In light of market turbulence and increased anxiety, the question most often put forth has been: is there any reason to be increasingly bullish in light of the uncertainty that permeates the economic environment? From real estate to stocks to retail, indicators point to continued sluggishness, and there appears to be a palpable sense of alarm in the everyday commentary.
Given the increased risk, why then would there be any need to invest?
The real risk any investor must assess is whether the aggregate income from an investment (including resale value) will, over his prospective holding period, return at least the purchasing value in current value terms, plus a modest rate of return on that initial investment. Though this cannot be done with any sense of engineering precision, there are a few guidelines that can be looked at.
These include the purchase price, the evaluation of long-term business prospects of the company and/or investment, the certainty with which management and/or the economy has a bearing in looking to reward its principals. And finally the level of inflation expected in the economic environment that tends to reduce the present value of the returns.
These factors are always somewhat fuzzy, but it is not difficult to evaluate these conditions. In a sense, the volatility that is experienced in the marketplace (that actually benefits the investor) is seen to be the exact opposite, eliciting dread, when all that is happening is that the future expected return on the investment is increasing.
In Dubai, the phenomenon of falling rents and stock prices has led to increased concerns about the investment climate, for real estate as well as equities. In both cases, when the above criteria is used, it is clear that any decline in the value of assets is exactly the reason for increasing investment allocation to them.
Time is of the essence, and in modern day vernacular, the term institutional investment has become somewhat synonymous with short term-investing, when it should be diametrically opposed to that. If you cannot hold an investment for 10 years, do not even consider holding it for 10 minutes.
In this regard, time becomes the friend of the patient investor, an enemy of the trigger-happy. However, market commentary continues to feed the illusion of sophisticated investors either selling and/or buying in droves, capitalising on superior information, rendering the small investor helpless in the face of such whipsaw moves.
In the recent market cycle, indices have moved up and down by more than 20 per cent in a manner of months, regardless of whichever major market that you have looked at. With markets being on a major rampage, followed by a sudden, massive seizure.
With such volatile movements, the landscape is all the more friendly for any investor (big or small) as long as he sticks to the fundamentals. Contrary to public opinion, there is no explanation for such massive short-term moves, but with such large sums of money being allotted to institutional investors, is there any doubt that markets would behave in an aberrant way, given the Alice in Wonderland thinking?
In equities as well as real estate, the advantages that certain companies have over others in Dubai is manifestly obvious. Yet no data capturing indicator will be able to encapsulate this. The competitive strengths of Emaar and Nakheel are obvious to even a casual observer of business, yet the professional investor looks to seize on short-term moves as trigger points for entry/exit in an increasingly hyper active manner.
Does this mean that the investor can foresee the rapidly changing economic landscape that is being brought upon by technology? Of course not. Successful investing has always been about surviving wave upon wave of change, and yet being able to thrive in an environment where such change is actually beneficial for society.
The same is as true for cities as it is for companies. It’s always considered fashionable to invest in the next big trend, whether it is AI or 3D printing. For the successful investor however, it’s about sticking to easy targets, and leave the space exploration stuff to the investor.
As Buffett says about space exploration, “we applaud the endeavor ... but will sit out the ride.”
Any dissociation in these prices, caused by the irrational investor serves as a gift to the patient one, amid a backdrop where Dubai has continually provided opportunities throughout its existence. Such opportunities are commonplace more than before.
— Sameer Lakhani is Managing Director of Global Capital Partners.