Tuesday, August 25, 2009

Hotels: Part of Asset builder boom

Rising asset prices over last few years triggered demand for more hotels. Calculated Risk links to article Hotels: A "Perfect Storm" in San Francisco indicating how the house of cards falls.

Actually this is a perfect storm everywhere for hotels. Too much supply - and more coming online every day. Too much debt. And too few guests.
Where is the demand?
Like most other assets, the fundamental demand for hotel turns out to be far lesser than the supply. The demand is coming from investors. There is huge appetite for investing in hotels, housing or any asset that can be converted into paper and gambled away. This is hurting the industry employee base.

Product prices do not indicate fundamental demand
Just because prices are rising does not mean there if fundamental long term demand in place. Reading the macro factors is just as important for the firm. But, what if you can quickly build out a hotel and sell it to REIT (or other RE fund) at ridiculous cap rates? Partly, this asset price increases actually triggered the boom as I discussed in Feb 08. I cannot see the last buyer still emerging. So till then its going to be painful and hotels will be a case study.

Declaration:
I own Indian Hotels since two years now due to fundamental short supply scenario in India. I am just about marginally positive on the position. I do not intend to close it for few years. Hotel investors looking at India might want to look at Indian Hotels.


Monday, August 24, 2009

Decline of Alpha

Markets around the world are in a see-saw. It is not exactly clear what is driving what or who and to be fair no one really knows. The trading strategies have, therefore, moved to seeking beta.

Volatility Risks high
We are looking at huge cycles in coming months. These will be higher in magnitude and shorter in time frames making longer term commitments difficult.

Picking Survivors
Now long term is more about picking survivors than picking value. Unfortunately old world stalwarts are not always well suited for this. I am not even sure if company like GE will survive this in current form. But then GE is much better off, we are just debating the form!

Premium for alpha investing will increase
Longer term investors will seek increased premium as volatility increases and questions about company health become more aggressive. I would like markets to remain range bound at lower end of the range for at least 2 quarters. That might signal some hope of recovery. Current movements are too swift (time) and too strong ( changes are high between weeks). Possibly its just residual froth.






Art of Startup: Lynn Terry on Pursuing Passion or Profits

Lynn Terry says get financially secure before starting new business you are passionate about. There are two mistakes people make
  1. People start a new business without being financially secure. They may be passionate but bills and debt always mount. The first part of being entrepreneur is understanding finances and cash flows. If you cannot secure yourself financially, how will you secure your company?
  2. Even when they have financial security people often start a business they are not passionate about to make a "quick buck". Lack of passion of owner shows up pretty fast. That is why venture capitalists want to meet companies face-to-face. Such businesses often languish at the first dip.


You know how people always say, do what you love and the money will follow? I’ve probably even said that a time or two myself, but I’ve decided that it’s flawed…

Instead, do what makes the money and your passion will follow. I know that may sound like a contradiction, but follow along with me here.

My first business was an electronic repair shop. Not something I was particularly passionate about, but it paid the bills. I was passionate about having a family business and pursuing financial freedom, of course. And I enjoyed the work - it just wasn’t my “passion in life”. My next business included computer training and web development - helping others learn skills to start & grown their own business. Something I was definitely passionate about, but I didn’t really have the means to do it on any kind of large scale. Meaning I was basically helping one person or one business at a time. But those were the right choices at those times in my life, because the bills had to be paid and the children had to be raised. It wasn’t until my business saw a sustainable passive income that I had the financial freedom to really discover and pursue my passions.

It’s hard to even know what you’re passionate about when all you can think about is how you’re going to make the next mortgage payment, or put dinner on the table next week. Even worse is that nobody else will get it. If you’re working all the time, with no profit to show for it, your friends & family will tell you you’re nuts and tell you to go get a real job. But if you have money coming in, nobody will mess with you - and you’ll be free to really start exploring your options. My point here is that I don’t want you to feel discouraged if you’re just starting out, and you haven’t discovered your true passion yet. That’s okay. Try a few things, make some money first, and let it just come to you naturally.

The cool thing is that the internet provides you the opportunity to do both - to make money AND pursue your passions in life. My own online business allows me to work from home, and allows me both the time and money to work on a series of books I’ve always wanted to write. So I do that, plus give back to the Internet Marketing community, because I have a passive base income that pays the bills. The main source of my income being my affiliate sites and various affiliate promotions.

It took me years to find my place in it all, and create a vision of the lifestyle and future that I wanted - and a plan to fund it. But every single one of those years that I wasn’t 100% sure I was going in the right direction… I still earned a full-time income. Money is necessary - so pursue that first, and let the passion find you when you’re ready for it.

Trust me, it will happen when you’re less stressed about making money.

So get out there and make some money!


Best,

p.s. If you need help making money online, join my group at our Internet Marketing Forum. I check in there daily myself, and would be happy to answer your questions, or share resources with you.




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Wednesday, August 19, 2009

Documenting processes at offices

Recently I was party to a discussion about understanding office processes improving them. The arguments were standard, processes are ad hoc and it is difficult to capture tacit knowledge. That reminded me of a document I had created a long time ago on How to do exactly that. I have put that up online. Have a look.

Process Documentation & Improvement Ebook

Monday, August 17, 2009

Future of Hedge Funds

The future of hedge funds is under microscope. Some believe, hedge funds are evil and hence would die. Others believe higher regulatory burden will spell doom. I believe reality might be contrary.


Flexibility in capital allocation is critical

The need for flexibility is the central lesson from recent toxic asset debacle. Funds that are flexible are better suited to surviving the near future. Hedge Funds derive a little advantage flexible than private equity and lot of advantage over pension funds.


Flexibility applies to strategies as well

A flexible strategy may be better than a sector specific or other constraining strategies. So between strategies it might be better to allocate more capital to flexible ones.


Stock selection will undergo a change

Within the investment process changes will happen.

1) Currently, lot of funds use "owning stocks" mentality. Fund managers try to foresee how demand for those stocks will move. They are not buying companies like Warren Buffet. Due to higher volatility with lower volumes owning stocks is likely to work with very large caps (blue chips). Further, any long term (>6 months) investments will have to be "owning companies" type of investments. Some funds already work with this mindset and are consequently better off.

2) Focus on macro drivers will increase. Macro drivers impact capital flows into markets and therefore can make or break portfolios.

3) Holding periods will decline. Given the volatility in stocks, flexible managers can take advantage of capital flows.


Employment generation

Given the changes above, we are likely to see more diversely talented and diversely located teams supporting investment managers. Further, we might see a drop in capital/manager to ensure higher flexibility.


The survival game

Survival is the name of the game for next 3-5 years. Both for funds and companies. We are likely to see a drop in total money supply in the next few years. Capital will be destroyed through two ways. First through companies going bankrupt. Second volatility impacting AUM of asset managers. So picking survivors is the key.


So if any hedge funds have an opportunity for me, check out my profile and drop me a line. ;)

Wednesday, August 12, 2009

Market Outlook

Paul Kedrosky has a wonderful link to interview of Michael Steinhardt and others. There are a lot of quotation gems in there. I paraphrase a few ideas with my take on it:
  • No one is bullish over long-term: The problems we are in, in US and globally, are too big to be wiped out by a ill-directed few trillion dollar stimulus. Government does not have information to go for precision-bombing stimulus. So for carpet bombing, that we are aiming for, we need a hell lot more bombs.
  • What has changed? - Nothing: Other than extra few trillion sloshing around nothing has changed. We still seem to be playing out the same moves from great depression times. Our two most likely outcomes are a bloody great depression or a prolonged stagnation - both are grim. Markets are enforcing themselves - I mean real economy markets. Consumers are de-leveraging and increasing savings.
  • We cannot estimate valuation because future is uncertain: The future is uncertain. We are not confidently able to foresee how future corporate world will look like. What will be the revenue levels? What will be the growth levels? Who will survive the crisis? In such a scenario, putting numbers to revenue projection and looking at valuation is dangerous game.
  • A forecast tells more about the forecaster than the future: This is a gem. I think that is true. At the moment all analysts will be better off understanding potentially likely scenarios and potential outcomes.














Monday, August 10, 2009

Future Without Poverty

World without poverty is one of my dreams! And I fuss over it in lot of ways. My readings of current writers on Poverty suggest that we need a view on life of the poor. This ebook is an attempt to express the same. It is my contribution to understanding and eradication of poverty in the world. Download the ebook here.

Briefly it covers three main aspects:

How poor get poor?

I look at three phases over which a household gets into a poverty trap. This, I believe, is critical to understand as it harbours solutions to the poverty problems. Further, it also leads us to a basic framework for solving the poverty crisis everywhere.

Snakes and Ladders Approach

Getting a community out of poverty needs a customized solution. Each community faces its challenges (snakes) but has opportunities (ladders) hidden within its structure. This framework may be used to build a customized approach for the community.

Structural v/s transient poverty 

One of the central idea I want to highlight is the difference between temporary poverty - one that household can get out of versus structural poverty - one that seduces the household into believing that they can get out of poverty.

I would love to hear your feedback on the ebook. Please email me at rahuldeodhar [at] gmail [dot] com.