Lessons from History. - The Honest Truth By Ajit Dayal
Investing in India - Honest Truth by Ajit Dayal
Lessons from History. A  A  A
31 MARCH 2008

As the legendary investor, Warren Buffett, noted if history could make you rich then the librarians would be the richest people around. But that was a typical Buffett-like witty remark. History may not make you rich, but if you do understand it, you can try to avoid a path to poverty. And maybe you can set yourself on a course for riches, too.

The stock markets in India have faced many challenging times in the past - and we are again in a difficult environment. No one really knows when the first hint of light will enter this dark tunnel. Maybe with the rebound in the BSE-30 Index from the 14,800 levels to above 16,000 we have just witnessed the first ray of light.
Maybe. Maybe not.

It was barely a month ago that everyone in India was discussing the budget. The impact of the budget on companies and industries was printed in so many newspapers in such detail that they probably needed to chop a fair amount of some forest. Today, the word "budget" has disappeared from the discussion shows on TV channels and the newspapers - or even as a focal point on the www.equitymaster.com web site. Time has passed. Events have occurred. And there is a need to cover and write about the next, new important item. No matter how unimportant it may become. And this may gloss over the importance of the really important event. The budget is still as important as it was made to be. The impact (or lack of impact) on the profit of companies is as real as when it was first announced.

What is true for economics and investments is true for the social space that we live in.
And man-made disasters and their effect on society are as important. Yet we gloss over them and don’t always learn from history.

On March 30, I read the news of the death of Dith Pran, a photo journalist who witnessed the genocide in Cambodia under the Pol Pot regime of the Khmer Rouge (1975 to 1979). An estimated 2 million Cambodians out of a population of 7 million were murdered and buried in mass graves. These were communists who killed their fellow people. Pran escaped from Cambodia and wound his way to New York where he and his family have since lived. His personal story became an Oscar-winning film, "The Killing Fields".

But there has been a lot of news flow since 1979. The world has changed in many ways and, yet, there has been little progress. There are still mass graves in Africa, probably many in Asia, and some were discovered in Iraq. We have read history - and helped shape it - but we don’t seem to learn from it. Like the librarian, reading about history has not made us rich in terms of "goodness". Even though we now have our iPods and flat TV screens and very comfortable cars.

What do we learn from all this economic and social history? There are lessons for all of us, if we care to listen. And, more importantly, remember.

In June, 2006 the BSE-30 Index had declined from some 12,500 levels to 8,980. The chartists were telling us it would head to 6,000. It never got anywhere near there. It headed northwards and zoomed to 20,800.

At a level of 14,800 the chartists tell us that the Index may now head to 12,000. It may. Then again, it may not.

So, who does an investor believe? And what does one believe? Buy or sell? Jump or stay? You have to hang your hat on something.

I hang my hat on something called "valuation". That is why we are called "value" investors. (Co-incidentally, I also like to hang my hat on something else in a "social" way and that is also called "values" or "morals" or "ethics". So, I am happy to say that we have a lot of "value" in what we do!)

Valuations, though, are also a tricky subject. It is a bit like "beauty". It lies in the eye of the beholder.
Different inputs that we get allow us to tweak or change our idea of "valuation" and "value" in the stock market. A budget speech, an election result, some movement in interest rates, news about a competitor, developments within a company. These are all inputs that we absorb, dwell on, and then try to figure out whether there is any impact on this on the way we look at our companies. And, looking back in history, how do these valuations compare with other past times?

Most news flow is pretty useless: we call that "noise". People confuse the sound of someone talking with "news". The skill is to recognise that noise will get you nowhere.

Investing is not an easy task because we make it complicated. Ridding the world of evil is not a difficult task, but we make it complicated. Or rather, we compromise our "integrity" and our "values" and end up in another Pol Pot situation whether in Sudan, Zimbabwe, India, Tibet, or Iraq.

We like to make things simple: whether in investing or whether in ethics. For the investment side, Table 1 has the recommended list of Quantum mutual funds. For the ethics portion, borrow the "Killing Fields" from your library and see it. And let that begin to shape your "value" system.

Table 1: Suggested allocation in Quantum Mutual Funds
Quantum Long Term Equity Fund Quantum Gold ETF Quantum Liquid Fund
Why you should own it: An investment for the future and an opportunity to profit from the long term economic growth in India A hedge against a global financial crisis and an "insurance" for your portfolio Cash in hand for any emergency uses but should get better returns than a savings account in a bank
Suggested allocation 80% 15% 5%

Disclaimer: Past performance may or may not be sustained in the future. Mutual Fund investments are subject to market risks, fluctuation in NAV's and uncertainty of dividend distributions. Please read offer documents of the relevant schemes carefully before making any investments. Click here for the detailed risk factors and statutory information"

Note: Ajit Dayal, the author is a Director in Quantum Information Services Private Limited and Quantum Asset Management Company Private Limited. Views expressed in this article are entirely those of the author and may not be regarded as views of the Quantum Mutual Fund or Quantum Asset Management Company Private Limited or Quantum Information Services Private Limited.

Mutual Fund Investments are subject to market risks. Please read the offer documents of the respective schemes before making any investments.

Other Views on News:

» Why FMPs turn negative?
Fixed maturity plans (FMPs) were an innovation designed mainly to give investors a fairly certain rate of return in the backdrop of interest rate instability. FMPs are close-ended debt funds (investments can be made only during the new fund offer period) with a fixed maturity horizon (i.e. the investment maturity, which is fixed, is declared at the outset). Read on...

» Food costs, luxury cars and more...
Rising food prices have caught attention of economists, central bankers and governments the world over. Besides freak weather, the dramatic changes in the global economy, including higher oil prices, lower food reserves and growing consumer demand in China and India have been pronounced as the chief causes. Read on...

Read our Privacy Policy and Terms Of Use.
Get The Honest Truth directly
in your mail box.
Just enter your e-mail address» 

Read our Privacy Policy and Terms Of Use.

Equitymaster requests your view! Post a comment on "Lessons from History.". Click here!