Expect Volatility

The loss of public confidence is the most difficult thing that Nations face in building their infrastructure. If the investing public is confident that their government is capable of handling any crisis, they will remain invested and stead fast in their investment beliefs. The last decade must be called the lost decade in the domain of investment confidence. On the one hand, a part of the political class wanted a greater share of the economic pie. They wanted licenses subverted to cronies, their unaccounted capital to pervade stock markets via FII P- notes, stakes for themselves in corporates through proxies and much more. On the other hand, the remaining part of the political class simply wanted to seek economic rent in the name of ideology. So they stopped projects using environment and ideological concerns and followed an obstructionist path to growth. Presiding over this decade long internal battle was an economist of repute. In the end, nobody won and they have ensured the destruction of public confidence. Great nations are built by leaders who create history. Leaders who simply live to survive long years in power only end up as villains in history. Judging the lost decade can no more be an academic exercise. The sense of urgency to rebuild public confidence will be evident in 2014. We can’t afford to wait for history to judge what went wrong. Our demographics don’t allow us that luxury.

The ability to think clearly in the investment field without the emotions that are attached to it is not an easy undertaking. – Walter Schloss.

A black swan event takes markets down in a short span of time giving investors an investment window they must fully use. But, when a black swan actually strikes like it did in 2011 during the Euro crisis, investors tend to clam up and avoid taking on risk. Risk aversion comes into play and few investors are in the mood to take on risk. Yet, most investors actually believe that they are better off waiting for an investment window that a black swan event will throw up. So, they wait endlessly watching the markets rise beyond levels they would be comfortable investing into. The greatest paradox is that investors actually invest well above what one calls as an attractive level. This investment pattern has been playing out repeatedly with investors making little effort to change it. This time will be no different. But, investors who actually want to change this pattern must look at the bird in the hand. Ignore the black swan that may never show up. Importantly, if your luck brings a black swan your way, don’t run away.

Unfreeze your strategy. Infuse fresh thinking.

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