Watching people shop for gold reminds one of how diabetics think at the sweet counter. They know that the buyer may turn bad but can do little about their urges. Between the lure of the metal and shopaholism, they hardly can differentiate what drives them. The knowledge that they will face transaction losses when they exchange old for new is simply forgotten. The connection between global confidence in economies and gold prices is something most buyers are blissfully unaware. Importantly, most Indians are ignorant of the fact that buying gold is a way of voting against your own country’s economic prospects. If our economy does well, gold buyers will be the first to be punished when exchange rates rise and the rupee sees better times. Logic and the gold buyer are never fellow travelers. But, the gold buyer has his own arguments. These alibis are always ready just in case someone questions them. ‘I have a daughter.’ ‘if it goes down, it will not lose too much’. ‘how much can I lose?’ . ‘in the long term, nobody loses in gold ‘. The problem with all the alibis is that the buyer is not playing to win. At best, he is playing not to lose. When one buys anything with the intent of not losing, the price at which you buy is the only thing that matters. If the price is wrong, nothing will go right.
Things always become obvious after the fact – Taleb.
When a sector that the market thinks is very dependable turns shaky, the only answer that the market comes up with is sectoral rotation. The markets pay a premium for certainty and when doubts show up, the premium vanishes. The markets will constantly look for certainty from new sectors and the premiums will shift there. How does the market identify which sector is certain to deliver? This is where the macroeconomic indicators come into play. The top-down investors always looks for trends to spot reasonable certainty of performance from a sector. When they see reasonable certainty, they manage to buy at modest valuations. The macros improve over time and the certainty also gains ground. At this point, the rest of the market rotates their holdings and buys into certainty at higher valuations. When the macros improve from a bottom towards better times, this rotation is what helps the market’s recovery. One after another, sectoral fortunes improve and draw market attention. In the next few quarters, we will see this play out.
It is buying the future that counts.