Having said that, let me explain why.
Buying the basket of stocks that make up the BSE-30 Index in 1980 would have given you a return of 136 times your investment. If you were to average out this return over the 27 year period, that works out to 20% per year every year for these past 27 years.
There will be continued economic growth in India over the next decade. This means that Indian companies will continue to grow sales and profits and - because share prices are a function of these growing profits - an investment in shares of Indian companies should generally be a pretty profitable investment.
That is why I like the Indian stock markets - even at a 20,000 Index level.
There will be bad years and scary quarters but a disciplined investor can hope to earn reasonable returns in the long term.
And you can make this return in a variety of ways, each of which is based on disciplined thinking and sharing our frank views with you:
| 1) | do your own stock selection: be a subscriber to www.equitymaster.com |
| 2) | ask our financial consultant to help build a portfolio of mutual funds for you: be a client of www.personalfn.com |
| 3) | invest in the Quantum Long Term Equity Fund, a vehicle for you to continue ploughing your savings into - regularly: reach out to us at www.QuantumAMC.com |
But there is another great investment opportunity staring us right in the face: gold.
That's right. Buy a lot of gold. Gold is now at around USD 900 per ounce. It was trading at USD 37 in 1971. Gold then shot up to USD 850 in 1980, collapsed all the way to USD 260 in 1999, and has only now crossed the previous peak of USD 850 that it established 27 years ago.
I own gold. Now, I am ready to buy some more gold. In the Quantum Gold Fund (an open ended ETF). Just as you should.
Why?
Because many of the central banks of the world have lost sight of what they are supposed to do.
As a student of economics, we were taught that the role of a central bank was to ensure that it maintained the value of the paper currency issued. It did this by ensuring that every time it printed paper, it had a fixed ratio of gold lying in its vaults. But, over the past few decades - and increasingly over the past few years - the central banks have been printing more paper and not worrying about the gold they have as a reserve for their paper currencies. And paper currencies are, in the end, paper. History has shown us that governments have fallen and paper currencies have died with them. Gold has been a currency - a medium of exchange - for centuries. No paper currency has existed for that long. Not the US Dollar. Not the Sterling Pound. Not the Indian Rupee. As governments have printed larger amounts of paper currencies, these currencies have lost value against real assets like property. Or even a samosa.
Of Samosas and Gold...
In 1980, it probably cost you Rs 1 to buy one samosa. Today, it costs you Rs 10. Has the samosa become 10 times larger over the past 27 years? Not at all. The fact is that Indian rupee has lost value over the past 27 years so the samosa wallah wants more of your rupee to sell you the same samosa. He wants 10 times the rupees for that same samosa. Or look at the price of your house. In 1980, it cost Rs 200 to buy one square foot of property in Cuffe Parade, Bombay. Today, it costs Rs. 40,000 per square foot. That is an increase of 200 times! Money, obviously, buys less these days. Paper money has lost value. That is what is called "inflation".
Now look at gold. It was USD 850 briefly in 1980 - when samosa was available at Rs. 1 and land in Bombay at Rs 200. Today it is at USD 900. Interesting, isn't it? The one currency that governments cannot print at will and which has, across civilisations, been a "store of value" - a hedge against inflation in the language of economics - has not really seen any increase in price over the past 27 years.
If the price of gold was to move in line with the price of samosas, gold should be trading at USD 9,000 per ounce or over Rs 1 lakh for every 10 grammes. But gold can be bought for around Rs. 11,000 for every 10 grammes today. If gold was to have moved along with the price of Bombay property, gold should be trading at Rs. 20 lakhs for every 10 grammes.
That may sound absurd. But sometimes the most attractive investment opportunities are those that sound absurd. Like Infosys at its IPO in 1992 or Zee at its IPO in 1993. You could have multiplied your money by over 1,000 times in each of them.
Don't get me wrong - not every absurd idea is a good investment.
And not every investment will increase in value by 10 times let alone by 1,000 times. But, sometimes, simple logic and harsh facts should allow us to make simple investment decisions. Do I expect the price of a samosa to fall to Rs. 1 - because that price for a samosa, justifies the fact that the price of gold has not moved in 27 years? Do I expect the price of Bombay property to fall to Rs. 200 per square foot? Or do I expect gold to start climbing and get closer to the equivalent price of a samosa and the price of Bombay property?
Inflation and uncertainty require insurance. Gold is an insurance against absurd government policies - worldwide. I own gold. And I am buying more of it at the NFO of the Quantum Gold Fund. To diversify my portfolio. To spread my risks. You should consider investing in the Quantum Gold Fund (an open-ended ETF). Unless you believe that your next samosa will cost you Rs. 1.
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