This Diwali, pray for sense. This New Year, leave greed.

So the market is gung ho about what happened in the samvat gone by, and what has been the market performance DoD (Diwali over Diwali!). They were saying markets rose 90%. They were saying the year was gainful. Gainful it was, but was it wealth creating? One doubts, really.

How can one forget the wealth erosion that took place due to the events that started from US housing and ended up with the Satyam embarrassment. When greed sets in and you want to make gains that are not yours- when the money becomes dirty to own, when you lose the very sense of the value of that fifty rupee note, thinking it at par with the erstwhile ten rupee note, mister, you're soon going to be in a lot of problem.

Just when the traders and the investors brigade started splurging their (i would rather go as far to say) undeserving gains, just when they started thinking everything to be cheap, or rather inexpensive, they faltered into a mistake they will inevitably commit again.

It may be blasphemous for a bull to say that the markets should not stay up- but calling a spade a spade is not wrong by any calculation. Okay, one says- India did not have any problem. US had. We're good as we were. We can go on spending as we used to- markets will rise and we will be able to pay off our debts, since salaries will also rise given the markets to be a derivative of the corporate world. Sir, that is wrong.

What is happening in India now is what had been happening to the US in the last many decades. You'll probably believe this if i bring in some examples. AIG fell because it bought toxic assets, which were a product of the new breed of talented graduates who were being pulled into the financial markets lured by the big money. Talented people could have worked elsewhere and done something more contributory and productive rather than calculating arbitrage odds or punting on somebody else' behalf. That is what is happening here as well, well, off late one would stop me- since Lehman is dead now, but ask MBA wannabes or Commerce students and they'll tell you "I wanna do finance".

Emphasis needs to be laid on real sectors- such as biotechnology, IT, capital goods, and so on. Finance is just a net that facilitates other sectors. It cannot facilitate itself- understand this sentence, and you'll know what went wrong last year.

And coming over to the governments now. "America is a capitalist economy." My history teacher told me. America fought a cold war based on the capitalist ideology (no offense meant, there were other factors also!). I say, and I am a capitalist myself, America is not a capitalist economy. It is an American economy. If it were a true capitalist, it would let its organisations fail. AIG is fine, understandable since a capitalist is a hypocrite as well. But others did never deserve the bailout. And what have we got in India, as a direct consequence of the so much popularized and talked about American bailouts? Indian bailouts. Governments recapitalizing PSU banks is another issue that i dare not elaborate! Real estate biggies who were punting like dirty, greedy hogs some years ago were begging for government policy reforms and debt restructuring. And the government gave in to most of those demands- are we really such socialists that we only heed to the demands of the rich who have grown to be so rich that they cannot afford to become slightly poorer, or slightly less richer than they are now? The government should have let them fail, go insolvent. What the governments have done now, worldwide, by granting bailout money to people who do not deserve it is they have created a larger system, increased the degree of freedom to abuse money and its derivatives. They have not reduced the cyclical nature of capitalist economies, they have only increased the size of the cycle. The next bust will be larger than this one, and one wonders where would the bailout money come from! And how much would it be. A large audit needs to be done- to find out how much cash, how much real money actually exists. But that is as impossible as getting PoK back from Pakistan!

Putting things into perspective for the investor community, investments should be made in the spirit of investment. According to Graham, Benjamin and Dodd, and i fully agree to this, an investment is a choice by an individual or an organization such as a pension fund, after at least some careful analysis or thought, to place or lend money in a vehicle (e.g. property, stock securities, bonds) that has sufficiently low risk and provides the possibility of generating returns over a period of time. Placing or lending money in a vehicle that risks the loss of the principal sum or that has not been thoroughly analyzed is, by definition speculation, not investment.

Stay away from punters and penny stocks. Invest in companies where you know for sure there is a good management, and use your own head, sensibly and immune to greed.

Happy Diwali and a Prosperous New Year to All Readers!
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