Haresh Daswani: Basic principles in investing
Given that the world financial situation has become shaky, given that people were buying houses they cannot really afford, at prices higher than what is deemed fit, it is inevitable that price correction in real estate will cause chaos within the banking sector.
It is also interesting to see that our interdependence means that the ultimate and final point, that one economy is interconnected to the world, is now better noticed. We are all dependent to each other to keep our lifestyle the way it is.
When U.S. housing markets failed, which was predicted by many investors months ago, people started to realize that their money is invested on many intangible concepts. There is nothing really solid to hold on, except for the paper currency or stock paper which also points to the paper currency. We are investing and profiting from a system which is intangible, and when it fails, we fail.
Brick and mortar companies, once ridiculed for not having the ability to grow as fast as other industries, are now better appreciated as they have something tangible to offer. Banks and investment houses have focused on leveraging and sugarcoating their balances, borrowing more from everyone to lend out. It is a cycle that is not too different from a pyramid scheme.
Money has to keep on flowing for everyone to utilize and survive, the moment one group hoards it, the circulation is restricted, and problems present itself. There was a great market imbalance, given that there is no real balance in brick and mortar economies worldwide, this problem will present itself more evidently over the next few months.
At this point, gold is underrated and a good investment, when times go bad, investors with money prefer the security of holding something tangible, for as long as the price is still fair.
As we brace ourselves for more crisis, we will have to remember that the biggest opportunity rests on bad times. Money-solid individuals buy tangibles at bargain prices and let it speculate. More importantly, companies who do not really have anything solid to present will have to fail, and let lessons from its failure bring forth better and more solid companies.
The world, and its economy, will have to face constant changes, the world keeps changing as it is. Nothing has been the same in the past 5,000 years. Cities have flourished and have been deserted. The evolution of economics and culture brought forth what we see now. For this change to be better appreciated, we have to step back and re assess, asking the question, “What is the bug in this system causing it to crash?”
In crisis comes the need to survive, to become stronger. We can weather this situation by reassessing how comfortable things have been, and trimming down excesses and negligences to keep ourselves financially fit and ready to take advantage of the upcoming improved economy.