Letters to MoneyWeek: In defence of India
A selection of letters sent in to MoneyWeek magazine by readers and their replies.
I strongly disagree with Jonathan Compton ("India: the world's hottest emerging market", MoneyWeek 843) and his view that "India seems incapable of escaping its history, culture and perennially awful governments". The real mistakes started when imperial Britain encouraged Muhammad Ali Jinnah to clamour for a separate state for Muslims in India, and to a large degree due to the West's geopolitical ambitions against the Soviet Union was instrumental in partitioning India on a religious basis. Yet today India still has the second-largest number of Muslim citizens in the world, with full democratic rights.
Mr Compton could not be more wrong when he writes that "Kashmir voted by an overwhelming majority in 1947 to join Pakistan". There is no "long civil war" in Kashmir. Mr Compton is wrong again when he contends that "most of Assam state and swathes of East India are barely under government control and local tribes rebel against their exploitation".
All countries have had awful governments, including the USA and the UK, who commit blunders internally and all over the world politically, economically and militarily. India is no exception and is difficult to rule, as the British very well know. India is a diverse country with equally diverse ancient civilisations. People of all races, religion and ways of life persecuted elsewhere found shelter and settled there. India is also a cradle of the world's great religions, such as Buddhism and Sikhism, which has gifted the world with the vedanta, yoga, the concept of zero and the decimal system.
The success of India since 1947 speaks for itself. It's a strong regional power with the fourth largest army, a robust secular democracy and a thriving economy. Despite its faults, it stands tall against an extremist, intolerant Wahabi and Salafi strands of Islam, jihadism, IS and Talibani terror, and an expansionist totalitarian China. Unfortunately, the British media report only negative aspects of India, denigrating its history and diverse culture, and ignoring its achievements.
We were incorrect to state that "Kashmir voted by an overwhelming majority in 1947 to join Pakistan". A vote on whether Jammu and Kashmir should be part of India or Pakistan was planned, but never held due to the security situation. The overwhelming majority of the state's population was Muslim, so it was expected they would vote to join Pakistan, but this was by no means certain.We regret the error.
However, regardless of the role that Britain played in creating many of the conditions in India today, investors cannot gloss over the implications. Our article provided a balanced summary both of India's significant problems (including the ongoing conflict in Kashmir) and its strengths.
The shale-oil conundrum
The article headed "Opec can't tame this wild horse" (MoneyWeek 843) leaves me feeling confused and pondering whether the wild horse isn't also crazy. Perhaps other readers may also wonder why a production cost of $70 per barrel and a sales price of $50 per barrel is an opportunity that encourages big money to invest in additional loss-making shale drilling rigs? Presumably transport cost is a factor, but a closer look at the economic logic would be interesting.
If oil is priced at $50 per barrel and breakeven for shale oil is $70 per barrel, that would discourage further investment. However, shale production responds very quickly to price changes. Unlike more complex sources of production such as offshore oil fields new shale supply can be brought onstream quickly and at lower upfront cost. So as soon as prices rise and shale is once again economical, investment picks up to take advantage of the opportunity.
The result is that shale is helping to cap prices at around that $70 per barrel level. Falling supply (perhaps due to Opec curbing production) or higher demand (due to stronger global growth) quickly leads to higher prices which then unleashes a glut of new shale production.
The cost of Cypriot citizenship
Regarding your cover story on getting a second passport (MoneyWeek 838), it appears a non-resident needs to buy property worth at least €2m to qualify for a Cypriot passport, not the €500,000 mentioned in your article. If someone invests €2m in commercial property or government bonds then they only need to buy a property worth €500,000 or more.
Yes, in making the point that the cost of acquiring Cypriot citizenship has been steadily reduced, our article was not sufficiently clear on the mechanics of the current scheme. Cyprus requires applicants to invest a total of €2m into a portfolio of real estate initially, of which €500,000 must be in the applicant's main residence. After three years, applicants can sell €1.5m of the total, retaining the €500,000 main residence. So the net cost is €500,000 (assuming one can find a buyer willing to match the original purchase price of the property), but it still requires a larger upfront outlay and a waiting period to get the rest of the money back. We apologise for not making this clearer.
Stop-losses and profit targets
I am a member of a small investment club ("The welcome return of investment clubs", MoneyWeek 843). We cannot decide on a stop-loss figure or if it makes sense to put a ceiling on our gains (ie, if a stock has reached, say, 10% profit, should we sell and find another stock).
The use of stop-losses and profit targets are a difficult decision for most investors. For an investment club it will be even harder to find an approach that satisfies all members. Still, the principle of "cutting losers and running winners" is a sensible starting point, since unsuccessful investors tend to do the opposite.
What this means in practice is that you could consider setting a stop-loss at a level that will mean that you are not stopped out by the typical level of volatility you see in stocks, but that will encourage you to cut investments that have gone badly wrong, rather than holding on and hoping for a turnaround (ie, perhaps 20%-30% rather than 5%-10%). It also argues against selling at a fixed gain sell instead when you think a stock is expensive. However, you could consider using a trailing stop-loss (where the stop-loss level increases as the price rises) to lock in gains.
Writing to MoneyWeek
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