“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.” ~George Soros

Forecasts, prognostications, predictions et al.

Investors are looking at news with some concern as the world undergoes another regime change. This time the interest rate reduction cycle by the US Federal Reserve and the effect this will have on asset classes globally is the new hot topic to discuss. Whether the dollar will weaken, whether gold becomes a safe haven asset to consider, are emerging markets finally poised to deliver on their promise etc. etc. These are some of the questions that investors are asking currently.

Equity investors in the US and India have experienced significant gains that are above the average range of returns and there is nervousness regarding the future direction of markets to ensure either sustenance of market gains or protection of the same into some other asset class. There is a plethora of opinions at this time on the future direction of the markets and investors are caught between commentaries and are unable to decide on the future course of action.

It will be appropriate to suggest that this conundrum, unless we are in a pronounced bull run or a bearish phase, will always be there. When markets are challenged for direction investors fret and are nervous. This is an especially vulnerable state as most investors are then inclined to actually just “do” something. It would be wise to heed the opening quote for this newsletter from none other than the legendary investor, George Soros. His bias for activity and smart timing has made him famous in the investing world. He represents that segment of the market that relies on action and performance.

Enter Asset Allocation

How much of our wealth is in assets that we discuss?

In behavioral finance a lot of emphasis is placed on the recency effect. What has just happened tends to have an outsized impact on our thinking rather than the hard data depicting the true picture. For example, if on a hunch or acting on a tip from a friendly “advisor” an investor makes outsized gains on a stock, his immediate and constant thought keeps returning to this event and is the subject of much of his current conversations with friends and family. However, while these gains may seem extraordinary, if in fact the majority of this investor’s assets lie in fixed income assets or in real estate, the excitement is indeed very nonproductive. But the investor now continues to gather more information and worries about his outsized gains, which in fact from an overall wealth perspective are very marginal. Such investors either continue to remain pleased at their quick gains if they last, little realizing, that this transaction has had a very small impact on their overall wealth

On the other hand, if this investor has bet a significant amount of his or her wealth on such a trade, the risk undertaken is far higher than mere discussion and debate and his financial future will be at risk if the investor rides only on such so-called “expert opinion” and will definitely be robbed of a good night’s sleep as indicated by this other quote by Seth Klarman, chief executive and portfolio manager of the Baupost Group, a Boston-based private investment partnership and a billionaire who has built his wealth by value investing.

“Ultimately, nothing should be more important to investors than the ability to sleep soundly at night.” ~Seth Klarman

So, the only way forward for investors is to understand asset allocation and stick to it, market forecasts and predictions then will hold no fear or greed

Happy investing!

Mr. Tushar Pradhan
Chief Mentor – Investment Strategy, Multi Ark Wealth & Director – HXGON Partners LLP

Disclaimer-This newsletter is being curated by HXGON Partners LLP, a knowledge partner of Epsilon Money. This newsletter is not intended to be used as a recommendation and is generic in nature. Investors should follow the advice of a qualified investment advisor before making any investment decisions and should read all investment related documents and risk disclosures.
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