Some Investment Learnings in the school of hard knocks
Some lessons of investments, which need to be reiterated, lest we forget. These were learnt in the BULL markets for the next BULL as well as BEAR markets:
1. Stunning, shocking things which have never happened before will happen. With some great regularity.
2. No individual, organisation, state or country wants to look at long term solutions, so short ‘termism’ will prevail.
3. When interest rates are kept artificially low for extended periods of time, it just means the Central Bankers do not respect your money.
4. Gold price will go up, NOT BECAUSE IT IS A GOOD ASSET, but because people will have NO respect for the fiat money.
5. The top Indian companies will be owned 40% and over by American investors.
6. Risk is NOT in an instrument, it is in an instrument at a given price.
7. Do not trust financial models, they are back tested to perfect conditions. Freezing of the bond markets, hyperinflation, youngsters mass scale unemployment, etc. NOT PROVIDED for and we will see all this.
8. Governments and therefore Regulators cannot see too much short term pain, so they will come with half baked solutions. This will hurt long term recovery and long term thinking. No proof shown of sensible governance over the past 100 years.
9. Credit Rating agencies and Equity analysts who come on TV are the sophisticated versions of the guy sitting on the foot path with a parrot.
10. Price discovery is an excellent processes. However if 5 countries are on a note printing spree price discovery is impaired…
11. Have a broad and flexible investment program, and seek non confirmatory data. Speak to gold analysts about equity, with equity fund managers about anarchy. You will be surprised at the noise levels.
12. Media is not harmless, it is toxic. ‘Sensible sound bytes is an oxymoron’ – both Taleb statements.
13. Buying the way UP is optional. Buying the way DOWN is a must. Doing it is tough.
14. If you are investing in an illiquid investment, there has to be a HUGE COMPENSATION. Currently a BFSI company has a privately placed debenture. Listed but illiquid. Current yield 12.7% p.a. 10 year holding period. Promised illiquidity.
15. If you are a sole proprietor IFA you need to have a Rs. 500 million aum to be alive…double it if you are a partnership….
16. There is no proof of any participant acting sensibly before a crisis. When a crisis hits, banks will be bailed out. Regulators will articulate well and say what went wrong.
let me see the comments on this post..before i unleash another set like this…
Ramesh
Some of these things are way too smart to be really understandable.
Regarding point 11, do you have any view regarding the Permanent Portfolio (of Harry Browne) and its implentablility to Indian conditions.
Thanks for the great post. More important in these days of Risk-on behavior!!
Mira D
Subrabhai, 1 and 13 are killer statements.
Worth framing in gold.
Kunal
Its all very well said and done, Subra. But will people remember any of this. I highly doubt it. Most simple truths are facing us in our face to become reality in the not too far future (Real Estate bubble, rise of gold, bankruptcy of some European countries, large scale unemployment in India) but we choose to look other way or to our highly analitical minds, all of it seems improbable (or worst still mindframe of it will not happen to me). History does repeat itself only reasons are different every time.
Rahul
can’t stop laughing on 9!
sreekant
“6. Risk is NOT in an instrument, it is in an instrument at a given price” – Is it applicable to instruments like Sahara OFCD and Saradha deposits too?
Karthik Raghuraman
No. 9 is ultimate!!