An Investor’s Best Friend

In one of his most dramatic investment outlooks yet, Bill Gross wrote in May 2015 about fears of his looming death –

Having turned the corner on my 70th year, like prize winning author Julian Barnes, I have a sense of an ending. Death frightens me and causes what Barnes calls great unrest, but for me it is not death but the dying that does so . . .

What I fear most is the dying . . . the suffering that . . .will accompany most of us along that downward sloping glide path filled with cancer, stroke, and associated surgeries which make life less bearable than it was a day, a month, a decade before.

He then went on to relate this to the coming death of the investment super-cycle the world over.

Another investment legend, Jeremy Grantham – who correctly predicted bubbles in Japanese stocks in 1989, US stocks in 2000, and most risk assets in 2007 – has been extremely vocal about things investors should be worried about –

1. A new era of lower trend GDP growth
2. Resource scarcity
3. Oil
4. The environment
5. Food shortages
6. Income inequality
7. The death of “majoritarian electoral democracy”
8. The Fed
9. Asset bubbles
10. The limits of humankind

Then, another investing superstar Stanley Druckenmiller has been predicting quite often that things in the investment world “could end very badly.” In fact, he has recently warned that the current situation reminds him of the period before the 2008 financial crisis.

Now, what’s the common theme that you find in the comments and outlook from Bill Gross, Stanley Druckenmiller, and Jeremy Grantham? Or for that matter, even George Soros who has been talking about the coming collapse in the US, China and Europe? Or then India’s value investing great Chandrakant Sampat who was largely bearish on the economy and equities towards the end of his career?

Here’s a quote from the famous American magician, juggler, and comedian Penn Fraser Jillette that may give you a clue –

Two things have always been true about human beings. One, the world is always getting better. Two, the people living at that time think it’s getting worse.

It’s Pessimism, Stupid!
If you are a Hindi-speaking Indian and remember spending time with your grandparents, you may remember their constant repent – “Hamaare zamaane me to aisa hota tha….waisa hota tha. Lekin ab toh….” – which was their way to tell how things have gotten from good (when they were young) to bad (now when they have grown old).

It may have something to do with age, but we human beings, thanks to culture and genetics, are inclined to become more pessimistic, fearful, skeptical and believers in conspiracy theories as we grow old. We also don’t like change, and especially when change is rapid.

Now pessimism is a good thing because it encourages people to live more carefully, taking health and safety precautions, and also play it safe when it comes to their investments. But undue pessimism is a great enemy if you are looking to build wealth through equities.

Always fearing the coming market crash, or an economic collapse, and thus remaining on the sidelines waiting for “more clarity” is an investor’s worst enemy. The fears and pessimism gets even more compounded when you switch on the television or read business papers that have a habit of sensationalizing things out of proportions.

After all, it’s far easier and more profitable to create fear than to soothe it, far easier to argue for a conspiracy than to prove that one doesn’t exist.

But if you care and dare to look at the other side of the picture wearing an optimist’s glasses, there is enough to make you wonder about the things that are right with the economy, the world, and the stock market.

Consider, for example –

• Science and technology continue to give us more computing power at ever-lower cost, which is spawning new industries and creating new investment opportunities across the world and in India.
• Revolutionary change is also showing up in networks, sensors, cloud computing, 3-D printing, genetics, artificial intelligence, robotics and dozens more industries.
• New drugs and medical devices are saving and extending our lives. Thanks to advances in medical science, we can expect to live far longer than any previous generation.
• Indian economy continues to chug along well, though jerked by a few speed-bumps that are part of every journey, and well-managed companies continue to do reasonably well.
• We have had some of the most sensible central bankers in the world – for several decades now – which gives ample hope that we won’t see a currency-led bubble or crisis in India and which also makes us more resilient against a similar crisis globally.
• Indian stock market is getting better regulated (thanks to SEBI), more open and liquid. Wrongdoers are getting punished faster.
• Companies are disclosing more information, and good ones are getting better at dealing with minority shareholders (of course, the bad still fudge numbers).
• Indian consumers are becoming amongst the biggest spenders worldwide – in good times or bad – which is good for the economy and a whole host of consumer companies.
• Life in semi-urban and rural India too is getting better, more people are educated, and people are living better lifestyles.

I’m an Optimist
There is no denying the fact that we stare at things like grave water crisis and drought like situation, rising pollution levels, uncertain job environment, continued political bickering, corporate and other scams etc., which create some pessimism about the future.

But I remain on the side of Warren Buffett who is utterly optimistic about the future of the world, and thus continue to invest more and more in businesses that I believe are going to become better going forward.

Not many investors would have benefited by betting against India over the past 5, 10, 15, 20, or 25 years. And I am optimistic enough to not bet against India and her businesses over the next these many years.

Wait, I am not projecting any mother or father of bull runs going forward. I believe that’s all bunkum, and an easy way to talk up your books when you are heavily invested and have a lot of influence on others.

But I would rather be an eternal optimist if I were to build wealth through investments going forward, than go by what the old bears are predicting about the end of the world.

“Optimism is the most important human trait,” says Seth Godin, “because it allows us to evolve our ideas, to improve our situation, and to hope for a better tomorrow.”

I surely am hoping for a better tomorrow. Are you?