Do you know the future?

It amazes me how frequently the same questions keep coming back.

Some of the most common questions are:

  • “Which mutual fund schemes are the best according to you?”
  • “Which is the best mutual fund? Or best stock? Or best investment?”
  • “What is your view on the market?”
  • “Should I invest now or wait for some time?”
  • “I have invested in ********* mutual fund scheme(s). How much returns should I expect?”
  • “I have invested in ********* mutual fund scheme(s). Are these good schemes or do I need to make any changes?”

All the above questions have one thing in common – an attempt to know the future. It seems the entire business of investment management may be about predicting the future. And the investment expert is a professional forecaster.

The fact is, most have failed to correctly predict the future events – even the best of the investors. Let us see some examples and we need not go too far in the past. In the last seven months of the year 2016, the world witnessed three major events taking place in three different parts of the world.

First in the month of June, the people of Britain voted for exiting the Eurozone during the referendum, whereas majority had predicted that Britain would remain in the Eurozone.

On November 8, while many experts were expecting the US to get the first ever lady President, the result was very different.

In both the above cases, while there were only two possibilities, the actual result was exactly opposite of the popular opinion.

On the other side of the world, on the same day, November 8th, the currency notes of Rs. 500 and Rs. 1,000 were pulled out of circulation. I am sure nobody had any idea about this. No forecaster could predict such an event happening.

Continue further on the US election results, majority of the market experts and economists had expected that a Trump victory would spell disaster for the US. What happened in reality? Post the announcement of election results; the US Dollar has gained against almost all major currencies of the world. Can someone say that the fall of the Dollar was already factored in the price and hence post the victory of Donald Trump, the Dollar only recovered? Well, even that argument does not hold water, since majority was of the view that Hillary Clinton would win the election. There was no question of the unexpected being factored in the price. So, it was not a case of a political forecast gone wrong, but also a market forecast going wrong.

Sir John Templeton has famously said, “Buy value, not market trends or the economic outlook.”

The subject of investment management for most retail individual investors is to ensure enough money is available at the time of one’s life’s financial goals. In such a scenario, one must manage the investment risks such that the money becomes available at the time of need.

For that purpose, the important thing is to understand what can go wrong and how to protect one’s investments. Forecasting the future is not required.

  • Amit Trivedi

The author runs Karmayog Knowledge Academy. Recently, Amit has authored a book titled “Riding the Roller Coaster – Lessons from Financial Market Cycles We Repeatedly Forget”. The views expressed are his personal opinions.

#RidingTheRollerCoaster

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History repeats …

Look at this interesting article about Indian start-up boom of recent times:

Dotcom deadpool returns as India’s start-up boom turns to bust

Sir John Templeton has famously said, “The four most dangerous words in investing are: ‘This time it’s different’.”

#RidingTheRollerCoaster – 225

 

Buy high sell low … or is there another way of making money?

Success in the stock market is based on the principle of buying low and selling high. Granted, one can make money by reversing the order – selling high and then buying low.” – Said Sir John Templeton.

Sir John, a bargain hunter as he was, found a bargain in the internet stocks – well, the bargain was not in buying, but in selling. However, since he did not own any stocks, he had to short-sell the stock by borrowing the same from the market and later reverse his trade, i.e. buy back the stock.

Sir John Templeton took out the list of DotCom (or Internet) companies that raised money through IPOs and then further filtered on when the lock-in period was getting over. He started short-selling the shares a few days ahead of expiry of the lock-in period anticipating large amount of stock being off-loaded once the lock-in was over. He was right on target and in a falling market reaped huge profits.

What did the other great investors do in that time? Read it in “Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget”

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Sir John Templeton’s investments in Japan

Sir John Templeton was known as a global bargain hunter. He loved to spot opportunities across the world when majority of the investors invested within their own countries.

One of his major investments was in the Japanese stocks, when it was out of fashion to do so. He invested in Japan in early 1970s, much before the world saw any reason to do so.

Many Japanese conglomerates had cross-holdings, which the market could not put a value on. Sir John started loading up on stocks of some great companies, which were valued at single-digit PE ratios.

By the time the world got interested in Japanese stocks, the stock prices as well as the PE ratios had gone up a lot. Sir John Templeton had started to withdraw. Much before the peak of the market in 1989, he was completely out of Japanese stocks.

A true contrarian, a true value-investor.

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#RidingTheRollerCoaster – 5

“The four most dangerous words in investing are: ‘the time it’s different'” – Sir John Templeton

What is different in each episode of financial market cycles? What remains the same? Read the book “Rising The Roller Coaster – Lessons from financial market cycles we repeatedly forget”