Theme for The New Year

Dear all,
Its new years again and i am sure most of you must have made some resolutions. I have stopped making them since i know i never follow them.
But the most important people who should make a new year resolution is our corporates. The level of corporate governance has been poor in general, though it was improving only to have been dealt a body blow by the satyam fiasco.

The promoter of the company tried to bail out his troubled sons by infusing capital in their companies. Maytas was valued at astronomical levels, and i think only a caring father could turn a blind eye to the glaring mismatch in asset base and valuation.

The company was rightly reprimanded by its ling term shareholders and that the deal had to be called off as the threat of litigation was grave. Such a misadventure has severely dented the image of the company at the international level. It was banned from dealings with the world bank for a period of 7 years on account of bribery charges.

The scene got murkier when the promoters had actually pledged all their shares to the financial institutions who may have sold them. Currently the ravenous PE funds and rival companies must be licking their lips at the prospect of a takeover pray.

This problem of bad corporate governance is not an endemic issue to india but its a pandemic which has engulfed the whole world.

The so called bastions of corporate governance in usa- the financial institutions have been a complete failure and have had a devastating effect of the world economics

So, then what you as a smart investor do? How do u find a way through this quagmire? I guess the answer lies in actually investing in the companies in which you have some idea about. Like for eg, a housewife knows all about home products and they would know which is the right product and which makes the right one. There may be rival substandard brands, but then a lady who has brought home products over a number of years does have a discerning eye.
Why shouldnt she invest in the company which she knows about, is honest, discloses everything and is at all time low like it is right now?

Why should a doctor invest in anything but pharma or biotech companies or medical equipment makers?

The underlying point is here is to invest in something you have an idea about. The companies is the leader in the pack. Discloses all the relevant information which is important to the shareholder and importantly is trading at a significant discount to its underlying asset value?

Pharma companies and FMCG companies have outperformed the broad market since the recession has begun and it would take a braveheart to make a contrarian call against them.

My next article will focus on power companies and why i think any good portfolio should be dominated by power/ power ancillary

Thank you,
Kunal