Sensex touched an all-time record high of 40312 on June 2019.. In just 3 months, now the market is down by 7%. and now trading at 37000 levels.
A famous newpaper reported on 2nd Aug 2019…
Nifty erases 2019 gains, BSE listed companies lost nearly ₹15 trillion since 5th July
This recent alarming fluctuation in the Indian Stock Market seems to be really upsetting for the investors.
This article does not vouch to give you the right advice to take market decisions but is an effort to clear the rootless fears and bring clarity to your view from the investor’s perspective . From the best of my knowledge and experience, I’ve attempted to answer some of the widely asked questions & doubts that drag investors into hassle.
1) Will the market crash in 2019?
First, understand that there is a marginal difference between a crisis and a crash. A crisis is an attention demanding serious situation without any doubt, but a market crash is a sudden massive fall across a major area of the stock market. It is not necessary that every crisis must definitely lead to a crash. The market has dropped only 7% from the peak value of BSE this year.
Since the 2008 market crash, you have been enjoying the rising market and became so cozy and now when you see and hear words like crisis and crash you are getting on your nerves. It’s as simple as that. Look at the past 10-year graph and you will know what is happening.
Needless to say, the stock market works in a wave-form with ups and downs and inevitable fluctuations. Even though the midcap and smallcap prices have dropped potentially, there are enough high-quality midcap and smallcap funds that are still at standard to high value.
2) What is the reason for this crisis?
Basically, a market crisis is a notable drop in the Indices of the stock market. The business media and some self-declared stock market experts would say the reason for this huge fall in the stock market is because of decline in productivity, poor budgeting, deficit in finance, inadequate agricultural and industrial growth, rising taxes, etc. Well, this may be partly true from the perspectives of the respective sector experts. Maybe the mix of these factors may be the reason behind the crisis.
But the abstract reason behind this stock market crisis is simple – more people are selling stocks in bulk and very fewer people are buying. This would be because more investors are not capable of withstanding short duration pressure.
3) So will this crisis end up becoming a crash?
Whether this crisis will end up becoming a crash is something I cannot predict. But there are many media channels and magazines that are presenting a variety of predictions which is in no way will be helpful to you. In fact, these predictions can only worsen the ripples in the market by creating a dilemma in the minds of the investors. So, better stay away from those media predictions to avoid complications and keep your mind calm.
The best possible prediction I could do is that the crisis is true and the market might face some hardships over the times to come. So prepare your mind for a rough sea sailing.
4) I’m not a rough sailor. Should I take whatever gains I got and move out of the market before the market becomes worse?
To invest or not is a decision that you should make completely on your analysis. But I can give you a piece of worthy advice here. If any at least any one of the following factor is not fulfilled then you should rethink about continually investing in equity –
- You must have a source of income other than the stock market to manage your short-term commitments andregular expenses.
- Your purpose or goal of investing in the share market is for a long-term(5-10 years)
Evaluate yourself across many standards, most importantly the two points mentioned before. A long-term goal can be reached only if you can withstand short-term market fluctuations.
Simply, if you can tolerate the short-term losses you can keep investing, if not, then it is better to move out of the market with whatever you have now.
5) Does this mean the market is very risky?
Yes. Not now but the stock market was, is and will be risky always. But how we understand risk becomes more crucial at this point. Risk is when we choose to make a decision and not exactly sure about the result of the decision. The outcome would fall into two simple categories – good or bad, right? So, from a stock market investor perspective, the good is the rising market and the bad is the falling market.
We never worry about the rising market in the first place, because we think that when there is a rising market we gain profit. We only worry when there is a fall in the market index. But you know what? There is a twist in both the outcomes.
You would at least have seen once the symbol of Yin-Yang from the Chinese Taoism? It simply says there is a small good in every bad and a small bad in every good. Tao believes that this brings balance to life.
So, coming back to the market, the good as we think is the rising market in which there is a little bad i.e. when the market goes up we may lose the opportunity to invest more in some quality securities which we usually neglect.
In the bad when the market is down as it is now, there is a little good i.e. we have the opportunity to earn huge profit with less investment over a long-term.
Just imagine this scenario happening in the 2008 market crash. The market crashed totally and many people lost money and all the stock prices went low till pennies. If an investor with little money and a brilliant mind in investment who choose to buy the right shares then, by now after 10 years, the shares have undoubtedly earned huge gains as compared to the time he bought the shares.
So, this shows that there is an opportunity hiding somewhere in between the chaos. All you need is the ability to withstand the short-term risk and capacity to find out the opportunity and hold it tight for a longer time.
6) Is this time an opportunity to buy more stocks?
Yes, this time is an opportunity to buy stocks. But wait, don’t get so greedy. Before picking up the opportunity to invest further, the driving force behind your decision to invest is very much crucial. These market fluctuations can be a distraction as well. Always be aware of the core factors that drive you to make investment. Ask yourself that your decision to invest – is influenced by your business analytic skills or is it just the fear of losing the opportunity?
Analyze the market across various sectors by yourself, and if you find a business idea that you think can really work out and change the future and become a worthy paper asset in your portfolio, then yes it’s a bounty! Market fluctuation may occur but it is not going to turn back against you over a long period of time.
At the same time, don’t just pick up a stock that fell down too low so that when the market rises, the gains will be too high. It doesn’t work that way. A brilliant business idea might be seen struggling, but consistent hard-work can make it climb peaks. Whereas, a poor business idea will get defeated at some point.
If your investment decision is fully influenced by the fear of losing the opportunity, then don’t mistake me I would ask you to stay away from the market. It’s because you might end up becoming a victim of the stock market. Your fear (of losing opportunity) driven investment decision would become a response for a simple distraction by the market fluctuations.
But if you are making decisions out of your business analysis skills, then your risk is worth giving a shot. Still, make sure you don’t do mistakes like borrowing money for investing in the stock market, investing the money which you may need in the next 3-5 years, investing in stocks based on somebody’s tips but you yourself do not know anything about.
7) Fine. Just tell me what to ‘do’ now?
‘‘A wise man once said nothing at all’’ because he thought it is better to avoid a problem with silence instead of speaking up and making it worse. If it’s better to avoid speaking when you don’t know what to speak, then the same goes for ‘doing’ also. So, when you do not know what to do, please do nothing. There are times when we just need to wait and watch.
At the same time, if you have a working plan which you think is foolproof to the maximum of your knowledge, then just go ahead.
But please do not let that talk show running the Television with four expert people talking about the market crisis from which you could understand really nothing to influence your decision. I doubt that those media channels are most probably doing such shows for just the TRP.
My suggestion is just to relax and think calmly. Follow your brain. Just don’t risk your money for somebody’s tips.
8) I got suggestions that asked me to invest in Gold which can save me at bad times. Can I move my investments to Gold?
Let’s make one thing clear. Gold is a safe investment. But it is not going to save you or compensate loses in bad market timings. It is a common Indian advice to prefer Gold investment for safety, but when considering factors like gain and risk, Gold is not comparative to the Stock market. Gold is less risky and gives less gain. The stock market is high risk as well as high gain when compared to Gold.
You can have Gold in your portfolio as insurance, but how much should you insure? 10-15% is the maximum. I think more than this percentage would be a wrong choice. If you are investing in gold for other reasons like your daughter’s marriage then it’s completely fine, otherwise, too much investment in Gold is a wrong choice.
9) Based on the advice of a friend and a stock market expert who comes on TV, I recently bought some stocks. Those stocks are now dirt-cheap. I’m very much disturbed about those shares, what should I do about it?
In the first place, if you have made the decision based on your own analysis, you would not have asked this question now! The primary mistake you made is, believing someone blindly. Never make that mistake again. Your oscillation is not only going to cost you money but also your peace of mind. Only invest in a business if you can understand it.
Don’t take me wrong. Sell all you’ve got and take what comes and move out of the market. It’s not a place for you. But if you are serious about earning from the market, then please educate yourself about the market, learn how things work and then come back when you are confident enough about yourself.
10) What shares are you recommending?
Don’t take me wrong again.
Let me ask you a question to bring you more clarity. Assume that you have a variation in body temperature. Which of the following will you choose to do?
1. Go to the pharmacy and ask for the best medicine for fever.
2. Go to a doctor, do a full check-up, find out what your problem is and then get the prescribed medicines which can normalize your temperature.
If your choice is 1 you know what it can lead you to. Without even knowing the cause of the problem, how can the so-called best medicine (stock) cure your problem? The best choice is obviously the second one.
If you think you are not confident about making an investment decision, then you must seek the help of a Professional Financial Advisor/Planner who can understand your problems and needs and then prescribe the right choice for you.
What should you REALLY do?
“People make bad choices all the time, usually because of fundamental inability to operate over long time frames.” – Charlie Munger
1. Long-term returns matters to us and not each year return. We can’t do anything with market volatility or irregularity. This is how the market works.
“Gains won’t come in a smooth or uninterrupted manner; they never have.” – Warren Buffet
2. Continue your SIP and STP. As the market is available at a discount, it is better to continue our investments. Continuation of SIPs / STPs will help you average out. You will be able to recover from your losses sooner.
“The tendency of people to run when the situation is bad and go in only when it’s good is a good formula for losing money.” – Peter Lynch
3. In this last 10 years, there are many negative events in the stock market, economy, commodity prices, politics, terrorism, natural calamities…Regardless of all these negative events, the stock market has delivered long-term returns. Negative events make temporary headlines. By acting based on that, don’t redeem your investment and make permanent lose. Please avoid noise.
The stock market is a good place to earn but don’t see it as a money-giving machine. Rather see it as a money-giving tree. It can give you sweet fruits but not always. There are times when it stops giving fruits and sheds all the dried leaves through a season. Like the share market now. But the tree will bloom again.
Don’t forget that when you plant a seed it takes years of time to grow into a tree and give fruits. Even after starting to give fruits, there are seasons when the tree just sheds everything but its roots.
Shivakumar govindu says
Indian markets are more risky than developed markets so investors always choose passive investments for retail investors other HNI and institutional segment they can withstand headwinds
Share markets are always unpredictable and risky, no matter where they are located. Volatility is its inherent nature.
But we need to be equipped with the right knowledge to overcome all possible circumstances regardless of a HNI or retail investor.
This post is an attempt to address the situation where you can face the fall of the stock market.
Nice. I am not doing on line trading. I have invested in balanced mutual funds. Advise me how to overcome the downward trend in equity which affects my dividend pay outs.
As you have invested in balanced funds, comparatively the downfall will be less.
You need not do any course correction as of now. If you have more money you can invest more to average it out.
As you mentioned, the dividend payouts will be generally less during market fall and that will be compensated with better dividend payouts when the market goes up.