Out of my experiences, in life, we often battle with three things while taking any decision: Illusions/beliefs, expectations and information. This battle often tends you to overlook the reality or data, the most crucial element while making any life decision.
Till now, we have been receiving countless queries on COVID-19, Yes Bank, ongoing fall in the markets, global scenario, market outlook and many more. With these questions, we have also received a lot of information (WhatsApp forwards, news, opinions) from various investors, that all pinpoint to one thing – This is the end of the world. However, it would be worthy of taking a look at a few beliefs and realities, before you take all these bombardments as gospel truth.
Expectation: Indian stock markets should always go on upward slope, because it is all set to grow from $2.9 tn to $5 tn economy.
Belief: The Indian stock markets have been correcting ruthlessly, and the situation is most worrisome in India.
Reality: Yes, India is expected to become a $5 trillion economy, but that doesn\’t mean markets would only remain in green zone till 2024-25. As I write to you, Indian stock markets have corrected by almost 30%. Since COVID-19 impacted economies all across, the financial markets across the globe have tumbled since the outbreak. Let\’s look at the below table:
So as you can see above, even though Indian stock markets took a plunge, the downfall is relatively less when you compare with other global markets such as Russia, Brazil, Dubai, France, Germany, UK and US. The reason can be attributed to the many inherent advantages that our economy has. India has every ingredient required to cook the perfect recipe for the prosperous economy – strong demographics, privatization, political stability, revolutionary reforms, infrastructural growth, population that has the propensity to spend, urbanization, financialization of savings and innovation and so on.
In these challenging times, a lot of them out there predicting worse times ahead. But, one must understand that this is surely not the end of the India Growth Story. But the incremental steps (mentioned above) that we have been taking have set the much-needed stage for the sustainable growth of tomorrow, which no virus can challenge.
Expectation: The stock markets would always allow me to buy low and sell high.
Belief: I should wait because I don\’t know the short-term impact.
Reality: So, in the Indian stock markets, there are traders, speculators. And then, there are investors. So if you are trader or a speculator, who is interested in gains of 15-20% on a short term basis, then yes, you should be worried!
But if you are a stock market investor, who invests to achieve their long-term goals such as buying a house, retirement, child\’s education, etc., then you would say something like this to yourself: \” There is a discount in the stock market. Let me buy quality businesses for my long term goals.\”
In this way, even if the current times are challenging, at least you have an opportunity to secure your future.
Expectation: The stocks in my portfolio would never correct.
Belief: The stocks are falling every single day. So it is too risky to invest now.
Reality: Most stocks, including the high-quality/fundamentally strong ones as well, are plummeting. But let\’s not look at this in isolation. If I ask you about the biggest fall in the recent past, I\’m sure you would say 2008 crisis. During this period, many high-quality stocks also fell as much as 80-90% as well.
As you can see above, stocks such as DLF and Suzlon, fell by around 89% in the 2008 crash and since then gave minuscule or even negative returns.
However, fundamentally solid stocks such as Bajaj Finance and Maruti Suzuki bounced back and grew 631 times and 11 times over the long run and yes, this is after accounting for the recent carnage.
Now, this is good news. The bad news is only few investors\’ reaped benefit out of this. The reason: Unfortunately, during the crisis, patience, calmness and discipline become rare virtues in the world of the stock market.
We have in the past witnessed tough times, and for people who have invested in times like that instead of getting fearful are the ones who have made merry in the stock markets.
Expectation: Markets would deliver more or less linear returns.
Belief: Market is too volatile right now!
Reality: Well, a question to this statement. Can you tell me one instance when markets have been predictable? They have been volatile always!
In stock markets, it is never 1 + 1 + 1 + 1 + 1 = 5, which is the situation in case of FDs.
It is 1 + 2 – 3 + 4 + 6 = 10
This means Indian stock markets have never delivered linear returns. So from 1st April 2014 till 31st March 2019, Nifty has delivered almost 72% returns. On the other hand Research & Ranking’s model portfolio has delivered a whopping 400.53% returns. Check it out here. However, during these 5 years, there was a period of negative return, subdued growth, as well as mind-boggling return.
In life, you see both good times and bad times. There\’s no choice! In investing as well, you\’ll meet both bulls and bears in the Indian stock market, there\’s no choice.
As we keep on saying multiple times, this time too shall pass. The scare around coronavirus would be reduced to memory after a few weeks. But even as the times would become better and rosier (which I am sure it will after a few weeks), unfortunately only tough people and tough investors would be able to emerge victoriously. These investors don\’t have anything special, neither they are wealthier nor luckier. They only have one unique advantage – i.e. Ability to interpret things differently. Unfortunately, others would be playing the catch-up games by making riskier investments.
As we said earlier, the times are critical and challenging. No doubt about that! And, there are only two things you can do over here, for wealth and health:
If you follow only herd mentality: You\’ll keep worrying about health and wealth and would take impulsive decisions in panic, which you\’ll regret later. But unfortunately, it would be too late to fix the damage at that point of time!
If you acknowledge that it is a challenging time and wish to convert it in an opportunity:
You\’ll take all the precautionary measure and build up your immune system as well take steps for better tomorrow.
The choice is yours. But remember: Whenever the market falls, there\’s a right way to open the door and there\’s a wrong way. And knowing the difference is key in such times. Get started now.
And yes, here’s what you should do during such times: I have only one thing to say: Stay away from all the possible junk in your life – junk food, junk news and junk stocks. Focus on building immunity for both, your health as well as your portfolio.