Category: Your Money

Physical vs. Paper Gold

A London Good Delivery bar, the standard for t...

Image via Wikipedia

ETFs that allow investors to gain exposure to commodities on the stock-market instead of heading over to a futures exchange have seen tremendous growth over the last 5 years. In India, Gold ETFs, like Goldman Sachs’ GOLDBEES and Reliance Mutual’s RELGOLD are exceptionally popular. Given our gold-obsessed culture, it is not every surprising.

The advantages of holding gold in paper form are pretty obvious: no storage costs (save on safety deposit boxes), higher liquidity (sell/buy whenever) and consolidated statements (get your gold exposure along with your equity exposure from your broker).

But what is the catch? It really boils down to why you are buying gold. You definitely can’t wear the GOLDBEES around your neck. But other than for ornaments, people have always looked at gold as a store of value in uncertain times. i.e. disaster insurance. If everything else collapses, well, at least you have your gold that you could (theoretically) barter with. When disaster strikes, good luck trying to convince someone to trade your GOLDBEES.

But if you are not the type of guy who buys gold for insurance and is looking to track the price of gold at a reasonable expense, buy paper. In India, all gold ETFs must be backed by the physical underlying. They cannot stuff it with futures contracts or derivatives and call it a gold ETF. Presently, investment only in physical gold is allowed as per SEBI guidelines.

Gold ETFs, at least in India, are as good as gold.

IPOs: The Story So Far

2011 is definitely not turning out to be a year for IPO investors. IPOs have lost an average of 17% so far. The speed at which some of these have become penny stocks is truly amazing:

Ticker To-date performance
SPYL -56%

Out of the 69 stocks that were analyzed, an opening day fizzle forebodes a dismal future for the stock: 48% of the IPOs had a down day on their first day and continue to perform poorly till date. 25% of the IPOs performed poorly in spite of spiking the first day – so there really is no magic forecasting too that can guide investors through the process.

I would take the side of Warren Buffett who once said:

It’s almost a mathematical impossibility to imagine that, out of the thousands of things for sale on a given day, the most attractively priced is the one being sold by a knowledgeable seller (company insiders) to a less-knowledgeable buyer (investors).

An IPO’ed stock just doesn’t have all the pieces of information that an astute investor considers before buying the stock. You cannot do technical analysis on a stock that has never traded, nor can you dig into its previous years’ balance-sheets to discover (or at least verify) strengths and weaknesses. It would be smart to check out the lead book-runner as well. If its some garage operation based out of Kalasipalya, then it would serve you well to stay away from the issue. For example: BGLOBAL, ACROPETAL, SHILPI, SERVALL were run by Almondz Global Securities, Saffron Capital Advisors, D&A Financial Services, Keynote Corporate Services respectively. The next time you see issues brought out by these guys, tread carefully!

Here’s the chart you’ve been waiting for:


Making P/E work for you

common (image) aspect ratio found in video and...

Image via Wikipedia

The general rule with Price-Earnings ratios (P/E) is that the lower a stock’s p/e, the better. And a P/E of less than, say, 10, represents excellent value. A low P/E implies more profit for every dollar you invest. However, P/E is only the starting point in researching stocks. Here are some gotchas that you should be aware of:

  1. One-time gains can artificially inflate a company’s P/E: When a company sells assets, it enjoys a one-time bump in earnings that might make the P/E ratio artificially low. And similarly when there are one-time write-offs, P/Es get high. In either of the two cases, P/E is not a gauge of the company’s true ongoing operating earnings.
  2. A low P/E can be a danger sign: Low P/Es may come about because well-informed investors are selling the stock and pushing the price down, regardless of earnings. In other words, unusually low p/e’s can be a sign of danger rather than a clue to a bargain. For example, the 2.73 PE of Aarvee Denims
  3. Don’t ignore stocks with high P/E: Growth stocks have naturally high P/Es. You should expect to pay more for companies with long-term earnings potential. However, stocks with high P/Es tend to be more vulnerable during periods of broad market setbacks. For example, the nearly 205 PE of Adani Enterprises that has a 50-day volatility close to 80%.

Happy investing!

Gold getting fingered

One Rupee coin (dated 1285 AH), 12 ounce silve...

Image via Wikipedia

Gold is down 6.4% to $1,552 an ounce, taking its losses over the past 4 days to 13.8%. It has shed 19% since hitting its intraday high of $1,920 just three weeks ago. Silver is also getting hammered. The metal is down 13% on Monday to $26.95 an ounce, taking its 4-day slump to 32%. Both metals were even lower into the Asian market close.

Investors are scrambling to raise cash across markets and asset classes as traders fret that a lack of progress in finding a solution to contain the euro-zone fiscal crisis threatens the health of the global economy.


Enhanced by Zemanta

China to ONGC: bu pao

The South China Sea

Image via Wikipedia

With gas prices at the pump close to $6 to a gallon and a bulk of its energy being imported, India is out exploring for oil. However, it has hit a wall in its efforts, a Chinese-wall, if you will:

India is being pulled into a complex and increasingly tense territorial dispute in the South China Sea, with China repeatedly warning ONGC, the Indian state oil company, that its joint exploration plans with Vietnam amount to a violation of Chinese sovereignty.

The South China Sea, which Beijing claims almost in its entirety, is thought to be rich in oil and gas and is one of the world’s most important shipping routes. And is increasingly becoming one of the region’s major potential flashpoints.

ONGC’s overseas arm, ONGC Videsh, accounts for much of India’s investment in Vietnam. It operates one gas field—Block 06.1 in the Nam Con Son basin off Vietnam’s south coast—in a joint venture with TNK-BP and PetroVietnam, which China has not protested over.

While the world is busy with the old world’s problems, this has the potential to turn real ugly real fast.

Read more here.

Enhanced by Zemanta