Here's a joke that I read somewhere on the net the other day. A woman calls her husband while he's driving home from work. "Be careful," she says, in an alarmed voice, “The traffic reports on TV say that there's a madman driving in the wrong lane on the highway. He's traveling north in the south-bound lane and could cause a big traffic accident any time.” “I know,” replies the husband, “but it's not just one madman - everyone except me is driving in the wrong lane.”
I must confess that nowadays I often feel like the man in the joke. This feeling of driving in the wrong lane comes on most strongly when, once a week, I sit down to write this article. My problem is that, like anyone who is involved with investing, I'm constantly bombarding with what I mentally classify as India Shining propaganda. What started of as the catchphrase of the BJP's election campaign is now all around us in a much stronger form.
For example, last week I sat through a presentation which sought to prove that India's share of the world economy had historically been very high and implied, in a manner of speaking, that the last few centuries have been an anomaly. The presentation, which was being made by the CEO of a fund company, purported to know the total size of the world economy and India's share in it for the last three thousand years or so.
Anyone with even a passing familiarity with historical research knows that these kind of numbers are basically assumptions based on assumptions which are based on yet more assumptions. And even if all the assumptions are miraculously correct, they still don't have any bearing on what the future holds.
India is today awash with economic patriotism. Perfectly level-headed people have started believing in the coming golden age. At one level there's nothing wrong with this. The belief that one is going to succeed is an important component of actual success so I'm quite sure that if a lot of people believe in India Shining then that makes it more likelier that the things they dream of will actually happen.
However, there's a catch. Far too many people are selling dubious investment opportunities that are being bought because of the India Shining factor. The feeling seems to be that eventually all investments will do brilliantly because, well, because India is shining. This India Shining soft-headedness is most in evidence in the real estate market. People are mortgaging amazingly high proportions of their income on the assumption that India will continue (for 15-20 years, no less) to shine so brightly and dazzlingly upon property prices and their income growth rates that the EMIs that they will have to shell out will be effectively trivial.
Investment decisions actually need to be made more, not less, carefully in this situation. This is not just true if India turns out be shining less brightly but also true, in fact specially true if the shine turns out be as dazzling as is being advertised. It is correct that many businesses are doing very well and their stocks are worth buying at almost any price. However, this is precisely because of this that there are many other worthless ones being pitched as potential stars. This is a time to be happy and to look forward but for the very same reasons, it is also a time to be especially careful of where you put your money. Some things will turn out better than expected but some will inevitably be much worse and it is in times like these that it's particularly difficult to make right decisions.