A test of conviction

Imagine 100 companies go on a borrowing binge outside India to invest in Indian operations. They have long gestation periods, no forex incomes and need to import their raw materials. The only reason they borrowed overseas – greed to enjoy lower interest rates. These companies actually speculated on the dollar. The government as well as the RBI did not bother to analyze if the overseas borrowing were backed by forex generation. The onus of earning the dollars was nobody’s business. Now, around repayment time, we saw the panic blow up the rupee. A country which runs up sustained trade deficits can’t afford to add to its burden of finding dollars. Yet, we did just that. The government pushed for freeing forex borrowings. RBI obliged. The nation pays. For whose sake? For the sake of a bunch of crony capitalist corporations who probably won’t even matter a decade from now. It is this irony that always bothers the serious investor fraternity. In our country, we mend policy to help those who will eventually hurt the Nation. Reforms when misplaced are worse than no reforms. This too shall pass.

The best of opportunity takes birth in the worst of times.

Invest speak:

Conviction, when tested, should stand. If it fails to, it probably was no more than a hunch. The worst of markets must bring out the best in your conviction. That is the root cause of all great wealth. If we are looking outside our mind to build conviction, then we are really never going to find it. Conviction is born, built and fostered in one’s own mind. Investors have often forgotten or possibly failed to build sustained conviction in their minds. The trouble with not building conviction over a sustained period of time is really why one’s investing fails. If we don’t spend enough time building conviction, we often do it in a hurry. This leads to misplaced beliefs turning into conviction. Ask yourself why you invested in a market peak in equity or even in dynamic bond funds recently. It was simply because you hadn’t done it much earlier when they were attractive buys. You didn’t spend enough time building conviction when they were attractive buys. Instead, you rushed to build conviction late in the day after all the smart people had already done so. So, when you build conviction matters most to your investment outcome. If you do it much before others, it could even give you some pain as you may be ahead of time. You will still win in your efforts if you stay the course. But, building conviction behind time is a strict no-no. However long you stay the course, you will only fail if you build conviction late in the day. So, the early bird gets the worm. Investing done with conviction built early is what will deliver results. To build it now would be a smart choice.

When the world is in grave doubt, learn to build your conviction.

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