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Conjectures and reality

I have always loved writing. Investing, it turns out, provides ample opportunities to pander to the writer's urge in me. Apart from serving as a repository of my misses (which have been way more instructive than the hits), the blog has been a storehouse of investment conjectures over time.
I strongly believe the best gauge of one's guessing ability is to periodically note down investment conjectures and test them against reality. This has helped me get better at guessing over time. One can never get everything right all the time (I have had the good fortune of numerous humbling experiences), but net-net if one's guessing right, I think things will be alright over the long run.
Below are excerpts from my writings in the past. A check of predictions versus subsequent performance.

The following was written on July 31, 2007 when the S&P 500 index was ~1,500.

Credit spreads have widened sharply over the past few months after bottoming out at historic lows, but the equity markets, as usual, haven’t begun their reaction....On most occasions, equity markets have lagged developments in Credit Spreads and this time seems no different. If history repeats itself, it wouldn’t surprise me if the equity markets corrected in the short-to-medium term.
S&P topped couple weeks later and broke sharply soon after...down 27% through today.

And this is from earlier this year (Mar 23, 2010).


In sum, the divergence in market values from underlying GDP performance is unlikely to be sustained in the future, in the absence of strong catalysts. Positing a scenario of a high inflation future coupled with deleveraging and sluggish growth, gold (and other precious metals) as an asset class appear attractive relative to equities.
S&P fell 13% to its trough; has recovered since, down 5% through today. Gold is up 10%...

This exercise has helped me learn a great deal about my investing style, my comfort zone and my weaknesses. I believe the world is inter-linked, which means opportunities exist across geographies and asset classes. The natural skeptic in me feels a wee bit more comfortable scouting around for things that are ripe for corrections. Someone, somewhere, is going bust all the time! And as life is a zero-sum game, this implies there is a beneficiary lurking somewhere...


While the hits are encouraging, the markets ensure there are enough misses to prevent the unwanted growth of a big head.
Capacity for objectivity is inversely related to head size.
The pleasure - quoting Richard Feynman - lies in finding things out!

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