In 1925, a Hungarian immigrant to the United States found himself buried six feet under the earth and rapidly losing breath. “The weight of the earth is killing,” he later said. He did manage to claw his way out, because this was Harry Houdini, taking a calculated risk.
That’s the life of a professional magician — risky. If a stunt isn’t dangerous enough, no one turns up to watch. If it’s too dangerous, you win the audience but might lose your life! But Houdini knew the risks and its trade-off with reward. He was making almost $10,000 per week (by 2019 rates), and he even quit a movie career because “the profits were too meager”.
He had planned another ‘buried alive’ act in 1927, and this time he’d be strapped into a straitjacket, locked inside a casket and buried in a tank of sand! It never happened, though. Before we find out why let’s look at another “risk and reward” marvel - The Market.
1. With Goldman Sachs revising India's NIFTY target to 14,100 in 2021 from the earlier forecast of 9,600, Morgan Stanley upgrading the Sensex target to 50,000, and the MSCI index (used by international fund houses for benchmarking global equities portfolios) adding 12 Indian stocks, investor patience is likely to be rewarded soon.
Because this means more investments, and FIIs have already brought in more than Rs. 55,000 crores in November, the highest ever! To note, we’re Atmanirbhar too, with the stimulus 3.0 announced on the back of cabinet approval of PLI schemes.
2. Despite European countries announcing a slew of COVID-19 related lockdowns and restrictions, the markets had reasons to smile with multiple players reporting successful COVID vaccine trial rates, and Joe Biden’s election. With banks like HDFC further cutting FD rates, markets are indeed where the rewards are.
3. What didn’t get an all-positive reaction was RBI’s proposal to allow business houses and “well-run” NBFCs to enter banking. But even as experts disapproved, Bank NIFTY gave a thumbs up to a potential “Lakshmi Vikas” reward despite the Lakshmi Vilas risk!
4. An announcement that was well-received came from the regulator. SEBI has given fund houses the option to convert existing schemes to Flexi Cap, which need to have at least 65% of their corpus in equity.
Most Multi Cap funds are likely to simply get themselves reclassified as Flexi Cap. We hope you took note of our recommendation and did not make any portfolio changes.
Speaking of flexing, Houdini had another trick - letting big men punch him in the gut as hard as they could. He’d been an amateur boxer and claimed he could flex his muscles to absorb any blow.
One day in 1926, while he was resting after a performance, some students came visiting. One of them asked if he could resist blows to the abdomen, and then, without warning, punched him in the gut.
His appendix ruptured, Houdini died after a few days. Houdini could have survived the punch if he was ready, as he would have been if he were on stage. But this caught him unprepared. Risk cares neither about context nor readiness.
2020 felt like that punch in the gut for the world at large, and definitely so for investors. Painful if not fatal.
We saw the Sensex go to 29000 levels before touching peaks of 44000. Risks can’t be avoided, but a good investment strategy is about making decisions that manage risks and increase the odds of achieving your goals.
Things like asset allocation, periodic reviews, and having an emergency fund. So that you have the stomach for the gut-wrenching rollercoaster ride the market is!
Thank you for reading!
Indices and benchmarks in November