Transcript of the Podcast
Hi This is your editor Arjun Parthasarathy speaking. The Friday podcast is a value add feature for the followers of Investors are Idiots.com. The brief podcast will select one topic for analysis and will be released every Friday.
This week’s topic is on “ Ethical investments can pay off down the line”
The recent controversy over DLF the real estate company has caused its share price to fall over 11% in a few days time. The fall in share price is not much in current context of market volatility where intra day falls in even the Index has been over 10% on certain days, but the fact that DLF has returned a negative 80% from peaks seen in January 2008 places the current controversy in a wider context.
DLF at its peak had a market capitalization of over Rs 100,000 crores and early investors in the company have made huge profits. The fate of later investors in DLF especially those who invested at peaks or even below peaks is there for all to see, with all of them losing money on the stock.
This brings us to the questions of why investors give money to real estate companies. It is a well known fact that real estate companies have to work in conjunction with the political class as land is seen as the easiest way to make huge money. Do investors prefer to close their eyes to the murky world of real estate and try and make profits from investments in stocks of real estate companies? In this case greed over comes everything else and until everything comes out into the open, investors prefer to ignore the sleaze that goes on in real estate markets in order to make high returns.
Investors who lost money in DLF and other tainted stocks must be wondering why they had not thought of issues like ethics before investing. Ethics in investing is more to do with how a company makes profits. A company in a consumer durable sector or the IT services sector have to adopt the best management practices to deliver shareholder returns. On the other hand a company in the real estate sector has to be close to political circles to make money and this in itself destroys shareholder value down the line.
The issue of ethics in investing is highly debatable and there is no right or wrong in this. It is how investors see it. However if investors looked at ethics they may not have invested in companies like DLF and lost tonnes of money in the process.
Thank you for listening in. Have a good weekend.