'Rs 2.6cr for lunch is my guru dakshina'

4 Jul 2007, 0006 hrs IST,Chidanand Rajghatta,TIMES NEWS NETWORK

WASHINGTON: New York City's storied Smith&Wollensky restaurant, described as the steakhouse to end all arguments, does not allow seating on the floor. If it did, Mohnish Pabrai would be only too happy to sit at the feet of investment guru Warren Buffett and soak up some more financial gyaan. The Mumbai-born fund manager and a partner paid the equivalent of Rs 2.6 crore ($650,100) last week for the pleasure of having a charity lunch with the Oracle of Omaha. "It was a bargain basement price for the honour," Pabrai told TOI, disclosing that he had been ready shell out a million dollars in the eBay auction for the annual event. "I have gained so much from Mr Buffett that I consider this a small guru dakshina ," he added. Pabrai himself has done wonders for his investors. Appropriately enough for the grandson of the legendary magician Gogia Pasha, he has conjured up returns that have bettered the great guru's gains for Berkshire Hathaway shareholders. But his investing method, he insists, is more common sense than legerdemain. Excerpts: Q: I'm thinking you might have paid about $10,000 per minute for this lunch if it lasts an hour... A: The lunch typically lasts three hours. It is really a bargain basement price for the honour. I have gained so much from Mr Buffett that I consider this a small guru dakshina. I owe him a debt. I have learnt much from him, but I have never given back to him. Q: Have you ever met Mr Buffett before? You must have attended the annual Berkshire fete in Omaha? A: I think I've been there every year for the past ten years. I've met him briefly at investor meets, but I have never been introduced to him. Q: As a self-confessed Buffett buff, you have studied him so closely. What remains to be asked? A: Just to be with him, to talk about life, about his perspectives, should be good enough. I also want to learn from him about philanthropy and apply some of his principles to my own Dakshana Foundation. I consider this as the first grant my foundation is making (the Buffett lunch bid money goes to the Glide Foundation which helps the poor and homeless in San Francisco) Q: So when is this lunch going to happen? A: Well, I just wired the money today. The guy who won the 2006 auction had his lunch with Buffett only a couple of months ago, so I guess it will be some time before my turn. But I'm not complaining. It will give me more time to prepare. Q: I hope you enjoy steaks though... A: (laughs) Oh I eat steaks, but my wife Harina has concerns. But I told her Smith&Wollensky also has a large seafood menu. My daughters (Monsoon and Momachi) will also be with us and they are looking forward to this too. Q: You are no mean money manager yourself. Your latest book, The Dhando Investor, looks at principles of the Patel community. How did you zero in on Patels? A: Actually, my roommate in college (Pabrai studied undergrad at South Carolina's Clemson and an unfinished degree at Illinois Institute of Technology) pointed out the Patel phenomenon in the US to me. I've always been a student of entrepreneurship so I studied them. Patels are entrepreneurs on steroids, but they are very risk averse. They want all upside and no downside the same principle followed by the value investor. Q: You also talk about the Abhimanyu dilemma... A: Most investors focus a lot of what to buy, when to buy etc. They don't deal with selling. It's like Abhimanyu getting into the chakravyuha and not knowing how to get out or when to get out. This chapter deals with the exit strategy. Q: Do you also have finance in your DNA like the Patels? A: Pabrais are from the Punjab. My maternal grandfather was Gogia Pasha. My father's side was from Lahore and my father was a serial entrepreneur. He variously founded, sold, bankrupted may be 15 companies in Mumbai and Dubai. My brother and I were on his board of directors from may be when we were eleven. At 15, I was making sales calls. I can say I finished my MBA before finishing high school. So I guess in that sense I have been an entrepreneur for long.

Mexican magnate Slim becomes richest man in planet

3 Jul 2007, 2051 hrs IST,AGENCIES

MEXICO CITY: Mexican telecom tycoon Carlos Slim Helu has overtaken Microsoft founder Bill Gates as the richest person on the planet, according to a Mexican financial website. The website said the Mexican mogul's wealth had shot past Gates following the rocketing performance of his telecommunications firm, America Movil. The Mexican financial website said Slim has grown even wealthier thanks to a surge in the share prices of his company. "Thanks to a 26.5 per cent rise in the shares of America Movil during the second quarter, Slim, who controls a 33 per cent interest in Latin America's largest mobile phone company, is substantially richer than Gates," Sentido Comun said. "The difference between their two fortunes is around nine billion dollars in favor of Slim," the financial website said. Aside from America Movil, Carlos Slim, 67, controls the INBURSA financial group as well as retail and restaurant chains.

There’s a market-beater in your corner shop

By John Authers
Published: June 22 2007 15:26 Last updated: June 22 2007 15:26

After moving to London, at one stage I had lived in four different flats, in different neighbourhoods, in less than four years. That meant I had to order my newspapers from four different newsagents. And in each case, I had to write cheques to a “Mr Patel”.
All were well run, by families who worked exceptionally hard, but I did not pay much attention to them.
In the US it is hard to check in to a motel or an airport hotel without again dealing with Patels. Hardworking Patel families are ubiquitous behind the counters of US motels, as well as UK newsagents.
It never occurred to me that the Patel business model could be the basis for market-beating returns. But that idea did occur to Mohnish Pabrai.
Best-known as a disciple of Warren Buffett, Pabrai’s self-managed hedge fund has netted average annual gains of 26 per cent since he launched in 1999. This is phenomenal and he does it with a highly concentrated portfolio of rarely more than 10 stocks and without the aid of short-selling or any derivative contracts.
Instead, his fascinating new book* describes how he harnessed the wisdom of the Patels. The Patel clan, he says, hails from the Indian state of Gujarat, where they traditionally worked as landlords and tax collectors. Most of them arrived in the west after the dictator Idi Amin expelled all Asians from Uganda in 1973.
Pabrai (who was born in Mumbai and is not himself Gujarati), views the choices the Patels made when they reached their new countries in terms of risk analysis. They were looking for a good bet. Ideally, the odds would be: “Heads I win, tails I don’t lose much”.
The Patels arrived in the US during the oil crisis. The economics of motels seemed critically damaged and they could be bought easily.
As the Patels could move into the motel, eliminating their accommodation costs, and get bank finance for a chunk of the purchase price, it was easy to raise the cash needed to get started.
Their willingness to do all the work gave the Patels a critical advantage over the competition – they could undercut them on price. Even before the motel industry began to recover, Patel motels were performing profitably.
So, this was an affordable investment with a chance of big upside for someone who was prepared to work hard. The key, Pabrai realised on analysing the Patel business model, was the downside.
That downside was almost non-existent. The bank had little incentive to give up on its money and kick out the Patels. If it did, the Patels would lose their money – but in practice, they could earn that back, at the minimum wage, in about two years. This was a bet with almost nothing to lose: “Heads I win, tails I don’t lose much.”
They won. Patels now own motels worth more than $40bn in the US, with nearly 1m employees.
The key lessons Pabrai derives from the Patel experience can be applied to investing in public markets, by people who are not prepared to work 16-hour days. First, find a bet with the minimum downside possible and only then start to look at possible returns.
Second, make big bets (“Few Bets, Big Bets, Infrequent Bets”). The Patels, of necessity, had only one shot. But this improved the chance of a truly big profit. Similarly, Pabrai can go months without buying a new stock.
Concentrated bets are, of course, risky – unless you are sure the downside is truly limited.
The Patels’ approach to business has a word, Dhandho. In Sanskrit, it literally means “Endeavours that create wealth”.
When applying Dhandho to investment, Pabrai added a few more principles. One is to invest in companies with high uncertainty. If there are many possible outcomes for a company in trouble, its share price will suffer – even if in fact most of the outcomes are positive. Markets often in practice treat high uncertainty as a high risk of a big loss. The two are not the same.
Another point is to look for companies with, to use a Buffett term, a “wide economic moat”: a competitive advantage that will take a long time to erode. This applies to UK newsagents, which are mostly local monopolies.
Third, invest in simple businesses. “If it takes more than a short paragraph,” he says, “there’s a fundamental problem. If it requires me to fire up Excel, it is a big red flag that strongly suggests that I ought to pass.” He likes funeral homes: it is easy to show that demand for their services is consistent. The first Patels had no choice but to forego complex analysis tools.
Finally, buy distressed businesses in distressed industries, because they are the cheapest – like US motels in the early 1970s.
Who, beyond the Patels, is a true Dhandho investor? Warren Buffett is one. So is Lakshmi Mittal, who applied Dhandho to steel.
Pabrai even labels Virgin’s Richard Branson a Dhandho investor. For all his image as a risk-taker, his fortune stems from big concentrated bets with low downside. To start an airline, you need only lease an aircraft: the downside is low.
Perhaps Branson paid more attention to his newsagent than I did.
*The Dhandho Investor – The Low-Risk Value Method to High Returns by Mohnish Pabrai (Wiley, £18.95)
john.authers@ft.com

Rupee slips on profit-taking, flows watched

REUTERS[ WEDNESDAY, JULY 04, 2007 10:25:48 AM]

MUMBAI: The rupee eased on Wednesday as dealers booked profits after the Indian unit had rallied to a one-month high in the previous session, though capital inflows into local stocks were likely to limit losses. At 9:50 am, the partially convertible rupee was at 40.56/57 per dollar, slipping from 40.5500/5675 on Tuesday, when it had touched a one-month peak of 40.44, before it was driven back by suspected central bank intervention. The rupee has been trading in a 40.50-41.25 range since early May, with the central bank widely seen buying dollars each time the rupee tests 40.50. "People were taking profits this morning, especially after the central bank showed its resolve in defending 40.50 yesterday," said the chief dealer with a private bank. The rupee hit a nine-year high of 40.28 in late May, but was knocked off its peak by suspected central bank intervention. Still, dealers said that strong capital inflows into the stock market, which is trading at record highs, were likely to bolster the rupee. Foreign funds have poured $5.7 billion into Indian equities in 2007 after investing about $8 billion in 2006. The rupee has risen by more than 9 per cent against the dollar this year. "Dollar-rupee was better offered yesterday on IPO related inflows and a better equity market performance. Watch for a break below 40.50 this week, which could trigger stops and likely spark a sell-off towards 40.30," The Royal Bank of Scotland said in a note on Wednesday.

RBI sees sign of slowing in credit growth

MUMBAI: There are signs of deceleration of credit growth in India recently, RBI Governor Yaga Venugopal Reddy said in a speech released on Tuesday. "The acceleration of growth in the real sector has been reflected in the upward shift in the growth trajectory of credit extended by commercial banks, which in the past three years has been unprecedented in the history of the Indian economy," Reddy said in a speech delivered at Russia's central bank on Monday. "There has been some sign of deceleration in the recent period," he added. Reddy repeated that the central bank expected economic growth of 8.5 per cent in the fiscal year ending March 31, 2008, and that it wanted to contain inflation close to 5.0 per cent.

China may be headed for a hard landing

SINGAPORE: Remind me again: Wasn’t 2007 supposed to be the year of soft landing for the Chinese economy? Halfway into the year, and after several rounds of monetary tightening, the reality is turning out to be just the opposite. Economists at the People’s Bank of China are now forecasting GDP to grow 10.8% in 2007. That will be the fastest pace of expansion in 12 years and almost 3% points higher than the 8% target announced in February. And this is when we are discussing official figures. The economy may well be growing even faster. Surely this is alarming enough for policy makers to hit the brake pedals with all their might? The stock market’s nervous reaction to the latest economic forecasts seems to suggest such a concern. The CSI 300 Index fell 2.5% on June 29, posting its first monthly loss in almost a year. Jittery investors, holding on to overpriced Chinese stocks, are getting jumpy for the wrong reasons. The collapse, when it comes, will have nothing to do with the government’s efforts to contain the economy. It will most likely resemble the 19th- century American boom-busts when there was no US Federal Reserve managing the business cycle. Investors have no reason to tighten their seat belts fearing central-bank action in China. It’s the lack of action that should make them fret. Monetary policy in China has fallen so far behind the curve that it’s probably too late to achieve a soft landing. This year, there have been two interest-rate increases. They have pushed up the benchmark one-year deposit rate by 54 basis points and made bank loans costlier by 45 basis points. There have also been five rounds of reduction in the amount of funds that banks have available for lending. None of this is helping with a surge in liquidity caused by a current-account surplus that the World Bank estimates at 11% of GDP this year. The undervalued yuan, which is fanning this surplus, is still not being addressed. In the absence of meaningful appreciation in the currency, monetary tinkering will remain ineffective. The Chinese stock market, already a gigantic bubble, will keep growing. Based on price-to-earnings multiples, yuan- denominated shares in Shanghai are three times more expensive now than they were two years ago. Premier Wen Jiabao said last month that Chinese monetary policy needs “moderate tightening.” He’s probably basing his judgement on current inflation figures. The same China Securities Journal report that revealed the central-bank researchers’ GDP forecast also said consumer prices will rise 3.2% this year. That’s hardly very different from the 3.4% annual pace at which prices rose in May. The last time the Chinese economy seriously overheated — from 1993 to 1995 — the annual average inflation rate was 15%, 24% and 17%, respectively. Of course, the Chinese people’s tolerance for inflation may be much lower now than it was in the mid-1990s. It’s possible that even a 4% annual increase in consumer prices will prompt people to take more money out of their savings deposits and invest in the stock market because banks are allowed to pay only 3.06% for a one-year deposit. The recent decline in yuan-denominated demand deposits at banks suggests that such an incentive exists. Even then, the government is reluctant to put an end to this exaggerated risk-taking behaviour by raising deposit rates more aggressively than it has so far. Instead, it has decided to deal with it through fiscal — rather than monetary —measures. The official Xinhua news agency reported last week that lawmakers have approved a plan for China to cut or scrap its 20% withholding tax on interest payments from bank deposits. It is hardly a significant move. “A 50 to 60 basis-point increase in the net interest earned on deposits is far too small to change asset allocation behaviour in the marketplace,” Jonathan Anderson, a UBS economist in Hong Kong, wrote in a note to clients last week. The threat from runaway money growth isn’t immediately obvious. M2 — cash and bank deposits — expanded almost 17% in May from a year earlier. That’s less than half the full-year figure for 1994. So there’s nothing to worry about, right? Look again at the data, focusing this time at just how much money there already is in relation to the size of the economy, rather than how fast it is growing in absolute terms. M2 in China is almost 37 trillion yuan ($4.9 trillion), or 1.77 times the nominal GDP, thanks to the money added in the process of the central bank’s purchase of US dollar inflows. That compares with 0.97 in 1994. Policy makers in China can now only hope that this growth is benign, caused by rising demand for money rather than increased supply of it; because if it’s the other way round, it might be time to start preparing for a hard landing.

Vishal Retail shares triple in trading debut

MUMBAI: Shares of Vishal Retail Ltd, which runs supermarkets targeted at the Indian middle-class, rose as much as three times the offer price on their trading debut on the Bombay Stock Exchange. The shares listed at Rs 472.5, or 75 per cent higher compared with the offer price of Rs 270. They rose Rs 482.2, or 179 per cent, to Rs 752.2 at the 3:30 pm local time close, after having climbed to as much as Rs 809. The New Delhi-based company raised Rs 1.1 billion ($27 million) selling 4.07 million new shares in an offer that ended on June 13. Vishal Retail, which has 50 stores, plans to set up 32 more this financial year, Chairman Ram Chandra Agarwal told reporters in Mumbai last month. Smaller retailers such as Vishal Retail are raising money to compete with Reliance Industries Ltd, India's most valuable company and billionaire Sunil Mittal's Bharti Group. While Reliance is spending more than $5.5 billion, Bharti Group plans to invest $2.5 billion in a retail network and a wholesaling venture with Wal-Mart Stores Inc. Vishal Retail raised 290 million rupees in June last year in a pre-IPO placement, selling 200,000 shares to Housing Development Finance Corp and 1.25 million shares to some private investors at Rs 200 apiece.