There is panic selling happening all over the world. Big hedge funds and investment bankers who were filled with arrogance, ego and were on cloud nine until a year ago today have mellowed down and are filled with desperation. Arrogance which made them take excess leverage and go overboard has today caused their lives to become hell.
I remember in the first half of 2007, I was sitting with a hedge fund manager in London and he was telling me how he loves using leverage (buying things worth Rs. 100 only with Rs. 10) and how he is making billions. My suggestions for being careful and not going overboard were politely mocked. “It isn’t time to be old fashioned and follow dinosaur era thinking.” he told me.
Today we very well know what type of thinking has led to extinction of hundreds of hedge funds. Unfortunately he too has been caught up in the mess.
Because of their errors the common man feels he is in trouble too – for no fault of his. All those who entered Mutual Funds in January 2008 today are sitting on notional losses. Many people simply jumped in with all their money looking at people around them making money. A mistake several people make is they put in all their money at one go and don’t sit on cash. The money I put in at higher levels today is showing me negative returns, but that doesn’t worry me as I never deploy all my cash at one go.
Let me reassure all of you that India will come out of this much stronger and better off by the end of this. The firms and banks that will go down in India would be the ones who went overboard and grew without any proper logic and sanity. I’m almost certain one Indian bank is going to crumble down –maybe not immediately but in a few years- of course depositors need not worry as RBI/Government of India will surely take care of them. India in that way has one of the best banking systems in the world for depositors. But investors in this bank will suffer even more than they already have.
Real estate will most certainly be hit badly – I feel actual real estate prices should correct by 50%-70% across India. By now all of you might already know of this as it is all over the media. When I spoke about it almost two years ago – people playing around with leverage in real estate told me that prices will never go down and I should stop dinosaur era thinking. I shared my logic and reason behind it even in Invest The Happionaire Way where I compared EMIs to rentals. In fact quite a few readers e-mailed me and told me how they delayed their home purchases and today are getting the same homes cheaper by 15%-20%. That works out to be a saving of several lakhs and reinforces the view that knowledge is one of the most important things needed to create and preserve wealth.
I shall be sharing more on why real estate can correct that much shortly. In the short run India might go through all these challenging moments, but once again going by my dinosaur era thinking we will see that after every major crash/correction whoever bought quality assets cheap went on to make a killing -all the way back to 1909, post 1929 to the last IT bubble burst in 2001. Even when the property bubble in India burst around 1996, real estate prices in prime areas of Mumbai corrected by 70%. Whoever bought that time, went on to make sizeable amounts of profits.
I never rush in and buy assets and gradually pick them up. Post this phase I assure you we will see a much bigger and more active bull market with more domestic money coming in than ever before. There are still billions (and trillions) of dollars of local Indian money which have not been tapped. With more education and awareness I’m sure we will be able to tap into this. In the future with full capital account convertibility we could see lots of black money coming in too.
Over the past few days after my last post I have been extremely busy. I was surprised to see thousands of people showing interest and sending us e-mails even though stock markets across the world are down. I have always believed that money will run after you, if what you have is something really useful and can make a change to the world in whatever way possible. I thank all of you for your support, warmth, kindness and love. I’m sure together all of us can make India prosperous, successful and happy. We still have a lot to do and there was never a time as good as now!
Keep smiling and happy wealth creation!
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