Stocks
Asset allocation rules can turn out to be terribly misleading

Whether it’s equity versus debt, or debt and gold, perhaps even developed markets against emerging markets, the allocation formulas just don’t seem to be working as well as before. Models based on past data which are validated only against that past data, it seems, have limited validity

The concept of allocation is usually considered one of the main guiding principles for safe investing. The idea is that you are supposed to be diversified in various stocks or asset classes. This elementary risk management tool seems to be common sense. It is even reflected in the English expression "don't put all of your eggs in one basket". It is not only English. Almost the exact phase exists in French. The Chinese follow the example of an animal; the smart rabbit has three holes. There is no question that in life it is always a good idea to have alternatives. But for investors, especially recently, the practice may not always result in achieving its goal.

Money managers, financial analysts, and even courts are fond of asset allocation rules. One of the most common involves the allocation between stocks and bonds. The 'safe allocation' is supposed to be 60% of a portfolio in equity and 40% in bonds. So sacred is this allocation that it has a corollary based on age. At age 25 you are supposed to have 75% of your assets in stocks and 25% in bonds. By age 50 the portfolios should be balanced, because as you approach retirement you naturally want less risk. I recently saw a form from a US bank that went even further. It had about eight categories of risk tolerance each, with its own set of allocations from 'no risk' which would be 100% cash, to 'high risk' which would be 100% equities.
 
The problem with these rules is that they can be terribly misleading. For example, a solid portfolio is supposed to be made up of different stocks. The theory is that the movement of an individual stock is supposed to be based on an individual company's financial fundamentals. This concept is the basis of a vast industry of stock analysis and stock picking. Recently this has not been the case. Stocks have risen and fallen together without regard to their fundamentals. The correlation of the 250 biggest stocks in the US S&P stock index over the past month had been the highest since 1987 at 81%.

Other relationships have exhibited some novel patterns. In theory, owning government bonds and gold should be a good allocation because they tend to move in opposite directions. Gold is traditionally a hedge against inflation. When an economy is growing rapidly and inflation is rising, you should own gold. In contrast, inflation is the enemy of government bonds since their value is diminished and the returns may result in negative yields.

But recently, US treasuries and gold have risen together. The explanation is that they are both supposed to be "safe havens". Although I can't think of anything safe about buying either asset. Gold may be at the top of a bubble. Deflation may be more of a problem than inflation, while the value of dollar-denominated US treasuries continues to fall relative to other currencies.

Owning both emerging and developed markets is a recommended allocation. The idea is based on the theory that emerging markets have somehow 'decoupled' from developed markets. Emerging markets are supposedly growing rapidly regardless of recessions in developed markets. The reality is that they are closely correlated. A perfect match would yield a beta of 1. An ETF that tracks the MSCI Emerging Market Index has a beta of 1.14. Emerging markets track developed markets, but are more volatile. They outperform when the S&P is in a bull market and underperform during bear markets.

According to a recent theory, commodities like oil, metals, or agriculture are supposed to be negatively correlated with markets. Such a negative correlation should make them ideal for asset allocation as a good hedge. Sadly this is not the case. Over some periods they are negatively correlated, but over the past three years booming equity markets have also meant booming commodities prices.

Alternative investments like hedge funds and private equity are another asset class that are supposed to be a good place to put your eggs. This strategy gained popularity among pension funds due to the success in the 1980s of a manager of the endowment of Yale, a prestigious American university. What may have worked then, does not necessarily work now. As many as 89% of hedge funds are below their 2006-2007 highs. It is difficult to value private equity except for the listed funds. Some famous ones like 3i has fallen 30% and Blackstone has fallen 64% since it was listed in 2007.

Markets are dynamic systems. Creating models based on past data which are validated only against that past data have limited validity. In science we can create the theories with general applications because the rules are consistent and inviolable. Markets do not have this luxury as long as governments continue to introduce chaos into a system constantly changed by financial innovation.

(The writer is president of Emerging Market Strategies and can be contacted at [email protected]  or [email protected].)

User

COMMENTS

Narendra Doshi

5 years ago

Very true William.
One must constantly review and learn to swim (make money)in the environment market puts you in. Pl learn to live in the present. Past is only a guide. Also, different people (even with the SAME ASSET ALLOCATION) may react differently. Have confidence in your rationale and keep continuously testing the same to have more wealth created, over time.

Telecom ministry approves NFAP-2011 for better spectrum management

Telecom operators and industry representatives had opposed the proposal that some spectrum in the frequency bands of 900, 1,400, 1,800 and 1,900 Mhz should be kept aside for companies to provide wireless services using technology and systems developed by indigenous players

New Delhi: Telecom minister Kapil Sibal has given in-principle approval to draft National Frequency Allocation Plan-2011 (NFAP), which would help in efficient spectrum management and higher mobile penetration in rural areas, reports PTI.

"Minister has given in-principle approval to new National Frequency Approval Plan-2011 (NFAP) draft that will surely help in better spectrum management and will also increase mobile penetration in rural areas," a source in the Department of Telecom (DoT) said.

The plan (NFAP 2011) aims to give a boost to domestic manufacturing of telecom equipment and efficient utilisation of spectrum.

The Wireless Planning Commission (WPC), the spectrum allocation wing of DoT, had issued the draft on NFAP in March.

"The draft will now go to a Group of Ministers (GoM) within a month and then it will be sent to the Cabinet for approval," the source added.

Various government departments, telecom operators and telecom industry bodies COAI and AUSPI had expressed disagreement to the DoT on the various clauses under the National Frequency Allocation Plan for 2011.

"The objections raised by organisations concerned have no technical and regulatory base," the NFAP document said.

Telecom operators and industry representatives like COAI and AUSPI had opposed the proposal that some spectrum in the frequency bands of 900, 1,400, 1,800 and 1,900 Mhz should be kept aside for companies to provide wireless services using technology and systems developed by indigenous players.

The information and broadcasting (I&B) ministry had also raised concerns over the proposal to allocate 700 MHz band for mobile and wireless broadband service.

The 700 MHz spectrum band was earlier predominantly marked for broadcasting services.

Representatives from the I&B ministry, in a NFAP meeting held in March, said the WPC needs to consider spectrum requirement of broadcasters, especially looking at Doordarshan's digitalisation plan, which is expected to be completed by 2017.

Industry players, on the other hand, were of the view that since 700 Mhz remains utilised by DD for a long-time and with no clear roadmap of the public broadcaster's expansion, the band should be allocated for mobile and BWA services.

The frequency band of 700 Mhz is in high demand by players in the broadcast and mobile industry.

Any service deployed in this frequency band will need less number of base stations (towers) in higher frequency band of 800, 900, 1800 and 2100 Mhz.

As per the latest Telecom Regulatory Authority of India (TRAI) data, the share of urban subscriber has marginally stood at 66.27% whereas share of rural subscribers stood at 33.73%.

User

How does the wood in your bread, biscuit taste today?

A lot of the high-fibre fast-food packages sold by major food brands most likely contains “wood cellulose” that’s even used by the plastics industry. And the food safety authority is aware about it

Let's start with some first-hand experience, which is very often how curiosity is sparked and questions arise.  

A few months ago, I was wading through an assignment at a factory in an industrial suburb outside Delhi, where a large number of unskilled and semi-skilled workers were employed. Minimum wages in this segment are not very high, and for this category of people, every paisa saved counts. That's what they've left the tough conditions in their rural homes for.

Most of us have absolutely no idea of how this segment lives and survives. Even though they come under the category of organised labour in many cases, protected by law with benefits like ESIC, EPFO and pension plans, what matters is what they get in hand every month and how much of it they are able to save to send home, or to try and buy that elusive plot of land to enable them to build a roof over their heads.

Everything else is nothing but promises, which they have learned not to trust, as it does not get them dinner in the here and now.
 
Expenses are, therefore, sought to be reduced to the bare minimum. Free meals of the sort provided on certain days at certain places are balanced against the cost of time and travel to get there. Cheap lodging in the vicinity of the factory is balanced against the option of a place to sleep in the factory environs free of cost, perhaps in exchange for some night duty responsibilities.

Education for family members is an aim for which no effort is spared. Likewise, some amount of effort and sacrifice is made towards further self-education, by sacrificing other expenses, and night schools—where they exist—are indeed popular. Free uniforms from the factory are a boon; the older ones are used to sleep in, reducing the necessity of buying clothes.
 
But what's really interesting is the way they spend on food. As some of them explained, at one time it was cheaper to bring grain, cereals, lentils and even some amount of ghee from the village, and use it during their stay in the city. Now, when they return from their villages, whatever they bring along gets a good price if they sell it, and then they survive on what they can find in the city, in and around the workplace.
 
The first thing that takes a toss in such conditions is the group-cooked hot meal in the morning. It just doesn't exist, and in lieu it is often a packet of cheap biscuits dipped in the first mug of free tea at work, eaten on the move. Lunch is often a perquisite of the job, huge helpings of roti-daal-subzi-pickle. Dinner is scrounged around. Most of these workers also double up for late evening work where a meal can be sourced.

So, to keep things going when hunger pangs overtake planning, there are the cheap-packed foods of the biscuit sort and the cheap fried foods of the samosa sort, dipped in a cup of 'tea' which is more often than not brewed with urea as a whitener instead of milk at the roadside stall.

The biscuits attracted my attention. Popular big brands selling handy small packs at a "price point" of two to five rupees for 6-12 biscuits, seldom found at the better stores you and I shop at. Taking a bite, dipped in tea, I found that they did not dissolve and break like biscuits used to in the past, and they filled me up admirably, giving me a feeling of fullness in very quick time. At first, I thought it could be excess corn glue binders or baking soda, till I researched the price of corn glue binders and baking soda and wrote that off. So, full of pride that I had discovered a cheaper alternative, I bought a few packets and brought them home, basic "glucose", "chocolate" and "cream". All major brands. So cheap?

Obviously, I was treated to a lecture, that these were simply not healthy. At this point, I thought it was snobbishness talking, but fact remains the biscuits remained untouched for a few days. Everybody prefers "local" bakery biscuits at our home, procured from a charity organisation at the nearby Lajpat Bhavan, or expensive imported ones presented now and then. So after a few days, I thought to myself, maybe the birds and the stray dogs will appreciate them more?

Next morning, along with the bird seed that we have sprinkled on a wall, I laid out some of the biscuits, neatly crumbled, but while the bird seed was gobbled up as usual by about 9am, the biscuits were untouched-even the squirrels who eat everything, left them alone. Same with the stray dogs, a sniff at the "orange cream" biscuit, a bit of a whine, and then left alone. In due course, the ants and the termites presumably finished off the biscuits, because the birds and dogs didn't touch them.
 
The maid, watching bemused, said that the animals don't eat it because the biscuits have "plastic" in them. Plastic? Where had she heard that from? Turns out that everybody in her village near Ranchi knew about this, because some people from there who worked in a processed factory had told them that the seths were now using an ingredient for bread and biscuits called "cellulose", in quantities from 15% to 25%. How did they know? Because similar packets from the same supplier were being used for the plastic to be used for the wrapping and packaging, as well as to line the insides of the biscuit packaging to prevent the biscuit from going soggy. To prove her point, she crumbled up the biscuits and stirred them into a mug of warm water. After a few minutes, much of what used to be the biscuit was still floating on top. After a few hours it was exactly the same.

Please try this yourself. It is like the "patty" inside the famous McDonalds burger, which does not deteriorate or go bad for days on end.

Around the same time, I had been filing RTI applications on the subject of artificial sweeteners used by the processed food industry, specifically called "aspartame". (Read, Did you check the neurotoxin in your 'soft' drink today?)      In the course of the responses, which contained the usual evasive answers from the ministries, as well as the Food Safety and Standards Authority of India (FSSAI), I also managed to develop some sources within. People like you and me, but unwilling or unable to come on record, but right-thinking all the same.

I decided to approach a few of them to try and find out what was going on, and meanwhile, tried to place a total ban on packaged bread and biscuits at home, rewarding the maid with basic bakery lessons and going in for "chakki atta" ground at a store. (By the way, the one shop in our area which provides fresh ground atta of various sorts has so much business now that the owner is opening a second shop and provides an increasingly growing range of choices, with exotic grains of all sorts.)

This was when I received my next surprise. Yes, the FSSAI, at an informal level, were aware that there was something being added to processed foods, especially biscuits and bread, for the last few years, and that this new miracle ingredient going under the technological name of 'cellulose' was actually the same 'wood cellulose' used by, among others, the plastics industry, and by an amazing coincidence of nomenclature, was categorised as 'fibre' for all practical purposes, including the list of ingredients. As a matter of fact, within the industry there was growing awareness on the cost-saving benefits of adding more and more wood cellulose to everything, not just bread and biscuits, but also ice cream, cheese, meat . . . and upstream into desserts, pizzas and most other forms of 'fast food'.
 
So just how did 'wood cellulose' get into the lexicon of the Ministry of Food Processing (MoFP) and the FSSAI as 'fibre'? Well, in one way, it is the truth. Wood cellulose is fibre. The only thing is that unless you share your enzymes with termites, you and I can't digest it. Even woodpeckers can't digest wood cellulose or wood, and they are pecking away at it all the time. Nor could hundreds of thousands of people starving to death in famines from the Siege of Leningrad ,to closer in history in Darfur.
 
Within the food industry in the US, the FDA apparently permits limited use of wood cellulose under very specific conditions, and up to a maximum of between 1% and 3.5%. And there's no way the manufacturers there can get away by calling it 'fibre'.

Within the food industry in India, welcome to the reality, and check out how many new products on your shop or supermarket shelves carry the added nomenclature 'fibre'. And as per my source/sources in the FSSAI, this is growing at a very rapid pace. The cost of wood cellulose in India, meanwhile, is dropping, because the new miracle raw material for wood cellulose in India is, hold your breath, not just the tree or plant, but sawdust. Processed sawdust = fibre in your bread and biscuit?

At such a rapid pace and with such huge profits on the back of this new trend to put wood cellulose into everything, the processed food industry—riding on the back of these lower prices and huge profits—is making a strong bid once again to enter the mid-day meal space. With an attempt to replace the hot cooked meal with a "high fibre" pre-packaged meal. And as an added incentive, they plan to use the term "fortified and enhanced" with a variety of other ingredients like, for example, iron. This, incidentally, is co-terminus with a strong movement in the developed countries to move away from such processed foods and fast foods.
 
India, therefore, is the obvious next target. Just like it was with opium for China a few hundred years ago and tobacco in the recent past, it is now going to be wood cellulose masquerading as fibre in our packaged foods.

I wonder, will they use iron sweepings or filings, and will we be able to transport these modern high-fibre fortified with iron biscuits using magnets, soon?

User

COMMENTS

pawan

5 years ago

Is this only true for products that are advertised as high fibre or across the board? I checked three packets of branded biscuits and none of them listed fibre among their ingredient. Is it possible that they are listing it under another name?

REPLY

malq

In Reply to pawan 5 years ago

That wood cellulose is being added to processed food is not denied by the manufacturers. Whether the manufacturers in India adhere to providing details on ingredients or not is best portrayed by comparing how any company, Fritolays from Pepsi for example, provide these details in the US and in India.

http://www.fritolay.com/our-snacks/lays....

http://pepsicoindia.co.in/brands/lays.ht...

The US website tells you full details and responds to your emails. The India website tells you a pretty fairy tale.

One is working on this, pushing paper through government offices, but the real push will only come from customers who will demand full details. Till then, please assume that we are being lied to at every step.

Humbly submitted/vm

Virindra Maloni

5 years ago

get video e mail now

Dr D V Punwani

5 years ago

this is the link
http://articles.timesofindia.indiatimes....

Dr D V Punwani

5 years ago

10 years ago I found wood in Britannia bread and my colleague found plastic in biscuits.
Has it been going on for so long?
Regards
DP

Bharat Joshi

5 years ago

Unless there are very very strong deterrents and somebody to implement them.............this will go on.

Go and watch a movie called Food Inc. and it will knock your socks off. At least in the west the penalties are very high.

My compliments to Moneylife in having guts to publish such eye-openers.

REPLY

malq

In Reply to Bharat Joshi 5 years ago

Thank you for writing in, Bharat Joshi ji.

Penalties will be a LONG time coming in India. Tll then, it is only awareness that may help. So, please spread the link to this article as well as the article itself as far and wide as you can.

Grateful and thanks again,/VM

krish

5 years ago

india is a country of rogues & rascals at every level. when good /majorcos. can do such crimes, who is spared?

even communist countries or poorest of poor countries dont do such things!

irmohamm

5 years ago

article:awereness

JoeKidd

5 years ago

Thanks a lot VM for the eye opener. What prevents our local bakery or others from using wood cellulose in all their products. How do we know that only the branded biscuits being sold at a lower price point uses this material. We need to have the ingredient list and percentage mandatorily printed on the package. This will allow the consumer to choose what goes into his body.

REPLY

malq

In Reply to JoeKidd 5 years ago

Dear JoeKidd, thanks for writing in, and you are correct - nothing prevents anybody anymore from using anything they want in any food product. However, that said, a local bakery of the sort that, for example, kayani in Pune is, would want to keep its reputation above all other factors.

The ingredient list is a bit confusing, because "wood cellulose" is marked as "fibre" and there is nothing we can do about it. For now.

Humbly submitted. VM

frustratedIndian

5 years ago

If whatever you mentioned is correct, then FSSAI authorities who let this happened should be suspended immediately and all the products with such norms should be taken back from market and bloddy corruption should kill only those people who practice it. How can those fools compromise with food!

REPLY

malq

In Reply to frustratedIndian 5 years ago

Thank you for writing in. On a private basis, more than a few people from the processed food industry have said that not just them, but also raw material suppliers are adding wood cellulose as "fibre" since it is "not prohibited by law", and this is now reaching downstream manufacturers because it is cheaper than flour made from cereals.

Likewise, FSSAI are most certainly aware of this, but keep passing the buck. I am getting hold of correspondence on the subject under RTI but is is not all that easy, since the cover-up is unabated too.

How can they compromise with food? We should ask ourselves - how do we let them?

Humbly submitted/VM

Sathish Yadav

5 years ago

I will try what you said? But are these multi grain biscuits with high fibre made of wood cellulose?

How can I easily detect biscuits made of wood cellulose, can you please tell me... buying a lot of biscuits and wasting them, I think is not a great idea to me?

REPLY

malq

In Reply to Sathish Yadav 5 years ago

Dear Satish Yadav ji, thank you for writing in, and in my humble opinion, the only option is to look very closely at the packaging to start with.

As far as products claiming high fibre are concerned, a specific query to the manufacturer on their website would be suggested - lack of a response or no clear response can be taken to mean some thing!!

Will do a follow-up article soon, from this end, have written to all the manufacturers asking them to confirm whether the bread / biscuits / bakery products / packaged processed foods they make/sell have wood fibre or not. So far,none have responded either way.

Likewise, none of them have responded to this article, either - or issued a denial/clarification.

I can only request you, once again, to contact the manufacturers of your biscuit brand and ask them a specific question.

Good luck.

Regards/VM

Sathish Yadav

5 years ago

Thanks for investigating and letting the world know.

I found that even Sugar Free (Diet Sugar) or Aspartame is not consumed by ants even if left in the open for long periods of time, isn't that bull shit?

REPLY

malq

In Reply to Sathish Yadav 5 years ago

Aspartame has been permitted into India without ANY tests or FSSAI "events" performed on it, on the sold basis of some old FDA inputs, made years ago for American conditions. Within Indian conditions, the cold chain, for example, is one aspect-have you seen soft drinks stored in the open even in the hottest of summers, and then wondered, what happens to the chemicals, do they change?

There's a lot more technical stuff on this, but this is as simple an explanation as possible . . .

thanks for writing in/VM

sibi

5 years ago

We can't believe above story, though based on hard facts. Surprised to know that the food safety authorities are aware of it!!

malq

5 years ago

I meant this "inspiration", starring Shekhar Gupta and Vinita Bali . . . http://www.ndtv.com/video/player/walk-th... . . . one asking all the correct questions and the other with all the correct answers.

Prakash Bhate

5 years ago

Squirrels and dogs will also probably not eat palak and cabbage because they instinctively prefer starch over cellulose although both these materials are made from glucose, the ultimate energy giving substance. Cows, on the other hand, will eat almost any cellulosic material including paper (which reminds of my school buddy telling the teacher that a cow ate his homework, but that's another story!) because the bugs in their first stomach break down the cellulose into glucose. The cow regurgitates this stuff into the second stomach wherein the glucose is assimilated. Wood differs from other cellulosic material in that it is associated with a substance called lignin. It would be interesting to find out whether a cow rejects biscuits made with wood cellulose. If it does not, then wood cellulose is not really harmful. Biscuits meant for providing nutrition should certainly contain only cereal flour. Thus, adding wood cellulose to such biscuits is certainly criminal. However, biscuits meant to provide more fibre may contain wood cellulose. Living in Mumbai, I am not able to perform this experiment of trying to see whether a cow rejects these biscuits. Any volunteers?

REPLY

Sathish Yadav

In Reply to Prakash Bhate 5 years ago

I will try what you said? But are these multi grain biscuits with high fibre made of wood cellulose?



How can I easily detect biscuits made of wood cellulose, can you please tell me... buying a lot of biscuits and wasting them, I think is not a great idea to me?

malq

In Reply to Prakash Bhate 5 years ago

Thanks for writing in, Bhate ji, and very educative points too.

The cows and buffaloes foraging in the storm water drains behind my home tend to eat everything - including unfortunately the plastic wrappers too.

I tried my experiment with a branded orange cream biscuit - and have only this to say - the dogs, stray dogs who are very friendly and eat everything we give them, outright rejected these biscuits.

That the processed food industry is scaling new heights in corruption is a known fact. Take a look at this show, for example, one patronising in her responses while the other bends over backwards to ask just the right questions.

I am so glad soft drinks have now been banned in Delhi schools. Time to see that the packaged food industry does not kill the hot mid-day meal.

rgds/VM

Waman Karmarkar

5 years ago

If this is true, Horrible.

REPLY

malq

In Reply to Waman Karmarkar 5 years ago

Dear Karmakar ji, thank you for writing in, and ofcourse this is verified as well as true.

# All the facts are re-verified.
# The industry does not dare to deny.
# Inspired by this tv show:- http://www.ndtv.com/video/player/walk-th...
# Everybody in the processed food industry knows the truth.
# It gets even worse in the meat processed foods industries, where they even use ammonia as a disinfectant, and use every part of the animal.

Goodl luck to all of us. Check Vinita Bali and Shekhar Gupta out in this tv programme, and see how one patronises and the other laps it up.

Best regards/VM

chaithanya

In Reply to malq 5 years ago

Yeah i know abt the meat processing industry. they buy live animals for Rs.90/kg and sell every part of it..the exotic parts like eyes and throat to ayurvedic medicine makers..the ones like Ramdev baba runs.

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