Back to the Future

by Jayant Pai | jayant@ppfas.com

“Nothing is permanent in life”. This adage was reinforced when I  read an article by Ruchir Sharma (of Morgan Stanley) just now, prognosticating the rise of the US Dollar (USD) over the next decade. Apparently the past decade’s fall in the USD’s value was due to the tepid stockmarket in the USA and a correction of the strength experienced by the USD in the nineties. The strong currency led to yawning current account deficits (As a percentage of GDP) and consequently falling competitiveness as exports were priced out in many industries.

The turn of the century also coincided with the rise of the large emerging markets as US consumer imports from China and other countries ballooned on the back of a strong currency and it became economical for exporters of capital to invest in the emerging markets. This led to linear extrapolations in 2009-10 predicting the permanent rise of emerging markets and the permanent demise of the USD. Continue reading

New Year… Not so new Resolutions…..

Happy New Year! 2012!Its that time of the year again…A time to look back, reflect and ruminate. It is also a time to look ahead, resolving to learn from our past mistakes.

The year gone by has not been a happy one for equity investors. But such is the nature of the game. Equity returns are lumpy and not linear. Sharp bursts of performance are followed by periods of slumber. Investors, who are lured into purchasing equities due to their outsized recent returns, often end up disappointed. This leads to widespread aversion towards equities, which in turn sows the seeds of the next bull market.

While shifts in market cycles rarely coincide with the turn of a calendar year, this is as good a time as any to re-orient ourselves and jettison certain calcified behavioural tendencies which may be detrimental to our financial well-being. Continue reading

Savings Rate Deregulation…Storm in a tea cup ?

Everyone seems to be in a tizzy over the Reserve Bank of India’s (RBI) pronouncement regarding Savings Bank Account interest rate deregulation. The media has been hunting desperately for juicy sound bytes in this regard, both from industry insiders as well as market “experts”. Well, so far they must be quite disappointed, since no one is really sticking their necks out and projecting any probable scenario….and rightly so, considering that it any move will be made after taking a holistic view of the situation.

In fact the brouhaha may be akin to all smoke and no fire. Here’s why….

Let us place the depositor universe into two buckets: 1. The savvy depositor 2. The lethargic depositor.

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S&P downgrade : Caution or an Opportunity?

– Parag Parikh

The current state of stock markets the world over have unsettled the minds of the investors. In such situations we are prone to behave irrationally. Equanimity is important and to maintain that it is important to analyze the situation.

We tend to make decisions based on the currently, readily available information vividly displayed. Open any newspaper or flip through a business channel, or go to a party, there is only one talk of the US being downgraded by the S&P. Why? Because of the high fiscal deficit and the high amount of debt. Is this really new? Did not the world know about it? So why the reaction? Well it is because of the availability bias. Today the downgrading is the centre of attraction. Go back a couple of months in the memory lane. The 2G scam, the Anna Hazare fast, the CWC games scandal. When they were the centre of attraction the newspapers, the TV channels concentrated only on those news. Although none of the matters have still been sorted out, how much reporting does one see? Over the next week the euphoria on the down grade will die down. Continue reading

The Perpetual Amateur

Anyone who has played the game of chess for a fairly long time can understand the idea of ‘chunking’. Chunking, for the rest of us novices, is the ability of a seasoned chess player to identify moves or a pattern of moves within a game. This pattern recognition works like a filter in which they sort the good moves from the bad moves. This can make the difference between winning or losing the game.

So what does a novice chess player do exactly? The novice for lack of such pattern knowledge, tries to brute force his way till the end of the game. That means, the novice constantly uses trial & error to figure out which move to make. Basically trying to think ahead a few moves. This system has a very low rate of success, which is obvious because if pit against a master chess player the novice will be led into a pattern which is most favorable to the seasoned player. This will happen without the novice knowing anything of such a strategy. In fact an interesting thing to observe is that when two novice players play chess, they invariably play in a very random manner. There is no pattern to their movements & they eventually end up winning or losing merely because the game ends. But the clincher is not how many moves ahead we must see to win the game, but how many moves we can match in a pattern of good moves & bad moves. Continue reading