The world had seen a boom in almost all asset classes from 2003 to early 2008. That was a period of wealth creation for investors. What is following is a period of wealth destruction and what best one can do is to avoid capital erosion during this period.
How To Avoid Capital Erosion:
Be in cash. In bad times cash is the king. Also when its a bear market for equities its bull run for cash. For example a stock "X" falls from 100 to 50 in the bear markets. So effectively if you had cash in hand then with the same Rs. 100 you can now buy 2 stocks of company X instead of just one stock. So its a bull run for cash.
Invest in Gold.
I am not saying invest all your money in gold. But 15-20% of total net worth can be in gold. The reason being that gold is the best hedge against inflation and also the big bull run for gold is yet to come. Many will be wondering why hedge now against inflation when its coming down sharply. The fact is that whenever in the past so much of money has been poured into the financial system,inflation has come in a big way 1-2 years down the line. So expect a major global inflation 1-2 years down the line because of excessive money printing and prepare for it by buying gold from now when prices are down.
Invest in Cash Rich Companies.
In this situation I must say that even huge cash reserve companies can fall in value. So this might not be the best way to preserve capital. But if one really wants to invest then invest in cash rich and low debt companies. They will do relatively well.
IMF Latest Forecast on Global Economy:
In Its latest gloomy forecast the IMF has said that the economies of the United States, Europe and Japan are expected to contract in 2009 as part of the first annual decline by the advanced economies since World War II.Overall, the IMF now expects the world economy to grow at a 2.2 percent pace in 2009, down from its projection last month of 3 percent.The IMF expects an economic recovery to begin in late 2009.
Where are Indian Equities headed:
I, or for that matter anyone would be lying if he/she know where the markets are headed. But for sure going by the way things are panning out globally there is more risk of downside then any upside. Its very much possible that like other central banks the Indian central bank will also go for agressive rate cuts and that will prop up the markets for a while. But gradually it should drift lower. One can be very sure that there will be no major upside move in the markets in the next 1-2 year and even if markets move up sharply in short term it would be followed by a even sharper fall.
Sectors To Avoid For Now:
IT Sector
Real Estate Sector
Industrial Commodities Sector
Companies To Avoid For Now:
High Debt Companies
Small Companies in Capital Intensive Sectors
Companies which are still showing 75-100% growth
Best Long Term Investments:
Invest in Water Related Companies (Mineral Water,Water Infrastructure)
Invest in Agri Related Stocks
Even Better is to buy a Farmland. It will give the highest returns in the next 5-10 years and even beyond.
How To Avoid Capital Erosion:
Be in cash. In bad times cash is the king. Also when its a bear market for equities its bull run for cash. For example a stock "X" falls from 100 to 50 in the bear markets. So effectively if you had cash in hand then with the same Rs. 100 you can now buy 2 stocks of company X instead of just one stock. So its a bull run for cash.
Invest in Gold.
I am not saying invest all your money in gold. But 15-20% of total net worth can be in gold. The reason being that gold is the best hedge against inflation and also the big bull run for gold is yet to come. Many will be wondering why hedge now against inflation when its coming down sharply. The fact is that whenever in the past so much of money has been poured into the financial system,inflation has come in a big way 1-2 years down the line. So expect a major global inflation 1-2 years down the line because of excessive money printing and prepare for it by buying gold from now when prices are down.
Invest in Cash Rich Companies.
In this situation I must say that even huge cash reserve companies can fall in value. So this might not be the best way to preserve capital. But if one really wants to invest then invest in cash rich and low debt companies. They will do relatively well.
IMF Latest Forecast on Global Economy:
In Its latest gloomy forecast the IMF has said that the economies of the United States, Europe and Japan are expected to contract in 2009 as part of the first annual decline by the advanced economies since World War II.Overall, the IMF now expects the world economy to grow at a 2.2 percent pace in 2009, down from its projection last month of 3 percent.The IMF expects an economic recovery to begin in late 2009.
Where are Indian Equities headed:
I, or for that matter anyone would be lying if he/she know where the markets are headed. But for sure going by the way things are panning out globally there is more risk of downside then any upside. Its very much possible that like other central banks the Indian central bank will also go for agressive rate cuts and that will prop up the markets for a while. But gradually it should drift lower. One can be very sure that there will be no major upside move in the markets in the next 1-2 year and even if markets move up sharply in short term it would be followed by a even sharper fall.
Sectors To Avoid For Now:
IT Sector
Real Estate Sector
Industrial Commodities Sector
Companies To Avoid For Now:
High Debt Companies
Small Companies in Capital Intensive Sectors
Companies which are still showing 75-100% growth
Best Long Term Investments:
Invest in Water Related Companies (Mineral Water,Water Infrastructure)
Invest in Agri Related Stocks
Even Better is to buy a Farmland. It will give the highest returns in the next 5-10 years and even beyond.
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