Are we in a bull market or a bear market…time alone will tell. However, mathematically, we are not in a bear market. From the peak of 40,000 the market has to be below 32000 to be called a bear market. We are nowhere near that.

When I am asked in a class – when is the market crash coming, the best answer I can give is “I wish I knew”. I know I will see a market crash, but I have no clue when, and I have no clue whether it will lead to a bear market. I know that both will happen – market crash and a bear market, but to say I know when, how much, and how long is a joke.

All of us with say a few decades of experience know that the nature of the market is such that there will be a rise and a fall. None of us, of course know how much and when. Yesterday (20th Sep 2019) was a phenomenal jump of 7% in the market – I have not seen a 2000 point rise in one day (surely the biggest day in absolute terms). Surely, it was some short covering, some money sitting on the sides entering…and a mix of factors. Yes we might see 40,000 soon – and then go to 32000 – a classic bear market. No. We have no ability to see what the future in the market holds for us. Market crashes may not lead to a bear market, but could test your patience and give you ZERO growth for a very long time. For example the Indian markets have given ZERO returns over the past 10 years if measured in dollar terms. If the dollar goes to say Rs. 80 it will mean people have got NEGATIVE returns. Will we accept that the last decade is a lost decade? well, we will not.

We now have extremely granular data and we can measure inflation, PE, Gdp growth, growth in other countries – and all this is available at a flick of a button. However, it does not mean we know how people will react to high PE. Look at the FMCG pe in India. By any world standards your Col pal, PnG, Nestle, – to name a few – are over-priced. However none of us will dare buy naked shorts against these shares. The data is against us. Similarly in the equity market there is NOTHING to suggest that there is going to be a melt down. Or that there is going to be a big fall. We do not know whether we will see 43000 and quickly see 33000 also. Even worse we may see 43,000 then see 38000 for 5 months, then 44000 and then 32000 for 12 months. How would you define it? crash? bear market?

Frankly all this is theory. What can you do in such a situation is far more important.

• get YOUR asset allocation right. I am almost always 90%+ in equity, and that suits me perfectly.
• be clear (along with your spouse) that you have a big risk taking ability, and an ability to sit out of a bear (bull) market for a long period of time
• proven patience and a great track record at sitting tight doing nothing
• don’t have a very long portfolio – most of us cannot comprehend beyond 20 shares unless we have a team supporting us
• for most of us mutual funds may be more suitable than direct equity – which tries your patience harder
• having said that, I am more in direct equity and less in mutual fund
• hold enough in other assets (a job is an asset too) so that you are not forced to do a draw down
• understand that we will over do the upside (high pe) as well as on the downside (low pe) and hence we will see bull markets and bear markets
• understand that all the data of the past, and the latest super computers will not help us in predicting the forthcoming bull market or bear market
• take money off the table when the markets are good for meeting your needs, having fun, and allocating to other asset classes that you like -debt, real estate, gold
• having said that, i do not do ‘asset allocation’ as understood in the common man’s language

well, you will hear more about this…for sure…