SUNDAY WEEKLY #18

Hello EveryFinions!

It has been a volatile week. A lot seems to be going on pretty much everywhere - In the markets, in politics, on vaccine front! During times like these, it can be hard to cut the noise down and just focus on what matters. Which is why we are here!

We also hope you enjoy our cover story on the worst investment you'll ever make. We have used an enourmous amount of data to write this feature. Dig in...

IN THIS NEWSLETTER

• News in brief
• The era of retail investor is here
• The worst investment you'll ever make
• Thought for the day
• Quiz and the price is right

NEWS IN BRIEF

• Indian equity markets witnessed the worst sell offs since May 2020. BSE Sensex was down close to 8% week on week. Investors were in for a rude shock. The unthinkable has happened – Markets do go down.
• Tech companies across the world posted excellent quarterly results this week. Apple posted record quarterly profits of $111 Bn this week on the back of strong iPhone 12 sales. Facebook did the same and posted 29% increase in profits ($7.9 Bn) from year-ago period. At home, Tech Mahindra’s net profit rose by 14% while HCL on the other hand posted 31% increase in profits.

• Good and bad news came out on vaccine front. Good news first – We have 2 new vaccines which have tested positively for efficacy. Johnson and Johnson’s vaccine candidate has shown 66% effectiveness while Novavax’s vaccine has demonstrated 89% effectiveness. Bad news – The EU is restricting export of vaccines from the continent on the back of a massive disagreement with Astrazeneca this week on deliveries.

• The government’s chief economic advisor Krishnamurthy Subramanian (Prof Subbu, as we used to call him back at ISB) authored Economic Survey 2020-21 was tabled in parliament this week. The 900+ page document provides a rather rosy outlook for the country going into FY2021-22. Nominal GDP is expected to grow at 15.4% y-o-y. But it does say that it will take about 2 years to go back to 2019-20 levels.
• The government’s sovereign gold bond scheme is open for subscription again next week. We have written about this in the past. This time around, to sweeten the deal further, the government is offering Rs.50 discount per gram for those applying online. Are you applying?

QUIZ

In which country in the world is it cheapest to buy gold?

IN LESS THAN 300 WORDS

The Era of the Retail Investor is here!

GameStop’s (GME) stock was on the news literally everywhere because of how its stock price went from about $20 at the beginning of this month to something like $400 in this week’s trade. It was all driven by a whole bunch of retail investors who rallied around in Reddit forum (r/WealthStreetBets) and decided they have had enough of suits working in Wall Street. Popularly called the short squeeze or the big squeeze, their plan was to keep buying the stocks of a few selected companies (GME, AMC) where prominent hedge funds hold short positions. A short position is a bet against the stock price, and the position profits when the stock price goes down. Maximum profits are made when the stock price hits 0 from its prevailing price at the time of shorting. Maximum losses however are unlimited. In GME’s case, Hedge Funds who were short GME and were expecting the stock price to go down from $20 to nothing ended up seeing its price go up to $400.

Here is a look at the number of social media mentions of these stocks compared with the number of mentions of Tesla and Apple on Friday!

This graph below shows the trend on the number of social media mentions of GME's stock. Look at how that line trended up.

Their plan to screw over Wall Street elites ended up working, at least in the short term. Melvin Capital, a $13 Billion Hedge Fund, had to close out its short positions on GameStop after the company made a loss of $3B just this week.

Financial institutions have typically controlled equity markets for a long time. Retail investors on the other hand came in late to the party, made losses and left unhappy. But that is changing. Institutional investors are now having to pay a lot of attention to what the retail investor is doing. Welcome to a new era of investing!

GAME : PRICE IS RIGHT

This is the inside of the BMW 7 Series M760Li xDrive. It features Ambient internal lighting, a centre console with armrest, four zone automatic air-conditioning, micro-filter and active carbon filter and a full merino leather upholstery. The car itself is packed with features and is top of the BMW line-up of cars. Your job now is to guess the price!

COVER STORY

The Worst Investment You'll Ever Make

We have written in length about making good investments – in equity markets, in bond markets, mutual funds and in our own selves too. But every one of us at several stages in our lives make some terrible investments too – bad career choices, bad relationships, bad financial investments and so on. Amongst them, there is especially one that we will all end up making and that is buying a car!

There is no way you could have missed one of those memes that goes like this – “If you’d bought Tesla stock instead of a Tesla Roadster 10 years ago, this is how much money you’d have now”.

While Tesla owners often justify their purchase for the sheer thrill and joy of driving the electric car, it doesn’t change the fact that buying that brand new, fancy, shiny & glittery, Tesla Roadster in the first place was a bad financial decision. To quantify just exactly how big a hole a car purchase puts in our finances, we analyse data coming from over 30,000 cars listed for sale on CarDekho.com’s website. CarDekho sells second-hand cars in India and the data from their website on age, mileage, model and price gives us the best hope of being able to quantify value depreciation and the consequent wealth destruction effect that a car purchase has.

Let’s dive in…

ANSWER TO QUIZ

Hong Kong

The country with the cheapest gold price in the world. 50 grams of 999 purity gold was selling at about Rs.2.47 Lakhs. The same quantity of gold could be purchased from Hong Kong at a price of Rs.2.38 Lakhs.

ANSWER TO PRICE IS RIGHT

Rs. 2.5 Crores

That’s what a brand new BMW 7 Series M760Li xDrive will set you down by. A staggering sum of money!

READ/WATCH/LISTEN

• Ray Dalio has an interesting perspective on Bitcoin. Here is the full read – Bridgewater

• Here is a quick read on information theory and gambling based on John Kelly’s work at Bell Labs – American Scientist

From the writer in me, to the reader in you ♥

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