Predicting is risky, hey that is the fun!

Predicting is risky, especially if it is about the future. – Anon

I said Anon because too many people have attributed it to Mark Twain, Oscar Wilde, etc. And the truth is, I do not know who said this, but it is an awesome statement.

Having said that let me predict certain things that will surely happen in the future (near future or far away I will not stick my neck out).

1. When one scenario stays on for a long time we ASSUME it is permanent: like the interest rates in the US, Europe and Japan being close to zero. One day it will go up and go up fast. On that day ALL assets will get repriced, and repriced VIOLENTLY.

2. Low interest rates means poor credit appraisals by banks. Invariably when too much money is sloshing around stupid projects get funded. The world will pay a price for stupid asset buying at ridiculous prices.

3. IN the US the last time interest rates were at such low rates, BOND INVESTORS lost about 40% of their bond value over the next 20 years. It was equity which boomed.

4. Indian equity markets will go up, but over the next 20 years will it reach the CAGR of the past 34 years is a moot question. So do not be too much stuck on that 19% p.a. CAGR figure.

5. Risk is not inherent to an investment. It is ONLY with relation to price. So a well managed company is risky at 40 p/e but not risky at 18 p/e (historically I mean). A badly managed company is NOT WORTH CONSIDERING – so we do not consider the risk in junk, simple.

6. Do not trust financial models made by half baked Financial market professionals. Many of them do not know their As from their Es…

7. Financial innovation is dangerous, and normally YOU pay the price – as a buyer or as a tax payer. If it goes right, the banker gets a fat bonus.

 

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2 Responses to “Predicting is risky, hey that is the fun!”

  1. Gud one Subra… can you give me some pointers to read up on interest rates and asset price correlation in detail.

  2. Subra,

    Whats your opinion over latest real estate regulatory bill?
    I know you were against current real estate scenario in India. Do you think with this bill current builder biased market will tilt towards buyer’s market

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