Silver Jubilee of Nifty 50 Index

By Meghashyam Sinkar

Last month Nifty 50 Index has completed 25 years of its journey. Over the years, the Nifty 50 has become the most widely used benchmark for exchange traded products on Indian equity market and helping investors gauge the pulse of Indian capital market.

What is Nifty 50 Index?

Nifty 50 Index is a broad-based index consisting of 50 blue-chip large and liquid stocks listed on the National Stock Exchange of India.

Selection is very fare and depend on the large size of Market Capital of the company. It means Nifty is the Group of 50 top largest member Companies of National Stock Exchange. The stocks having largest market cap and largest volume are selected.

 Sector composition of Nifty 50 across years

The Nifty 50 currently has exposure to 13 sectors. Since Nifty 50 index’s inception, the weights of sectors have changed over time due to evolving market dynamics. For example, the IT sector was not represented at the time of inception, but as of December 15, 2021, it represents 17.9% of the weight in the index. Similarly, weights of stocks from the financial services sector have grown from 20% to 37%, while weights of Consumer goods and Metals sectors have declined from 19.0% to 10.8% and 10.9% to 3.4% respectively over the same time period.

Nifty Performance 

All data are as of December 15, 2021.
Returns data is CAGR returns as of Dec 15, 2021

Calendar Year Returns for Nifty 50 TR index

Data for the year 1999 is from Jun 30, 1999 to Dec 30, 1999. *Data for 2021 is till December 15, 2021

Rolling Returns for Nifty 50 TR index

Data as of Dec 15, 2021

Interesting Facts

  • There are below 12 companies that are part of Nifty 50 since inception.
Reliance Industries Ltd.Hindustan Unilever Ltd.Tata Motors Ltd.
HDFC Bank Ltd.ITC Ltd.Tata Steel Ltd.
Housing Development Finance Corporation Ltd.State Bank of IndiaHindalco Industries Ltd.
ICICI Bank Ltd.Bajaj Auto Ltd.Larsen & Toubro Lt

It means that there is a 24% probability of the bluechip company remaining bluechip over a long period of time.

  • Across 25 years, there have been 101 inclusions in Nifty 50, averaging 4 per year.

We can’t ignore the new sectors, new industries and small-sized companies as they might become part of the Nifty 50. In fact, these numbers might change on the higher side considering globalisation, technology, competition, consumer change of preference and behaviour and innovation in the coming few decades.

Key Takeaways

  1. Sector keeps rotating over a period of time.Therefore one should have core portfolio of diversified mutual fund.
  2. Both bull markets and bear markets are a part of the stock market lifecycle.
  3. In short period , the probability of positive as well as negative returns are high on both the side .
  4. As you increase the time horizon / holding period , the probability of negative returns comes down.
  5. If you hold the equity index for 7 years and more , then the probability of losing money is NIL. Click here to know more on it
  6. It is not the timing of the market but the time in market matters . Click here to know more on it.

Happy Investing !!!

An Attempt To Answer Few Questions

We are experiencing unprecedented times of our life . There are so many questions running through the minds of investors in current situations.

This is just our attempt to answer to few questions .

Q) Is it a good time to buy equities / good time to enter into equities ?

Nobody can predict the market top or bottom exactly. We don’t know frankly whether markets have already bottomed out or would bottom out in next few months. But after such a sharp fall in prices, risk-reward is in favour .It is good to enter at these valuations . Sensex figure in itself has no value . It is just the number . What matters the valuation of underline businesses . The market would be expensive at 21000 in 2008 and would be reasonably valued in 2013 at the same level of 21000.  We are currently at the valuation where most of the macro factors give green signal to add equities like Marketcap to GDP , Price to book value , Price to earning . Now , the market may bounce back  ( which happened in last week where it rebounded by 20% from lows ) or may dip further or may remain range bound for relatively long period of time. It is totally based on the how investors respond to the information or misinformation .

However , the current valuation definitely build the strong possibility of making good returns in coming years .

Q) Should I stop the SIP ?

Stopping the SIP in such market defeats its main purpose of averaging . The SIP works on rupee cost averaging which work best in such cycle of market .  It allows investors to buy more units of a mutual fund when the market is low and reduce the per-unit cost of investment.  This discipline approach helps the investor to buy more units when prices are low and less when prices are high. And long term approach harness the power of compounding as well .

On should stop the SIP in current situations if

  • There is uncertainty over income of an investor
  • There is not enough contingency funds for next 1 year .

If an investor has steady income and can afford to continue the SIP in current times , then it is his/her favour . Discontinuing the SIP due to panic is more harmful than continuation in long term .

Q) Should I act now or should I have acted earlier or Should I exit to avoid further losses ?

Investors tend to only hear about “looming” market doom during such periods and “imminent” market growth during optimism.

This is the reason that Equities have been more volatile than other asset classes. The high volatility has often led investors to try and time the markets, by exiting and entering at their perceived opportunities.The chart signifies the importance of staying invested, as missed opportunities can significantly dent long term returns.

The above chart clearly shows that the best action is no action . Simply being patient and non action lead to more gain than getting into action on diversified portfolio of Sensex.

Although successful market timing may improve portfolio performance, it is very difficult for an investor to time the market consistently. In addition, unsuccessful market timing can lead to a significant opportunity loss. The chart shows comparison of annual returns and returns assuming the best month has been missed.

Good investing is not about making great decisions but about consistently not making mistakes. 

The graph also reveals that the history of volatility is quite common and it is very natural . This volatility is the one which helps equity to generate higher returns than other assets in long term . Volatility does not mean the market is broken or something is wrong . Here the challenge is to think , act and stay long term .

Thats why Warren Buffett nicely quoted Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”  

Q) When will market recover ? Will there be V or U shaped recovery ? What analyst is saying ?

The hard truth is that no one has any idea about this . No one ever knew earlier during past events and no one is going to know in future for any events . There is no doubt that this is unprecedented event in the last 100 years. It is Blackswan event . First time in history, world has a common enemy to defeat. The ultimate question to be asked is that “Whether this virus will wipe out the mankind?”  . 

If the answer is NO then businesses will come back . We will overcome this for sure as every top brain in the world is after solving this issue. So have faith .

That reminds Benjamin Graham quote

“Without a saving faith in the future, no one would ever invest at all. To be an investor , you must be a believer in a better tomorrow.”

Happy Investing & Stay Safe !!

It is quite natural to get Anxious and Panic

We have seen unprecedented pandemic outbreak in last couple of weeks . The Novel Virus – Corona has already taken thousands of innocent lives and still shows no signs of weakness.

As for the markets, the pandemic of coronavirus has shaved off nearly a third of the global market cap. India is no exception . Our Markets have corrected by nearly 30% . And it was in short period of time .

It is quite natural for an investor to get panicked and get anxious .

When market drops , that financial loss fires up your ‘amygdala’ – part  of your brain that processes fear and anxiety and generate famous “flight or fight” situation . So it is normal , just accept it .

In fact , the brilliant psychologists Daniel Kahneman – Nobel prize winner  and Amos Tversky have shown that the pain of financial loss is more than twice as intense as the measure of an equivalent gain . Which means that the magnitude of loss of Rs 1000/- is more than double that the magnitude of gain of Rs 1000/- .

Losing money is so painful that many people ,terrified at the prospect of any further loss , sell out near the bottom or refused to buy more.

The ideal way of sailing through such situation is : not to act in panic . Observe the situation & let it evolve on its own . It is perfectly ok to have no opinion or views on the same. Because no one knows. It is unknown territory .

Lot of damage is already done across markets in anticipation . No one has any clue on how things will unfold in coming day.

However , past experience of market gives the evidence that things come back to normal sooner or later ….be it Tulip Mania 1673, South Sea Bubble 1711, Spanish flu in 1917 , great depression in 1929 , Black Monday 1987 , Asian crisis 1998, Financial meltdown 2008 and many more . The reason , the magnitude and the recovery may differ from event to event . But it comes back to normal .

Indian market have also experienced such shocks earlier .  Some of them have shown below in tabulated form .

The data suggest that a long term horizon is essential to profit from equity as your losses can be undone if you simply stay put .
One can argue that this time it’s different …but it is quoted as most dangerous words in investing by Sir John Templeton, legendary investor. 

There is no argument that COVID-19 has no national boundaries , no social bounds.It’s already disrupted the economic lives of billions of people. It doesn’t care what you believe or who you pray to or how much money you make. It is hitting hard to everyone .But, as saying goes , it is not what happened matters , what matters is how we respond …whether it’s life or investing .

Equity valuation has come to good and attractive level . We suggest to add more in equity , rebalance your portfolio . However, we need to make sure that one has to have enough surplus to take care of next at least 10-12 months liabilities and household expenses . This is anyways the first part of financial planning i.e. Contingency planning . However, you revisit it your numbers before you commit any money to equity .

And Don’t worry about further downside of 10-15% but think of missing out future potential upside of 40-50% .

Sharing the extract of Warren Buffett 1987 letters to shareholders describing Benjamin Graham’s the famous parable of Mr. Market 

He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his.
Even though the business that the two of you own may have economic characteristics that are stable, M􏰄r Market’s 􏰑􏰋quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains.

At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions he will name a very low price, since he is terrified that you will unload your interest on him.

Mr. Market has another enduring characteristics : He doesn’t mind being ignored . If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you.

 Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence.

Benjamin Graham writes in his book  “The Intelligent Investor” –

􏱆Basically , price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market.

In equities , darkest times offer the brightest opportunities.  Albert Einstein said it rightly “In the midst of every crisis , lies great opportunity.”

And finally everything is not about money, markets and investing. Stay safe. We wish you and your families the best of health and happiness at all times.

Happy Investing!!! 

This too shall pass away ….

We have seen the significant correction last week across global market . The fear of coronavirus looks to be more than actual impact of corona virus . The world economy was already struggling from US China trade war, Brexit issues, Oil prices & supply concerns & many more . The Indian economy has been under stress for the last few quarters with GDP growth coming under pressure  . The things were about to stabilise but pandemic situation clubbed with real time news update has brought the Indian and global market  into panic situation . Nifty corrected more than 20% in last 15 days.

When lot of things have changed in 15 days period , then it becomes hard to think more than 15 days ahead . But ,do not let this short term pain hamper long term gain.

The irony is that long-term thinking is most powerful when everything is falling apart. The majority of long-term results are determined by decisions made during a minority of times, and right now is one of those times. It’s a tragic moment to become short-sighted.

Markets had experienced such epidemic outbreak earlier Mars, Ebola ,Swine Flu . Refer our recent article  But they have always rebounded once things got settled down. Ohio lawyer named Benjamin Roth write after The Great Depression “Business will always come back. It will remain neither depressed nor exalted.”

However , it is always overdone whether optimism or pessimism and boundaries of both can only be known in hindsight, once they’re passed.

Currently ,No one knows how long will it continue except Virus itself.

What should Investors do ?

Don’t Panic and don’t act in haste . Selling at this stage may not be good .

Investors should add more equities in stagger manner and use this correction as an opportunity .

Historically, investing during these volatile times has rewarded investors handsomely over 5 years period .

And remember , this too shall pass away .

It looks bad today.
It might look bad tomorrow.
But hang in there.
We’ll get through this.

Be Safe  !!!

Corona Virus

We are seeing the impact of corona virus on equity market across the world . India is off course no exception as well . 

The coronavirus outbreak halted trade , tourism , consumption and many other activities. The effect of this outbreak may push China’s economy into a period of dull growth for some time.  Will it impact other economies further?  …Yes if it spreads further…..Will market falls further? …..certainly if virus stays longer.  

Markets alway give knee jerk reactions for any positive or negative events . It is always overdone in the market . 

Long-term investing is often best disconnected from short-term economic reactions. 

We have seen such epidemic outbreaks in the past . Below table provide the sense of market reactions following major epidemics in recent history.

corona virus

Carl Richard has nicely depicted current scenario in his famous sketch BehaviorGap 

WhatsApp Image 2020-02-28 at 6.05.31 PM

We have written on couple of times on different events whenever the market corrected in past .

 

CoronaVirus will be history after few months .  You need to decide where to focus  on CoronaVirus or Karo Na Invest !!!

Happy Investing !!!!

Nick Murray’s Advice

– Meghashyam Sinkar

Bull was dominating 2 yrs back on the market . Now Bear started dominating with the news of recession around the corner . Investors were grappling with the issue of whether to invest at high level 2 yrs back during bull markets and now with the issue of whether to invest in such depressed market with negative news looming around . The pendulum has swung , as Benjamin Graham ( Warren Buffett’s guru and an author of well known book – The intelligent Investor ) knew it always does , from irrational exuberance to unjustifiable pessimism.

I came across a very thought provoking set of core beliefs about Investing by Nick Murray (http://www.nickmurray.com/) which I am reproducing below. Nick Murray is a hugely successful US based financial advisor. He has been a financial advisory professional for more than fifty years and an author of a dozen books on financial services professionals .

His 10 core beliefs will help us to focus on what matters most for long term investing success.

1.        I believe that the fundamental investment risk is not losing one’s money, but outliving it.

2.        I believe, therefore, that the only safety lies in the accretion of purchasing power.

3.        I believe that the great long term risk of stocks is not owning them.

4.        I believe that everything you need to know about the movement of stock prices can be summed up in 8 words: The downs are temporary; the ups are permanent (for good managed businesses )

5.        I process the experience which most people describe as a “bear market” in two different words: big sale.

6.        I don’t believe in Individual Stocks, I believe in managed portfolios of stocks.

7.        I believe that dollar cost averaging will make the dumbest person in the world wealthy. Hey, look at me: it already has.

8.        I love volatility.

9.        I’m not afraid of being in the next 25% down tick. I am afraid of missing the next 100% uptick.

10.     I believe that, prior to retirement, people should own as close to 100% equity as they can emotionally stand. Then, after retirement, I believe they should own as close to 100% equities as they can emotionally stand.

If Investors embrace these 10 core belief and build convictions around them , then they can sail through this volatility happily to the path of successful wealth creation.

Happy Investing !!!

 

Cognitive Dissonance Bias

– By Meghashyam Sinkar

It is widely known and proven that tobacco use or smoking can harm the body & may cause multiple type of cancer , heart problem & unhealthy decreased life expectancy . Why do people still indulge or continue to engage in unhealthy behaviour .Everyone is aware of its side effect . The warning on the packet is quite vivid to understand . But then people convince themselves that ” its a just 2 cigarettes a day or A lot of things can kill you, can’t avoid them all. They try to rationalise which has conflicting thought with its basic truth or information .

The same thing is observed with morning walk . Everyone knows it how important or good it is to have morning walk . Initially there is conscious effort to continue with daily morning walk , but then justify why one can’t continue for number of reasons.

It is a response to conflict that allows our original beliefs to persevere, even in the face of contradictory evidence. It describes the discomfort felt when your beliefs are inconsistent with one another or with your actions. This is called Cognitive Dissonance bias in behavioural finance .

Cognitive dissonance is the unpleasant emotion that results from believing two contradictory things at the same time.

Within the realm of investing, cognitive dissonance can negatively affect investor behaviour as we rationalise a previously held belief, even in the face of contradictory evidence.

Let’s understand it with examples .

Example 1 :-

This bias is clearly observed in long term SIP investors . The ultimate benefit of the SIP is to accumulate the units irrespective of the short term market’s positive or negative movements . This is the information with which they start the SIP . However , as soon as market start declining in year or two , they start feeling nervous . They start questioning the basis of SIP i.e. rupee cost averaging concept .

Market Trend

Here , Situation 2 is much better than Situation 1 for regular long term investors . However , investors who have started the SIPs in last one or two years are worried now after seeing negative returns .Negatives events like economy slowdown , US China trade war etc are making the investors nervous . Some of them may stop the SIP in panic which is ideally injurious to their financial wealth .

In reality what should they be expecting after starting the SIPs or making regular investment ?

Market to rise in one direction which forces them to buy units at high prices at every instalment  OR  Market to fall down and remain low for longer period of time which helps them to buy units at lower prices ?

Strange isn’t it? They are aware what is right for them yet they are unhappy, feeling bad , nervous. It’s a perfect example of cognitive dissonance.

Example 2 :-

Let’s consider the current situation of market where there is lot of uncertainty mounting around . There is an Investor already invested in equities with long term horizon and knows very well that market will have strong volatility in between . He now believes that market is going to fall in coming 2 -3 months. He formed his opinion based on the many articles he has read on various websites and newspapers ( Nowadays what’s app forwards). Based on these theories he definitely believes that the market is going to go down.

He asked his financial advisor . Financial Advisor educates the client & suggests him to stick to his asset allocation & strategy .  However , client refused to listen to advisor and he cuts his portion in equity . A very next day market falls down by 5% . Client believed what he did was right.

After a month or so , the market rebounds again and looks good on fundamental terms . His advisor asks him to rebalance his portfolio again and suggests him to stick to his long term plan with decided asset allocation by investing in equities again . The client now regrets his decision and realizes that he has made a mistake but is not in a position to acknowledge his mistake.

The similar behaviour observed while investing in stocks .

The only way to overcome the negative effects of cognitive dissonance is to recognize  it and attempt to abandon such contradicting techniques. Investors who understand these differences become better investors and can take better decisions.

Happy Investing !!!

Investing Is Less About IQ & More About EQ

– Meghashyam Sinkar

Investing specially in equity is correlated to intelligence . Of course, one needs to understand the numbers , its analysis & its implication . But is intelligence enough to score high in this subject ?

Sir Issac Newton was one of the smartest people to ever live. The man who conceptualized three laws of motion, pioneered calculus, and discovered the colour spectrum among other accomplishments, was a terrible investor. Because there’s a big difference between being a smart physicist & smart Investor .

In early 1700s in England , The South Seas Company was formed in anticipation of having a monopoly on trade to the Spanish colonies in South America after the War of Spanish Succession (1701-1714). Investors warmed to the appeal of this monopoly and the company’s shares began to rise. Sir Issac Newton also got attracted towards so called obvious opportunity . So , he invested and pocked some handsome gains of £7,000 . But the stock continued to rise. So he jumped back in, this time with an even bigger bet. Shortly after, the bubble bursted and the sell-off started. Newton lost the majority of his fortune and forbade anyone to utter the words “South Seas” in his presence ever again.

That is when the great physicist muttered that  “I can calculate the motions of heavenly bodies, but not the madness of people”.

Here’s a look at South Seas moved back then

South sea company

We regularly get to see such cases in stock market .

Albert Einstein – Father of Modern Physics and one of the greatest scientist that have ever lived. He developed the theory of relativity and is also well-known for his mass-energy equivalence formula E = mc2 .

Going back in the year 1921, the Nobel Prize winner in Physics – Einstein was awarded with 121,572.54 Swedish kronor. This is equivalent to more than twelve years’ income for Albert Einstein back then.

He invested a significant portion of this prize in the stock market but unfortunately lost the same in stock market crash in 1929. His wisdom in physics is not as good as his wisdom when it comes to analysing market conditions.

Long-Term Capital Management (LTCM)

In 1993 ,two mathematical genius , Fisher Black of Goldman Sachs &  Stanford’s Myron Scholes along with third economist , Harvard Business School’s Robert Merton had developed a revolutionary new theory of pricing options . ( Options in finance are part of derivatives) . The starting point of their work as academics was the long established financial instrument known as an option contract which works like this .

If a particular stock is worth , say Rs 100 today and you believe that it may be worth more in the future around Rs 200 (say in year’s time ) , It would be nice to have the options to buy it at that future date for say Rs 150 . If you are right , you make profit . if not , well , it was only an option , so forget about it . The only cost was the price of option ,which seller pockets . The big question was what that price should be . They wanted to work accurately on option price instead of just guesswork . So , they developed and reduced the price of the options to his formula:

LTCM formula
Source : From the book ” The Ascent of Money”

To make money from this insight , they partnered with renowned Salomon Brothers bond trader John Meriwether and formed the company ” Long Term Capital Management” in 1994 .

The going was smooth for initial 4-5 years, when markets behaved as expected and LTCM made hefty returns for its investors and managers. However, then struck some of the black swan events and that too with unexpected frequency. First, the East Asian crisis in 1997 and then Russian default in 1998.

Such un-natural events and the resultant fear & irrationality of markets could not be predicted and therefore could not be factored in mathematical models. The result was that all their widely diversified investments, which were supposed to behave independent of each other, started losing money simultaneously. LTCM started to bleed money on each trade every single day.

The fund was finally bailed out by intervention of Federal Reserve in 1998 and was dissolved in 2000.

A famous quotes from well known duo of Birkshire Hathaway sums up above message nicely

“A lot of people with high IQ’s are terrible investors because they have got terrible temperaments. And that is why we say that having a certain kind of temperament is more important than brains.”-Charlie Munger

“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” – Warren Buffett

Some of the lessons learnt from this History

  1. Leverage kills : LTCM is a classic example of excessive leverage & its risk .
  2. Intelligence (IQ) cannot guarantee good returns in markets.
  3. Investing is not pure science. It requires common sense.
  4. Markets can stay irrational longer than you can remain solvent.
  5. Keep emotions out – specially greed .
  6. Plan your cash flows & goals and then invest into asset which suits to your goals instead of following the trend . In short, avoid herd mentality .

Happy Investing !!!

How do you earn returns in equity ? Expectation Vs Reality

– Meghashyam Sinkar

Once a man wanted to cross the river and he was not sure about the depth of the river . So , he asked the Statistician . He replied that the average depth of the river is 3 feet . The height of the man was 5 feet 11 inches so he comfortably proceeded to cross the river . As he approached the middle of river , he suddenly realised that the river was, in fact , very deep and he almost drowned .  This is called Law of Average Fallacy. 

Law of avarage

Similarly ,when it comes to return on equity investment , it is commonly said that equity will give you the average return of 12% to 15% . And this is when the expectation gets built on getting regular & steady return but reality is totally different .

Please find the Sensex year wise ( break-up ) returns for last 21 years .

Sensex Data

You often come across the advertising of mutual fund generating 40x – 50x returns in last 20 years or so .

HDFC Equity Fund has generated the returns of 63x ( 63 times ) of the initial investment . The value of Rs 1,00,000/-  invested on Jan 1, 1995 is Rs 63,56,160/- as on Aug 1 , 2019 which is compounded annual growth rate (CAGR) of 18.41% . But the returns have not come that easy . You can see in below chart that there was no growth in first 5 yrs and lot of ups and down in between till now and will continue in future . However, the fund has still delivered one of the best returns across all asset classes .

HDFC equity data

The below graph shows how it moves in long run to get ‘x’ times of returns if your economy is growing .

HDFC equity graph

Jason Zweig ,a well know personal finance columnist once posted on Wall Street Journal – 

“In order to capture the potentially higher returns that stocks can offer, you have to reconcile yourself to the certainty of horrifying short-term losses. If you can’t do that, you shouldn’t be in stocks—and shouldn’t feel any shame about it, either.”

It is very important to understand that equity does not give linear returns and the returns can be muted for long period of time . But the patience , temperament and belief will subsequently rewards the long term investors  .

Happy Investing !!!

 

Market is falling …Again ???

– By Meghashyam Sinkar

If you are a member of active equity investors group or watching the business channels or following any brokers or any particular reports by experts , then you are bound to follow everyday market movement & end up looking at your portfolio to become more worried and anxious . Latest news senses that terrifying things are going to happen around due to poor budget, FII outflows, automobile and other industries slowdown,  poor monsoons, higher taxes on the rich, bad loans & so on . One news talks about the probability of 2008 type crisis hitting to the markets  .

First, Let us tell you that this is not the first time it is happening . For the new investors and just to brush up for our old investors , please read our earlier blogs during such challenging times .

  1. market-crashed-be-happy . written on August 2011 – fear over European Crisis 
  2. It’s different this time …….Time will only prove it !!. written on July 2012 – fear over a prolonged recession signals from developed nations and no sign of improvement at Indian Economy .
  3. Part II : ” It’s different this time …….Time will only prove it !!  Written on September 2015 –  fear over a slowdown in China.

It is always said that markets have short term memory and hence the investors .

We need to understand that the stock market moves in cycles, and thus fluctuations are inevitable.  Bhagavad Gita says – the very texture of life is of duality – pain and pleasure, success and failure , birth and death. So investing can’t be left out . It also has duality – Bulls and Bears , ups and down .

What should you do now ?

  1. Go back to your investment objective and time decided for that investment . If you have come to equity for 1 to 2 years to get quick returns …. Then loose , suffer , learn ,  and then come back as matured investor . If you have invested for long term ( Say 5 to 10 yrs ), then need not to worry .
  2. For direct stock investors – If you have bought the stocks based on the news like jet airways will be takeover by someone, Yes Bank can’t be doomed  ,Modi has got a strong mandate then particular industry and stock will outperformed , the stock is trading 52 weeks low and you got into it , your relative or friend given you a TIP ,So you can pocket  handsome profits in really short time…… Then loose ,suffer, learn , and then come back as matured investor . But if you have bought a stock at reasonable price with sound analysis and that stock is available at lower price than your purchase price , then go & buy more if you have funds or else need not to worry . Just hold it for reasonably long period of time . You get your rewards .
  3.  For MF investors specially regular investors , it is anyways good as you can buy the units at lower price (NAV) . In fact SIP investors should pray for such periods . Because they make more money in cyclic movement of markets and make less returns if market is straight northward direction.  If you are the SIP investors who have come to market after seeing the returns of 2017 – basically 1 to 2 yrs old SIP investors then continue it for more than 5-7 yrs because equity is for long term . Understand the risk in equity and learn to manage it . Read more on the risk in equity and how to manage it here .
  4. If you are still worried and nervous , then simply sell everything and go back to bank deposits or post office . Equity is not meant for you . Because a long-term view requires an ability to stomach extreme short-term market volatility.

If you wish to curtail your worries, first please stop watching/reading such media.  That will give you ample time and sense to think and you will wisely sail through it .

Market always swing between irrational exuberance to unjustifiable pessimism and this is the only reason you can make superior returns in equities . Certainly does not bring superiors returns from any asset class . Please note that if everything is certain , your returns will shrink to normal or below normal level .

If you think you get out of the market now and re-enter at lower level as it is going to fall , then you can try it that way but make sure you enter back to market . Time will prove whether the decision is right or wrong . If get it right , then don’t try it every time . It was just a luck . Don’t succumb to over confidence bias or illusion of control . If get it wrong , then loose ,suffer, learn , and then come back as matured investor.

Don’t accept anything at face value. The future is uncertain and that is only certainty about it . Listed some of the forecasts that have gone down in history books for the wrong reasons.

  1. A famous cover story run by Business Week magazine in August 1979, after the United States had struggled with about a decade of high inflation, low growth and poor stock market returns. The story appeared three years before the market set off for an 18-year rally, a period in which stocks multiplied 15 times.

27forecasts2- business week

2. The August 2000 edition of the Fortune magazine ran a famous story picking 10 Stocks to Last a Decade.

Ten years later, a portfolio comprising the 10 stocks  lost 70 per cent of its value, with only one stock posting a gain, while two firms on the list went bankrupt, one of them being Enron.

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3. “We’re going to reach a point where stocks are correctly priced, and we think that’s 36,000… it’s not a bubble. Far from it. The stock market is undervalued.” by James Glassman, author of the unfortunately-titled Dow 36000, who made the bold call when the benchmark was at 11,500, in October 1999.
Ten years later, the Dow was still hovering around the 11,000 mark.

James

4. In mid-1999, after earning  117.3% return in just the first five months of the year , Monument Internet fund portfolio manager Alexander Cheung predicted that his fund would gain 50% a year over the next 3 to 5 years and an annual average of 35% ” Over the next 20 years”.  The fund received more than $100 million over the next year.  But $10,000 shrunk to roughly $2,000 after the internet burst .  The fund no longer exits in its original form and is now named as Orbitex Emerging Technology Fund .

5. Silver price prediction touching Rs 100,000 level when it was Rs 70,000 level in 2012 on the ground of industrial use , consumer preference over gold , limitation of supply and so many reasons by all analysts .

There are so many such forecasts like Brexit , US election 2016  , India winning recent cricket World Cup etc .

Instead of getting panic on bad news or overoptimistic on good news , it is better to define your goals , do proper financial planning , prepare cash flow and then invest accordingly .

And remember that “Investing in Uncertain Times is almost always more profitable than investing when everything seems certain”.

Happy Investing !!!