detailed for me. Also, I was hoping that there would be some stuff on Mohenjadaro and Harappa civilization especially since there is a brief mention in the beginning. Anyways, that only means some more books on this subject, not a bad outcome at all.

And interestingly, investors will find many parallels to the "environment" markets if I may say so. One of the most repeated example of a societal collapse in the book goes something like this: People come and see that there is lush greenery and plentiful rains for a few years and hence settle there and expand population greatly. The good times seems to continue and just when the good times peak, there comes droughts which last for many years leading to widespread disaster. The thing is the climate did not suddenly change; people forgot to see the longer cycle. Actually drought-ridden areas, people where unlucky to settle there right during periods of exception - rains and greenery". Sounds familiar to investing at the top of a cycle? One can find many such parallels in the book.

All in all, if you're interested in geography, history, society, financial markets, or like me, a dabbler - go ahead and pick it up. You will enjoy it.



Wednesday, December 17, 2008

Satyam

Well...what a day for Satyam...It turns out that the management has done a turn around and have called off the deal. I am not getting into the details of the deal. Its all in here. Couple of things we, as investors, can take away from this:

1) Satyam is a big 4 IT company and had a good reputation (at least till yesterday). With only around 8% shares held by the promoter, he could manage the board to rubber stamp on his decision. Imagine the other Indian companies where promoters hold far higher stakes.

2) In this case, because institutional investors had around 67% shares, they could voice off their anger and hostility. As a retail investor, once can't hope for something similar to happen for other small and mid-cap companies.

3) Value investors who sometimes use cash in the business as a cushion for valuation will find situations like these toppling all their calculations. The conventional worry, in any case, is that the management might go for unrelated diversification and piss away the cash. Satyam's example is the extreme end of this - diversification benefiting the promoters only.

4) I am a fan of Buffett etc and believe that when situations arise one can concentrate their investments. But what about management credibility? It is probably the most important single unpredictable and uncontrollable variable. That is why when one is doing cheap stock investing based on cash and other assets, one has to do a decent amount of diversification. Joel Greenblatt in his magic formula clearly advocates picking 20 stocks.

5) The need for local understanding is critical. Most of what we read about investing is in books related to the US markets. US markets are of course much different than Indian markets in many ways. One has to be a little street smart-ish and know how promoters act in our conditions. And how little support there is for minority investors.

Sunday, December 14, 2008

Introductory

Well, I finally decided to be a blogger. To just introduce myself, all I can say I am a keen follower of value investing. Started with Warren Buffett and Charlie Munger and went through the whole realm of other investors and other schools of investing. And in the process of trying to understand investing (especially through the Indian market boom of 2007 and bust of 2008) I figured that investing is a way of life and one's way of life dictates one's investment philosphy and not the other way around. During all this, Charlie Munger's mental models kept appealing and I have tried to dwelve deeper into understanding how things work. It is an interesting journey of collecting knowledge and wisdom and maybe trying to apply to everyday life (tough!!).

Added to this is that fact that I am a voracious reader and like to read articles and books on a daily basis. After almost 2 years of reading and understanding stuff, I thought that this is the time to start recording my thoughts somewhere. Though I like pen to paper very much, in the end blogging was my solution.

So here it goes. In this blog, I will attempt to record my thoughts about various stuff and also write my book reviews. Maybe a couple of years later when I read this blog again, I will laugh at my foolishness. After all, the blog title was inspired by Isaac Newton's quote in the header. If he could think like that, then..