Most investors are ready for some volatility. However for people like me who have seen (and remember!) 1993, 1998, 1999, 2001 and 2008 a few questions which advisers must answer are:

a) how worse can it get

b) how long will it remain bad / terrible

c) what can we do about it.

The sad part is that none of us – including your adviser – do not have an accurate answer to this question. Honestly, neither does the PM or the FM – I am assuming that they are also in a seeking mode. They too would love to have an answer.

I can make an attempt at answering, but with the regular caveats.

A bad week in the USA was followed by a black MONDAY when the market was halted. The market suffered some stunning reverses – the Dow Jones dropped 2014 points. People are already comparing it to 2008, and have no clue what worse could happen.

Oil is down to US $30 a barrel – and at some point it will not be worth drilling.

Will people panic? Yes of course. Well getting scared is fine, but doing something dramatic (and perhaps unnecessary) is worse than doing nothing. If you do not need the cash, you do not need to sell. (read what I wrote yesterday http://www.subramoney.com/2020/03/panic-and-client-protection/). Is this an opportunity to buy? maybe yes. However, I am being guarded – we don’t know anything about the Corona virus, and the Saudi -Russia spat on oil prices is going to leave a lot of red faces. We cannot make projections for Asian Paints, Clariant Chemicals and the like assuming that oil will be at US$30. Nor can we make the projections for Indigo assuming that their Hongkong, China, Singapore flights will be suspended for all times to come.

REMEMBER THE MARKET ALMOST ALWAYS assumes the worst. Hence the panic reaction. However even the strongest of bulls will be tested. Let’s take a metal company like Vedanta or an asset management company like Nippon or a chemical company like Clariant Chemicals.

Vedanta’s pre Corona price – was Rs.165 -and in a week it has slid down to Rs. 96 or thereabouts. At this price it gives a dividend yield in 2 digits EVEN if you discount the special dividend of last year! Will you buy it today?

Nippon Life – an asset manager has fallen from Rs. 452 to Rs. 295. This of course is the double impact of Corona and YESBank accounting shenanigans. Even assuming it was over-priced at Rs. 452, will you find it attractive to buy at 295? Why did it fall? well maybe some of the schemes which they manage had a lot of YesBank debt paper. Tier1 paper goes to zilch (Nippon and Axis have gone to court over this). Even if the paper went to zero, does it matter for the asset manager? Should you be buying? I do not know.

Clariant Chemicals – a company whose shares fell from 452 not very long back to 315 on 9th March 2020! This company has a very small market capitalisation, is a Fera company, and is sitting on tons of cash got from a business sale. However, if you look at the Ratios it has very poor margins, poor Roce, poor Ronw, – I would hate looking at it from a fundamental point of view. However it could be a good tactical trade for the cash that it has on the balance sheet.

Mahindra Holiday Resorts – a company which has managed to keep the shareholder and the Time share holder both UNHAPPY has not fallen at all. It is the company with highest risk of the Corona Virus. Amusing no?

The first 3 examples are of shares which could see another say 15% downside if the market falls another 10% – high beta as you would have guessed. What happens to your investments in mutual funds – well the index fund will surely be a good bet. You know that when the market is down, the index will be down, and when the market goes up, so will your fund. Should you buy MORE of a non index fund? Well, it depends on the story of the fund – if it is a momentum fund it could take a bigger fall. If it is a Value or dividend oriented fund the further fall maybe a little muted. Almost IMPOSSIBLE to give a buy (or wait) call.

In the US people are afraid of Cramer, Kudlow and Trump making statements! When Trump says “all is well” – people see how far away he is from reality. Ditto for Namo government and its spokespersons including NS the FM. Politicians think that they can talk up the market, but that is a delusion. Most people today believe that DT and NM are far away from reality. So people just get amused when these people say “the world is fine”.

So what does one do from here? Well surely meditating helps. These 3 equity shares are an amazing example of how we can’t decide on the “fair value” of a share AFTER A 50% kind of a fall. That is what I was trying to say with these examples. One has a regular dividend, one has an annuity, and one has tons of cash. Under normal circumstances people were willing to pay a much higher PE. Now we are not.

This is not the end of he world. However look at it this way – your client asks you “how worse can it get” – and you say from 42000 it has come to 37000, maybe it will go to 32000. My question is did you tell him/her that in 2008 it went from 21000 to 9000. Luckily it came up in a V.

Let’s say now the market goes down 30% – so it reaches 28000. Then it comes up to 42000 in 5 years time. Are we ready for a slow grinding fall and a slow grinding rise? Most of us are not ready. Well, experience and patience cannot be taught.

However it is a great time to remember the following –

• You live in a comfortable house and the loan is paid off
• Your job is secure, and you are happy
• Your wife is also employed and has a nice Esop vesting happening soon
• Your daughter will STILL go to the same Ivy League school in 2032
• Your Retirement date is still 2044 – or earlier if YOU wish
• This is not the worst fall ever, not the most dramatic
• In the long term chart of you country’s stock exchange this too would be a blip
• Nothing changes in your life if the market goes nowhere in 5 years, your SIP go on
• You are extremely busy, and don’t have time to see your portfolio 20 times a day
• You will hear about how some pranic healer called this “epidemic” but that’s irrelevant.
• Its a made in China virus – it can’t have a life more than 4/6 months

ABC of life is same for investing and for life – learn meditation.