Easy money

When easy money becomes available, investors tend to take more risks with money that would otherwise lie idle.

#RidingTheRollerCoaster – 231


Another “safe haven”?

Look at what happened to another “safe haven” investment …

How safe is your PF money?

Very often, investors think something is safe so long as nothing wrong happens. And then, it is already too late.

I wrote in the book the following line: “We do not perceive risks when things go right and by the time we do, it is too late”

#RidingTheRollerCoaster – 221

Grouping the investment themes – a mental short cut

Grouping investment themes together is a mental short cut many investors take. We have seen many examples of such groups, e.g. Asian tigers, emerging markets, frontier markets, mid-cap stocks, suburban real estate, condos, precious metals, infrastructure stocks, BRIC countries, ICE stocks, unicorns (start-ups), e-com start ups – the examples galore.

In the process, all the individual investments are considered to be equally safe. In search of opportunities, investors often forget that the risks could be vastly different. Almost invariably, they land up with the investment options that appear to be “safe” only because these belong to a certain group or a club.

The truth is discovered much later.

By the time the realisation happens, many have highly concentrated portfolios with poor liquidity and high leverage – a lethal combination.

#RidingTheRollerCoaster – 178

The fact that I got away does not mean there was no risk at all …

Amit - python

In the photograph here, I have draped a live python around my neck at the night safari at Singapore. The fact that I am alive means that nothing happened to me – I did not lose life. Does it mean I did not take any risk at all?

Same thing happens with investments.

One tends to get confident when nothing untoward happens to the investments even when one has taken risks. this confidence soon turns into overconfidence. This overconfidence in one’s abilities leads to the search for even more risks. One tends to start looking at something that nobody is looking at – the adventurous in us want to seize this opportunity. And we leave the shores and dive into the deep seas.

#RidingTheRollerCoaster – 163

Chasing yields

When we are in a peculiar situation when the interest rates are below price inflation rate and equity markets have remained at low levels for long, people start to chase yields.

When investments in fixed income securities are not earning to cover price inflation or the growth in expenses, investors have no option but to take on certain risks.

#RidingTheRollerCoaster – 151

The real value of history in the world of investing

William Bernstein writes in his classic Four Pillars of Investing – Lessons for building a winning portfolio: “The real value of the historical record is as a gauge of risk, not return.”

Still, majority of discussions focus on which asset class has outperformed or underperformed which other asset class. The focus is too much on the returns generated rather that the risks taken or avoided.

Read history to understand the risks. Read history to understand what can go wrong. Read history to understand what you can do to protect and nurture your investment portfolios.

#RidingTheRollerCoaster – 140

Financial market returns v/s the real economy

Whenever financial markets have tried to generate returns higher than the real economy, the results have been either increased cost (thus lowering returns to investors) or increased risk (which eventually manifests itself) or both. The financial markets can at best upfront the gains of the real economy.

#RidingTheRollerCoaster – 129