Tag Archives: financial

A Decade After Lehman

 

“Prophecy is a good line of business, but it is full of risks.”
~Mark Twain
 

 

These words ring a bell as we approach the end of a decade after Lehman. Predicting almost never brings glory to the person doing it. Even if, by the twist of fate, the prediction is spot on, there will be enough people who will find ways to negate its veracity. Nobody likes accurate predictions as they are glaring reminders of what we failed to do about them.

So, we don’t even hesitate to lie to ourselves. We embark on an elaborate exercise of self-deception, by distorting the sequence of past events, altering narratives, and creating a new spin around inconvenient facts. But history remains objective.

Financial history has an indelible empirical trail. Numbers don’t lie. New narratives surrounding Lehman are mostly excessive personal indulgences. In a nutshell, the world got greedy, American capitalism lost its way, and that led to the meltdown. America can ill afford to simplify macroeconomic risks once again. The pervasive thought process that America needs to save, invest, and borrow sensibly still seems a long way off.

Today, we need to recognise that we can have another meltdown if we refuse to learn from history. Uncontained speculation makes real business look uninteresting. A stock market simply shouldn’t look better than businesses.

Prophesying that good times will last forever is never sensible. With that sombre prophecy, here is a solemn moment to the ghost of Lehman.

So What Really Is Good Advice?

 

 

Podcast Transcript

 

The markets are hitting new highs. But my advisor says, “Think long term”. I asked him if we need to book some profits. He says  “Do nothing, just let the investments stay.”

Friends, keep bringing up these conversations more frequently these days.

The problem with giving advice in the best of times is that it may actually alter the financial well being of advisors. Actually, it can destroy the advisor’s incomes if what is good for you is actually done.

So there is a tendency to actually give you advice which is innately conflicted. The advisors interests and yours tend to be in deep conflict. Ironically, as your investments start to perform to their peak potential, this conflict only worsens.

The most simple thing to do is to sell and go away. But, the advisor won’t tell you to do that. Instead, he would most likely make you sit and watch your portfolio fall. The advise every advisor fails to give you at the right time is the very advise that every investor would have most badly needed.

Selling and going away is just one way. It is not the only way to do it. There are better and smarter alternatives. But before we judge the smarter options, let us understand what not selling out at the right time would mean to you and your advisor.

So what is the advise likely to turn out for both parties?

 

Here is my best case argument.

The best case verdict is Good for the Advisor. And not all that bad for you.

The worst case is obvious. Good for the advisor. Very bad for you.

 

If you invested on good advice and were early to the tech boom of  2000 or the infra boom of 2008, and the advisor simply failed to make you sell when your profits were swollen and peaking, you fell under the worst case scenario.

Valuations will always be the markers. The markers must drive decisions. When the markers warn you, you have got to sell.

The long-term can wait. The immediate response is to advise you to safety. Remember, the long-term has never been as good for tech or infra since 2000 or 2008. I am sensing a similar mood in two spaces in the current market. The marquee private banks and financials is an obvious one. The not so obvious space in the midcap space. The valuations have long been running above the long-term sell markers.

This is the only thing both advisors and investors must respect. MARKERS don’t lie,  especially valuation markers. I am convinced good advice must walk you out of extremely overvalued parts of the market. If not, you will be a spectator during the bad times.

And it is not as if there are no alternatives. There are plenty of alternatives good advice can offer. If an advisor says there is no alternative to owning extremely expensive equities, then it possibly is just one of the two – lethargy or ignorance. The worst case is, that it can be both. Surely as an investor, you can’t afford to let your future be affected by both.

This is a time when we need to call our investing to sensible action. Good advice needs to call those actions of you. If it is dormant or passive, you need to question whether that is actually good for you. If you fail to question such advice, you will sow the seed of serious regret.

Good advice is simple. Investments which are seen as worth holding now must be GOOD FOR YOU. GOOD FOR THE ADVISOR.

Sadly, a whole lot of such investments which looked so in 2014, actually don’t look good for you anymore. So you need to know what good advice is and actively seek it out. Mediocrity can hurt all the good work you did in the past few years.

A New Financial Year

A new financial year brings along newer opportunities and challenges. A financial year which follows an extremely profitable investment year will always have the challenge of delivering comparable performance. After a good year, we expect the next to be even better.

But, when the year gets progressively tougher, then the closing mood sets the tone for the year ahead. If the mood is glum at the beginning of a new year and the follow-up events promise more uncertainty, then the statistics of the previous year will have little or no meaning for the year in store. We seem to be in that phase where the past year really has no bearing on the upcoming one.

So, we need to put behind the past and pragmatically view the future. The future certainly does not promise to be easy and predictable. Actually, it looks far more complex than the previous year.

The alignment between global and domestic markets worked perfectly last year. Towards the close, we seem to be preparing for a year when this compact will definitively be broken. Domestic investor confidence will be tested in the coming year. Early indicators are not as promising with clear signs of a behavioural crack very much visible among domestic investors. If they further lose their faith in Indian equities, we are likely to see our markets come under severe strain. We already know the stance of global investors. They don’t seem to be inclined towards Indian equities. If the strong domestic appetite weakens, we could see the challenges mount for our markets. The wall of fear to be climbed will look suddenly taller.
The first quarter will set the tone and context for the upcoming financial year. Investors must be ready and willing to see the challenges mount and still be willing to make use of opportunities that come their way. General elections are scheduled for May 2019. Advancing them will make the financial year 2018-19 very eventful, interesting and challenging.

 

“For last year’s words belong to last year’s language and next year’s words await another voice.” – T. S. Eliot