I have been asked this many times in the past 3 days, so a repeat of this post…well not a repeat of the post, but a repeat of the thoughts. “Where to invest now” or “Should I be investing at all now” or “Invest or repay my loans”…
I am not an expert. Clearly. I have no clear view of what is to be done. I have no holy grail and I am no alchemist. I have tried turning lead into gold, but was not able to do so. Nobody gave me money to do those experiments, but I have met many people who have tried. Ever since the 1960s and 70s people would lose money in company Fixed Deposits. I am surprised that they now lose in “fully secured non convertible bonds”. Even today I got a call from a person asking ‘what can be done’ and I said ‘nothing’. This raises the question as to why investors/people keep falling for the stories offered up by investment managers/alchemists. Never underestimate the willingness of people to believe in the most outlandish of things if it suits them.
So a 53 year old friend has 2 new housing mortgages, and a nice new big car again on mortgage. His whole portfolio is in debt instruments, and none of the debt instruments are yielding (cannot, I guess?) returns greater than the mortgage rates. Then why the mortgage? Tax benefit he said. Now that the tax benefit has been withdrawn has he repaid the loan? No. Of course I did not ask him for more details. Why 2 houses? for his 2 daughters. Lol
Investors are always looking for a HOLY GRAIL of Investing. So they want a Value fund with rocking returns when the market is high. Amusing is it not? They want a high return fund with low variance. They want a fund which has a consistently ‘going up’ kinda graph, and never a downside. They learn all jargon, read blogs (including this one) and come to own conclusion. The only sensible innovation in the BFSI industry was the index fund, and before that the Term insurance. J K Galbraith said in one of his books, “The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version.” Remember Paul Volker? he said the only innovative thing that this industry has done is the ATM. So damn true.
I get offers of Pms saying we will have a different strategy and here is a typical statement : minimum variance, a preponderance of other smart beta strategies, and our portfolio will outperform the cap weighted benchmark.
Wow. Kuch nahi samjha. Did you understand? I did not.
The simple art of value investing: “all strategies can work only if the price-value worth is taken into account. No strategy can give you returns if you ignore the price at which you buy. There can NEVER be ‘
The latest Goddess admitted to the smart beta game appears to be Quality (Remember MOST talks about it a lot) portfolios are being launched and papers written about the “magic” of high quality businesses. That is just good PR to make sure that the press writes what you want and uses the same wordings and language. I do not think that there is ANY magic to owning quality. I LOVE quality but obviously only at a particular price. Yes quality is good if it leads to a monopoly or a oligopoly – look at Gillette or PnG – there is a very slow mean reversion of the profitability of such shares. Is it not funny that the economists who will keep talking about competition being good for the consumer, but will lap up the shares of companies like Gillette which survive just on a market domination rather than innovation!
Another feature of quality is that it has been priced to do relatively well. So own quality ONLY when it is priced attractively, and don’t when it isn’t.
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