The slow cycling hour is here.
What hit us? Indians across the globe are wondering what caused this economic mess. The subprime crisis of 2008 created a wave of easy money flowing into countries across the world. We added to this liquidity with our own stimulus. The Indian economy had the power of double steroids backing it. Global fund flows plus Internal Stimulus was a heady cocktail that pushed growth to its highest in two decades. Our government spent money indiscriminately on our people hoping to get twin benefits – fuel economic growth and win elections. What we achieved instead was unbridled inflation. This forced us to slow our growth down and we raised interest rates sharply. This led on to our currency weakening once the US announced that QE3 was going away soon. Everything that went right for us turned against us. Money went back to the USA; we slowed down very abruptly; we have no money to sustain the stimulus. Things could not have happened at a worse time, six months away from an election. Politically, there simply was no way we could reverse the stimulus spending on welfare. So, we are trying other easy ways. Confidence in the India story has dipped sharply. Hard actions will see it return slowly.
The lack of will and conviction at the right time is the cause of all failed investing.
Managing expectations is as important as managing money. Investors often overly focus on managing money without understanding how to set their expectations. Developing the wrong set of expectations is the most common mistake investors commit. Setting benchmarks which are unrealistic will leads to disappointment. Yet, investors are mostly unrealistic when they set their return expectations from equity investments. For instance, investors never assume that their investments can go down in the short term. Often, investments remain at the same value as their purchase levels for a long time. These should not matter in the long run if the investments are fundamentally strong. A sound investment premise should back every investment decision. Investors must be ready to see their investments go down in the short run. That they lose value should not make the investor lose his faith in them. Investors must spend enough time and effort in decision making. Hurried decision making should be avoided. If decisions are made in haste then the time spent in the long investment cycles will be wasted. When decisions are well thought through, spending time with the investments will seldom fail.
It is buying the future that counts.