I was on a personal errand for a while; and it took me this New Year to be back to my markets and its mayhem. Year 2011 was almost an Annus Horribills for most of us in the markets across the globe, and for the economy as a whole. I wish not to start with a negative tone this year, but little I could resist given the global macros.
2011 was the year, more often than not; I was proved right for my convictions and my call on the investment climate as a whole. This was also the year, the status of long term equity investment was questioned; the compounding effect of equity appreciation came under the scanner; under the much amplified lenses of the savvy investors who for better part of these last few years have seen much of the market horrors in Europe, US and Asia.
In the last five years, the emerging market (MXEF Index) ended up nowhere with a CAGR of 0.08%; while Nifty generated only 3.11% and Shanghai Composite generated a negative 3.84%. On the flip side, S&P 500 and Dow Jones Index generated a CAGR of -2.37% and -0.40% respectively. In the zero sum game of financial markets, if one loses somewhere, someone has to win. And, that someone is the investor who bet on commodities and currencies (if one is on the right side of the trade). On a five year basis, the dollar denominated gold generated 19.66% and Crude (again in $ terms) appreciated 10.10% on a compounded basis. The returns are amplified in the domestic market on account of rupee depreciation.
The return on a 3 year basis is strikingly different from the one discussed above (refer to the table). This clearly highlights the fact that in the event of extreme macro situations like the one we are witnessing now, tactical allocation strategies perform far superior than the strategic asset allocation strategies. Five years may not be long term for some; who might be willing to wait for another 10, 15, 20 years and inherit the wealth to his son or daughter. Clearly, I am not taking about them.
And, to me it now appears that there is no such thing called “strategic allocation or strategy” and it will be suicidal to have one in ever changing global dynamics where winners change very often. Positioning your investment according to the global force is the key to successful trading and no wonder that the structured products is gaining traction in India (more on this in subsequent blogs).
Year 2012, in all probability will be the year of Multi Assets!
