I still remember a couple of years ago that I was having my usual breakfast with my colleagues from my 2nd previous company. Back then, we have been in the workforce for a couple of years and was in the early life stage cycle of collecting keys to our flats, renovation or getting married.
"Aiyah, confirm the interest rate will rise. Now interest rate is so low at 1+%. Sooner or later, it will revert to historical means"
As so it turns out, the interest rate did rise but only for a short while up to 2%+ before retreating back to the current levels, not anywhere near the 3% to 7% seen historically.
And as I mused in my previous post, I see it most ironic that folks who are prudent in their investments suffered the most as the interest rate has been really low resulting in savings account and bond yields being low and folks who took on risks are well-rewarded in being over-leveraging given that there has been no crash for the past 10 years and still counting.When interest rates are low, it is easy to juice up on your investment, be it stocks, crytocurrency, properties etc.
It is my long term and enduring view that a low interest rate environment spur irrational risk taking -> too much money chasing too little yield for too much risk. Within the system, the risk is being transferred and being exchanged somewhere in the system and it will implode one day.
I found a good read in Howard Mark's memo which my current strategy is based on. You can read the memo here
Here, I extract one of the pointers from his memo;
In a world like the one described above, perhaps the most reliable solution lies in buying things with durable cash flows. Bonds, loans, stocks, properties and companies with the likelihood of producing steady (or hopefully growing) earnings or distributions that reflect a substantial yield on cost all seem like reasonable responses in times of negative yields. In my view, durability and dependability are highly desirable (rather than hail-Mary attempts at a moonshot).
Currently, i am keeping a sizable amount of war chest that is yielding above inflation to take advantage of any possible market downturns or any crashes. At the same time, I am tweaking my portfolio to slowly add to positions of companies and REITs with consistent and reliable cash flow and is able to thrive in a low interest rate environment and this should result in good dividends on my receiving end.
Friday, January 17
Subscribe to:
Post Comments (Atom)
Posts
0|comments
Post a Comment