TrumpHill

Disclaimer:
I don't support Trump or Hillary, one vs another, either or both or in any other possible way. Fortunately for us we don't have to vote in this devil vs witch election. Having said that all countries go through such phases of political bankruptcy at some point or the other. Not long back India was practically ashamed by the leaders representing the country. So I am not trying to mock anyone or any country, just trying a neutral analysis on possible impact of this event on stock market and us stock market participants.

Trump Vs Hillary
This election could definitely be a market moving event, considering the two candidates represent completely opposite and extreme views on absolutely everything. To a large extent broadly speaking Hillary represents continuation and she will mostly be like female version of Obama (except maybe not as smart) who will drag the same for another 4 years. If she wins Obama fans will not miss much. Trump on the other hand represents anti-establishment. He will mostly try to change and do everything differently if not in exactly the opposite or anti current practices way.  I won't go into major "If I win I will do this" list of both candidates, because most of it is meaningless and neither will keep any of their promises which are just made to generate more and more media buzz.

Why we (stock market players) should worry?
Trump has openly made many statements in the media that he believes that stock markets are in bubble territory, he has exited most of the investments and markets will crash and people who are invested into the market will loose lot of money. refer

Bubble or not someone like Trump can certainly cause a burst. His ideas about NATO, Mexico, international trade, off-shoring, etc is all very radical. US is the mother market and a big import/export destination for the rest of the world. So any disruption in US policies can lead to huge disruption in stock markets around the world.

Hillary like I said represents continuation, she will most likely be best friends with Yellen, continue to print and distribute money to the rich, elite and advantaged class as well as throw some in charity on the working class so that she has something to say in her speeches. In short she will be a blessing for stock market and stock market participants and her winning the elections could very well trigger a huge run up everywhere in the world.

Geopolitics and Wars

This is another area where the two differ very strongly. Hillary again being a continuation of her predecessor will keep all the wars in third world countries alive and dragging for another 4 years with no solution or end to it. After all America is a major beneficiary. Hillary also has a big role in some of these like Libya and she has made her line of thinking very clear. (Something that makes me feel nauseated about her). I think Hillary will further strain America's relationship with Russia & China and also cause more chronic pain & suffering to the war & terrorism impacted countries. 

Trump again has a different view on this. Trump could very well be more co-operative in this matter with Russia which according to me is the more optimistic case for the war impacted countries. Maybe not a popular opinion but I think the middle east problem is basically just a proxy war between US & Russia and can be solved only if these two countries shake hands (which Obama is unwilling to do and same will be the case with Hillary) Trump might just go and hug Putin which can change lot of things in the world. However Trump can negatively impact US relations with NATO and EU and other allies like Japan, etc. I am not very sure about his views on the South China Sea issue though.

Who wins?

Considering the two candidates represent completely opposite point of views and both have extremely biased followers, one set of people believe that only Hillary will win and other set believe that only Trump will win. Like someone said, this time support for a particular candidate comes more from hatred for the other candidate. But many conventional news and media channels (establishment worshipers) have a very biased view that Trump has no chance in hell. I think that will not be the case. I did some quick analysis here which off-course is meaningless & useless but just for fun and might provide some good insights after the election results are declared for future. Let's start with twitter

Tweet Tweet:
At the time of writing this Trump had 11.6 million followers compared to 8.8 million followers for Hillary. It is also interesting to note that Trump only follows 42 compared to 752 for Hillary. What Hillary follows is mostly diversified interest in politics, NGO's and people whereas Trump mostly follows other Trumps and different businesses run by the Trump families

Trump is way more active on twitter with 33K plus tweet whereas Hillary is struggling to reach even 10K (not surprising since during the email scandal days many said that she was quiet challenged when handling IT which was also used as a defense in the whole episode)

Not accurate or exhaustive but just running through the tweets from both, Trump clearly generates much more engagement, likes and retweets. Below is a snapshot of the two bashing up each other. Trump getting likes in tens of thousands and Hillary in few thousands. I wish I had access to the analytics page for both the candidates, but I don't :(

Google Trends
Google Trends also show a clear victory for Trump in terms of interest. Hillary showed a minor and temporary bump after she collapsed at the 9/11 memorial ceremony (maybe the ghost of Libya wars came to haunt her that day). However Trump clearly wins here hands down and consistently throughout.

US region specific Google Trends

Polls
Polls predict a solid victory for Hillary by a good margin. refer

Betting markets
Betting market also show a good lead for Hillary which is where real money is at stake compared to polls which is just free opinion stats (just be cautious they showed a similaR lead for Breremain over Brexit)

So is it Hillary?

Not sure. Twitter shows more excitement for Trump and Poll for Hillary. I think Trump is much more well networked. He is involved in several businesses which employ several people who have several friends and families and are hence connected to Trump in some way. This explains his popularity on social media over Hillary. At one point of time I would have said that Trump generates more controversies but that is not true anymore, Hillary is probably just a step behind. So Even if the polls don't suggest so I think the election will be a close one and while Hillary win is a consensus opinion, Trump does have a fighting chance. We will know only in November. 

If heavily invested in Stock markets. do I need to be prepared for this event?

Oh hell ya

How?

I don't know :)

ax+by=c

Ax + By = C .. sometimes simple mathematics can help you earn loads of money .. here is one example :)

The Scheme of Arrangement from Birla Group

Recently Aditya Birla Nuvo and Grasim announced a mega re-structuring which was as follows

Incorrect analysis by top analysts 

This is what one of the senior analyst from CNBC had to say about the scheme of arrangement

On the day of the announcement AB Nuvo was trading at Rs 1560 and Grasim at Rs 4500. As per the announcement  for every 10 AB Nuvo shares (10*1560 = Rs 15600) you get 3 Grasim shares (3*4500= Rs 13500) so the % difference is (15600-13500)/15600*100=13.4% which is the ~14% spread mentioned above by the CNBC analyst

And here is what another senior analyst from ET Now had to say about the scheme of arrangement

Here the analyst analyzes the deal based on how much he would have to pay in terms of Grasim or AB Nuvo shares to acquire 210 shares of ABFSL. However he quickly forgets to account for the actual shares in hand of AB Nuvo or Grasim and calculates that Grasim gives him an advantage of 13% over AB Nuvo only based on the value ABFSL shares acquired through his holding in AB Nuvo or Grasim

Clearly both analysts got it totally wrong. For AB Nuvo shares you get Grasim shares but with those Grasim shares you get additional ABFSL shares. Who will account for that in these calculations?

Correct analysis based on simple mathematics ax+by=c

Let's look at the scheme of arrangement again. 

The correct equation to model this scheme mathematically actually has two parts as follows:

On the date of announcement AB Nuvo  was trading at 1560 and Grasim at 4500

Now say you have 100 shares of AB Nuvo so the value will be 100 *1560. Post the scheme of arrangement your 100 shares of AB Nuvo get cancelled and you get 30 shares of Grasim for it. Everyone got this right and included it in their calculation but they forgot to include the second part of the scheme of arrangement to calculate the return on their holding in AB Nuvo shares. Further for every Grasim share you get in return of your holding in AB Nuvo you get additional 7 shares of ABFSL.  So the correct equation is 

100*1560 (AB Nuvo) = 30 * 4500 (Grasim) + 30*7*X (ABFSL)  

c = ax + by

which is favorable for AB Nuvo shareholders depending on the value of ABFSL

However using incorrect calculation as done by the analysts above shows the scheme to be favorable for Grasin

100*1560 (AB Nuvo) = 30 * 4500 (Grasim) 

c = ax ?

This equation incorrectly implies a 14 % arbitrage discount to Grasim holders and hence favorable for Grasim holders It is incorrect because it does not consider the "by" part of the equation ax+by=c Shareholders of AB Nuvo get Grasim (ax) shares which in turn gets them shares of ABFSL(by) so we need to include both parts when calculating what we get in return for AB Nuvo shares

Panic mode on 

I tried my best to explain this on twitter, but there was way too much panic going on because of foolish analysis of 14% discount posted by some very senior members of the top business news channels in the country. 

Not everyone was foolish, some got the point and appreciated. 

Opportunity in Insanity
Sensing a complete panic about the deal from twitter, I decided to be ready with a war chest and go "all in" if markets loose their shit on this. Next day as trading started, market did go insane and AB Nuvo crashed more than 20% to 1290 per share from 1560, while Grasim went down by around 5% from 4500 but recovered the whole loss by market closing since everyone thought that the deal is favorable for Grasim. However it actually made the already better AB Nuvo even better by giving a much wider arbitrage between the two in favor of AB Nuvo. The new equation looked like this

100*1290 (AB Nuvo) = 30 * 4500 (Grasim) + 30*7*X (ABFSL) 
c = ax + by (with c revised after 20% fall in Nuvo)

So for Rs 1,29,000 in AB Nuvo you now get 1,35,000 worth of shares in Grasim and 210 shares of ABFSL! Now that's insane !!!
210 shares of ABFSL for free and 1,35,000 - 1,29,000 = 6000 in net value extra. How cool is that ?

ALL IN
I simply closed my eyes and hit the single largest buy order of my life with money pooled in from every source possible. The only money left with me after that were a few 100 Rs notes that were in my wallet (thankfully) and another 19 days to go for the month before I get my next salary credit. This was going to be a really cash strapped month for me :)

Fruits of simple mathematics & calculated risks
The markets re-opened on Tuesday after a long weekend including Independence day holiday on Monday and AB Nuvo started it's recovery from insanity. There are other aspects also. A side factor to the crashing of the AB Nuvo stock besides the panic created by foolish analysts was also the fairness opinion about the restructuring. Some experts pointed out the the deal is too complex and will make Grasim a very complex holding company attracting a hefty discount and will also dilute the stake of AB Nuvo shareholders in ABFSL considerably and is effectively a bad deal for both. Great shareholder activists like Anil Sanghvi blasted the management for this restructuring move and many institutional shareholders came up with some really tough questions for the management and so the deal is in a flux state currently. No doubt the deal is indeed one of the worst seen in recent times but the market panic reaction was way overdone and that provided a golden opportunity to vigilant and active investors.

How much did I invest & make?
a lot :) But goes without saying that most of the story has played out and I am already booking partial profits on this deal. In near future this looks like will get into a prolonged battle with the management trying to convince the shareholders and the shareholders acting tough on management. In recent memory a similar example was Cairn - Vedanta deal that took several years to close. No fun in that! The real fun lies in looking for such opportunities and then playing it big. It's a mega feeling..

success curve

there are many books on how to become super successful or what successful people do differently .. blah blah blah .. (maybe they are just lucky or have inherited a good start :D ) However to keep it simple, I believe that there is atleast one thing everyone can try. Just having a mindset to think differently than what has been the tradition and age old wisdom is a good start. Add to that willingness to experiment, break the rules and extend the boundaries irrespective of the outcome .. success or failure, loss or profit irrespective of what others say or believe. This should give anyone a reasonable chance at extraordinary success.

When it all comes together
Just willing to attempt something different than routine puts you above 95 percentile of the rest of the world. And then depending on all other factors (luck, hard work, timing, etc etc) you could get into the top 1 percentile or maybe even the top. "The One"

What if I fail ?
Yes, when trying something new or different, risks are very high and you need to account and plan for the worst case scenario to make sure you don't end up in an position from where no recovery is possible. At the very least; even if you loose everything in current attempt you should still have enough to be able to start working on the next attempt. Over the several iterations once luck, hard work, timing, etc etc will come together in your favor and you will zoom so far ahead of the average that there will be no looking back thereafter.

So keep in mind just dare to think and do different instead of following and being bounded by what you have been told or what you already know .. and keep doing it .. that's all you need.

gain vs loss

uff uff uff !
Once again I caught a dear friend of mine discussing how he has invested in a 10 year scheme that will give him ~8% return which is better than Fixed Deposits because now-a-days FD's give only 7-7.5% return and how it is not that risky and the money he gets after 10 years will be useful when kids grow up. uff!

For the last time, I will try to convince anyone who has such thoughts. This time using a different approach :D The right way to look at it is not how much you gain but how much you gain vs how much you loose (opportunity cost). For a nominal investment of 10 Lakh rupees over a 15 year period let's see how much you gain and how much you loose when compared to potential returns from the equity market.

• In Bank deposit you gain 0.1 Crore but you also loose 2.1 Crore Rs
• In Fixed deposit you gain 0.2 Crore but you also loose 2 Crore Rs
• In Debt you gain 0.4 Crore but you also loose 1.8 Crore Rs
• In MF you gain 0.9 Crore but you also loose 1.3 Crore Rs

So none of these give you even half of the actual potential returns that can be achieved from the equity market.

Table Summary (All CAGR % is approximate but more realistic than what ur fund manager/Investment broker tells you net of all charges)

15 Yr 10L Inv	CAGR (%) Approx	Gain (Cr)	Loss Vs Equity (Cr)
Bank Deposit	4	0.1	2.1
Fixed Deposit	8	0.2	2
Debt	12	0.4	1.8
MF	18	0.9	1.3
Equity	25	2.2	-

Detailed Yearly Calculation

Investment	Bank Deposit	Fixed Deposit	Debt	MF	Equity
CAGR	4	8	12	18	25
1	1000000	1000000	1000000	1000000	1000000
2	1040000	1080000	1120000	1180000	1250000
3	1081600	1166400	1254400	1392400	1562500
4	1124864	1259712	1404928	1643032	1953125
5	1169859	1360489	1573519	1938778	2441406
6	1216653	1469328	1762341	2287758	3051758
7	1265319	1586874	1973822	2699554	3814698
8	1315932	1713824	2210681	3185474	4768373
9	1368569	1850930	2475963	3758859	5960466
10	1423312	1999004	2773079	4435454	7450583
11	1480244	2158924	3105848	5233836	9313229
12	1539454	2331638	3478550	6175926	11641536
13	1601032	2518169	3895976	7287593	14551920
14	1665073	2719623	4363493	8599360	18189900
15	1731676	2937193	4887112	10147245	22737375
Gain on Capital	731676	1937193	3887112	9147245	21737375
Gain in Crores	0.1	0.2	0.4	0.9	2.2
Loss Vs Equity	21005699	19800182	17850263	12590130	-
Loss in Crores	2.1	2	1.8	1.3	-

Risks?

Yes there are risks and there are rewards. Make a good judgement. Try to choose what is better than average. Trying to be risk free throws you to the bottom of the list with huge losses (for you and your future generation) in terms of potential return on investment on a compounding basis while others who sell you this junk enjoy good bonuses, great parties and free commissions for the next 10-15-25 years from your hard earned money. Think about it !