This is a good article for you as an adviser – and for you the investor. The last few weeks – if not a month have seen a dramatic fall in asset prices across the world. Falling crude prices may not bring too much pleasure to the airline industry which is seeing a lot of cancellations, thanks to the Corona virus. Even in the US market, it was just a fortnight o when the S&P 500 index reached a new all-time high. Now the S&P, the Dow, the NASDAQ and the Russell 2000 index of small stocks have all fallen more than 10 percent from their previous highs, a level which is known as a correction. In India this was worsened by the YESBANK saga which meant that the bond markets too panicked – making you wonder why you had a portfolio of bonds and equity funds! Like a friend in the equity market said “It is easier to beat the market than find fund managers who will beat the market for a fee”. Forget the 10% fall that has already happened, are we ready for the Sensex being at 32000? that would be a 20% fall – or slightly more from the high of 42000 that the market had reached. Well I am prepared, sitting on cash, with a list of shares to buy. Falling crude prices are not so great if you are going to see a contraction in demand – Indigo or Asian Paints are good examples.

One Sales head has already prepared a chart showing how their funds performed better (fell less) than funds managed by Prashant Jain and Naren Sankaran!

What do you do in such circumstances?       How do you handle customer panic?

First of all it helps if you have followed a process. For example in case of clients who are very well off and are accumulating only for the long term goals like retirement, it is easier to handle. What happens to clients who had a 2 year goal and had invested in Ultra short bond fund and are now finding that the fund manager had taken more risk than what you wanted?

Well most of my friends who have been in ultra short bond funds and have got returns far more than savings account interest rates, there is still happiness. Of course there was risk, but still the returns are better than bank FD — especially post tax. Other than this ask yourself (or your client) the following questions:

1. What was your investment horizon when you started the investments? If it is 20 years, just go back to your full time job. The market saw 1999, 2008, it also saw euphoria of 2014. Similarly this too shall pass.
2. Thank yourself that you have (had) a diversified portfolio – debt has not done too badly, gold has done well, your US Opportunities fund has not done well, but the currency has done well – the US$ has strengthened! Europe may not have done well, and Asian Equity (I have a small portion of my money there)has done the worst!
3. Do you continue to trust your advisor? Do you realize that he too did not know anything about the spreading of Corona virus to South Africa, Asia, USA – much faster and viciously than we all thought it would?
4. Determine when and how much of cash you really need – I saw a doctor switch funds from an equity sip to a medium term fund. She paid EXIT LOAD and is paying Income tax for doing this. God bless her, this amount of Rs. 2 crores was done without asking the adviser, who was aghast.
5. Talk to your adviser – so that your adviser tells you that your cash needs can be taken care of by the fixed deposits or the liquid fund balance and this is not a sensible time to switch – just because a fund is not doing well. If you must, at least switch to the same asset class – like a large cap fund to a large and mid cap fund and not to some liquid fund!!
6. Trust your adviser, change the adviser of Do It Yourself – there is no point in having an adviser and not trusting him/her enough and therefore doing a partial DIY. Make up your mind. Remember it is your money, and you have full rights to ruin it. None of my business. I like stories that is all.
7. Check your risk tolerance – are you going to be out of a job soon? are you impacted commercially by the Corona virus? You could be if you are dealing with China, Italy, etc.This could reduce your risk tolerance exactly at the same time that you need more cash.
8. Do you have more money to invest, do your asset allocation again. You might sell gold and invest in equity or break some fixed depost and repay a home loan. If you have any borrowings check out on the interest rates that you are paying. In a falling market it may make more sense to invest than to repay a loan.

There is one problem though. You cannot stop yourself or your reader from reading the financial porn that is going around. You will find people saying “if you had used my formula you would have SOLD and re-invested in debt”, if you had investe in our BAF you would have lost less. You will also see headlines saying “Rs. 450,000 crores wiped out in 2 hours” or some shit like that. You will see words like “worst ever fall”, “bloodbath” “panic stricken investors” as well as advice saying “when there is Fear, you should be Greedy”. I do think you should not worry about financial porn – you cannot wish it away. Just keep cool. Keeping your head in its place when others are losing theirs is good business.

There is a lot of hard work to do. Panicking is the worst. Take Care.