History or Astrology (Who gets your Vote?)
Astrology is a very popular vocation as there will always be an unlimited supply of customers. In tough times like the ones, we are in, the demand is likely to be at all-time highs and the best part is that customers never negotiate. However, one fictional branch of astrology where most experts get almost everything wrong is still very popular. You might have guessed that fictional branch as financial astrology (and people who dole it claim it is free). I have 2 words for it: financial pornography. I know it is not a great way to start the new year’s first post with these 2 words. Yet I took it head on as it is the need of the hour in 2021 because the financial pornography networks will keep playing their wicked fear mongering headlines. It is critical you see through this and stick to your only benchmark –whether you are on track to achieve your financial goals.
Let us take a quick recap of what happened in 2020
- We encountered a shock called COVID-19 that turned the world upside down. The entire world was locked down in their homes and cities looked deserted. Now do not expect another one for a few more —-; sorry I had to hold myself back from making predictions.
- At first no one knew what was going to happen and the markets went down south. A very sharp correction followed by FIIs exiting in droves. Some Rs.1.25 Lakh Crore of FII money went out in the first 4 months of the year. Though there was no real logic for the money to go out, there was sheer panic at the so-called smart money level. If the world was anyway going to end, why worry about your money being in Rupees or Dollars? The point is whenever there are surprises or shocks, the first natural reaction is “Who will get out of the door first?” There is technically nothing to win here but some people who managed to get out are still out having lost real long-term money.
- The Governments, and Central Banks around reacted at unthinkable speeds to deliver a fiscal and monetary stimulus not only in the economy and big businesses but for the first time in the hands of small businesses and individuals. No one had ever seen a stimulus like this in the United States. Several central banks around the world took interest rates to zero and vowed to keep it there till employment was back to previous levels.
- The Medical and Pharmaceutical community worked at remarkable speeds too and we now have the first couple of vaccines rolled out in the UK, US, Israel, Bahrain, and many countries in less than a year. Who even thought this was possible?
- The Markets realized that the world was not ending. We survived 2020 and the world will not only survive but thrive over the next 10 and 100 years. Markets noted that humans are humans and that things will be back in a much better way sooner than later. People will continue to consume and that we will not only reach pre-pandemic levels but cross them in many sectors. Even the most hard- hit sectors will see a turnaround at some point of time. This is evident from the stock prices of companies such as Live Nation, the world’s biggest live entertainment company and its European rival CTS Eventim. Both saw their revenues drop by 95% and 79% respectively in the first 9 months of 2020, yet their stock prices are only down 10 and 15% respectively; amazing for firms that have lost almost all their revenue. This is because LIVE will come back with a vengeance as people are waiting to travel, to eat out like before, to entertain and to do things they enjoyed doing before.
No one could predict COVID-19 nor any subsequent actions and reactions. Would you have believed that the world will be locked down for an extended period? Did someone predict this? No one could and no one will.
There were plenty of lessons for investors in the year 2020. In fact, this whole year was a Live Masterclass in Investing for everyone (should we realize it).
I capture some of these lessons for your quick read:
- We will encounter something that will shock or at least surprise us every year (not at this magnitude of course every time – this much I can predict).
- Investors who are market focused and event driven will be compelled to act while injuring their wealth but not their ego or ignorance.
- Even the patience of the wisest investor will be tested at some point of time.
- People like my father (who is a small but wise investor with no understanding of stocks/markets) who ignore all the financial pornography will do well emotionally as well as financially. They know they have no one to beat or prove to.
- It pays to focus on things that you can control. The ones who did that not only have better financial outcomes but are emotionally well off (including the ability to sleep comfortably at night). As Nick Murray says, “Wealth is the absence of financial worry, an income you don’t outlive and a meaningful legacy to those whom you love and care about.” Sadly, many of the wealthiest and people aspiring to be wealthy are yet to learn the real meaning of wealth.
- Your feelings and emotions have no role to play in investing and they are a perfect recipe for higher stress and lower returns.
- Stock Markets go down and then they will come back up. Can they go down again? Sure, but they will then be back up.
- Financial Pornography and Financial Pornographers cost us real money and cause us the biggest financial risk of us not meeting our Financial goals.
- The biggest lesson and a Nick Murray quote “All Successful investing is goal focused and planning driven. All failed investing is market focused and event driven”.
Finally, there is no new stuff to know about investing. Even if the market goes down or up, there will be no real new things to know. As President Truman said, “The only thing new in the world is the History you don’t know”. Thus, my vote goes to History (and its lessons) versus Astrology and its predictions.