Be the Devil’s Advocate

Back in the school days, we had a debate team and as much as I thought I loved to be part of it, never had the guts to raise my hand and ask for being on the team. My friends who were on the team maybe knew as much as me or maybe even lesser, but the fact that they weren’t afraid to be judged (and debating all about getting judged – how much you know, how much you can defend and how much you can convince) while I was happy to be the guy who never faced that ignominy of losing face when facts one believes in are shown to be false.

But Internet in a way provided me the Anonymity to debate and yet not lose face in the way one would in a live debate. 2003 was when I really started expressing my views on markets using Technical Analysis as my telescope.

While internet does provide a level of anonymity, as time passes by and one gains reputation and friends based on reading and respecting each other’s views / works,  one starts becoming not the faceless man one once used to be but somehow who is known.

As much as one thinks this reputation doesn’t really mean anything, once again as time goes by, one starts to feel that this is what one has for all the time spent reading, questioning, testing ideas and views of self and others. The more one gets known, the harder it’s to be a devil’s advocate and try to reason out views that is accepted and followed by the majority.

A reason majority of people follow the herd is not because they believe in the idea, but because they do not want to be seen as someone who makes his own road. After all, what if the majority was right (and most of the time, they indeed are), how foolish it would look to not just being an advocate of an idea that didn’t work out.

In the United States, adjusted for Inflation, real estate returns over the Century has been close to Zero. While I have no idea what inflation adjusted returns in India are, purchasing power based return in my opinion is still in the positive zone.

Being a devil’s advocate is risky business for you end up being seen as a guy who doesn’t understand and worse, have an agenda I not accepting the universal advice. Then again, if you read about the Entrepreneurs who made it big, their idea flew in the face of logic at that point of time though as time evolved and they succeeded, their idea now is seen as a master stroke.

In 2012, I wrote a long report on how a simple MA Cross would not beat a Buy and Hold for most Indices and across time frames. This ignited a controversy in the Yahoo group where I posted it culminating with me and my group being ostracized by  many who I had earlier taken to as being friends.

But as every dark story has a positive twist, for me, this was the start of understanding the process of testing trading systems much better than I had ever been able to do so earlier. In recent months, I was once again in a controversy when the SIP debate opened up.  Once again, while I am not sure I have been able to convince others of how they can do way better than just sipping blindly, I for one have immensely benefitted from the tests I carried out.

In the world of finance, human behavior is everything and that has not changed since the days of the Tulip / South Sea bubble. It’s hence surprising to think that the new age investor is way different and with the help of his advisor will be able to swim through the choppy ocean.

We have had a bull run between 2003 and 2008 and another bull run that started in 2012 and is yet to end. But there is an astonishing amount of difference when it comes to the quality with this run being one of absolute smoothness and rarely giving one the jitters.

As much as India maybe the one eyed King of the Blind, when markets across the world catch a cold, be sure that India will be no safer than any other country and given out dependence on Dollars, may in the short term actually turn out to be even worse than those countries which aren’t as dependent.

It’s in those times your strongest beliefs will get tested and unless you have been prepared, probability is that you will do no different than the crowd which most of the time behave like lemmings as they leap of a cliff (Urban Legend, but hope you get the point).

To get a glimse of whether you shall be really different than others, look back on what you did when markets fell below the 7000 (on Nifty) levels a few months back. Did you sensing markets were cheap, add more to your portfolio than you generally do or did you await even further fall before deciding to venture.

If you have been an investor in SIP, you would have bought at 9000, at 8000 and at 7000 as well. But, should not you buy more as markets became cheaper while buying less (or even horror of horrors, selling) when markets are expensive? If you didn’t do differently in this small fall, do you really think you will be able to take advantage of once in a decade opportunity when it presents itself the next time around?

Strategy is about making choices, trade-offs; it’s about deliberately choosing to be different. Michael Porter