Gold 2018

The human fascination for gold will never end. This statement would have been true. But if one looks at the historic prices of gold *2013-2017) its largely been flat to falling. The redemption from Gold ETF are gathering pace with record money outflows. Without fresh allocations and no price appreciation gold has run out of flavor for the investors. The only folks buying gold in tonnes is the Governments of China, Russia and Turkey.

The prices of gold are negatively correlated with the US dollars. As we have seen the USD depreciate with US Fed increasing rates the prices of gold have rallied.

What does all this pessimism mean for gold? An opportunity to keep it on ones radar.

With the world equity market in over-heated territory in addition to rising interest rates will mean, logically investors will run for a safe havens. Eyes wide open!!!

Contrarian Thinking

One of the important aspects that help investors outperform the crowd is ‘contrarian thinking’. All successful long term value investors have facets of this quality which have helped in significantly outperforming markets and crowds. If I have to explain this through the poison curve; we need to be in the extremes rather than in the majority.

Investing is a game of opportunities and probabilities and profits are a resultant of being right and avoiding big mistakes. 

What does contrarian thinking mean in the market context? The explanations are swimming against the tide or being greedy when others are fearful and vice-versa or making more money than the crowd and losing lesser than the crowd. All this feels like the right approach to investing but how can we all incorporate this in our investment approach. Being contrarian is more a mindset that one more cultivate and this can be stretched to life 'beyond investing'.

I recommend three simple approaches that will help you gain this mindset and observe when your thinking is following the crowd.

1. Avoid the noise
By noise I refer to 'distractions'. These come from multiple sources (TV Channels, Social Media, Research reports, watsapp groups among many others. These noises force us to react and over-trade when all one needs to do is keep calm and be on the lookout. Unfortunately we tend to spend too much time creating and spreading the noise which refrains us from thinking independently and focusing on the controllable (which are usually only few!).

2. Know the cycles
All companies follow a cycle of performance. These cycles are either driven by external forces (like commodity prices, weather, government policies etc) and company factors (like management changes, product launches, mergers & acquisitions, debt restructuring etc. All these factors cause resultant prices to move up or downwards and catching them at the 'right' time up or down could be beneficial.   

3. Ask yourself 'why' are your right or wrong
We all like to be correct with our perspectives, predictions and views. This coupled with confirmation bias results in us reading and following views that confirm our thinking. Effective thinking would be to ask why is it wrong and why we must not listen to our confirmation bias. Reading sell reports of stocks you own are an excellent way to start! 

In the investment business, avoiding the pitfalls or unforced errors is as important in a game of average players. Happy Investing !!!  

Bitcoins

As Howard Marks said, first the innovators followed by the imitators and finally the idiots. This though has stuck in me every time I evaluate an investment decision. It was the case for Bitcoin too. I first heard about investing in Bitcoin in early November 2017 when the price was rallying and had touched $7500. Not knowing much on what was the fair price I curiously asked question on the value. Got a bunch of funky answers by the millennial speculators and I resisted the temptation to add myself to the list.

By end of 2017, prices had doubled and and at some point touched $ 20000. I seriously felt I am missing something. 

But then experts everywhere were rubbishing this as the bubble of the century, comparing it with Tulip mania, governments started banning the exchanges and putting out caution statements, and my father-in-law asked me What is Bitcoin and how it works?...And then the prices started to crash, every expert and persons who missed the rally (including me) feeling vindicated. I must say it’s been one hell of a rally and crash...

Now where is the bottom? I do not know but it will be when no one is concerned about the price of Bitcoins and the world has forgotten about the latest financial innovation and caught on to the next ones....till then it will be volatile!!!

PS: I have purposely not gone into the merits of valuing Bitcoin since I still do not understand it completely and cannot imaging how it will be used. My low IQ could be blamed for this behaviour. 

India Budget 2018

The Union India Budget was announced on Feb 1, 2018, a good month ahead of its historic schedule.

As investors, long term capital gains tax was imposed which caused some ruffle and disappointment. I must say the Rs 1 lac relief to the small investors was a welcome respite. 

Investors over a period of time will adjust to this new normal with a higher risk return ask to compensate for taxes. I personally believe taxes are part of life and it does not change the long term opportunity and potential of the Indian economy and promising companies. 

Having said that, overall valuations are remarkably higher than one can stomach and corrections would be healthy to keep everyone on their toes and accept volatility and risks as part of equity investments. I feel this has been forgotten due to the stellar returns of the past year. 

So what next from here? It’s going to be a bumpy ride full of volatility. This will indeed give some good bargain opportunities to the patient, curious and observant investors. 

Happy investing!!!