I was asked to speak on ‘Impact of Demonetisation on the Wealth Game’.

I did not like the word ‘Game’ so I said ‘Wealth Business’ and I also said ‘nothing changes in the Wealth business’ EVER. The short term actions which consume all our energy and attention, are just a slight bump or dip in the long run wealth creation cycle. Sorry, nothing, nothing, nothing can take the value of ‘n’ in the wealth creation formula aka Compounding.

Surely one of the immediate effects of demonetisation will be more assets flowing into the formal capital markets (perhaps) as opposed to just being held in cash outside the banking (aka mutual fund, ulip) system. It will be a new experience for many small deposit holders as they look for alternative ways to hold their wealth. Banks are already having a field day mis selling. This will be a positive for both wealth management professionals as well as investors. But it’s a bold and dramatic move, it is bound to create ripples in the investment industry for sure.

A Trump victory, Brexit, Demonetisation, Tata-Mistry spat all have a role in the wealth business, but believe me, the impact was far different from what the media was asked to tell you! Look at the Trump victory – did you notice the bump in the SnP? We were told that the world would come to an end if Trump came to power?

It is tempting to jump up and down when such things happen. We need to be smart enough to know whether we are investors here to create wealth in the long run or traders to make a good kill in every movement of the market. Both are strategies in themselves – it is for us to know what we are doing. Sure, you can trade in a portion of your portfolio.

So the question to ask as a trader was: “Will the shrinking of Money in the market mean Asian Paints will go down and suffer a downturn for 2 quarters, if yes, should I short the share and buy it again when it is say 20% down?”.

However the question to ask as an Investor was: “Assuming that demonetisation creates some pain in the immediate future, does Asian Paints have the brand image and managerial strength to remain the strong company that it is?”.

See the difference?

The temptation is to do something fast, and try to speed up the cycle, but the old rules do not change. In fact the same rules still apply and are still useful. Wealth creators have to take a long-term view and not be upset by troubling day-to-day news.

While you were told by the short term loving financial porn industry, looking at events such as Trump victory, Brexit and Demonetisation will bring the world to an end, it was not true! In a fast changing world, the fundamentals remain the same – a company has to create value for the customers, employees, investors, vendors,..for it to be relevant. Look at Amazon. The value that it has created for the vendor, buyer, logistics provider, packaging material manufacturer, plumber, carpenter  is just awesome! Yes over a period of time it will make money for its shareholders too in terms of cash flow! There are larger shifts taking place such as structural changes in world  demographics. The Chinese are spending more, and the Americans will be forced to save more. The last 10 odd years has been a major attack on the saver in the US – with pathetic interest rates – and that may be changing soon?

Which is the best asset class to invest? First the caveat, I love equities and my love affair is so torrid, I cannot see beyond equity. One thing that I have learnt is I can talk of ANY asset class as being the best – as long as you give me freedom of time frame, and any world market to choose from. So real estate, debt, gold, equity, oil – all have had their day in the sun so to speak. However, persistently good real returns, adjusted for risk has a clear leader – equities. By definition, they have to be the wealth creators for most of you reading this blog. Today people are not just looking at the return numbers to choose between assets, they need to look at risk too. In financial planning language, having more wealth and a longer time frame means, you have greater stomach for losses. Now comes the question, DO YOU NEED TO take risk? If you need to how much of your existing wealth should you be allowed to risk? As of today, Robo Advisers may not have the answers.