A number of people have been asking me throughout the year 2008 and even now when i have left JM Financial Mutual Fund as to what made me invest the cash that i had generated right from October 2007 and kept till January 2008.
I think the simple and straightforward answer to that is that – yes i did recognize the formation of the bubble in the stock markets quite early. This got confirmed to me by an anecdotal evidence in the month of December 2007 when me and my wife went to buy Paneer at our favourite place “Punjab Sind Paneer” at Warden Road. There the guy who was the senior person was packing the paneer and at the same time in front of me advising his assistant that he should be investing his savings in equities and that by following the advise of my broker ( the senior guy said) i am doubling my money every month. I had heard of stories of back in 1992 where even liftmen, panwallas etc used to talk about stocks and used to advise on those investments.
The same month we went to visit our jewelers and lo behold what do i see – these people who have never invested in stocks had a full list of stocks that they had invested into and were infact advising me to look at some of the stocks in their portfolio.
These were obviously clear cut signs of the peaking out of the bull market and also of a speculative bubble forming. All i can say at this stage is ( taking shelter behind the words of one of the worlds greatest investors Warren Buffet ) – “I ALSO MADE AWFUL MISTAKES IN THE YEAR 2008“.
However on a more optimistic note i take this as a final process of learning for myself, where as someone who is known for riding his convictions i did not do so in early 2008 and finally the conviction turned out to be true. I believe that independent thinking and riding ones convictions along with a clear cut research and fundamental based approach to investments is the only way to succeed and that is something i have always done.
Last year was extraordinary in the sense that the virtual collapse of the Western financial institutions and their economies was something that was not foreseeable ( at least to me) and i believe that the year 2008 was an extraordinary year which is unlikely to be repeated over the next several decades. In that sense one should not be overly influenced by what happened in the year 2008 in making their investment approach and evaluating companies to invest into. Investment philosophies and strategies along with the way in which investment opportunities are to be evaluated have been established over a period of several decades and have stood the test of time. I believe that these kind of time periods should make one work harder instead of making one question the whole basis of investing in risky assets like equities and writing them off.
At the risk of repeating myself i will only say that investments made during extreme euphoria normally lead to huge losses and investments made during extreme despair ( as we see today ) would typically lead to returns that are double that of historic averages over the next five years.
