29 Sep 2018
During the last one month you must have noticed that equity markets have been going down. Large cap index is down about 6-8% from their all time highs. Worst hit are small caps (index down 30-35% from all time high) and Midcaps (index down 15-20% from all time high). Some stocks are down by 50-70% from top. You must be wondering why is all this happening, should you sell now and and is it worth at all to invest in equity markets. I understand your concern.
What you are witnessing right now is painful but a pretty normal behavior for the equity markets. They tend to respond to sentiments in the short term and fundamentals in the long term. For no reason, markets can go up and down by 15-20% in a matter of few months. It has happened many times in the past and it will continue to happen in future too. This behavior is not limited to India but seen across world markets.
A few pointers:-
– Most of the times (say 9 out of 10 times), markets recover from short term corrections within a few months or quarters. The best action is to remain invested and ignore the volatility.
– Sometimes (say 1 out of 10 times), markets will go in deep corrections of 30-50%. This happens once or twice every decade and lasts a few years. It starts with a small correction and the slide continues to the bottom. Everything bleeds. The reason of such fall could be weak economy and future outlook, falling international markets or scams. How to protect this? Well, the honest answer is, we can’t. Almost no one knows for sure that markets will fall so much. At best, it’s a wild guess of a few so called analysts, who shout loud after the incidence. It’s just a matter of being lucky this time with their prediction. We must know that these analysts or predictors are mostly those who got it wrong many times and no one noticed. You may ask – Can I predict it and save your losses? Frankly, my answer is No. At best, I can minimise the impact by proper asset allocation, understanding your needs and monitoring your portfolio regularly. So, the hard truth is that even when markets fall by 30-50%, the only choice and best course of action is to stay invested, continue your SIPs and wait for markets to recover. Trying to time the market (selling and hoping to buy at a lower price) never works.
– During bad times, media will aggrevate the situation by highlighting things even more. I bet, they also know nothing about it and just have a good time by getting all the attention of readers and viewers, increased TRPs and ad revenues.
– Investing through mutual funds is safer than investing directly in stocks. While mutual funds have fallen but the damage is huge in individual stocks. While some stocks may never recover, most mutual funds recover from lows to their previous highs and even better due to expert fund management.
– It is very natural for you to feel the pain because of portfolio value going down. I can understand and I feel the pain too. Trust me, I am reviewing everything and doing my best I can.
– The worst thing to do at this time is to panic. It might so happen that after you redeem/book profits/book losses, markets will continue to slide and you will feel you did the right thing. Well, in the short term, yes. But unless you buy at the bottom, you won’t benefit from this exercise because markets will definitely go up with time. And buying low happens only in theory.
– Events like these are lessons for both you and me to learn and improve our future decisions and action, to stick to asset allocation, to take only those risks which we can and to plan things better.
– Goal based planning works best. We must not take risky bets with short term money. If the money that you have invested is for long term, let it stay long term.
We need to work together in thick and thin. We need to discuss being on the same side of the table. These are tough times and we will go through with it together.
Feel free to call me anytime if you wish to discuss on the portfolio and future action plan.