Panicking is okay. Jumping out is not
We humans are prone to panic. Why else do you think we have so many horror movies that try to scare the shit out the viewers. In panic, we also do things that many a time can be regretful. We have seen more than once of people panicking and jumping out of buildings on fire. He survived the fire but died from the fall is rarely a good headline.
Today markets are on fire with Nifty down big time, something that was not seen post 2008. For any investor who entered the market in the last decade, this is akin to a building on fire where he feels trapped inside.
Everytime market falls, it’s generally because the world seems to be coming to an end and everytime one is disappointed that it isn’t so. Maybe, this time it’s different?
For the last few days, the US markets have been falling like a pack of cards. India not surprisingly is following suit for what the US does, we copy. Need more proof, check out this chart in a tweet I did a few days back
But the difference is that as recently as February, 80% of the stocks in US were trading above their 200 day EMA’s. Comparatively in India, we have been below 30 for a very long time (we briefly went above it recently just to get back to square one today).
This is my 3rd Bear market. The first bear market I experienced was the Dot Com bust of 2000 and while every fall is unique, the final outcome is similar – stocks get cheaper by the day till its so cheap that it starts to bounce back.
When we are suffering from a severe headache, the inclination is to remove the head to stop the pain. Thankfully, we cannot do that without killing oneself and the headache passes away in some time. It’s normal to feel similarly when it comes to our stocks and investments. The brain is screaming to cut out the source of pain, but cutting off other than letting you feel happy of having done something generally achieves the very opposite of what you aimed for when you started this journey.
Don’t be a Hero is being said of those who want to venture out to buy equities. Yet, these are the very people who in good days quote Buffett and the importance of buy and hold. Buying equity today is not about being a Hero.
Markets overreact all the time. In recent months, quality stocks were bid to the moon as markets wanted comfort in known names regardless of the price that was being paid. Today, some stocks are being sold at throw away prices because the same investor wants comfort and hold cash.
I have for nearly 5 years now been providing a simple asset allocation mix. On the whole, even the Aggressive model seems Conservative. But today when markets are falling like ninepins, this is what has given me comfort for I have enough dry powder that I can deploy more into equities and still be able to sleep well at night.
Diseases first kills people with pre-existing diseases and we are seeing the same when it comes to CoronaVirus as well. Bear markets such as the one we are currently in the middle of kills investors who are over-leveraged.
I bought a small bit of equity today and intend to add more in the coming week or so. But this is not a blind strategy speculating on a possible bounce in the near future. I have no clue of the coming weeks or months but if you were to talk about years, I am pretty certain that unless 90% of the world’s population dies, we shall have long past moved from this uncertainty.
If you have a cash flow and are comfortable with Risks, continuing to add is the right strategy. The very reason equities deliver a return higher than fixed in the long term is for taking such risks. If you are not comfortable with adding more risks, that is okay too. But do note, no opportunity comes with a blue sky scenario. Anytime you invest in equities, it’s a leap of faith.
Do note that any investments may not generate the returns you desire for the next one or even two years. Once you are comfortable with that, you can make your peace with whatever markets can throw at you including days like today.
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