A great blog on the Indian economy

Continuing my occassional series of blog recommendations:

I found this phenomenal blog on the Indian economy: The Big Picture

Readers in India probably knew of this already - it is too good to be unknown! But I only discovered it today.

T.T.Rammohan is a professor at IIM Ahmedabad and a frequent contributor to financial newspapers in India, particularly The Economic Times. His writing is simple, fact based and short. The topics he writes about are interesting to anyone that cares about the Indian economy. I spent a good couple of hours on his blog today and feel great about it! This one goes right on top of my Blogroll.

The Little Book of Common Sense Investing: John Bogle

A few days ago, I wrote a post on the Best Investment Books for Beginners. Having written it, I realized that I forgot a book that deserves at least a special mention.

John Bogle is a man who evokes strong emotions from some, particularly in the professional investment management field. Now, if someone made his career out of how foolish my line of activity was, and how full of myself I need to be to even think that I could be successful, I am sure I would be annoyed too. So I can understand the sentiment of professional money managers.

Bogle is, for those not fully familiar, the founder and (now retired) CEO of Vanguard, and the creator of the world's first Index mutual fund. His entire career since 1975 (when he founded Vanguard) is based on the principle that it is extremely difficult for money managers, professional or amateur, to beat broad stock market indexes over the long term. So you can imagine what his books are going to be about.

The Little Book of Common Sense Investing is the sixth of John Bogle's books and was published in 2007. His most influential book is often considered to be his first two - Bogle on Mutual Funds and Common Sense on Mutual Funds. While they are both great books, I consider this latest book to be the best bet for beginner investors.

The story here shouldn't be unfamiliar to anyone who has read Bogle in the past, or has thought about the economics of mutual funds. The short version is this - Professional money managers as a group cannot, almost by definition, earn better returns than the average stock market. On top of that, they have high transaction costs, taxes on realized gains, timing risks, and expense ratios that make it extremely difficult for an actively managed fund to beat a broad index over an extended period. Finally, though it is very difficult to beat the indexes over the long run, it is not impossible. Skill does exist. However, you needs years of performance data before you can be sure that great performance you see in a manager isn't merely statistical chance. And by the time you are relatively sure, you have already missed the big part of their run up! Hence for most investors, Index funds should form the core of portfolio holdings.

While this is a familiar line of Bogle attack on the Mutual Fund industry, there are a few new things in the book that make it useful for beginner investors to consider. There is an updated analysis of mutual fund performance till 2006. Since the first Index fund was launched by Bogle in 1975, the analysis is able to look at about 30 years of data and actually show how, after all the verbal sparring, professional money managers have been able to do against his 'buy everything in sight and stay put' strategy. And the results are compelling! Then there is a little discussion on the different variants of Index mutual funds that have recently come up - sector indexes, style indexes, internal indexes, 'fundamentally weighted' indexes, and most importantly, ETFs. What Bogle says about these variants is well worth listening to.

One nit - I am not entirely sure about Bogle's scepticism about Index ETFs. I think he makes a great point that by their very structure, ETFs encourage trading. And trading is a gory returns-killer. So I can understand the advice for beginner investors to stay out. But for someone who has bought into the philosophy of 'buy and hold', ETFs have the great advantage of saving 10-15 bps in costs. Not to mention the ability to buy on a limit order. Maybe analysis in his next book with talk more about this.

That aside, I think this short book is well worth the few hours it should take you to read. In terms of dollars that a book can make you per page read, The Little Book of Common Sense Investing ranks pretty close to the top of the list!

The Great Crash 1929 - John Kenneth Galbraith

John Kenneth Galbraith was many things to many people. He was one of the most well recognized economists of his time. (And 'his time' was a pretty long one ... he died in 2006 at the age of 97). He was a prolific author, writing about 50 books on economics in his lifetime. He was a Canadian by birth, American by naturalization, and at least partly, Indian by choice. His contributions to economic theory and practice are wide and varied, if sometimes disputed. The India connection? He was the US ambassador to India for three years under JFK, was a great friend of Nehru and was a recipient of the Padma Vibhushan (India's second highest civilian honor) for his contributions to Indo-US relations.

Of his many books, The Great Crash 1929 is one of the shorter yet more remarkable ones. It was first published in 1954 and has been in print without a break ever since. The publishers (Mariner Books) have released a reprint recently, no doubt smelling opportunity in the distress of 2008-2009, and not-so-subtly implying by timing a sense of parallel to the bleak days of 1929. Mad Money Cramer has also recently taken to the book, and has been brandishing it on his show. Readers of Brick and Rope probably know that I am not a Cramer fan. So his endorsement would in most instances have led me far away from a book. But it was also recommended by Warren Buffett in this year's AGM of Berkshire Hathaway. And yes, in case I haven't said it enough times before, I am a Buffett fan.

The Great Crash 1929 is a book that narrates the economic events of that most momentous of years in America's economic history - 1929. It describes the prevailing national mood and sentiment, the rising popularity of stocks, the crazed search for a way to get a foothold in the equity markets, and the slow inexorable march of markets towards madness. It is important to note that this is not a book about the depression. The subject of the book is the stock market crash of 1929. This crash of course led to the depression that lasted (by different measures) for the next ten years - Unemployment in 1938 was still over 20%. But the book is not about this ten year period. It is entirely focused on the event that started it all, the crash of the stock markets in 1929 - something that started around Oct 15, 1929 and after a period of extreme volatility (including the original Black Thursday Oct 24 and Black Tuesday Oct 29, 1929) reached some level of 'stability' by the end of November. Needless to say, this stability was just a mirage as the market was still to go down - a lot. For almost three more years.

Galbraith is an economist from an era where niceties were still observed, when you didn't have to shout yourself hoarse to be heard over the ambient din of marketing noise. Which makes The Great Crash 1929 a really fun book to read. The tone is always measured. Never does Galbraith seem to go over the top to make any point. In fact, he takes pains to remove all drama from the events of that eventful year. So he shows statistics to prove that there was no increase in suicide rates in 1929 as popular myth goes. He talks about how it is unfair to blame just the availability of credit, or the actions of the regulators, or investment trusts, or Hoover or any other single factor for 1929. Even when he talks of villians in the piece, he politely refers to them with a 'Mr.'. In short, he doesn't feel the need to sensationalize, and the book is all the better for it.

To me, reading the book was like watching a terrible train wreck in slow motion, or seeing the Titanic sink. The book opens with scenes of great merriment all around, a sense that nothing could go wrong with the world and that everyone can be rich. A knot develops in your stomach. And it slowly grows larger as you come closer and closer to October. Starting Oct 17, Galbraith describes the market movements as they transpired every day. This is by far the most entertaining part of the book (it might sound callous, but it is the truth!). Galbraith weaves the tale of how the market moved in a way that was almost designed to bring every player in the market down. First the leveraged speculators went down. Then the 'smart money' came in to hunt for bargains when the market stabilized and even rose for a while. Then they were all taken down too. Then the 'smarter' money came in to buy at these really low levels ... You know the drill. You read the narrative and can't help feeling sick. (I have been congratulating myself recently about my 'smart' decision to enter the market earlier in 2009 to pick up all the bargains I could see. We'll see how that turns out.)

Finally, unexpectedly, The Great Crash 1929 is also a funny book. Galbraith has a cheeky sense of humor and an observant eye for the ironies of the human condition. Much of it is on display in the mellow, tongue-in-cheek good humor that pervades the writing about this otherwise depressing period. I thoroughly enjoyed reading the book. If you are looking for a thorough understanding of the reasons for the Great Depression, this isn't the book. But if you are an observer of the markets and want to know more about the conditions that existed in its worst year, this is about as great a place to start as you are going to get.

Honey, I shrunk the plot!

I had an interesting and somewhat disquieting insight yesterday.

Wife and self, coming back home too late in the night, in a near empty metro train. Wife spots a studious, young, 'I-don't-need-to-dress-up-because-I-know-I-am-pretty' college-student type reading 'The Elegance of the Hedgehog'. Wife recognizes cover.

Wife: Hey! Isn't that the book you were reading at home?
JS: (nodding abstractedly) Mmm-hmm
Wife: Well ... if she can read it, I can read it too.
JS: (not quite knowing the right answer) Mmm-hmm
Wife: OK, tell me in short what the story is.
JS: (not turning out his most eloquent performance) Mmm?
Wife: (with some exasperation) The story, the plot ... what is it?
JS: Well ... there is this intellectual girl who lives in an apartment building in Paris ...
Wife: Paris? I love Paris! We should go there one day. But I hear it isn't very child-friendly. I wonder where we would leave N (our daughter) ....
JS: (back in comfort zone) Mmm-hmm
Wife: (breaking her reverie) So there is this girl?
JS: (sigh) Yes, this girl. And in the same apartment building the concierge is also a very intellectual woman, though she hides it from everyone.
Wife: That sounds weak, but go on.
JS: Well ... there isn't much to tell from there. The story is about the two of them. Their thoughts about people in the building, their views on art and philosophy ...
Wife: All that is fine. But what is the story? What happens?
JS: (now really confused) Well, nothing happens really. That is not the point.
Wife: What do you mean that is not the point? Isn't this a novel?
JS: (Starting to realize even as he speaks that this isn't making much sense) Ye...ssssssss, it is a novel. But this is literary fiction. It doesn't necessarily have a story or plot.
Wife: (with admirable decisiveness) I don't think I will like it then. What is a novel if it doesn't have a plot?

Which brings me to my disquieting insight - Modern literary fiction doesn't have a plot anymore!

Somewhere along the way, literature stopped being about pure and simple storytelling. Having a plot somehow became bourgeois. Writers of literary fiction got all caught up in characterization, language, and structure. The storytelling became incidental to the whole exercise. Literature became, in large part, worship at the alter of language.

Somewhere along the line, in other words, the 'plot' died.

It didn't start this way. The origins of literature are firmly in the traditions of storytelling. Dickens was primarily a storyteller. And so was Tolstoy. And Jane Austen. And Shakespeare. I don't think they would have even understood "But this is literary fiction. It doesn't necessarily have a story or plot." I am sure Shakespeare would have gone - "Quit thy prattle forthwith!"

Now, I do love my Rushdie, and Ishiguro and Roth and multiple other proponents of this 'no plot' or 'low plot' literature. In their capable hands, language and structure and characterization are putty that can make the most glorious art. But sometimes I do wish there were more literary writers of who just told a good tale. Like Rushdie in East, West. Or John Irving. Or (reaching back a bit) Roald Dahl. Or (on a tangent) John le Carre.

Now that would be literature. With a story. Something my wife would like to read too.

The Elegance of the Hedgehog - Muriel Barbery

I was walking the aisles of an airport bookstore a few months back when my eyes were caught by a book with a chic young schoolgirl on the cover. The title said 'The Elegance of the Hedgehog' which made almost no sense. But in some intangible way, the book and the title made an impression on me. I had no more time to linger on, to read a few pages. I opened the 'Books to Buy' note that I always have on my Blackberry and added the words 'The Elegance of the Hedgehog'. My flight was called and that was that.

In the months since, I kept hearing about the book from multiple sources, all extremely laudatory. In particular I loved an hour long readers' review of the book on Diane Rehm's NPR show. So when I finally started reading the book last week, my expectations were extremely high.

Which is usually a problem.

Muriel Barbery is a professor of philosophy. And she is French. Which (to me) usually adds up to two reasons to expect a pretentious book. But given all the critical acclaim, I decided to look beyond that, and beyond the fact that this is a book translated from French. Halfway into the book, I wasn't sure I need have bothered.

The Elegance of the Hedgehog is the story of two women - or to be precise, a 50 year old woman and a twelve year old girl. The woman is a concierge at a rich apartment building in Paris, and the girl is the younger daughter of a public figure living at the building. Though they occupy the same building, they might as well live in different worlds. They seem to have nothing in common, except this - they are both closet intellectuals: extremely well-read, cultured and polished, but for reasons unique to each, at pains to present an exterior of dullness.

The book is made of mini-chapters which can only be called essays laying out the thoughts of Renée (the concierge) and Paloma, the intellectual young girl wise beyond her years. These are thoughts on art, philosophy, nature, literature, poodles, burning cars. And the inhabitants of the building. On which last topic, there is much berating of the arrant superficiality of the supposedly 'cultured' lives. Halfway into the book, a Japanese man (Kakuro Ozu) takes up residence in the building, and builds an unlikely friendship with both central characters, slowly but surely drawing them out of they self-imposed intellectual cocoons.

If you are the kind of person that primarily looks for a plot in keeping a book moving, Hedgehog is not a book for you. There isn't much in the form of a plot here. The best parts of the book are idle thoughts floating through the central characters' heads. I am not a student of philosophy. So some of the chapters left me a bit cold, with a feeling that something profound was possibly meant here, but I don't quite see it! But the journey is still worth it. There are enough spots of luminescence during the book to make it worth the while of reading through some that you can't fully appreciate.

And then there is the emotional core of the book which comes towards the very end. If it were not for the last 50 odd pages of the book, I would comfortably have stated that I hated the book, and thought it was (as feared) too pretentious to be enjoyable. But the last 50 pages changed everything for me. As Kakuro peels away at the many defensive layers Renée and Paloma have wrapped around themselves, you start seeing the real, vulnerable people underneath. And I for one, am a sucker for that trick. I found these last pages immensely moving and for me, they made up for the trouble of trudging through dense philosophic ruminations earlier on.

The Elegance of the Hedgehog is erudite, smooth, subtle and moving. As literature, it is a winner. Be patient with it, and you will be rewarded.