Ramesh Damani
Stock broker,
The Stock Exchange, Mumbai
Malthusian theory predicted that the population growth would surpass foodgrain production. That hasn't happened to date. Over the past century, the world has gone through dramatic changes - the two world wars, the great depression, the rise and fall of communism, the oil crisis, the invention of the transistor followed by the silicon chip...yet, the stock markets survived. Despite these upheavals, the Dow rose from it's base level of 100 to 8000, a growth of 800 times!
I want to make two points. Firstly, predictions can go wrong, and secondly even if they happen to be true, stock markets will not die. They will survive as long as capitalism prevails. Yes, if we move to a socialist society, where the government decides everything, capital markets may fail. Technology does pose a threat in many ways, but one cannot overlook the importance of information technology for development.
Much of the progress that mankind has made in the past so many years may not have been possible but for the rapid progress on the technology front. At the same time, it would be incorrect to underestimate human ingenuity. From an investment point of view, capital formation in technology may get affected, and the sector may have lesser investment options to offer. But many other basic businesses will continue to exist.
For instance, the furniture business or the tea business, or the liquor business, will remain. They may slow down a bit or not do too well for a while, but will not evaporate overnight. These are basic socio-cultural practices built over centuries and will not go away so easily.
Having said that, a particular company may not make money for you all along. That has been the case even in the past. For instance, except General Electric, there is not one other company which has been in the Dow for the past so many years. The shorter life cycle of business only means that you have to re-adjust you return expectations accordingly.
And your investment horizon may have to be shorter too. Instead of five years, it could go down to three years. So, what? My investment philosophy is buy cheap and sell dear. If you realise the price earlier, you get out faster. So nothing will fundamentally change in the market. To be a successful investor, you have to constantly outthink the market. The investment world is very dynamic. Asset classes could change.
For instance, in the 80's you had the go, go, go with the commodities and all commodity stocks did well. Then there was a time when Japanese stocks did exceedingly well. In 1970, IBM had a greater market capitalisation than the entire Japanese stock market, but two decades later -- in the 1990 -- the Japanese stock market-capitalisation was much bigger than that of America, Germany and France put together.
Similarly, in 1972 gold was $35 an ounce, but seven years later it was $900. Again, some years back, no one knew about Infosys and Satyam. Now they are known all over the world. Clearly, investors will have to pick and choose. Certainly, new businesses will come in going forward. You may go wrong with your investment calls at times, but as a stock picker you have to try and figure out which one will do better. If you can't, you better be out of the stock market.
