Top Hedge funds as of 2009

Satyam

Similarities between ENron and Satyam

1) Both fudged accounts and the auditors turned a blind eye

2) Markets did not know about them till a long time. Satyam fudged for 7 years. 

Dissimilarties

1) Satyam directors and related parties did not sell it shares in order to make profits as was the case with ENron where a lot of shares were sold. 

2)

Most of the articles discuss as to what went wrong with satyam but none discuss what was it that promopted Raju to take such steps. The points that come to my mind for the decison are as follows

1) Satyam was the first indian IT company to be listed on the New york stock exchange and followed by analysts. Not performing upto there levels would have been bad for the indian markets

2)

A lot has been seen and heard about satyam in the past 2 months since jan 7 2008. So what all can be done to prevent from another satyam from happening

The auditors of an organization listed in the nifty or the sensex should be carried out by bigger auditors, the biggest scams are pulled off in lack of regulatory oversight and that is what happenedin the case of madoff ponzi scheme also. He got the accounts audited from a firm that had just three memebers. Morover the auditing firms should be rated, PwC had done a bad audit for the global trust bank and so has been the case with satyam. there has been no decision regardin the ill practices followed in case of GTb on the company. WHY?

Keeping the advisory and the auditing business of the auditing firms seperate. Most of the firms like PwC, KPMG have both the divisions and the companies usually use the consulting services so there emerges a conflict of interest and the results might not be a true statement of the accounts

The independent directors should not be given any stock options as they are not a part of the business, they are there to protect the minority interest of the companies. So they have no right over the pays link with the profits. An independent director of satyam, a harvard professor krishna pelupu was given Rs 3 cr per annum for his services.

There should be rating by ICAI of the charted accountants, based on the professional capacity and the accounts audited the members charter should not be for life but for a limited duration which has to be validated every year, it should be like the CFA. Where you have to get your charter renewed by paying a subscription fee.

In 2008, KPMG reported that the corporate frauds have increased 5 fold to 1 billion pound are can rise even more. So given the kind of backdrop, the regulator must try to have these measures in place in order to make it difficult for one more of Satyam to happen

Some basic question

Why is the term expected value used for the Markowitz portfolio theory ?
The reason is "Convinence and Tradition". Since the term is often used people needed a label for it instead of calling it by the conventional name of "weighted average of possible outcomes with probability as the weights".

Why do we use only mean as the measure of return and why not mode or median ?
If we have the nomral distribution, then a portfolio is mean-standard deviation efficient if and only if it is
mode-probability loss efficient
mode-standard deviation efficient
mean-probability of loss efficient
median-probability of loss efficient
median-standard deviation efficient

The questionnaire was phrased in terms of mode "most likely return" for convinece of computation mode was translated into mean, for ease of interpretation mean was translated back into mode.

Median is insensitive to changes
Mode changes far more dramatically for even small changes in returns as long as it does not effect the midpoint of the distribution.

1)A distribution can never more than one mean but it can many modes and medians.
2) The arithmetic relationship between means of securities and means of portfolios are much simpler than the corresponding relationships for modes and medians


Why do we use only standard deviation as the measure of central tendency and not any other?

excel formulas

1) eomonth = end of month is a very useful formula and returns the date at the end of the month. This function is particularly useful for project financing where payments are made after every 6 months and at the end of the month or for quarterly projections.
The function requires just two parameters 1) The date 2)Months

2) It is always advisable to name parameters that would be used through out the excel sheet so that it is easy for the user to relate to the parameters.

3) Never hard code a number more than once.

4)Always have distinct areas in an excel sheet for different things. Like for rough work have a rough section, For assumptions have a separate sheet.

5)Index function is among the most widely used functions, if you can use this function correctly then there is no use to have functions like vlookup or hlookup.

Excise duty and duty free credit entitlement

Excise duty is levied on things produced within the country.Excise duty is a part of the p&L statement of most of the construction companies.

There is sometimes another term used known as the accruals under duty free credit entitlement
It is basically an entitlement to import capital goods duty free under the duty free credit entitlement certificate route.

"The only exception to the latest standpoint would be import of agriculture, dairy products, motorcars, sports utility vehicles and all-purpose vehicles. These products and items cannot be imported under the entitlement available in the DFCEC route.

Under the DFCEC route, service providers (other than hotels) are entitled to duty-free imports equivalent to 10 per cent of the average foreign exchange earned by them in preceding three licensing years. Hotels are entitled for duty-free imports equivalent to 5 per cent of the average foreign exchange earned by them in preceding three years.
This entitlement would be available only to those service providers, who have a total foreign exchange earning of over Rs 30 lakh in the preceding one/two/three licensing years."

Share Issue expenses

Share issue expenses are adjusted against the share premium account. and are not part of the expenses in profit and loss. So, according to the double entry book keeping one entry would go to the cash flow statement i.e. Decrease the asset size and the other would be part of the balance sheet i.e. Equity and would decrease it.

Therefore since Equity decreases and asset decreases the equation
A=E+L is balanced

Distributions

It is hard to compare distributions, so we use summary statistics to simplify the task and compare the data with each other.

4 ways to characterize the distribution
1) Central Tendency
1) Arithmetic Average
2) Median (Divides the sample of data in half)
3) Most frequently observed value
2) Dispersion from center (What is the average departure from the centre)
1) Range of deviation
2) Mean absolute deviation. (Average distance from the mean)
3) Variance: Average squared distance from the mean
3) Symmetry
1)Skewness: - am i more likely to see more observations above the mean or below the mean.
4) Pointiness: Kurtosis: Does my tail look fat to you. Relative measure of the pointedness of the distribution and tails. More kurtosis means that we can expect more extreme observations than we do in the normal distribution.

Real worlds is negative skewed and excess kurtosis
These summary statistics help us get the shape and the location of the distribution