Useful article highlighting that, Risk to achieving financial goals is not only linked to Capital Markets but also to the Life style changes and changing personal situations.
Balancing asset allocation can help to a certain extent here, by reducing exposure to high risk stocks and/or high risk commodities and/or low rated bonds, as your life situation changes over a period. There should be safeguards for urgent financial needs as well.
Also, staying with your investment process for long 20-30 years is also equally important as per my own experience. Generally, sticking to your Circle of Competence also helps to achieve stability and one can avoid venturing into unknown areas. (e.g. I do not understand F&O much and not inclined to it hence it is not part of my process).
Fooling Some of the People All of the Time by David Einhorn forays into a real life story between Einhorn, (A hedge fund manager) and Allied Capital (A former Business Development Company listed in the USA).
About the Author
David Einhorn is the founder and fund manager of Greenlight Capital, a long-short hedge fund based in the USA. He is quite famous for his short picks, which then included lala tech companies in the 2000s, companies with irregular accounting practices and most famously Allied Capital in 2002-2008 with Lehman Brothers in 2008.
He famously had an altercation with the then CFO of Lehman Brothers on CNBC back in late 2008 citing concerns over Lehman’s over leveraged positions. The CFO obviously defended the company and one month from the altercation, there was no Lehman Brothers.
Business Development Company
Business Development Company is a concept in the USA, where companies like Allied Capital used to raise capital from investors and lend the money to small and medium enterprises. SEC regulations required BDCs to distribute 90% of their cash flows to investors, a structure similar to today’s REITs and InvITs in the Indian markets (the obvious difference being that REITs and InvITs in India invest in real estate and infrastructure assets while BDCs used to lend and invest in SMEs).
BDCs were quite popular back then because of the 3 negative return years of the S&P 500 after the dot com bubble burst because they offered high dividend yield.
In his book, Einhorn specifies how he came across accounting fraud in Allied Capital where his main allegation was that they were failing to write down investments (loans granted) despite adverse conditions of the companies they granted loans to. And when Allied Capital did in fact write down, it was a systematic write down to smooth down earnings.
He also uses advanced statistical methods to statistically prove that the way Allied Capital was writing down investments was not at all through chance but a carefully plotted expense recognition. It’s a great book really.
The spat went on for years. Allied Capital defended their honour, attacked Einhorn, Einhorn’s wife lost her job as a financial journalist, Allied Capital tapped into his phone, Wall Street Analysts defended Allied saying that they had access to management of the company and that they had an information edge, etc etc.
Einhorn also famously pledged that 100% gains he will make from the Allied Short, will be donated to a children’s Cancer hospital.
Alas, Einhorn was proven right and in the mid bleak winter of 2008, Allied Capital ceased to exist.
Why I feel this is important is because of the growing popularity of REITs and InvITs in India currently. High dividend yield does not equal high corporate governance. Accounting frauds can happen despite high yields. (Vedanta - Viceroy, just saying, not alleging)
So the next time you see two REITs that invested in similar properties where only one took a write down with adverse market conditions and the other one continued to carry them at cost, stay away from the “You have got to be kidding me method of accounting” policy followed by the other REIT.
It would be really helpful if people who share articles/videos also include a summary of the content. That way, people can decide whether they want to read the whole piece or not.
Writing a summary can also help our rapidly declining cognitive skills in the era of AI.
At least, consider sharing a few interesting snippets from the article.
It would be much better than simply posting a link.
In his May 29, 2024 class Professor Jiang says a US invasion of Iran would be a huge mistake. The first attack might look like a win, but US troops would soon get stuck in Iran’s rough mountains.
After this video, Prof Jiang now has a ‘Game Theory’ series on YouTube. The videos starting from #9 are also related to this topic and super informative.
A 4-hour-long masterclass from Prof Sanjay Bakshi on Special Situations investing. He explains why he left it and how the framework still applies to his longer term investing. It packs several wonderful examples.
The arrest of Rishi Gupta of Fino Payments Bank in a GST case sparked debate about overreach by enforcement agencies. Investor T. V. Mohandas Pai questioned the action, prompting Finance Minister Nirmala Sitharaman to review it.
A Delhi court discharged 23 accused in the Delhi Excise Policy Case, including Arvind Kejriwal and Manish Sisodia, after they spent long periods in jail despite weak evidence.
Courts have repeatedly warned agencies like the Central Bureau of Investigation and the Enforcement Directorate against misusing arrest powers, including in Radhika Agarwal vs Union of India.
India’s justice system is slow and overloaded (about 54 million pending cases), and about 75% of prisoners are under-trials, making investigation itself a punishment.
The author argues for reforms: evidence-based arrests, stronger safeguards, faster trials, and penalties for abusive investigations.
I underestimated the capability of AI. That was until I started to use Claude by Anthropic. Claude remains the only AI that has compelled me to subscribe to the better i.e. the pro version.
Use Claude correctly and it will do 90% of your work, in 90% less time and 200% your quality.
What I feel amidst all the noise is very simple. The foundation of every business is its product. If the product is good, people are gonna buy it.
All the notion of AI startups burning cash initially will fade if the quality of AI is such that compels users to subscribe to it.
2 weeks in and I cannot imagine a day without Claude.
You see it is not the capability that is being underestimated but actually the investment side which is considered to be overvalued.
The investment pace has been considered to be far ahead than the actual gains on productivity. Already , more than 70% of the organisations are using AI in their work but the real impact is less.
Productivity J-Curve - productivity initially dips during redesign phases before exploding as organisations move from using AI to redefining core workflows.
I believe the real impact will be seen in the next 12-18 months as the emergence of autonomous AI agents in 2026 is viewed as a move from simple augmentation to actual task replacement. So before the actual estimated productivity gap reduces, a correction in the AI space will take place or the “investment bubble” will burst.
Best approach is to talk to “Software Developers” to see which AI Coding Tools/IDE(s) they are using how it is improving their day to day productivity, completion of development tasks, unit testing and integration testing.
There are some articles on Internet which suggest that, many developers are now using AI tools for writing “New” software and also for “testing New Software”. But are they able to use it for legacy applications, 10 Year Old banking and ERP systems? How much productivity gain are achieved so far? The answers to all these questions can give us future of AI in software development and automation.
Also, design and architecture of the large systems will require human brains and thinking and use of AI may not lead to much productivity gains here.
I think, Quarterly results from April 2026 on wards will throw more clarity on AI productivity gains.
