The Rational Walk
Intelligent Investing is not a "Random Walk"

Value Investors Find Fertile Ground in Indian Equities September 28, 2010

India’s widely followed SENSEX index is approaching record high territory and many investors are once again looking at this rapidly growing emerging market as a potential source of future profits.  With nearly 1.2 billion people, India is home to over seventeen percent of the world’s population and is expected to overtake China’s population in the coming decades.  With a vibrant democracy, India’s growth is often less organized when compared to China’s authoritarian system.  A recent article in The Economist characterized the rivalry as the “contest of the century” both because of border disputes and the race for economic dominance in Asia.

While China has received more attention from investors in recent years, India has an active following among value investors.  Last year, the Simoleon Sense blog published an interview with Chetan Parikh, a well known value investor.  What seems to come through from the interview is that the principles of value investing know no borders.  While local knowledge and insight is invaluable, the same concepts used to find value in the United States can be applied worldwide.

Amitabh Singhi is another Indian value investor with an excellent track record who is scheduled to speak at the Value Investing Congress next month.  According to the Value Investing Congress website, Mr. Singhi’s Surefin Investment fund has returned 29.8 percent annualized, net of all fees to investors, since its founding in 2001.

Mr. Singhi spoke at the Value Investing Congress in Pasadena earlier this year and had many interesting observations regarding the Indian market based on a follow-up interview with Morningstar.  In particular, India seems to be fertile ground for small cap investors given the large number of under followed companies that are listed.  Of course, local knowledge is important so this field may not be suitable for most American investors.  The Morningstar interview with Mr. Singhi appears below.

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Mr. Singhi will speak at the Value Investing Congress in New York which is scheduled for October 12 and 13.

Readers of The Rational Walk qualify for a $300 Discount for the Value Investing Congress.  Be sure to act quickly because the discount expires on Sunday, October 3.  Use Discount Code N10RW8 to qualify for the special rate.

Disclosure:  The Rational Walk receives a referral fee for readers who register for the Value Investing Congress via this link.

Tilson is Bullish on Large Cap Stocks Including J&J, Microsoft and Berkshire September 1, 2010

In a wide ranging discussion this morning on CNBC, Whitney Tilson provides his views regarding the overall valuation of large capitalization stocks compared to bonds and comments on several specific companies including Johnson & Johnson, Microsoft, and Berkshire Hathaway.  We highlighted some of Mr. Tilson’s views on Microsoft in a bullish article on the company posted on August 31.

Mr. Tilson believes that investors have a major opportunity to own blue chip stocks at valuations that offer excellent prospects for long term returns that will easily beat the yields available on high quality bonds.  He mentions Johnson & Johnson as an example of a stock investors can purchase at a yield that far exceeds the interest offered on Johnson & Johnson ten year bonds.  We presented a bullish case for Johnson & Johnson in May when the shares traded at higher levels.  In addition, he revisits the bullish Microsoft thesis and comments on Berkshire Hathaway’s valuation.

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Disclosure: The author of this article owns shares of Berkshire Hathaway and Microsoft.  No position in Johnson & Johnson.

Deepwater Drilling Ban Continues to Devastate Gulf Coast Economy July 26, 2010

The six month moratorium on exploratory deepwater drilling in the Gulf of Mexico is continuing to heavily impact the economy of the Gulf Coast.  Despite two court rulings calling into question the legal basis for the moratorium, the federal government is continuing to insist on a complete halt to deepwater exploration until the commission appointed by President Obama reports on its findings.  The commission report could still be months away.

Although the commission has made few public statements, much has been revealed over the past several weeks regarding the factors that almost certainly led to the Deepwater Horizon disaster.  A Congressional investigation of the disaster identified at least five key factors related to engineering flaws that could have contributed to the well blow out.  In particular, BP’s choice of a “long string” casing rather than a more expensive, but safer, liner-tieback system could have allowed gas to escape the casing and cause the explosion.  In a recent presentation, one of Shell’s experts on well design clearly explained the safety advantages of more robust systems and recommended a ban on long string casing.

While the commission continues to deliberate on the moratorium, the Gulf Coast economy is reeling from the impacts of the oil spill both in terms of the tourism and fishing losses and the government’s moratorium on deepwater exploration.  The moratorium has not only impacted the jobs on the drilling rigs but also numerous support businesses that serve the industry.

The video shown below from The Economist does a good job of explaining the issues facing the Gulf Coast economy and the heavy dependence of the region on deepwater oil exploration.

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Disclosure:  The author of this article owns shares of companies involved in oil and gas exploration in the Gulf of Mexico.

French Finance Minister Commits to Austerity Measures to Trim Budget Deficit July 22, 2010

The fiscal condition of advanced economies in Europe has attracted increasing attention and alarm in recent months particularly since the crisis in Greece forced politicians to focus on the issue.  The recession has taken a toll on budgets throughout the Euro-zone, and France is no exception.

In an interview with The Economist shown below, French Finance Minister Christine Lagarde comments on her country’s attempt to trim the budget deficit to 3 percent of GDP by 2013.  Ms. Lagarde states that significant austerity measures will be imposed rather than relying on tax increases. In addition to her comments on the fiscal situation in France, Ms. Lagarde comments on the bank stress test results due to be released on Friday, February 23.

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As readers know, the United States fiscal situation is among the worst facing any advanced economy and few steps are being taken in the short run to address the problem.  The current approach has been to set up a National Commission on Fiscal Responsibility and Reform designed to come up with a solution to balance the budget, excluding interest on the debt, by 2015.  However, the commission will not report until December 1 which relieves politicians from addressing the issue prior to the November elections.

Wells Fargo’s CFO Reacts to Dodd-Frank Act July 21, 2010

In an interview with CNBC this morning, Wells Fargo CFO Howard Atkins comments on the Dodd-Frank Act which President Obama signed into law this morning.  Mr. Atkins focused on the consumer protection aspects of the law and was asked whether Wells Fargo should be considered “too big to fail”.  For a news story from The Wall Street Journal on the signing of the Dodd-Frank Act, click on this link.

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Disclosure:  No position in Wells Fargo.