Markets are down, the dow plunged 7% on Monday. Dark Monday as some people called it. Remember the US markets were at an all time high, and was feeling stretched. Also remember that every balloon is looking for a needle somewhere.

What should you do now? I have written about it in 2 previous posts – about Panic and how worse it could get.

Investors (around the world) have been worried about the new coronavirus, which has been disrupting global supply chains and travel plans for weeks. Last week, the US stock market was already down about 12% from its all time high of February.  Then a dispute between Saudi Arabia and other major energy producers sent crude oil prices plunging. Stocks soon followed suit. The Dow closed down 2,014 points, or 7.79%, at 23,851. Japanese stocks were down 5%, and those Germany and the U.K. were both down nearly 8%.

For many of us who have been investing since the 1970s, this did bring back memories of 2008, as well as older falls – but frankly it was nowhere near gut wrenching. For many younger investors, it’s the worst bout of market volatility that they have seen since they started investing.

If you look at the BSE Sensex it is at 35,634. That is a drop from 41,945 of 17th Jan. Looks like  big fall, does it not? However look at the whole chart. It was here in August 2019. Which means the market has given up the gains of 7 months. That is a very small claw back in terms of market movement. Bear Markets claw back 2 years gains very easily. The US markets have seen a smart rally – and we may take our cues. Everybody reads (presumably) and quotes Buffett – however not many of us are willing to copy him (I am not suggesting we should – he is a professional and big). He has added a million shares to his bulging holding in Delta Air. Will you have the guts to buy today?

What should you buy during such times? Best bet is the Index. The index has fallen 6000 points, so what about an Index fund? an Index ETF perhaps? When the market recovers (which eventually it will) the first fund to scream its way up HAS to be the index fund. Not the managed funds.

If I ask you to sit tight doing nothing, it is not going to be easy for you. The immediate reaction is simple – flight. When the market falls from 42000 to 36000, you read the media and thing “market is FALLING”. The truth is “market has FALLEN”. We have no clue what the Indian markets will do today. The US markets are up – and have wiped out half the losses of Monday. That is one amazing recovery!

So you are worried about this fall and decide to remove money. Great, you sold your portfolio worth Rs. 3 crore – and decided to sit on cash. Well, you will look very smart if the market goes down to say 28000 AND you have sold the index. Sadly, you will end up doing is selling parts of your own portfolio. Let’s assume that you sold / short sold Indigo at 1150 and after 6 months when you thought that the market will recover, Indigo could be at Rs. 1400! Have you made money? the answer is NO. Also assuming that you sold at 1150 and it is 980 after 6 months, you may not feel like buying! However WB lives and does business with todays facts – he has bought shares in Aviation industry!

Remember – your goals have not changed – you still are looking at 2 decades to go for a goal! this change in the market could be just a blip if you were seeing a 8 decade chart.

Check your ability to sit there doing nothing. No. It is not easy…!

Do you have cash for the next bear market? What if the index really went to 28000 and stayed there for 8 months? or 2 years? how would you re-calliberate YOUR expectation from the assets that you own? Your reacting now is more likely to cause more injury than really help.