What serious investors who wish to generate wealth will have to do
Dhirendra Kumar
CEO, Value Research
The other day, in an article about financial crises, I came across a selection of typical headlines in the US financial media during 2008 or 2009. Here they are: Nikkei at 26-year low. Dow 5000? There’s a case for it. Tech drop takes down stocks. Collapse of the financial sector, deeper, harder than tech wreck. Treasuries slide ahead of auctions. US to push for global stimulus. Hedge funds give back gains. China warns of severe fiscal conditions. Bearish big investors catch gold bug. New fears as credit markets tighten up. Japan’s inventory woes. Wells Fargo cuts dividend by 85% and makes cost cuts. The bear growls louder. Unemployment of 8% is highest in 26 years. US says markets need crisis plan. For treasury issues, fear factor is crucial. Jobless scars will outlast the recession. Auto sales roll downhill. Capital one to cut dividend 87%.
It sounds like a dire situation. While we were living through it, it did feel very serious, and indeed it was. But here’s the thing. The headlines were no help to savers and investors in dealing with the crisis, or anything at all. In fact, today, if you are trying to understand what happened then there’s only one that sounds even vaguely interesting and illuminating and that’s the one about job cuts. The rest are just verbiage flowing through, without adding anything to what you need to know or do.
Today, we are living through yet another wave of crises—yet more in the chain of the ‘crisis crisis’ that I wrote about last week. Booming interest rates, inflation in countries which haven’t seen it in decades, wars, pipelines, gas, China and even now, a little bit of the virus. There’s no shortage of headlines which are just up-to-date versions of the ones above from more than a decade ago. The question is the same as that is raised by those headline: Should news be an input on which you base your investment decisions? Once you start thinking like that, it becomes self-evident that every event that’s there in the newspapers or TV news don’t really tell you anything that is of any lasting use. So then, what external news should one react to? After all, it cannot be anyone’s case that stock investments can exist in a vacuum, unaffected by the outside world.
Currently, what are likely to be the dominant factors that will affect the fortunes of Indian equity investors over the next few years? The first that comes to mind is that economic growth is strong, as are profits and this is true across sectors and companies. Nothing surprising here. We all know that these are the most direct drivers for stock prices at any point and yet, this view is almost never the hot take on any given day on any professional or social source of news or indeed on social media. It’s boring.
All the things that will affect our investments will be those that develop and change slowly, over years or at least months. There is no ‘news’ in that. Serious investors who wish to generate wealth have to look at things that are deeply significant but change slowly. If you stand by the sea shore for 10 minutes, you can’t see the tide coming in. You may even mistake a high or a low tide for the normal level of the sea. You need to hang around longer and be aware of slow changes to figure that out.
I’m not saying that the idea is not to never read news, but to be aware of the nature of the information you get and what role each piece of information plays in your decision making. More investors do badly because they pay too much attention to the news and react too much to events, well before the real purport of those events becomes clear.
(The author is CEO, VALUE RESEARCH)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
This story originally appeared on: India Times - Author:Faqs of Insurances
