Today I watched our President’s press conference with an expectation that he will say something about our economy. I was expecting some journalist will grill him on projected 6% shrink in US GDP. Alas! That was not the case. There were few responses and contextual mention about few elements like auto industry and banks. However, I am not here to critic the press conference (who am I and how can I?).
One particular question that caught my attention was when one journalist asked about troubling, surprised, enchanted, and humbled. All through when The President was responding, I was thinking about how would l respond to those questions in the context of investing?
Troubling: It is troubling to see that free money caused the problem. And we are continuing to try to solve it with free money. We are trying to solve it with the very same tool that created it in first place. We have filled the lake with water, for it nowhere to go. This standing water is now getting polluted. We are continuing to pump in more water in a hope that it will start flowing. Flowing where? Won’t it burst out of the embankment? Burst will result in spreading of polluted water. Let it dry off, or get vaporized, or drain it slowly, only then it will get cleaned.
Surprised: I am surprised by the implosion of the financial system in such a short period of time. I am surprised by the fact that not a single institution was able to find that the system was getting corroded. We give lecture to other nations about how our institutions are built on strong foundations. I am more surprised because we consider ourselves as the most technologically advanced, smart, quick decision makers, and willing to adapt. We consider ourselves to be the sharp and best in the world. Well another way to look at this is; we were the best to let the system rot, and (may be) we also let the global system to rot. We did give the leadership! I am not questioning the system or institution. I am surprised by folks who were running them.
Enchanted: This was a weird one. I understand this means delighted. I am delighted as an individual investor because I believe this is once in a lifetime opportunity. I am still in my early thirties; I can invest in some really great companies at bargain prices. I can lay down a strong foundation for my future financial security. This is a perfect time. I do not think I will get this opportunity again so fast. How many times we have looked back and said, I wish I had done that! This is the time to “do that”.
Humbled: I am humbled by the power of financial markets (Wall Street in particular). If it gives you that feeling of greatness, sense of arrogance, sense of additional power over common investors, etc, then it will also bring you down at a drop of a hat. Individuals should accept the fact that it markets are more powerful than we individuals. We may fool others, but we will never be able to fool the markets. Financial high flyers are down, commodities futures and options drummers are crushed, emerging markets philosophers are no where to be seen, and BRIC and China commentators are silent.
On a personal front I am not averse to commodities, emerging markets, or BRIC/Chinda theories. I believe all these have its place only to the extent it deserves. Nothing beyond that!
In all these chaos, every body is now zeroing towards the most ignored, non-glamorous, and insignificantly small dividends. Even the mad man, has been drumming for dividends and accidental high yielders for last few months now.
The President also gave an example of small degree of steering to a big ship. In short term, that small degree steering seems insignificant. But on a longer distance that small degree is huge. Similar, high quality dividends from corporations look insignificant in shot term, but longer term they make significant impact.