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The Unknowable Future

If you aim to do okay, rather than brilliantly, you probably have the best chance of actually being okay

For two years now, almost every other query that Value Research gets from investors is basically a variation of the same question: "How long will this bull run last?" Of course, there are many different ways in which this question is asked. What makes all those questions variations of the same basic idea is the fact that answering them accurately requires one to have accurate knowledge of when the bull market is going to end.

As time goes by and the markets keep rising to newer and newer heights, the answer to this question keeps getting more and more elusive. This is paradoxical. In theory, as a market rises, one should be able to say that no matter where it will start declining, it must have moved closer to its decline just by getting higher. This is not quite the case today.

Today, it sounds almost reasonable to say that the Indian economy is in the middle of a fundamental shift to a different level and the markets are simply anticipating that shift. In the past, there have been such extraordinary shifts in many economies. For example, sometime in the sixties, the Japanese markets set off on a bull run that lasted close to a quarter of a century. There is no dearth of voices today that say that something like that is about to happen in India and we could see years, if not decades of a booming economy.

Emotionally, I find myself wishing that those who say these things are correct, but the truth is that there's no way of knowing. There are many ways in which this train could derail, and many of those ways are surely things that we just cannot anticipate. We all know that we live in times of extraordinary event risks. No less cool a head than Warren Buffett has said that sometime in the future, a nuclear attack by terrorists on an American city is almost a certainty. To take a worst case (but mind you, hardly unlikely) scenario, a nuclear bomb exploding in New York City or Washington, DC, could literally change the course of world history overnight. For that matter, how sure can you be that something like that won't ever happen to Bombay or Delhi?

I'm sorry if I sound like an alarmist but this really is the kind of event risk that we face. You could have a 25-year bull run, or you could have a global economic disaster that may last decades. Think back a decade or two to some particularly low point in India's history, say, Indira Gandhi's assassination in 1984. The controlled economy ideology looked set in stone, the Soviet Union (remember it?) was our closest friend and an ideal to be followed, and a slow collapse of Northern India into a sea of violence appeared almost inevitable. Which of the things that have happened since could you have predicted? See, the future really is unknowable.

Does that help you figure out whether it's time to buy or sell? It doesn't and it shouldn't. The only sound way to invest has to be something that can work in both these scenarios. Now that may sound like a fine goal but just because such an investment strategy is needed doesn't mean that it is possible.

Perhaps the right way is to invest regularly and conservatively and choose investments that have a proven long-term record of stability rather than that of maximising short-term gains. The surest way to make losses eventually is to try and maximise your gains, whether the bull run ends in a catastrophic event after ten years or just fades away over the next few months.

If you aim to do okay, rather than brilliantly, you probably have the best chance of actually being okay.