Let's bring attention back on the object of this exercise, again - Restructuring for risk-adjusted, all-weather performance.
If we take this statement of HM seriously,
In my opinion, the key to dealing with the future lies in knowing where you are, even if you can't know precisely where you're going. Knowing where you are in a cycle and what that implies for the future is very different from predicting the timing, extent and shape of the next cyclical move. And so we'd better understand all we can aboutcycles and their behaviour - as different from predicting the timing!
How do we take it forward? How do we take advantage of understanding what is going on now in our economy, while aligning our core expertise of bottoms-up stock picking? Can we prioritise our search for the new stronger horses in a few areas?
One way I see is to acknowledge what is going in now is this trail of thought. Inflation is low or kept under control, interest rates will be low for some more time, currency is appreciating or stable, not in depreciating trend. What sectors will do well now is what we need to evaluate and zero in. (a la Prashant Jain, or most discerning senior friends, who give credence to market/business cycles).
We at VP are traditionally weak at this.
A good way to become more acquainted with this way of thinking is to study lessions from History - in Indian Market, and Global context.
When was the last time we had inflation low or under control, interest rates low and stable, and currency stable or appreciating, not depreciating? 2004-2008?? Can we not gain valuable lessons from that hind-sight study.
I think we can, and am excited to learn in this area, where I am a complete novice. Again it's important to be aware of the differences. 2003-4 valuations were completely different. World situation was very bullish, not grim like now.
As they say history may rhyme, it may not exactly repeat. If we have a decent size crash by end 2017 or mid 2018, there may be good parallels.
Whatever be the case - one cannot but agree with HM if you are a discerning investor - we'd better understand all we can about what is going on around us - about cycles and their behaviour.