the problem of banks valuation - after the banks crisis
The economics-blog "Musing on Markets" has an interesting piece on the problem of banks valuation, in the era following the collapse of some of the too-big-too-fall banks.
As much as one may like such a brave attempt at finding an answer for this riddle, I fear that it will take many more years before a new generation of investors will learn to trust banks, and ignore the follies of markets that bring calamities upon financial markets.
And when we talk about banks, in particular, as the past's most reliable financial institutions to invest, we can talk, in way of extrapolation, on all investments.
Regardless of current regulatory efforts, there is no doubt in my mind that with the years, once again, the chains of regulation will be undone, and once again, banks and corporations will be free to take risks that will make them, once again, dangerous assets.
The real danger lies with the assumptions everyone share. The last crisis relied upon the common belief that most mortgages are safe investments, and that the quantities of junk are known and controlled. Then it turned out that too many financial institutions took too many risks, and found themselves relying on junk at the day of judgement.
The history of economics teaches us that there will always be follies. There will always be bubbles. There will always be safe methods for investors, and these methods will always be proven wrong, under "unique" circumstances.
Investors should remember that regardless of the techniques they apply, the only way to security, just like in sex, is in abstinence.
As abstinence bears too heavy a price, especially in times of inflation, all that remains to help the common investors are 2 safety rules of financial investments:
As much as one may like such a brave attempt at finding an answer for this riddle, I fear that it will take many more years before a new generation of investors will learn to trust banks, and ignore the follies of markets that bring calamities upon financial markets.
And when we talk about banks, in particular, as the past's most reliable financial institutions to invest, we can talk, in way of extrapolation, on all investments.
Regardless of current regulatory efforts, there is no doubt in my mind that with the years, once again, the chains of regulation will be undone, and once again, banks and corporations will be free to take risks that will make them, once again, dangerous assets.
The real danger lies with the assumptions everyone share. The last crisis relied upon the common belief that most mortgages are safe investments, and that the quantities of junk are known and controlled. Then it turned out that too many financial institutions took too many risks, and found themselves relying on junk at the day of judgement.
The history of economics teaches us that there will always be follies. There will always be bubbles. There will always be safe methods for investors, and these methods will always be proven wrong, under "unique" circumstances.
Investors should remember that regardless of the techniques they apply, the only way to security, just like in sex, is in abstinence.
As abstinence bears too heavy a price, especially in times of inflation, all that remains to help the common investors are 2 safety rules of financial investments:
- True Diversification over different assets, economic branches, and states.
- Truthful, rigorous, repeated re-evaluation of one's investments, which includes the execution of asset selling, despite loss-aversion tendencies and re-balancing of a portfolio gone awry as a result of a major success of sad failures.
Some might add a 3rd rule, which either recommends on praying regularly to a deity of your choice, or suggest developing a significant sense of luck. I leave it for your own judgement.
תגובות
הוסף רשומת תגובה