Cycles, why I love them ?
Our clients know that I am most happy, when asset prices correct. While I don’t track markets on a regular basis (I have a basic idea where they are), nothing gets me more excited than they cooling off. The recent correction has got people excited, but it’s not ‘exciting’ yet. It’s good, it’s healthy, but it’s not mouthwatering. By no means, I am recommending sitting on the fence and trying to time your entries. Calibrating the allocation and having a process is key. Bottomline : meaningful returns are made investing in these down-cycles.
The process cannot be an afterthought. We therefore spend enough no of man-hours before we onboard a client onto the BuckSpeak platform. Mind you, a lot of these man-hours are spent by our team at the back- end. They curate the right asset allocation and understand each relationship’s risk profile. That’s why we remain boutique.It allows us the necessary bandwidth.
Possible shape of this one
Cycles are core to investing. For all we know, next 2-3 years might give sub-optimal return in equities. Nothing could be better. They had fantastic run post pandemic and it’s extremely healthy to have course correction. However, I don’t see a deep price correction (with all disclaimers in place), but more of a time correction (markets remaining range-bound for 1-3 years). One of the key factors is there isn’t huge euphoria all around. Examples like this point to an awareness of the tightening: https://www.bqprime.com/business/read-uber-ceo-dara-khosrowshahi-s-letter-to-employees-on-ipo-day
The FD rate will decide your equity return
In the Indian context, another key event would be 3-year FD return moving to 7.5 % -8 % p.a. That’s when lot of money would move back to debt. Mind you, none of these are predictions, but merely hypothetical scenarios. We spoke at length about investor behavior in our last blog: https://buckspeak.com/blog/tina-the-term-to-remember/
Having said that, Indian economy is on a strong wicket. GST collections where at an all time high. Exports have done well. Consumer sentiment is at an all-time high.
P.S: Investors chase returns
As always investors have chased performance. Quant mutual fund has been ranking top in most of its category in the last 2 years. This has meant that, its assets have gone up the roof. Mind you their funds have existed for more than 20 years. Look at their no’s below, it would tell you a fascinating story:
|AUM as on 31stDec 2019
|AUM as on 31st Dec 2020
|AUM as on 30thApril 2022
|Quant Small Cap
|Nov 21, 1996
|Quant Active Fund
|April 4th, 2001
AUM : Assets under management, basically the total amount of money being managed by the fund.
Most of the investors have only entered these funds, after they have seen (not experienced) major returns. This is not a comment on the fund’s quality, but just a statement on usual investor behavior.When the cycle changes, it would be interesting to watch behaviour of some of these investors. Will keep you posted.
In the meanwhile, enjoy the ride
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