Thinking long term at the right time?

The past few weeks have seen the banks report soaring NPA’s. What the banks haven’t told us is where these are coming from. Non-performing businesses create non-performing assets. Businesses fail to perform when they take on much more than they can handle. One such business which is slowly but surely going down under the load of its own greed is the real estate sector. The bad news refuses to flow out into the public domain for obvious reasons. The media’s biggest benefactor in a falling economy remains the realty sector. So, even banking defaults have gone unreported and unnoticed. But, defaults keep growing and spreading till they simply can’t be hidden anywhere. Investors would do well not to deal with real estate on the buy side for the time being. It is always better to play safe than be sorry.

If your investment cycle is one year, you probably aren’t investing.

Invest speak:

A default is an omen that markets simply should not ignore. In fact, defaults tell you that there are no more escape options left. So waiting for a default is not a bright idea as we will have no responses left. A sensible investor must always look for default risk when he makes his investments. Whether it is a real estate deal or a contract with an exchange or a fixed income investment, default risk has to be studied very carefully. When we ignore default risk, we tend to set ourselves up for permanent loss of capital. The recent events in the spot exchanges affected investors who overlooked default risks. Real estate is a business where there is zero default cover. There is little you can do if your builder doesn’t deliver. Overlooking this truth now can make you weep for a long, long time.

At the bottom of a cycle, the least you can do is think long-term.

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