True Lies

The other day Jim Rogers claimed that he foresaw a 100% probability of a U.S. Recession – a probability that gives him no room to escape, but then again, this is not the first nor the last time he has predicted the unpredictable. In his book, Clash of The Financial Pundits, Josh Brown writes about one such guy – Joe Granville and its a fascinating story to say the least.

Mutual funds are good generators of wealth in the long run if the markets where they are invested see a good growth. Every country has seen at least one big bull run which provides unprecedented gains to the investors.

As much as Technical Analysis is about basing the future on the way its past has been, its no advocate of blindly trusting that historical patterns will occur in the future as well. As Mark Twain eloquently wrote, History does not repeat itself, but it rhymes.

Some years back, in a moment of euphoria a Goldman Sach’s Analyst decided that the next big growth will come not from advanced countries like America or Europe but from 4 countries – Brazil Russia India and China and so came the acronym, BRIC which later on became BRICS thanks to the addition of South Africa to the list.

Over time, the bricks have been falling off to the extent that the lone man standing now is India. Brazil which showed so much promise has been done by the collapse of commodity prices, Russia in addition to getting hit by commodity prices also got hit due to its incursions in Ukraine, China – country whose stock market literally shook the world markets is someone whose numbers are always under question.

For a while, it was good with the worldwide growth washing away everyone’s sin’s of omission and commission but while investors may have a short term memory, markets remember.

In a recent article, I read about the last 150 years of innovation has been on lines that has never been seen in any other 150 years. So, when we look back on the markets of the last 15 years and think that that next 15 will be similar or even better, how realistic our assumptions really are?

My idea of critiquing investment methods / strategies is not to say that they aren’t worthwhile but to provide you with a perspective of things from a different view point. Anyone and everyone makes money (some by hard work, some by luck, some others by Inheritance) for money is the key essence to survive (forget thrive). But unlike say our grand father or his father before, we want to do a lot more – more travel, more entertainment, more outings with family. And then who doesn’t want a bigger home, better education for his kids among other wishes.

But life is costly and there aren’t short cuts to success. If you were to look at the Fortune 500, you shall see the list of men who risked big and survived. You shall not see a Vijay Mallya there since while he did risk big, the bets didn’t pay off and instead have taken their pound of flesh in terms of loss of existing wealth.

The reason investors are generally skeptical of equities is because of their inability to understand the risk component. Understanding that is the key to getting a better than average return. Everyone aspires for average returns, but for the average to be average, some will be above the average and some will be below the average. Where do you prefer to be?

Mutual Funds /Equity / Bonds / Cash all have their place in one’s portfolio provided you understand their pro’s and con’s before getting sold on what may or may not be ideal for you. To conclude, let me quote this from Howard Marks, a guy who has delivered returns which are closer to equity but by using bonds.

“If riskier investments could be counted on to produce higher returns, they wouldn’t be riskier. Misplaced reliance on the benefits of risk bearing has led investors to some very unpleasant surprises.”