Wednesday, February 18, 2009
Wednesday, February 11, 2009
Short Selling and Short Squeeze
At any given point, only a certain amount of a publicly traded company’s stock is floating freely in the market. The rest is held in various portfolios, funds, and investment vehicles. Now, everyone’s familiar with the basic idea behind the stock market: you buy stock when it costs little, and you sell it when it costs a lot, profiting on the difference.
But that assumes a company’s value is going to increase. What if, instead of betting a company will go up, you want to make money betting the company will go down? You can — by selling stock you don’t own.
Say you borrow a certain amount of stock from someone who already owns it. You pay a fixed fee for borrowing the stock, and you sign a contract saying you will return exactly the same amount of stock you took after some amount of time. So, you might borrow a thousand shares of Apple stock from me (I don’t actually own any, but play along), pay me $100 for the privilege, and sign an obligation to return my stock in 3 months. At the time, Apple stock is worth $10 per share.
After you borrow the stock, you immediately sell it. At $10 a share, you get $10,000. Two and a half months later, another rumor about Steve Jobs’ health sends AAPL crashing to only $6 per share for a few hours, so you buy a thousand shares, costing you $6,000. You give me back those shares. Because you successfully bet the company would go down in value, you earned $4,000 minus the borrowing fee. This is called short-selling or shorting the stock, and the downside is obvious: if your bet was wrong, you would have lost money buying back the shares that you have to return to your lender.
When Volkswagen’s share price exceeded the point where it made sense for Porsche to buy the company, a number of hedge funds realized that Volkswagen shares have nowhere to go but down. With Porsche out of the picture, there was simply no reason for VW to keep going up, and the funds were willing to bet on it. So they shorted huge amounts of VW stock, borrowing it from existing owners and selling it into circulation, waiting for the price drop they considered inevitable.
Porsche anticipated exactly this situation and promptly bought up much of these borrowed VW shares that the funds were selling. Do you see where this is going? Analysts did. According to The Economist, Adam Jonas from Morgan Stanley warned clients not to play “billionaire’s poker” against Porsche. Porsche denied any foul play, saying it wasn’t doing anything unusual.
But then, last October 26th, they stepped forward and bared their portfolio: through a combination of stock and options, they owned 75% of Volkswagen, which is almost all the company’s circulating stock. (The remainder is tied up in funds that cannot easily release it.)
To put it mildly, the numbers scared the living hell out of the hedge funds: if they didn’t immediately buy back the Volkswagen stock they were shorting, there might not be any left to buy later, and it isn’t their stock — they have to return it to someone. If their only option is thus to buy the VW stock from Porsche, then the miracle of supply and demand will hit again, and Porsche can ask for whatever price it wants per VW share — twenty times their value, a hundred times their value — because there’s no other place to buy. They’re the only game in town.
And that, my friends, is called a short squeeze.
Thursday, February 5, 2009
Variable Change - Interesting concept I learn
While watching movie '21', there was a puzzle which made me think for a while before accepting what was told in the movie. Then one day, I went on internet and searched about the concept of Variable Change. To my surprise, many other viewers had come to internet to find answer to that puzzle discussed in the movie.
It was about a game show where a player is shown three doors behind one of which is the precious gift which the player can win if he correctly tells which door is it.
After little search on net, I found this link on internet useful in understanding the puzzle.
http://en.wikipedia.org/wiki/Monty_Hall_problem
Sometimes, movies just dont stop at entertaining our lives, they do give us other learnings which we otherwise would never come across :)
Cheers,
Sachin
It was about a game show where a player is shown three doors behind one of which is the precious gift which the player can win if he correctly tells which door is it.
After little search on net, I found this link on internet useful in understanding the puzzle.
http://en.wikipedia.org/wiki/Monty_Hall_problem
Sometimes, movies just dont stop at entertaining our lives, they do give us other learnings which we otherwise would never come across :)
Cheers,
Sachin
Wednesday, January 21, 2009
What is STLC
Test Requirements
Requirement Specification documents
Functional Specification documents
Design Specification documents (use cases, etc)
Use case Documents
Test Trace-ability Matrix for identifying Test Coverage
Test Planning
Test Scope, Test Environment
Different Test phase and Test Methodologies
Manual and Automation Testing
Defect Mgmt, Configuration Mgmt, Risk Mgmt. Etc
Evaluation & identification ? Test, Defect tracking tools
Test Environment Setup
Test Bed installation and configuration
Network connectivity?s
All the Software/ tools Installation and configuration
Coordination with Vendors and others
Test Design
Test Traceability Matrix and Test coverage
Test Scenarios Identification & Test Case preparation
Test data and Test scripts preparation
Test case reviews and Approval
Base lining under Configuration Management
Test Automation
Automation requirement identification
Tool Evaluation and Identification.
Designing or identifying Framework and scripting
Script Integration, Review and Approval
Base lining under Configuration Management
Test Execution and Defect Tracking
Executing Test cases
Testing Test Scripts
Capture, review and analyze Test Results
Raised the defects and tracking for its closure
Test Reports and Acceptance
Test summary reports
Test Metrics and process Improvements made
Build release
Receiving acceptance
Tuesday, January 6, 2009
Know your Credit Report Card
Following information is sourced from Rediff Money article: http://www.rediff.com/money/2008/dec/29what-everyone-must-know-about-cibil.htm
Currently banks, financial institutions, state financial corporations, non-banking financial companies, housing finance companies and credit card companies are members of CIBIL.
The idea behind setting up CIBIL is to gather all existing consumer and commercial credit information and pool it in a one-point source, for reference.
As in, an individual or commercial establishment could have accounts in several banks and credit from different lending institutions. All such data can be pulled out at one single point, for a quick reference check on the individual or commercial establishment seeking a loan.
This helps the lender, be aware of the repayment track record of the loan seeker and quickly decide on loan eligibility. According to the nature of the track record, a borrower is given a credit score. A poor credit score will make getting a loan, a difficult proposition for the borrower.
CIBIL acts as weeding mechanism that helps identify poor repayment track records. It helps protect lenders from giving credit to people and establishments who are unlikely to repay what is lent. Even if credit is provided, it is done so at a very high rate of interest, thereby ensuring that the bank is able to recover a considerable sum of money even if a default happens some time into the loan tenure.
On the other hand, if you have an impeccable repayment track record, you can reap benefits from it! Banks provide a lower interest rate for sound credit profiles that have excellent credit scores and such 'Credit Information Reports' can work to your advantage.
It also helps lenders and banks quickly process a loan, without wasting valuable time on research and background check on the loan applicant.
Well, this is the brighter side of things. There is a flip side to this, too. As with all mass processing systems that are not dependent on a single source for information, there are quite a few things that could be incorrectly recorded in the credit information reports, which are stored with CIBIL.
Here are a few instances, detailed for your understanding:
Lack of updated info: You might have defaulted on a sum of money, say Rs 12,000 but repaid the sum later, maybe well past the due date for the payment. There could be instances where CIBIL did not get the updated info for its records. This will show up as a default and will affect the calculation of a good credit score.
Confusion of names: There can be thousands of names that are similar in the CIBIL database. Things can go haywire if a person who shares your name has defaulted and all his defaults get recorded in your file.
There was this one instance, which a loan applicant reported. Her name, Anju Jadeja, was confused with Anjum Taneja. Turns out Anjum Taneja passed away tragically in a freak accident, with nobody able to identify her until bank authorities decided to investigate the applicant after CIBIL corrected and ratified Anju Jadeja's credit report.
Till that point in time, the bank had put down Anjum's bouncing cheques, as defaults on loan payments in Anju's credit report. Today, Anju is a relieved woman.
Human input error: The information that goes from the banks to CIBIL on a loan or credit card payment default may have been erroneous due to a simple input error by one of the bank employees.
There was this instance when there was an accidental default of a month overdue payment of Rs 18,000 of one Tanushree Omkar. She cleared it the next month. However, the record that went to CIBI, had two additional zeroes, which made the default amount to Rs 18 lakh (Rs 1.8 million)!
Identity theft: This is the most serious of all causes of errors and can have a disastrous impact on a person's credit profile.
In recent times, identity thefts are on the rise. Right from a petty shopkeeper who swipes your card several times to sneak in an unofficial payment, to a terrorist who wants to access a billionaire's account in a remote corner of the world, identity theft is becoming a serious crime that needs to be checked.
If you are a victim of identity theft, like Anupam Shekar was, then it is time to get your financial log in order. Keep track of all the cards that you use or do not use. In Anupam's case, an impostor had captured his PAN card details using a clever ploy. Anupam recalled that someone had wanted to deliver a mail from his local bank only on the basis of identification and had been examining the PAN card given with great curiosity.
It was then that it struck him that anyone could access his mailbox in the huge apartment complex he resided in. The impostor then went on to open an account with a bank entering all the details he had gathered on Anupam by accessing his mailbox. Anupam did not know for a long time about this until he decided to apply for a new credit card and his bank rejected him outright, labelling him a defaulter. Anupam had to go to great lengths, spending precious time and energy, to clear his name.
Apparently, the impostor had directed all bank communication to another address, got a credit card on that account and spent indiscriminately until the card was locked by the bank due to several defaults on repayment.
The account was frozen but the impostor walked away scot free to scout for his next victim, but not before Anupam Shekar's credit report was tarnished beyond repair.
Fixing an incorrect CIBIL record
If you need to seek clarifications in your credit report, here are the steps you should follow:
a. Contact the bank that declined a credit card or loan application on the basis of your poor credit score. Ask them for a clarification on the poor credit score and request them to provide the control number for your credit report.
b. The bank will provide you with the control number of the credit report and also share the information on the credit report that is responsible for your poor credit score.
Get in touch with CIBIL by calling their help desk numbers at 1800 - 224 / 245 or +91 22 6638 4600 / 2281 7788 provided on their Web site, http://www.cibil.com/.
You could also drop in an email at info@cibil.com referring your credit report's control number. When attempting to clarify the information on your credit report, you need to inform CIBIL about the exact nature of the discrepancies in the report that you have been made aware of, by the bank.
The importance of the control number
The control number is a nine-digit unique number that helps CIBIL track an individual's credit t report from its database.
Banks feed in borrower data and personal information, which the CIBIL systems pool together. The control number is generated when banks pull out your credit report on a requirement basis.
The control number is generated every time any bank or credit institution pulls out a credit report on you. CIBIL requires this number because it enables them to view the exact details that the bank has seen when they drew a report on you. Hence, it is important for you to request the bank to provide you the control number.
Dealing with an uncooperative bank
When the bank is uncooperative you could post a complaint on the bank's Web site and if the bank does not respond within 15 days, you can register a complaint with the banking Ombudsman, presenting a copy of the complaint posted on the bank's Web site as proof.
You can either register this complaint through their Web site, http://www.bankingombudsman.rbi.org.in/ or locate the nearest branch office through this link, http://rbidocs.rbi.org.in/rdocs/Content/PDFs/68033.pdf to register your complaint.
Need for direct access to credit reports for borrowers
It is the need of the hour for CIBIL to allow borrowers to access their respective credit reports not only on cases when the information needs to be verified but also as a way for individuals to keep a tab on their money inflow and outflow.
Currently banks, financial institutions, state financial corporations, non-banking financial companies, housing finance companies and credit card companies are members of CIBIL.
The idea behind setting up CIBIL is to gather all existing consumer and commercial credit information and pool it in a one-point source, for reference.
As in, an individual or commercial establishment could have accounts in several banks and credit from different lending institutions. All such data can be pulled out at one single point, for a quick reference check on the individual or commercial establishment seeking a loan.
This helps the lender, be aware of the repayment track record of the loan seeker and quickly decide on loan eligibility. According to the nature of the track record, a borrower is given a credit score. A poor credit score will make getting a loan, a difficult proposition for the borrower.
CIBIL acts as weeding mechanism that helps identify poor repayment track records. It helps protect lenders from giving credit to people and establishments who are unlikely to repay what is lent. Even if credit is provided, it is done so at a very high rate of interest, thereby ensuring that the bank is able to recover a considerable sum of money even if a default happens some time into the loan tenure.
On the other hand, if you have an impeccable repayment track record, you can reap benefits from it! Banks provide a lower interest rate for sound credit profiles that have excellent credit scores and such 'Credit Information Reports' can work to your advantage.
It also helps lenders and banks quickly process a loan, without wasting valuable time on research and background check on the loan applicant.
Well, this is the brighter side of things. There is a flip side to this, too. As with all mass processing systems that are not dependent on a single source for information, there are quite a few things that could be incorrectly recorded in the credit information reports, which are stored with CIBIL.
Here are a few instances, detailed for your understanding:
Lack of updated info: You might have defaulted on a sum of money, say Rs 12,000 but repaid the sum later, maybe well past the due date for the payment. There could be instances where CIBIL did not get the updated info for its records. This will show up as a default and will affect the calculation of a good credit score.
Confusion of names: There can be thousands of names that are similar in the CIBIL database. Things can go haywire if a person who shares your name has defaulted and all his defaults get recorded in your file.
There was this one instance, which a loan applicant reported. Her name, Anju Jadeja, was confused with Anjum Taneja. Turns out Anjum Taneja passed away tragically in a freak accident, with nobody able to identify her until bank authorities decided to investigate the applicant after CIBIL corrected and ratified Anju Jadeja's credit report.
Till that point in time, the bank had put down Anjum's bouncing cheques, as defaults on loan payments in Anju's credit report. Today, Anju is a relieved woman.
Human input error: The information that goes from the banks to CIBIL on a loan or credit card payment default may have been erroneous due to a simple input error by one of the bank employees.
There was this instance when there was an accidental default of a month overdue payment of Rs 18,000 of one Tanushree Omkar. She cleared it the next month. However, the record that went to CIBI, had two additional zeroes, which made the default amount to Rs 18 lakh (Rs 1.8 million)!
Identity theft: This is the most serious of all causes of errors and can have a disastrous impact on a person's credit profile.
In recent times, identity thefts are on the rise. Right from a petty shopkeeper who swipes your card several times to sneak in an unofficial payment, to a terrorist who wants to access a billionaire's account in a remote corner of the world, identity theft is becoming a serious crime that needs to be checked.
If you are a victim of identity theft, like Anupam Shekar was, then it is time to get your financial log in order. Keep track of all the cards that you use or do not use. In Anupam's case, an impostor had captured his PAN card details using a clever ploy. Anupam recalled that someone had wanted to deliver a mail from his local bank only on the basis of identification and had been examining the PAN card given with great curiosity.
It was then that it struck him that anyone could access his mailbox in the huge apartment complex he resided in. The impostor then went on to open an account with a bank entering all the details he had gathered on Anupam by accessing his mailbox. Anupam did not know for a long time about this until he decided to apply for a new credit card and his bank rejected him outright, labelling him a defaulter. Anupam had to go to great lengths, spending precious time and energy, to clear his name.
Apparently, the impostor had directed all bank communication to another address, got a credit card on that account and spent indiscriminately until the card was locked by the bank due to several defaults on repayment.
The account was frozen but the impostor walked away scot free to scout for his next victim, but not before Anupam Shekar's credit report was tarnished beyond repair.
Fixing an incorrect CIBIL record
If you need to seek clarifications in your credit report, here are the steps you should follow:
a. Contact the bank that declined a credit card or loan application on the basis of your poor credit score. Ask them for a clarification on the poor credit score and request them to provide the control number for your credit report.
b. The bank will provide you with the control number of the credit report and also share the information on the credit report that is responsible for your poor credit score.
Get in touch with CIBIL by calling their help desk numbers at 1800 - 224 / 245 or +91 22 6638 4600 / 2281 7788 provided on their Web site, http://www.cibil.com/.
You could also drop in an email at info@cibil.com referring your credit report's control number. When attempting to clarify the information on your credit report, you need to inform CIBIL about the exact nature of the discrepancies in the report that you have been made aware of, by the bank.
The importance of the control number
The control number is a nine-digit unique number that helps CIBIL track an individual's credit t report from its database.
Banks feed in borrower data and personal information, which the CIBIL systems pool together. The control number is generated when banks pull out your credit report on a requirement basis.
The control number is generated every time any bank or credit institution pulls out a credit report on you. CIBIL requires this number because it enables them to view the exact details that the bank has seen when they drew a report on you. Hence, it is important for you to request the bank to provide you the control number.
Dealing with an uncooperative bank
When the bank is uncooperative you could post a complaint on the bank's Web site and if the bank does not respond within 15 days, you can register a complaint with the banking Ombudsman, presenting a copy of the complaint posted on the bank's Web site as proof.
You can either register this complaint through their Web site, http://www.bankingombudsman.rbi.org.in/ or locate the nearest branch office through this link, http://rbidocs.rbi.org.in/rdocs/Content/PDFs/68033.pdf to register your complaint.
Need for direct access to credit reports for borrowers
It is the need of the hour for CIBIL to allow borrowers to access their respective credit reports not only on cases when the information needs to be verified but also as a way for individuals to keep a tab on their money inflow and outflow.
Tuesday, December 16, 2008
Market Dynamics: is it the right time to buy
This information has been sourced from economictimes article,
http://economictimes.indiatimes.com/Markets/Analysis/Equity_-_Is_It_The_Right_Time_to_buy/articleshow/msid-3845314,curpg-2.cms
There are several metrics which can be observed to get a fair guesstimate about the direction market is heading towards. They are:
Earnings Approach
The current level of Sensex implies 10.0 x – 9.4 x P/E of FY09 earnings and probably around 12.5x – 11.3x of FY10 earnings.
Historically, since 1991, Sensex has traded in the range of 10-30 times one year forward earnings. So, currently the Sensex is certainly at the lower range of the historical P/E band.
Even if things are likely to be different this time due to a worldwide recession, we do not expect more than 20% downside from these levels.
Book Value Approach
The current P/BV (Price to Book Value) of Sensex is hovering around 2.3 which is in the range of historic lows of 2-2.4.
In last 18 years, whenever the P/BV ratio had drifted to around 2, it has been followed by a smart pull back. For example, in November 1998 when Sensex fell to around 2800 levels (P/BV of 2), the next six months witnessed a strong pullback rally of more than 40% pushing the index to 4000 levels.
Conversely during last 15 years, markets have fallen sharply every time the P/BV ratio has crossed 6.5. January 2008 was no exception to this rule.
Falling Yield in Equity
Historically, it has been observed that whenever Equity yield has crossed the G-Sec yield, it makes sense to invest in equities.
On the other hand, whenever G-Sec yield has reached higher than equity by 4% or more, it has been a good opportunity to sell out of equities.
In January 2008, the G-Sec yield was higher than equity by this threshold margin. Since this indicator was very accurate in predicting the peak of the bull market, it may be used as a good sign to determine the trough of this bear market. Since Equity yield has already crossed the G-Sec yield, we may conclude that we are near the bottom of the cycle as far as equity markets are concerned.
http://economictimes.indiatimes.com/Markets/Analysis/Equity_-_Is_It_The_Right_Time_to_buy/articleshow/msid-3845314,curpg-2.cms
There are several metrics which can be observed to get a fair guesstimate about the direction market is heading towards. They are:
Earnings Approach
The current level of Sensex implies 10.0 x – 9.4 x P/E of FY09 earnings and probably around 12.5x – 11.3x of FY10 earnings.
Historically, since 1991, Sensex has traded in the range of 10-30 times one year forward earnings. So, currently the Sensex is certainly at the lower range of the historical P/E band.
Even if things are likely to be different this time due to a worldwide recession, we do not expect more than 20% downside from these levels.
Book Value Approach
The current P/BV (Price to Book Value) of Sensex is hovering around 2.3 which is in the range of historic lows of 2-2.4.
In last 18 years, whenever the P/BV ratio had drifted to around 2, it has been followed by a smart pull back. For example, in November 1998 when Sensex fell to around 2800 levels (P/BV of 2), the next six months witnessed a strong pullback rally of more than 40% pushing the index to 4000 levels.
Conversely during last 15 years, markets have fallen sharply every time the P/BV ratio has crossed 6.5. January 2008 was no exception to this rule.
Falling Yield in Equity
Historically, it has been observed that whenever Equity yield has crossed the G-Sec yield, it makes sense to invest in equities.
On the other hand, whenever G-Sec yield has reached higher than equity by 4% or more, it has been a good opportunity to sell out of equities.
In January 2008, the G-Sec yield was higher than equity by this threshold margin. Since this indicator was very accurate in predicting the peak of the bull market, it may be used as a good sign to determine the trough of this bear market. Since Equity yield has already crossed the G-Sec yield, we may conclude that we are near the bottom of the cycle as far as equity markets are concerned.
Thursday, December 4, 2008
Average Quartely Balance -- How is it calculated
To understand how AQB is calculated, here are some useful links:
http://www.hdfcbank.com/personal/accounts/aqb_pop_up.htm
http://www.hdfcbank.com/personal/accounts/aqb_pop_up.htm
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