Key Lessons from Financial History for Today’s Investors, talk by Mr. Russell Napier

Contributed by: Rajni Dhameja, CFA


CFA Society India along with SBI Mutual Fund hosted Mr. Russell Napier, Co-Founder at ERIC on October 29, 2017 for an insightful session in Mumbai. Mr. Russell Napier spoke about the Key Lessons from Financial History for Today’s Investors. Keeping those lessons in mind while making investment decisions will help in making more informed decisions.

The Key takeaways from the session are as follows:

– Try to forecast the supply side. It is mistaken to invest the majority of time in forecasting demand and too little time in forecasting supply. History suggests that great returns have been earned when supply side has been forecasted correctly.

– There is no direct relationship between the growth of an economy and returns on equity. There are times in the history wherein equity markets have given substantial returns for economies which have not grown substantially

– When evaluating the companies, look for the incentive structure for management. A very good business model can fail if the incentive structure for management is not in alignment with the growth of the company in the long run.

– Whenever possible deal with principal directly and not with the agent.

– Whenever you come across any development in the market which you consider as unsustainable, can actually last longer than what your rational assessment suggests.

– Governments are not referee of the game; they are players of the game. They can change the stance as per the situation. Hence, the assumption that government will always act/ intervene to protect the markets will not hold true.

– Monetary policy: The easiness or otherwise of the monetary policy is not judged by the levels of interest rate. It is judged by the quantity of growth in money supply. An extremely low interest rates but minimal growth in actual money supply would construe a tight monetary policy.

– Monetary systems fail approximately every 30 years. This is the time frame in which certain drastic changes occur which causes the failure of existing systems.

– Tourism of any country acts as an indicator to guide the over/under-valuation of the country. The country which has tourists coming in will have a currency which is in appreciation due to high demand.


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