Maneesh Dangi is an office-hold name when it comes to stock markets as his views on television are closely followed by dealers in their offices. It is quite appropriate that he has written a book on how to train one’s mind to be an investor in his book Booms, Busts and Market Cycles. As the title suggests, he takes readers through all these phases with clear guidance on how to read such situations and invest smartly.

He does give a lot of advice, but the one thing that will catch the reader’s attention is his analysis of returns on housing compared with equities. It is more of a revelation. He argues that returns on housing over a long period of time are the same as equities across the world, which is around 5% in real terms. And the more important part is that the volatility in housing is just half of equities, which means it may just be a better opportunity with the risk carried being much lower. This can be a useful tip to consider when individuals are looking to diversify their portfolios to maximise returns as housing is not often treated as part of asset portfolio diversification.

Dangi also takes the reader through asset allocation, which he links with age profile as this gets linked with requirements. At age 25 one should opt for equities. When one is 45, he advises to trim exposure to equities, bringing down share to 15%. At age 65, one should be out of equities and invest only in short-term funds, that, too, only after exhausting all options open to senior citizens. This is the time to move away from markets for sure. He goes one step further and signals to high networth individuals to try out the US equity markets, along with diversified or index funds in the domestic market.

Dangi gets more eloquent when he writes about knowing the fund manager. Here his insights are very interesting. A thought which may not have occurred to the reader in the normal course is that the sum of all strategies in the market must be equal to the market return. So the question is who gives the alpha to the investor? There are mutual funds as well as DIIs and FIIs as well as the retail investors who are all in the game. The promoters interestingly hold around half of the equity across the world and are supposed to be the outperformers and rarely buy or sell as they are the ones who have skin in the game.

So who really are the gainers? Here he points out that it is not the FIIs who derive the alphas as they work based on benchmarks. It is the retail investors who hold 8-10% who contribute to the alphas in a negative way. They are the losers on the basis of which others gain. Their shortfall become the excess returns for others.

He simplifies some principles for the reader on how to choose portfolio managers. He gives tips like being wary of portfolio managers who have never struggled. Or to stay away from performance artists. Again, the chapter on interpreting markets is quite engaging as it also warns us on interpreting certain observations as a phenomenon. Often a crowded mall can make us conclude that consumption has revived and the stocks of such companies will do well. It does not work that way. He prefers to use the first derivative of change rather than absolute inflation or GDP numbers.

Dangi prefers PMI to IIP numbers to gauge the economic environment. Markets are better indicators than macro trends. Copper tells us what is happening in China. S&P tells us on risk appetite. The dollar reflects the global mood. Most importantly, and with a bit of irony, he warns investors to be wary of policymakers because they guide people to be calm when inflation is about to rise. 

Boom, Busts and Market Cycles is a very insightful book. Written in a different style with conversations between two characters, Dangi is able to deliver some useful tips and advice on investing in a language that is easy to understand. One can start reading the book from any chapter and it is not necessary to go sequentially as these are standalone chapters.

He also gives his views on the economy, which can be contested by economists. He talks of inflation being high at 4%, which is higher than the Asian counterparts due to high public debt. Here data would show that high inflation has normally tended to go with high food prices which are driven by supply factors rather than demand. He is suspicious of household debt rising in the unsecured space, which he feels is not a good sign. Here, too, it is arguable whether it is a bad thing given that the NPL ratio is low. The counterview is that this has supported growth in consumption, which would have lagged in the absence of leverage.

Similarly, he believes our GDP growth will be 6% on a continuous basis. This may be too pessimistic of the growth story as 7-8% seems to be the path that can be achieved. In fact, this path can probably not convince investors of the continued good returns in the market. But then, it is the author’s view coming from someone who has been in the market for long to understand what works. But then he does end by saying that equity valuations are rich but lack macro support. This is definitely a book for the shelf as Dangi writes with conviction and strongly puts forward his views on the subject.