Most important lessons from a CRASH!
Let me tell you what I learnt from every crash that I have gone through….and remember when I was an Equity broker, my annual income would fall 90% – NINETY PERCENT, yes you heard it right.
- Buy and Hold does not work UNLESS you have patience – Suppose you had bought a good company like Gillette at Rs. 70 and then you held it for 20 years. Then you saw it at Rs. 7000. You are still holding it. In this fall it has come to say Rs. 4000. Sad part is you do not feel like selling it. This is because you have seen 7k. Wrong reason, but common emotion. What do you do? Use your debt fund to tide over..wait for the price / earning to change and sell after you do your research. Not now.
- Equity should be sold ONLY from a position of strength – one year – say 2021 or 2022 or 2024 the market will go up by 70% – this is a reward for staying invested in 2020 when the market fell say 35% (or 40% for all I care). You may be happy with the result. You SHOULD take some money off the table (whichever sector leads the rally) and buy yourself some fancy gadget. Say a Canon 3D pro camera. Or some shit like that. If equity is not used for indulgences, for what is it?
- You need to have enough activity, income sources, and hobbies – there are times when you do not want to spend 13 hours thinking /looking at markets etc.
- Unlike 1929, going forward the fall (and rise) will be mechanical – electronic I mean. This will mean the ViX will reach some senseless levels in a few weeks – not few months like it happened even in 2008.
- Paying too much for growth can be hurtful. Page industries for example has fallen by 30% in the past one month. D’Mart has fallen only 20% in this period. Would you be able to stand this? Well many shares have fallen – in fact Gillette has fallen 50% from Oct 2019 till March, 20. Itc has been taken to the cleaners. Go do the math.
- When you invest for dividend rather than growth, you look good in a fall. So your portfolio has to have a mix of both – Growth and Value. So if you had Gillette, Marico, Hul and PnG – your fall would have been cushioned. However by doing this make sure that you don’t overload with Fmcg – I was just giving an example !!
- A crash can come completely unexpected – it is like death! when a person dies – the people around are generally not prepared for death. Even at 90, people feel there could have been better good byes!!
- In the current fall (2020) most of us knew that the market was over valued, but we kept out eyes closed. We told ourselves “if we don’t buy it for our clients, somebody else will”. Nonsense, but we will continue to think that we could have seen it coming. Of course that is our brain telling us a lie.
- We WRONGLY relate GDP growth to market. Not true. There is no connection of the Macros to the markets. There is no connection of corporate profits to share price. IN THE SHORT RUN. We know that macro, ESG, good financials matter in the LONG RUN.
- A market can keep going up even with NEGATIVE news. A market can drop like a log even with GREAT corporate results -and vice-versa.
- Each fall and rise is different. If you learnt (a wrong lesson) from 2009 – remember it was a V shaped recovery. In 2020 it could be V, U or L.
- Everytime there is a fall we think we learn. However, we are prepared for the previous war – remember the 3 pigs story? I have done it on my blog – go and search for it.
- Market can reach 43000 in 3 weeks, 3 months, 3 years, or 6 years. No point in using statistical tools and try to do a prediction. Analytical tools can’t be predictive tools.
- Clearly the market leadership will change – it will not be the BFSI. Will it be pharma? IT? Fmcg? I don’t know, but it is unlikely to be BFSI !! Or will the market teach me something new? Or does Prashant Jain know?
There could be many more….would be happy if you can share it with me. Please do.
siddhant
personally this correction world over looks more like japan situation, the interest rates are as low as they can get, lending through the roof, there may not be any recovery maybe sideways for long time, we are probably not considering that we may have reached consumption peak for global population.
SS
Hi Sir, my important lesson was not to take any ‘popular’ stock (ITC) for granted. ITC had run up to 330, I felt since 2000 it has only gone one way – up, albeit with small std. dev. So, when it fell to 280, I thought, nice discount (-15%). I bought it. Now it is at 140. That works out (-50%) even from 280 level. The cushion tore and all the cotton has come out. 🙂 🙂
Also Mami and others do not like this stock. Always high and unpredictable taxation is applied to these tobacco businesses.
Amol
Sir,
you have always praised Prashant Jain. However, lately all funds managed by him are not doing well. Be it HDFC Top 100(Earlier Top 200), HDFC Equity. What do you think about it?
Krish
This is what I have learnt from the market crash.
It is like beating a person with sledge hammer. Would take sometime for that person to recover and walk. V recovery is bullshit.
It is terrible time for all the SIPers especially who started in 3, 5 and 7 years back. It didn’t average out well for these guys. Only upside average is not good and that’s what happened. It is like you went to cliff only to be thrown out rather than slide down gradually. For a common man, generating decent returns with equity is tough indeed.
Indian MFs with Regular fund charges of 2.5 to 3% per annum is a big joke. No one is looking at it. Mark my words, Investors aren’t going to make any money with such high charges. Even Direct fund charges of around 1% is very high. Fund Managers of MF Equity doesn’t deserve more than 0.25% of expense ratio.
Indian equities, someone need to get bottom of YES bank rally of 1000% returns in 2 weeks. Reputed fund houses are giving targets of 1, 2, 4 and stock rallies to 80. Really don’t know how many got butchered in the game.
Sans
I sat through the 2003-2007 bull run thinking equity is not for the common man. My first direct equity purchase was in Nov2008- TataMotors just to get an extra 0.5% on their CD. I still hold those shares.
Since then I have invested 70% of my take home in MFs. So definitely have a lot more to lose this time. But I am enjoying this fall because I have my SIPs going on, sitting with cash to deploy and I don’t need the money.
DonPosco
The ultimate question is – Is this the end of the world ? Will mankind survive to see the end of COVID ?
If the answer is a resounding YES, then we have solace. COVID or Crude, people would still need food to eat, and of course soap to wash hands. What goes up has to come down and vice-versa. Yes, its the journey that matters.
If one has a diversified asset allocation towards defined goals, what is needed is discipline and patience. We all know equity is volatile. People with majority allocation in debt are probably now saying ‘See I Told You’ Equity is risky’. Can they guarantee PPF rates will not be reduced to 6% (25% fall) in near future ? Or PF will not be merged with NPS with risk comparable to MFs.
Even if a trader makes a kill using the market volatility, will that be morally justified given all the pessimism around ?
What is more important is
– How to keep your kid engaged and joy-full even with 3 months of summer vacation without any outing
– How to take care of your elderly parents given they are the most vulnerable
– How to not increase the Divorce rate with extended WFH alongside your spouse
– How to utilize the time to do those things that you always wanted to do on your ‘ME’ time
Always remember, you are lucky to have food, cloth, shelter and internet. There could be many who still do not have these luxury.
On the opposite side, if you think your portfolio is down by 30% remember, a certain Mr Ambani has lost 30% of his (notional) wealth as well 🙂
Pradeep
One important lesson is to not go all in during a crash. And beyond markets, we have to brace for the aftermath of this disaster to our jobs, lives, etc. So simply investing current surplus could land you in trouble if you lose your job.