2008 made most of us risk averse. So, we thought the best way to steer clear from high risk was to stay off Equity. The investment options were limited to debt , gold and realty. Most investors went for a mix of the three. The strategy worked very well till gold came apart. Now, debt is set to give lesser returns. That leaves property as the last man standing.’ Will property fall ?’ If it falls, our investments of the past five years may well turn futile. But, the question should actually be ‘what if ?’.
Here is the ithought view. Investing should be done with the ‘what if ‘ question always taking precedence over the ‘ will there be a crash ? ‘ question. A crash will always happen if we overdo things. That is the plain truth. As investors , we must learn how to keep the damage minimal. We must learn how a crisis works and how we must work in a crisis. Predicting a crisis is less important than preparing for one.
The important thing in investing is to be able to respond to a crisis. Why is it so important ? The reason is simple. When there is a crisis and we are in a position to respond, we turn the crisis into an opportunity. How do we achieve that ? We achieve that by actually assuming that things can go wrong. And, preparing for it.
Investors hate hearing that things can go wrong. Imagine the advisor telling us things can go wrong when you are about to invest ! So most advisors say only the right things. As an investor , one must learn to hear bad news. The ability to take the bad news first will turn us into better investors. The good news will anyway find us. We must learn to find the bad news.
When we devised an investment process for ithought , we were in a dilemma. How do we tell people the bad news and yet make them
invest ?Painting a rosy picture wasn’t an option. But, starting with a dirty picture wasn’t easy either ? That didn’t stop us from trying. So, we boldly did some straight talking.
We gave the bad news first and then explained how the good news will start flowing. Here too, investors are often in a hurry. ‘Why is my portfolio down now ?’. This question almost always makes its appearance when things are at their worst. ‘ I could have as well invested in a deposit.’ is another oft-heard reaction.
Here, the investor in us needs to be prepared. By asking questions in panic , we are only showing how unprepared we are. If we are prepared for the worst, we would respond by turning that into an opportunity. The ‘what if things turn worse ? ‘ approach always helps us take our investing to the next level. When the world panics, we will be ready to act. In panic, others will certainly freeze when they are unprepared. Just then, we will act decisively having prepared well for that moment.
An advisor’s job is to prepare investors for that moment. Willing investors will be better prepared. The reluctant warriors will lag behind. But, preparation is clearly a journey. So, how should you journey now ?
Prepare for debt investments turning unattractive. Prepare for a property meltdown. And, slowly start believing in the economic recovery.
Performance of asset classes is always by rotation. Yesterday’s performers like gold are today’s laggards. Today’s performers could be tomorrow’s laggards. The laggard of today will deliver returns tomorrow.
Stop predicting. Prepare . Tomorrow’s prosperity lies ahead near us.