INSUBCONTINENT EXCLUSIVE:
like physics where you have a definitive answer to a given problem
In economics, there can be many solutions to a given problem
Economics can have contradictory views, trying to resolve the same problem
For every PhD in economics, there is an equal and opposite PhD.
Economy and the world is a complex machinery and data is not stationary
Imagine over 175 countries with 7 billion people, millions of businesses, trillions of dollars of financial assets and a huge chunk of world
GDP, and try putting this in an excel sheet to come to a conclusion.
If all this was not enough, things become difficult when unforeseen
events keep on surfacing on a regular basis, making any prediction impossible.
In the last 5,000 years of banking history, the world has
never seen negative interest rates
Today, more than 25% of the bonds in the world trade in negative interest rate zone.
While explaining interest rates, investing legend
Warren Buffett once said that he never foresaw negative interest rates, nor does he quite know what they will end up meaning to the global
economy and markets.
History shows that economists have failed to predict practically all recessions, which were recorded in financial
history.
Most events that shaped the world were Black Swan events
We can only understand the world backwards, but it very difficult and almost impossible to predict things
This keeps an investor humble and helps to invest with right asset allocation
In the beginning of 2020, there was not a single research report that said economies the world over can slow down and markets can enter a
bear phase due to a pandemic
Risk is what is left when you have thought about all things that can possibly take place.
Traditional financial textbooks teach one to look
for efficiency, but in the real world of finance one should build a financial plan, which is effective
A plan where one can achieve his or her financial goals with the least amount of personal stress.
Harry Markowitz got the Nobel prize for
designing an algorithm to design the most efficient portfolio
However, when it came to managing his personal money, he had 50% of his allocation in equity and 50% in fixed income
The best allocation among asset classes is the one where an investor can comfortably say at all points of time that her view on markets is: