Recently I saw an ad on CNBC for CNBC which had a viewer say, "No one is able to explain where I should invest and why in a simple manner that I understand".
And that was probably the reason that Freia was advised to do a paper on "How to Invest" during her internship with mCube, a niche investment group that experiments with algorithmic trigger based investments. What they do is fascinating, but I guess that would need a whole new article.
I received the paper today and I was shocked to read it. I always knew that I don't know much about the nuances of money and investment but believed that I had a good idea about the macro aspects of investments and returns. The data and results that the paper threw up, seems to indicate that I was not only "Not Right", but I was completely "Wrong".
Let me give you a couple of simple examples. Every media keeps harping on the fact that investments in equity is highly volatile and should be considered only in the long run. They go on to say that in the long run whilst safe investments like Fixed Deposits may not keep pace with inflation, equity investments give handsome returns and are the best way to beat inflation. Imagine my shock when the data seems to indicate that whilst in the last 18 years (since 1994), FD's have given a return of 9.17%, equity has given a return of just 8.71%. And this does not account for the large variations and risks associated with equity.
The other interesting fact was that FDs have managed to beat inflation most occasions. The 4 exception in the 18 years are 1998, 2008, 2009 and 2010. However it seems to me that the data that has been used has been the rates for 1 year FD's. Typically the rates for multi year FD's (2, 3 or 5 years) is significantly more than 1 years FD's. Had this data been factored in, the results may have been even more interesting and favourable to FD's. In comparison equity has given negative returns adjusted for inflation, a whopping 50% of the time i.e. 9 of the 18 years in consideration.
The 1 area where I disagree with the paper is the identifying of Gold as an excellent asset class in which investments should be considered, since it manages to handsomely beat not only inflation but also equity and FD's by huge margins.
This is based on a forward looking opinion as opposed to the past data that the paper is based on. So whilst historical data seems to indicate its a great idea, by virtue of its stellar performance, I think that the downsides are much larger than the upsides.
The thought process is as follows. One of the major reason for the appreciation of Gold is its acceptance as a valuable metal and the fact that many currencies try and have a percentage of Gold holding as the security or underlying for their currencies. Both these trends are being constantly marginalized. And once the metal loses its glitter, then its value could erode very quickly exposing its holders to huge risks.
All in all a very informative and well written paper. I strongly recommend that you keep aside 15 minutes and go through it. You may not agree with all its conclusions but the data is sure to make you revisit your investment strategies.
You can read it at:
https://docs.google.com/open?id=0B4dgxbLWlMz8YUhpaVppblJxR1E
And that was probably the reason that Freia was advised to do a paper on "How to Invest" during her internship with mCube, a niche investment group that experiments with algorithmic trigger based investments. What they do is fascinating, but I guess that would need a whole new article.
I received the paper today and I was shocked to read it. I always knew that I don't know much about the nuances of money and investment but believed that I had a good idea about the macro aspects of investments and returns. The data and results that the paper threw up, seems to indicate that I was not only "Not Right", but I was completely "Wrong".
Let me give you a couple of simple examples. Every media keeps harping on the fact that investments in equity is highly volatile and should be considered only in the long run. They go on to say that in the long run whilst safe investments like Fixed Deposits may not keep pace with inflation, equity investments give handsome returns and are the best way to beat inflation. Imagine my shock when the data seems to indicate that whilst in the last 18 years (since 1994), FD's have given a return of 9.17%, equity has given a return of just 8.71%. And this does not account for the large variations and risks associated with equity.
The other interesting fact was that FDs have managed to beat inflation most occasions. The 4 exception in the 18 years are 1998, 2008, 2009 and 2010. However it seems to me that the data that has been used has been the rates for 1 year FD's. Typically the rates for multi year FD's (2, 3 or 5 years) is significantly more than 1 years FD's. Had this data been factored in, the results may have been even more interesting and favourable to FD's. In comparison equity has given negative returns adjusted for inflation, a whopping 50% of the time i.e. 9 of the 18 years in consideration.
The 1 area where I disagree with the paper is the identifying of Gold as an excellent asset class in which investments should be considered, since it manages to handsomely beat not only inflation but also equity and FD's by huge margins.
This is based on a forward looking opinion as opposed to the past data that the paper is based on. So whilst historical data seems to indicate its a great idea, by virtue of its stellar performance, I think that the downsides are much larger than the upsides.
The thought process is as follows. One of the major reason for the appreciation of Gold is its acceptance as a valuable metal and the fact that many currencies try and have a percentage of Gold holding as the security or underlying for their currencies. Both these trends are being constantly marginalized. And once the metal loses its glitter, then its value could erode very quickly exposing its holders to huge risks.
All in all a very informative and well written paper. I strongly recommend that you keep aside 15 minutes and go through it. You may not agree with all its conclusions but the data is sure to make you revisit your investment strategies.
You can read it at:
https://docs.google.com/open?id=0B4dgxbLWlMz8YUhpaVppblJxR1E
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