200314 – This post comes at a time when most investors are in panic mode over markets behaviour over the last three weeks, and the kind of bear rampage witnessed over the previous three trading days.
Hence I understand that I have taken up the tough job of writing this post since many emotions must already be high and most investors under confusion on what to do? I will try to write down what can happen and what we should expect and also will try to prompt a few questions which many of you must be having in the minds. You can decide your next step after reading the whole article.
I many times ask investors if they have experienced markets in the year 2008 during the sub-prime crisis. Of course, those who came into the markets in 2009 and beyond have not witnessed those movements. But I can surely say the panic is almost a repeat of 2008; hence 2020 and 2008 can be equalled.
If we consider the market movement since Jan’2018 when it started correcting, then safely assume that the 2018-2020 period has been worse than in 2008. Having seen 2008, I can say this firmly.
2008 was a sudden crash and a swift recovery, 2018 till date has been a slow grind, and that’s the reason it has been more painful. As already mentioned in the previous articles, Sensex and the Nifty were showing up, but the portfolios are down as rally has been quite narrow. The American market was also up and trading at hefty premiums.
Markets need a reason to correct. This time it was #CoronaVirus. Corona would turn out to be such a significant contagion, no one saw it coming, and it crippled the market so suddenly!
Equity markets always factor in the worst. When the market starts correcting, more than the usual, the weakest hearted jump in the first stage to sell their holdings, fearing more slide. The traders who were holding on bring in more margins to stay, but when more selling starts happening on bad news, the margins trigger, and the markets go into free-fall mode.
Exactly what happened on Friday too, the market hit the lower circuit at around -3500 points. Me, having seen four lower-circuits in my Investment career, believe me, a lower circuit signals that most panic has been factored in. More circuits can only occur in situations like a repeat of Italy in India or America.
A small post of mine in Facebook and other social media yesterday did wonders… it read as: “We are not going to be asked to vacate the Earth and shift to Moon or Mars. Don’t panic” After this post, many investors called up and added money to their portfolios. And as we all know, the market recovered almost 5000 points from the day’s lows of -3500 to close at +1300.
We have seen such corrections during Y2K crisis, Sub-prime crisis, Asian financial crisis, European crisis, Brexit, WTC bombings. During all these crisis investors sold as if there won’t be any tomorrow, but then as it’s said, corrections are temporary, and the growth is permanent. A few months later we will forget this Chinese Virus too.
Most sensible people would invest in such situations. The valuations right now are juicy. One has to be aggressive at these levels and add more stocks or average the existing holdings.
I very well remember, in one of the interviews in the year 2008, in response to a caller I said: Boss you have two houses, sell one which is on rent and invest this money in the market right now. A few years later, you will be able to buy back the same house and still have loads of cash left in your hands.
To my surprise, an investor a few years later tweeted to me: Sir, I followed your advice, today I am very happy.
After 12 years I can confidently repeat the same. The panic is so much in the market right now that if you own two houses, one being extra fetching just rent, sell it and invest the money in markets. Of course, do it with the help of an advisor. Can we see another 10% or 20% lower from here? We may or may not, but this 20% should not make you miss the possible 60%
Let me prompt few questions in your mind and answer them.
1. My existing portfolio is already down 50%; even my five-year-old portfolio has gone down, how can I invest?
For sure, it will be down when there is panic, but then as Warren Buffet says, Be Greedy when everyone else is Fearful. Average out the stocks. The recovery also can be swift this time. If your goal is 7+ years away, invest aggressively.
Looking at the existing portfolio while it’s down will only deter you from buying cheap.
2. I don’t have money, shall I sell now and buy lower?
That would be the most unwise decision. Except for God, no one knows which is the bottom. How sure are you to buy at the right price? And what if the Fridays rally continues?
3. I don’t have confidence, can’t add more.
At least wait. Sometimes the market can test our patience so much that it will make us sell and then only move up. At least add the extra amount you have in Hybrid funds to reduce the volatility and still give you some upside returns than that of an FD.
Friends, in 19 years of career in markets, I have gone through all the above emotions in my own life. I know how it feels, and hence my experience says go aggressive now not bothering about another 10 or 20% which may come or may never come at all.
A quick note on #YesBank:
This is a unique way of rescuing a bank which the government and the RBI have arrived at. It makes no point selling here. The bank was going down since no ‘Big’ investor was taking a stake in it.
But now you have SBI, HDFC, ICICI, AXIS, RJ, and other BIG names who have come to rescue. YES has great retain customer base and excellent technology. All it needed was money an which now has come in. At these rates, once should continue holding if not buying fresh. Hold on even if RBI brings in any kind of lock-in for the existing shareholders.
Hope you all go aggressive Monday onwards! Call your Investment Advisor today itself and buy more. Corona too shall pass.
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