The decade between 2000 and 2010 saw an increase in the market valuation for stocks, real estates and anything one could invest in. The economy grew by leaps and bounds. The returns on investments, in whatever field, were yielding high profits, and the entire country felt like a winner. With the continuous profits being made by builders and stock brokers, these two particular fields drew a lot of attention for the amount of profit they generated.
This is what we got to see so often in those years. A builder would buy a property or land; construct a commercial or residential building. The resulting increase in value was assumed to be a product of the builder’s brilliance and special skill sets. In reality, the valuation of the land was going up in any case. The prime location of that particular piece of land was what attracted buyers, not the building itself. Therefore, in my opinion, profits made in these times were not really profits, but just by-products of a booming economy. These profits could not be attributed to skill.
Even when the stock market boomed, brokers and investors claimed that the high yields were because of evaluation and analysis of balance sheets of companies and the subsequent strategic investments they made. In reality, it was really just a healthy economy providing a large profit.
The present scenario
Somewhere around 2008 to 2010, the economy started slowing down. Valuation of land, stock, real estate etc started decreasing. Where have the profits disappeared? A truly skilled person should have been able to turn around the business and make a profit even during those trying financial times. That is a true test of skills. But did it all happen that way?
The previous decade’s rosy financial performance had made everyone put on rose tinted glasses. It was time to take off those glasses and evaluate whether the previous boom had been just a product of the market or actual skill on the part of builders and stockbrokers.
When difficult times set in, even Lehman Brothers, one of the world’s leading financial institutions, filed for bankruptcy. How did such a major player in the financial world make such an exit overnight? Students and professors at leading universities all over the world profess to be experts at economics. Then how could they possibly explain this financial crisis? There is a vast difference between an idealistic model of the market and the actual market. This clash between the two models is how people were caught unawares of the economic downturn.
A global economy
So let us finally come to today. The economy is doing fairly well, you could say, though not as well as during the boom. People are waiting for the market to turn around and give a yield that is proportional to the one seen from 2000-2010. But is that a possibility anymore?
Today a single country’s financial crisis is not a crisis that affects only that country. In a globalized world, each country’s economy is tied to various other countries as well as the global economy. One ripple in East Asia can shake the economy in America. The fall of the Greek economy had repercussions that were felt in India and all over Europe.
With this kind of interdependence it will become increasingly difficult to manage each country’s economy.
Age of social media
In the day and age of social media, information travels like lightening. Economies have become interdependent and the quick transfer of information means quick impacts all over the world. The instant impact on the economy of any country makes it impossible for the country to go back to a booming economy based on its own policies and laws.
True profit is a matter of skill, if at all there is any profit. The profit that is gained due to a good market is just luck and the result of a stable financial economy. But with the inter-connectedness in economies all over the world, profit seems to be becoming a distant concept.