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How to Invest After the End of the World

“Eternity is really long, especially near the end.” ~ Woody Allen

The world is about to end, once again!

This time, the doomsday scare comes from the ancient Mayans, whose calendar runs out in 2012, as interpreted by some opportunistic authors and film makers.

So just because someone, 1,100 years ago, failed to see days after December 21 2012, the world is supposed to come to an end today (well, exactly at 4.42 AM IST tomorrow morning, because even the apocalypse follows US timings)!

Anyways, whatever the end that’s coming, isn’t that the best news ever? Seriously, think about it.

You don’t need to worry anymore about…

  • New Year resolutions
  • Endless holiday shopping
  • Ever-rising weight
  • Ever-falling savings
  • Upcoming EMI payment
  • Next Infosys
  • Next Suzlon
  • Safal Niveshak’s never-ending rants

…because sometime in the next 20 hours, we’re all toast anyway.

What is more, the upcoming apocalypse also makes your “must read” list that much shorter too.

Normally, I’d take a minute before long holidays to recommend a few inspiring reads for investors. I might, for instance, say now’s the perfect time to pick up a copy of…

  • The Intelligent Investor by Benjamin Graham
  • As a Man Thinketh by James Allen
  • Influence by Robert Cialdini
  • Aesop Fables

I could go on, but why bother? By now, you barely have time to read one annual report before the lights go out!

Speaking of “must reads,” you might as well say goodbye to the two-year course on sensible investing I’d suggested a few weeks back.

Why worry about “sensible investing” when you won’t have any senses left?

Normally, I’d say that next year you must…

  • Buy stocks in simple, strong, sustainable businesses
  • Focus on the value of the businesses, not stock prices
  • Not try to time the market
  • Buy to hold. Not buy-forget-hold, but buy-review-hold
  • Spread out your risks by preparing an asset-allocation plan
  • Stay strong, think long

But hey, no need for that now.

And no need to do all that other stuff we were all planning on doing before we die, like…

  • Learning a new language
  • Mastering a musical instrument
  • Learn to ride a mobike
  • Write a book
  • Run a marathon
  • Travel the world

Oh boy, my dream of speaking at TED also goes for a toss! 🙁

In the words of noted American comedian Bill Murray, as he spoke in the climax of Meatballs, “It just doesn’t matter.”

Does it?

Oh wait…hang on…here’s a breaking news! It turns out that as per NASA, the only reason the Mayans picked today for the end of the world was because they ran out of space on the big stone they used to carve out their calendar!

So the world will not really end today. 🙂

Great! Now that the tsunamis and earthquakes probably won’t come, maybe it’s time to get around to prepare for the next apocalypse.

Yes, the next apocalypse…which may come in the next 50 years.

Yes, the world will end…soon!
If you have seen Looney Tunes, you know about the character of Wile E. Coyote and how his obsessive pursuit of the Road Runner lead him to fall off a cliff.

The hapless predator runs straight out off the edge of a cliff, then stops in midair as only an animated character could, then looks beneath in an eye-popping moment of truth, and finally crashes straight down into a puff of dust!

You must have seen such scenes in several shows of Tom & Jerry as well.

Well, around four decades ago, a MIT computer model called “World3” warned of a similar possible course for human civilization in the 21st century.

In a famous (and controversial) 1972 book “The Limits to Growth“, which analyzed and detailed the MIT findings, researchers argued that the global industrial system has reached such a momentum that it cannot readily correct course in response to signals of stress to our planet.

But unless economic growth skidded to a halt before reaching the edge, the researchers warned, our species was headed for overshoot – and a crash that, like Wile E. Coyote’s, could kill billions.

In fact, one of the original World3 modelers, Jorgen Randers, a Norwegian professor argues that the second half of the 21st century (2050 onward) will bring us near apocalypse in the form of severe global warming.

Till then, however, Randers believes that life on Earth will carry on more or less as before. Global economies will continue to grow, and emerging ones will grow faster. Food production will be sufficient to feed the population, which itself will peak by 2040.

It’s then that the effects of environmental damage will start getting devastating. I am not an environment expert so I won’t even try to get into details here, but whether we have reached the point of no return for our species is anybody’s guess.

We, the frogs in boiling water
Most analyst friends I meet talk about how India and China will outpace US in the next 30 years, how flawlessly the India growth story will pan out, and how all investors will become rich by buying and holding good quality stocks. Even a lot of investors I meet are all eyeing fast-growing businesses.

But just imagine, if India grows at 8-10% over the next 30 years and companies like L&T, Tata Steel, HDFC, Titan, and Coal India continue to grow at 15-20% rate, and continue to consume (or support consumption) at the pace they are doing now, what impact will it all have on our mother Earth and her natural resources.

I can already sense a crisis happening across Indian companies, especially the ones who are dependent on natural resources. Leave aside India, most developing and developed countries are in a race to acquire natural resource assets wherever they could find them.

As far as we consumers are concerned, food prices are rising due to supply shortages, energy is becoming scarce, and potable water resources are fast depleting. Our villages have been in a dreaded state anyways.

I see most of all urban Indians getting selfish by digging personal boring wells to take out as much water as fast as possible.

So we, the current generation, are all thinking and planning how to live happy and fulfilled lives for the next 30-40 years, forgetting what mess we will be leaving our children and grandchildren with…if they really survive the period after these 30-40 years.

Only if we could appreciate the real meaning of the proverb – “We do not inherit the Earth from our ancestors, we borrow it from our children.”

I believe we are all like a frog in boiling water that does not realizes that the boiling water (deteriorating environment) can burn it at a certain point in time. Now, that will be the real apocalypse!

You see, at 99 degrees centigrade, water is hot. At 100 degrees, it starts boiling and turns to steam. I am not sure at what degrees we are currently as far as our planet’s survival capacity is concerned. But we are surely, and fast, moving towards 100!

Apocalypse lessons for investors
Anyways, in case you survive the end of the world today, and the stock market also exists, here are a few lessons you must always remember while investing…

  • Businesses cannot grow at 20-30% annually till eternity – Growth always slows down, and you must be prepared for that
  • It pays to be conservative with cash flow projections in your DCF calculation model. Cash flows can disappear as fast as they appear.
  • Do not play around with your terminal growth rate projections. Keep it close to zero.
  • Businesses that continue to expand capacity just to maintain their earnings power are bad investments.
  • Be very careful of companies that are dependent on natural resources – Operating costs for such companies are going to rise significantly going forward.
  • The years of 8-10% annual GDP growth for India are history. We may still see such growth in spurts, but stop expecting that this history will repeat.
  • Inflation with continue to remain high in the future (I can’t predict the level) so try to compound your money as much as possible, with as little risk as possible.
  • Doomsday for your money can appear earlier than the world sinks, so always seek margin of safety in every investment you make.

Now let’s welcome the apocalypse
Like most humans, I prefer to please myself than to be told what to do. And I expect the same of you.

So whatever I or anyone would tell you about sensible investing and sensible living, you will do it your own way. I just hope you do it the right way!

Anyways, if I do not survive the coming apocalypse, and you do, here’s wishing you and your family a Merry Christmas…and a very happy New Year 2013.

In case I survive, I’ll be celebrating Christmas near the Ganges in Varanasi, and New Year in New Delhi.

And then, I’ll see you again in 2013!

Happy End-of-World Day! Stay safe, stay happy!

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About the Author

Vishal Khandelwal is the founder of Safal Niveshak. He works with small investors to help them become smart and independent in their stock market investing decisions. He is a SEBI registered Research Analyst. Connect with Vishal on Twitter.

Comments

  1. Hi Vishal

    Your section on “Apocalypse lessons for investors “ is really superb. I would like to share extracts from newsletter by Howard mark, Chairman of Oaktree Capital management. Off late he has written a lot on insisting that we are living in a very uncertain world and therefore need to be more conservative in our investment approach. I reproduced below extract from his January 2010 letter which explains it much better:

    “The uncertainties discussed [in the letter he highlighted about HIGH MACRO UNCERTAINTY IN US AND WESTERN WORLD] above tell me today’s distribution of possibilities has a substantial left-hand (i.e., negative) tail, probably greater than at most times in the past. The proper response should be to discount asset prices, allowing a substantial margin for error. Forecasts should be conservative, yield spreads should incorporate ample risk premiums, valuation parameters should be below the longterm norms, and investor behavior should be prudent. “

    I suggest readers also go through his May 2011 letter on “How quickly they forgot” and carefully read the section ‘The right approach for today’

    • Thanks for sharing Howard Marks’ idea, Anil!

      Here’s another letter, this one’s from Jeremy Grantham, who talks about “On the Road to Zero Growth, citing his concerns on the environment and how we are not far from a point of no return.

      We may either junk what Grantham or Marks are foreseeing, or act now before we reach that point (of no return). Regards.

  2. Dear Vishal,

    We have survived to read your post. 🙂
    Wish you a Merry Christmas and Happy New Year!

    Best regards,
    Akbar

  3. well nice one vishal…
    esp..>
    Businesses cannot grow at 20-30% annually till eternity – Growth always slows down, and you must be prepared for that
    The years of 8-10% annual GDP growth for India are history. We may still see such growth in spurts, but stop expecting that this history will repeat.

    These two are to be noted…
    That includes salary also… Salary hikes may be marginal only.

  4. So kind of you, being an investor speaking about environment, reminds me a quote
    “When the last tree is cut and the last fish killed, the last river poisoned, then you will see that you can’t eat money.”
    ― John May, The Greenpeace Story

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