Monday, October 4, 2010


6 years 10 months ...I tried remembering what I was doing at this age. All I could remember was singing to the rain god to stop raining so that I could play, doing a little maths, lots of running, stealing guavas from the neighbors, taking a bath in the open courtyard...
Did I ever ask dad what is e=mc^2 , who was Stephen Hawkins, Einstein...I am surprised and scared at the same time by manus curiosity...He searches for Stephen Hawkins videos, videos on the universe and can watch them endlessly without loosing interest. His teacher tells me he might be a special needs child and asked me to go to a psychologist to assess his level through some exam they give...scary, unconventional but yet it helped me realize the fact that I have to deal with him differently. I obviously don't have answers to all his questions and am in no mood to give him the answers. I want him to figure them out. He is too smart ...

Thursday, March 11, 2010

Case Summary - Dimensional Fund Advisors

Slightly long because the case is more like a chapter on fund management. Don’t need a book with these fat Harvard cases (love em).

Dimensional Fund Advisors

General facts

1. DFA - ranked too far down (96th) by pensions and investments. Should we increase assets?

2. Efficient market philosophy.

3. Sound academic research and skilled traders.

4. 130 employees. 100 in calif, rest in chicago etc.

5. Professors get a cut of profit.

6. Broad product line. Started by managing money for institutions - $25 bn. Nearly all institutional clients are tax exempt. In 1989, started HNW individuals through registered investment advisors (RIAs). Clients paid RIAs for advisory - total charges reasonable. DFA provided RIAs with a low fee product that clients could not obtain themselves. DFA also educated RIA using latest research that RIAs used to advise clients. DFA DID NOT ADVERTISE. Grew RIA businesse to $15bn in 13 years.

7. Core beliefs - diversification, low turnover and low transaction costs.

8. Small cap portfolios based on decliles. Research from Banz. Outperformance from 1926-1970. Size effect (small beat large) shown across countries. DFA added SM funds covering europe, UK, Japan and pacific rim.

9. Fama and french.

- Beta alone is not a good predictor of returns. High beta stocks did not outperform low beta stocks. Beta is dead.

- High BE/ME is a good predictor of returns. Book to market ratio was the most powerful scaled price variable for predicting stock returns (more than PE and A/ME).

- Size effect exists.

- High BE/ME ~ value stocks. Low BE/ME ~ growth stocks - growth were typically overhyped? that did not go well with efficient markets hypothesis. DFA believed value stocks outperformed because they were riskier companies. Value stocks could be infested with distressed companies.

- 1993 paper - Three factor model: {Small - big, High - low, beta}. Variation in these 3 factors explained the bulk of variation in stock returns (regression analysis). Effects consistent with research in behavioral finance (Kahneman et. al.).

- MSI substantiated Fama and French's research using international data.

- {Value - growth} performance highly correlated across countries. If this wasn't the case, a portfolio of value minus growth stocks from major countries would have very low risk due to diversification and produce very good returns.

- While value did well on average, in some years, growth stocks outperformed value across countries - high returns from value stocks were a reward for taking higher risk.

10. Small Stock and Value Stock Performance

- Small stocks continued to lag. Growing use of S&P 500 for comparing and fund management. S&P 500 - in favor, small stocks out of favor but that didn't explain the low returns of small stocks. Fama & French showed that profitability of small companies had been poor through 80s and 90s wrt large ones.

- DFAs funds lagged behind due to focus on small cap.

- Critics - DFA had started at the wrong moment - as the size effect became widely known, people crowded into small stocks.

- 1990s : value stocks rose through the decade but dwarfed by the performance of growth stocks (high tech!). DFA missing the boat but for a rational investor, high priced growth stocks appeared unattractive. DFA hoped 2000 and 2001 will stop investors from believing that by investing in value (style), DFA eliminated the edge of that style.

11. DFA Trading Strategies

- Block trades - absorb the selling demands of others and reduce transaction costs (36%).

- If a fund manager wants to move from retail sector to energy and owns 1m shares of saks 5th avenue, getting rid of 1m shares on the market is impossible. Fund manager enters into a block trade. Fund manager --> I bank's block trading desk or broker --> DFA. DFA saw a 1000 trades and took 20.

- Adverse selection problem - are these people selling because they have adverse information about the stock? Pay attention to the seller and the nature of the block it trades.

- No fundamental analysis - just ensure the seller has no negative private information about the stock.

- Trust : Ask seller for full disclosure and entire holding so that the seller can't seller part of the holding to DFA and then bring the price down by selling the remainder in the market. Blacklisting (whiteboard) was costly for those who cheated because DFA was a key player. If there is trust, can do smaller deals also. If no trust yet, negotiate a steep discount on block. Sterling reputation for secrecy (leakage could bring price down).

- As a result of buying large blocks, DFA ended up with >= 5% shares of many companies (this requires SEC disclosures - 13D and 13G filings).

12. DFA Portfolio strategies.

- Match a broad based value weighted small stock index. No interest in betting on particular firms (active managers do that).

- Precisely matching index would require going out as a determined buyer - expensive. Take the stocks you can get cheaply while maximizing diversifcation and minimizing tracking error with the small stock index. If a stock's weight in the portfolio was too much already, ask for a discount. More overweighted, more discount to make the purchase worthwhile.

- Discount on price = f(knowledge of broker, knowledge of markets).

- Average discount of 3.33% on block trades. 36% purchases via block trade route. For 64% trades, work the order (vWAP etc.) - cost 0.58%. Weighted average discount on all trades = 0.83%. In 2001, average purchase discount for all trades : 2.13%.

- In Kind Redemption - Ensure very large withdrawals do not force DFA to sell stock - when someone redeems, give them shares instead of cash.

- Buy in blocks, Sell in pieces (no more than 25% of daily volume of stock in the market each day). Any stock was a small part of the portfolio, so could take their time to sell without seriously affecting performance.

- Outperformance of 200 bp over the last 20 years.

- Ibbotson associates - DFA's passive fund - good benchmark for small cap - can't run such a fund without trading because small cap stocks come nad go. DFA converted the difficulty of trading small cap stocks into an opportunity.

13. New Product : Tax Managed funds

- reduce tax payments - only useful for taxed investors (not pension plans for example).

- SEC : assume highest trx bracket. Mutual funds just passed on dividends and capital gains so individual investors were the eventual taxpayers.

- Dividends taxed as ordinary income (39.6% highest) immediately whereas capital gains can be deferred until realized, and are taxed at 28% (sold within one year) or 20% (if > one year).

- Fewer stocks paid dividends every year due to the above tax treatment.

- Matching index with size weighted holdings --> higher weight on larger, dividend paying stocks --> tax cost. Need to keep D/Y low while matching index. Value stocks could pose a problem (high Dividend yield).

- Capital gains were generally avoidable if net fund inflows were positive. However, need to sell stocks to avoid drift from benchmark (need rebalancing).

- Avoid short term gains - don't sell within a year if possible.

- Harvest tax losses (sell at loss to reduce taxes, buy 30 days later. balance txn costs against loss harvest benefit).

- Tax managed funds - natural business (clients need it).

- Tax managed funds - higher txn costs - sometimes had to give up block trades to avoid dividend paying stocks. Tax loss harvesting added to costs

- Net benefit of stock to portfolio = f(tax benefit, txn cost, risk factor loadings, volatiity). Complex but DFA has the profs and skilled traders.

14. Finale:

- Added tax managed funds for small cap, small cap value and international value stocks. 2001 : market wide tmf - 10bp higher fees.

- 2000, 2001 - growth stocks plummented in the dot com crash, HML portfolio had tremendous returns.

Bottomline Question:

For growth, so far we have relied on word of mouth and occasionally adding products. we're so successful. Should we try harder to grow?

Wednesday, February 17, 2010

Monday, October 26, 2009

Rapunzel and manu

The story of Rapunzel-(for all those who haven't read it)(see manus comments right at the bottom)

Grimm's Fairy Tale version - translated by Margaret Hunt - language modernized a bit by Leanne Guenther

Note: Rapunzel is an old nickname for a herb with leaves like lettuce and roots like a radish -- it is also called rampion.

There once lived a man and a woman who always wished for a child, but could not have one. These people had a little window at the back of their house from which a splendid garden could be seen. The garden was full of the most beautiful flowers and herbs. It was, however, surrounded by a high wall, and no one dared to go into it because it belonged to an witch, who had great power and was feared by all the world.

One day the woman was standing by the window and looking down into the garden, when she saw a bed which was planted with the most tasty rapunzel. It looked so fresh and green that she longed for it and had the greatest desire to eat some. This desire increased every day. The woman knew that she could not get any of it and grew more pale and miserable each day.

Her husband was worried about her and asked "What is wrong my dear?"

"Ah," she replied, "if I can't eat some of the rapunzel from the garden behind our house I think I shall die."

The man, who loved her, thought, "Sooner than let my lovely wife die, I will bring her some of the rapunzel myself, no matter what the cost."

In the twilight of the evening, he climbed over the wall into the garden of the witch, hastily grabbed a handful of rapunzel and took it to his wife. She at once made herself a salad and ate it happily. She, however, liked it so much -- so very much, that the next day she longed for it three times as much as before. If he was to have any rest, her husband must once more descend into the garden. In the gloom of evening, therefore, he set out again; but when he had climbed over the wall he was terribly afraid, for he saw the witch standing before him.

"How dare you," she said with angry look, "sneak into my garden and steal my rapunzel like a thief? You shall suffer for this!"

"Ah," the frightened husband answered, "please have mercy, I had to have the rapunzel. My wife saw it from the window and felt such a longing for it that she would have died if she had not got some to eat."

Then the witch allowed her anger to be softened, and said to him, "If this is true, I will allow you to take as much as you like, only I make one condition. You must give me the baby daughter your wife will bring into the world; she shall be well treated, and I will care for it like a mother." The man in his fear consented and when the baby was born the witch appeared at once, gave the child the name of Rapunzel and took the baby away with her.

Rapunzel grew into the most beautiful child beneath the sun. When she was twelve years old, the witch shut her into a tower, which lay in a forest. The tower had no stairs or doors, but only a little window at the very top. When the witch wanted to go in, she stood beneath the window and cried,

"Rapunzel, Rapunzel,
Let down your hair."

Rapunzel had magnificent long hair, fine as spun gold, and when she heard the voice of the witch she wound her braids round one of the hooks of the window, and then the hair fell down the side of the tower and the witch climbed up by it.

After a year or two, it came to pass that the Prince rode through the forest and went by the tower. He heard a song which was so lovely that he stood still and listened. This was Rapunzel who in her loneliness passed her time singing. The Prince wanted to climb up to her, and looked for the door of the tower, but none was to be found. He rode home, but the singing had so deeply touched his heart, that every day he went out into the forest and listened to it.

Once when he was standing behind a tree listening to Rapunzel's song, he saw the witch come and heard how she cried,

"Rapunzel, Rapunzel,
Let down your hair."

Then Rapunzel let down the braids of her hair, and the witch climbed up to her.

"If that is the ladder by which one mounts, I will for once try my fortune," thought the Prince and the next day when it began to grow dark, he went to the tower and cried,

"Rapunzel, Rapunzel,
Let down your hair."

Immediately the hair fell down and the Prince climbed up.

At first Rapunzel was terribly frightened when a man such as her eyes had never seen, came to her; but the Prince began to talk to her quite like a friend and told her that his heart had been so stirred by her singing that it had let him have no rest. Then Rapunzel lost her fear, and when he asked her if she would take him for her husband -- and she saw that he was kind and handsome, she said yes, and laid her hand in his.

She said, "I will willingly go away with you, but I do not know how to get down. Bring a bit of silk with you every time you come and I will weave a ladder with it. When that is ready I will climb down and we shall escape together." They agreed that until that time he should come to her every evening, for the old woman came by day.

The witch knew nothing of this, until once Rapunzel said in her distraction, "Oh my, you are so much heavier when you climb than the young Prince."

"Ah! you wicked child," cried the witch "What do I hear thee say! I thought I had separated you from all the world but you have deceived me."

In her anger she clutched Rapunzel's beautiful hair, seized a pair of scissors -- and snip, snap -- cut it all off. Rapunzel's lovely braids lay on the ground but the witch was not through. She was so angry that she took poor Rapunzel into a desert where she had to live in great grief and misery.

The witch rushed back to the tower and fastened the braids of hair which she had cut off, to the hook of the window, and when the Prince came and cried,

"Rapunzel, Rapunzel,
Let down your hair,"

she let the hair down. The Prince climbed to the window, but he did not find his dearest Rapunzel above, but the witch, who gazed at him with a wicked and venomous look.

"Aha!" she cried mockingly, "You've come for Rapunzel but the beautiful bird sits no longer singing in the nest; the cat has got it and will scratch out your eyes as well. Rapunzel is banished and you will never see her again!"

The Prince was beside himself and in his despair he fell down from the tower. He escaped with his life, but the thorns into which he fell pierced his eyes. Then he wandered quite blind about the forest, ate nothing but roots and berries and did nothing but weep over the loss of his dearest Rapunzel.

In this way, the Prince roamed in misery for some months and at length came to the desert where the witch had banished Rapunzel. He heard a voice singing and it seemed so familiar to him that he went towards it. When he approached, Rapunzel knew him and fell into his arms and wept.

Two of her tears fell on his eyes and the Prince could see again. He led her to his kingdom where he was joyfully received, and they lived for a long time afterwards, happy and contented.

The daily story routine sometimes drives me crazy as I run out of them pretty often. Do suggest some sites where I can find stories to quench the endless thirst.

And they lived happily ever after... my eyes were almost drooping as I was hoping manu would transcend into Rapunzels world but it seldom happens ...sigh!

manu- "Mama what if chiki will be a girl "

me-"what about it then?"

manu-" if someone comes to save her I won't like what happens after that"

me-"what will happen after that?"

manu-" what people do after they get married "

me-" what do people do after they get married?"

manu-"on the lips..."

I couldn't stop giggling. So the elder brotherly instincts were already in place. He had transcended into a different world...

Wednesday, September 16, 2009

The Pink Balloon

Srilankan festival,dance music and magic show.Manu wanted to watch the magic show and Ajit and I were least interested in the same. We sat for a while and then decided to let him enjoy the show while we checked other stalls. BTW this can happen only in Japan ...
While we checked the stalls I spotted the balloon man. Manu had been asking for one ever since he saw another kid playing with it. I thought he'd be really surprised and happy if I take one to him.So I quickly rushed to get one as there were only three left.
Eagerly I went to Manu with my prize in hand. I wanted to see the gleam in his eyes.
Guess what ...he gave a surprised look and then said -"mama balloon "
Oops ! what a mistake...I just didn't realise that I had forgotten his preference. I was disappointed and a little angry as well. Can't he understand that I made such an effort to get the balloon in the first rude:-(
Later as I chewed upon my thought I realised lots of times we impose things on our kids wanting them to accept everything we like without checking their preferences. Wake up I told myself he is growing...

Wednesday, July 22, 2009

Parent Teacher Meeting

Just before school closed for summer vacations there was PTA. While the parents were waiting for their turns, the kids became unmanageable. They were running around, making as much noise as possible. Some parents were getting really irritated and some looked in disdain at the ones not being able to control their kids. I was on the receving end, the more I tried stopping Neil, the more he became unruly. Finally I let him be. Smaran's mom and I had just introduced ourselves when Smaran and Neil came running, not knowing we were observing them Smaran said- " stand straight-put your pants down" and then they both giggled.
That was a little too much to handle and Smarans mom said Neil has taught him that. I had never heard that before from Neil so I had to catch hold of him and ask if he really had said that. He confidently said no and now I was in a dilemma-if I don't trust him and scold him in front of everyone he'd lose faith in me and if I don't scold him now parents around would wonder what kind of a mom I was. I chose not to scold him and trust what he said. Back home I again asked him if he had really said that and he said no-I left it at that.
Parenting is definitely quite challenging. Lots of time we do things to look good in front of other people but I believe it is your kids trust that matters most.
With teachers the meetings went smooth- hyperactive, always ready to answer, talkative, full of imagination, grasps things fast...

Tuesday, June 9, 2009

an avid reader

Surprises me by the sheer amount of energy he has. Nah-not for homework but for everything else that keeps him from sleeping. He has been a quick reader -now 5 years 6 months old and already reading encyclopedias and all kinds of story books...that sure has come from papa and dadaji.

boys have more energy

This sunday was trek time and then medidation at hayama beach. It was a group of 25 ,with around 15 Japanese people. Great food play,music at the moutain top and then a round of yoga and meditation at the beach. Pretty interesting group, and the yasai dake (veggie food) even more interesting. As expected-salad,fruits,veggie onigiri, but all tasted different from the veggie food we eat out at Japanese restaraunts. Overall a great trip.
Highlights of the trip-naina and manu were having a great time together.Then came the time to help the elders carry stuff up the hill. Naina and manu decided to carry the djembe. Then manu started boasting boys have more energy."Well then carry it all by yourself said our smart little naina and our ego hurted manu ji carried it all the way" Good training naina-our buddhu ji is sure a girls man:-)

Some more pictures of the beautiful day-

mama devotion!!!

10 am saturday morning -the friday ritual of a late night movie keeps manu sleeping late into sat morning.
As I stepped out of the bathroom I was taken aback-my little one was sitting in front of the bathroom patiently waiting for me to finish my bath and come out to hug him. I was almost in tears, he knows I get irritated if he bangs the door, so he sat there without a sound...

Saturday, March 28, 2009

graduation day

"Mommy we have graduation day on the 28th"
The concept of kindergarten children graduating really amused me but the preparations made real sense to me. 
They were going to sing this song-Start spreading the news we are leaving today, we want to be a part of 1st grade,1st grade. We worked very hard, our teacher is proud, so open up the doors to 1st grade, 1st grade. If we can make it here we'll make it anywhere, so here we come 1st grade ,1st grade.
I feel this was a great way to prepare children for the next step they were going to take.
The day started with songs from the LKG and then UKG. The IISJ has half the school strength as kindergarteners and I really commend the work Ms Nirmal Jain has done in helping these little kids bloom. I am sure it is really difficult managing a school in this not so open community,language being one of the biggest hindrance. 
Manu will be going to grade 1 from the 2nd of april. Feel a bit sad for him for when he goes back to India he'll have to go back to UKG. Indian schools are very strict in terms of age :-( 
Anyways so today was fun. The little kids did a great job with the beautifull songs their teachers had helped them prepare. They looked really cute with their graduation caps :-)