Make Your Choices Smarter
Domestic investor confidence has risen sharply over the past two months. During this period domestic investors have gravitated even more towards equity, overwhelmingly preferring it over other asset classes. This is in contrast to their usual standpoint, where equity was the least preferred asset class. From the least preferred to the most preferred one, the transition has almost been very quick. A transition in one year is still lightning quick considering the deep-seated public aversion towards equity. Investors should remember their earlier experience when they swung rapidly from aversion to total awe. It happened thrice at lightning speed. In 1992, investors permanently lost capital. In 2000, most investors permanently lost capital. In 2008, a significant majority lost permanent capital. One must understand why this happened. It happened simply because investment choices in each bull run were inferior, expensive, and untested. Now, consider where investors are piling up their capital in the current rally. These investments need to prove themselves on value, sustainability, and reliability. Investors must not assume that the near term performance is sustainable for long years. That would lead to history repeating itself.
“Rational behavior requires theory. Reactive behavior requires only reflex action”- W. Edwards Deming