scorecardresearch
Download the latest issue of Business Today Magazine just for Rs.49
Gain from the power of two

Gain from the power of two

Exploring dualties to make good investment decisions is a novel approach, but it takes a savvy global investor to practise it, says Tanvi Varma.

The either/or investor

Price: Rs 906

Pages: 210

By: Clark Winter

Published by: Random House

Language: Easy / Needs dictionary

Style: Academic

Target audience: Global investors

Quick read tip: Go through the introduction and then read chapter 7, ‘Fear versus Greed’

It’s that time of investing when visceral fear supercedes greed, when the global tumbling of markets has let loose such scepticism that it’s difficult to distinguish between advice and opinion, strategy and serendipity. As you scamper to find the right strategist to guide you out of the financial chaos, perhaps you will stumble upon Clark Winter. The global investment adviser believes in taking into account the changing dynamics of the system while formulating his strategy. So instead of harping on impersonal financial concepts or nudging you to emulate successful investors, he delves on the economic and institutional history of the markets and their effect on personal finances. In doing so he deals with everything under the sun, from emerging markets to immigration laws. To make his point in greater detail, he has penned The Either/Or Investor.

If you wish to pursue the Clarkian line of thought, go through this book, which tells you how to judge the potential of an investment based on binaries, or dual choices— it could be the developed world versus the developing world or fad versus trend. As he says, “All successful investors have a unique ability to process enormous information and boil it down to binaries that simplify decision-making.”

He explains the strategies of renowned investors and points to where he believes future profits are most likely to be found. Warren Buffet for instance, made his money by investing in value stocks, while George Soros placed his bets on currencies. All it needs is a bit of knowledge, careful study and the willingness to make a decision, says Winter.

The binaries are covered in three frameworks, which are further split into parts and chapters. The first is based on the premise of a ‘Changing World’ and how tactics that worked in the past decade may no longer be tenable. American investors, for instance, have not looked beyond their country for the longest time, which has restricted their investing decisions. “You have to retool yourself to put your thinking in line with new market realities,” says Winter.

Winter also addresses the current credit crisis and its effect on the world, highlighting the fact that global economies are interwoven. Each chapter carries the rationale for an investment. So Chapter 2 deals with ‘The Rule of Power Versus The Rule of Law’, referring to economies like Russia, China and Saudi Arabia, where the rule of individual is stronger than the rule of law. Winter questions the safety of an investment in a country where the deck is stacked against you.

WHAT YOU NEED TO KNOW BEFORE INVESTING GLOBALLY

Here are some factors that you must consider before investing in the economy or the equity markets of a country:

Politics: Ask yourself: Can I invest safely in the country? Are the laws evolved enough to uphold my rights as an investor or is the deck seemingly stacked against me?

GDP: Is the GDP growing at a fast clip? Are corporate profits rising or falling? Check for factors such as job creation, consumer debt levels and consumer savings.

Information: Is unbiased and detailed data easily accessible in the country? It was the reason some investors preferred to bypass China despite the phenomenal growth of its economy.

Risk: Is there a way to balance risk and reward? You may invest in a basket of equities with an option on the national currency. If the basket stagnates, but the currency rises, you still gain.

The second portion covers the ‘Changing Investor’. Winter believes that people reshape themselves all the time; they start families, shift to new jobs and careers, which alters their perception of risk. As they get older, their appetite for risk diminishes. This has been more true in the post-9/11 world, where fear has been the prime mover in major global markets. This, according to Winter, is the time to make smart investments by taking calculated risks. But when you begin dreaming about how much your investment might make if it goes up only a couple of additional percentage points, it’s time to exit. Here he delves into the first and most important binary of investing: fear versus greed. “If you have to choose between getting in late or getting out early, always get out early,” he says. However, none of this can happen if you are not informed enough to act. When you have too much information, the risk of investing in a country’s stocks or bonds can be assessed by examining forces like its demographics, economic and financial markets, energy and the reform pattern.

The third framework comprises the ‘Changing Market’, the electronic revolution that took place in the US in the 1980s and the introduction of new products like derivatives and ETFs, which altered the investment spectrum. His views on interest rates in Chapter 11 draw relevance to the current situation. When interest rates are falling, it’s a good time to invest in stocks, says Winter.

This is followed by the last part, ‘Changing Opportunities’, and how you can spot them. Referring to the binary of ‘fad versus trend’, he differentiates between the two, saying investors consistently mistake a fad, or the promise of one, for a trend. Citing Apple, he says it went on to become a success by selling iPod in a market inundated with portable music players— investors made money from a fad.

While binaries address many choices that an investor can use to make good decisions, this book is not for the novice. One needs to be more involved in the global markets to appreciate it. However, the one thing every reader will agree with is the need to find alternative investments to make money; one cannot make money only when the stock market rises and then lie dormant.

As the chapters do not follow a chronological order, you can pick any topic. Clearly, Winter has an unmatched knowledge about global markets and investment options, but the book fails to lay down specific action points.

Read our review of the book Investment Fables on books.moneytoday.in.

Published on: Dec 25, 2008, 10:41 AM IST
Posted by: AtMigration, Dec 25, 2008, 10:41 AM IST