This time it is different!

“We have met the enemy and he is us.” – Well, the enemy is not so clear is it us, is it the media, is it this blog? Well, I don’t know.

I have a clear equity bias, so my contribution to such ‘bull’ stories HAS TO BE DISCOUNTED.

We are in a funny time in history.  A time when the truth changes every day. Mani Shankar Aiyar said ‘Neech aadmi’. NaMo dramatically said Mani Aiyar said ‘Neech Jaati ka aadmi’ and went on to say this was an insult to the 6.5 crore Gujaratis. BJP went on to say ‘this is an insult to 125 crore Indians’. Soon Mani said “I am not sure about my words usage”.

Pick YOUR truth. It is lost somewhere in the words above. I cannot find it.

The amount of misinformation being spread daily is remarkable.  It seems like everything is “fake news” now independent of who is reporting it.  Fake news is not a separate channel anymore, it is well merged in the main channel. Misinformation is spread so quickly through sms, wassup groups, etc. that our brains do not even go into the analytical mode. We see, read, react, and forward. Worse, sometimes we just forward.

Does this impact your investing?  Of course, it has to.  At some point, the market prices in the actual truth, – but by that time it has over-reacted on the upside and the downside! And we are unable to kill our biases. I did not like Hdfc Standard life at Rs. 300, I cannot change the narrative in my mind to like it at 388 and add it to my portfolio. My bias about not liking the life insurance business is fighting the long track record of managing EPS and PE by the group. No share can be manipulated for 40 years, right? but despite that strong evidence, I have not been able to substantially included this share in my portfolio. Bias.

In between those two points of any share, buy and sell decisions are  made based on reacting to not only the recent past, but also to the narrative constructed around it.  It is easier to react to something that sounds like it makes sense rather than think about long term trends, the real narrative, or even if the information presented is fiction or fact. I am still holding on to my NBFC and banking portfolio – even though the great contrarian investor Naren has sent signals of quitting this. Look at his Icici Pru Value discovery portfolio, clearly they have abandoned the BFSI bias. Good for me, I am an investor in this fund despite Naren not handling it on a day to day basis.

The narrative now in the investment community is without of any  questioning of both logic, and actual information. Why will markets go up? because they have been going up to me is a very poor answer, but that is what I get.

Interest rates will only go down – look at the developed countries Subra, so our G-Secs will go to 5%. Hey, says who?

Inflation is going to skyrocket, and volatility is going to remain historically low. Please tell me how and why should this be a given?

Why does everyone believe this is the future?

Maybe interest rates have already gone down, markets have reached the peak and we will see 35000 only in 2020, inflation has already gone up, and volatility is historically low?

What if a new narrative is getting built?

The narrative of 5% inflation, 6.5% Gsec, 7% bank fixed deposit, 7.6% bond fund yields gross of expenses, 9% return on equity, 13% inflation in education expenses, average of dying in middle class families going to 91. Are we ready?

The narrative largely gets built on what has already happened, and spreads like wildfire. Media fans the fire, and never ever douses it. TRP chasing helps I guess.   Investment decisions are then based on the story, rather than the fact that mean reversion dictates the exact opposite is the truth of the future.

The current narrative is predicated on NaMo being a great PM who with demonetisation, GST, (already done) infrastructure spending, and regulatory reform.  My worry with this is that

1)  everyone believes that this is a certainty, and

2) seemingly no one is addressing the not-so-alternate-fact that the current fiscal year end 2017  government expenditure is not really coming down!

But who cares?  Someone says something we agree with that confirms our own biases and beliefs, and it only reinforces our belief that what we think is true.  There is just too much noise for you to sit and think independently.

To think independently you should go off the media. Including this blog.

We can and perhaps must, as investors, stop changing the truth to fit the moment.

We must stop reacting to every bit of information (and worse, forwarding it!), and instead make sure the information is valid.

We must understand that the market reacts to a million news items and it is IMPOSSIBLE to isolate the reasons

We must stop believing in false narrative.  Perhaps most importantly, we must stop doing this to ourselves.

The real enemy is not the media. It is us. We need to stop biting everything we get.

Eat less, Exercise more. Skip 3 meals a week.

Read less, write more. See less, think more. Write long reports in own handwriting.

Shift to doordarshan for news – if it matters. Staying off Noise papers has not hurt me much.

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2 Responses to “This time it is different!”

  1. Awesome advice. “Noise” papers is very apt.

  2. wow! Just succinctly put thoughts!! I am compelled to respond here in comments after a lonnnng time and thanks for writing this.

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