Is Indian Equity doomed?

The following excerpt from Warren Buffett’s latest letter to investors makes for fascinating reading:

“There is, however, one clear, present and enduring danger to Berkshire against which Charlie and I are powerless. That threat to Berkshire is also the major threat our citizenry faces: a “successful” (as defined by the aggressor) cyber, biological, nuclear or chemical attack on the United States. That is a risk Berkshire shares with all of American business.

The probability of such mass destruction in any given year is likely very small. It’s been more than 70 years since I delivered a Washington Post newspaper headlining the fact that the United States had dropped the first atomic bomb. Subsequently, we’ve had a few close calls but avoided catastrophic destruction. We can thank our government – and luck! – for this result.

Nevertheless, what’s a small probability in a short period approaches certainty in the longer run. (If there is only one chance in thirty of an event occurring in a given year, the likelihood of it occurring at least once in a century is 96.6%.) The added bad news is that there will forever be people and organizations and perhaps even nations that would like to inflict maximum damage on our country. Their means of doing so have increased exponentially during my lifetime. “Innovation” has its dark side.

There is no way for American corporations or their investors to shed this risk. If an event occurs in the U.S. that leads to mass devastation, the value of all equity investments will almost certainly be decimated.”

We are neighbors to a fanatical nuclear armed failed state Pakistan with whom we have fought 4 wars and continue to have unceasing hostilities on the LOC.

Are Indian equities eventually doomed due to this geo-political risk?

3 replies on “Is Indian Equity doomed?”

If something like this happens, not just equity but even bonds will be doomed, inflation will rise so much that your FDs will be a joke. So no there is no escape. Better to buy some wildly out of money far far out cheap put options. This is the only way to protect yourself from Black Swan events.

Do we have to worry about Stock market/Equity if such an event happens? Provided we are even alive 🙂

In case of such catastrophe you’d be much better off buying equities in panic lows. Thing is that no matter how worthless paper money (cash ) or fixed income (FD) becomes, equities will always fare much better than them. That`s because companies behind those (carefully chosen ) equities will always enjoy pricing power nullifying inflation while cash/FDs dont have that power. Like a dentist will always charge you the fees which enables him to maintain /improve his standard of living regardless of any war/ calamity. You cant talk him into accepting lower fees ! More worthless cash becomes , more of it would be required to buy stocks of companies that have higher ROE than current interest rates.

Leave a Reply

Your email address will not be published. Required fields are marked *