Why investing is not easy:
- When analysts and investors exclusively focus on analysing earnings and identify the margin of safety in their pursuit to value companies, they tend to ignore the unsustainable credit impulses which cause these earnings. Once the credit impulses are removed, the earnings suddenly disappear and the margin of safety that the Analyst had thought protected him is non-existent.
- The most important thing in Portfolio Construction is Asset Allocation and the Asset Allocation metrics depend on the economic regime that we are likely to see in the future.
In this video, Prashant K Trivedi, Founding Chairman of Multi-Act Trade and Investments Pvt. Ltd., points out how artificial credit impulses injected by the Central Banks can render traditional measures of assessing intrinsic value of business meaningless. He further lays down the importance of Asset Allocation as a driver of returns and gives out guidelines for creating portfolios that will do reasonably well irrespective of the economic regime that we see going forward.