Lesson learnt in this Market Meltdown
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Lesson Learnt in this Market Meltdown
Nov 09 2008
By Srikanth Shankar Matrubai
The five year Big Bull run made everyone that there will always be sunshine. We tended to ignore warning signs and just brushed them aside as an aberration. I was no exception. Have I lost money?. Yes and no. Yes, because I am stuck with an asset which at a given point of time would fetch a lower valuation. NO, because, the loss is only notional.
I have seen two Bear Runs. First, post the Harshad Mehta Scam in 1992-93, next the Technology Meltdown in 2001. I learnt two Different Lessons in these Bear Runs.
In the first Meltdown, I learnt that "Never Invest All your Money at one go, it may the peak you are investing". In that Meltdown, where I burnt my finger as speculator, I qualified to become myself as an Investor. Lesson Learnt : Invest regularly at periodic intervals.
In the second Meltdown, I learnt that "Never Overexposure yourself to One Particular Sector". Lesson Learnt : Do not put all your eggs in 1 Basket. And the Biggest lesson which I learnt from this Bear phase is that I sold Good Stocks to protect my Huge losses in my Bad Stocks. So, ultimately, I was left with Dud Stocks and devoid of Blue Chips. And it took nearly 3 years to get my portfolio on the right track.
And in this present Meltdown, I have learnt not one but Two Big lesson, First, Book Profits Periodically.
Second, Spread Your Investment across Asset Classes including Debt.
I have taken these losses as tuition fees that I have paid to learn from the Markets.
The Biggest Reason why investors lost heavily in this market was due to the prolonged Bull run of 5 years, which made people invest without doing any research due to stocks going up almost every other day.
For me, the market is like an ocean. Anything you throw into the ocean always come back. Whatever you throw into the market will ultimately come back, provided you follow the market discipline.
I may sound naive, but I don't think I've lost anything. That is I have lost money on paper, which I had bought long long time age, and I am sure they will be back up sooner rather than later. The stock market going down doesn't mean the end of the world. The compaines I hold still continue to rake in profits.
But, yes, my faith to be completely invested in equities has been ripped to shreds, as the even the bluest of blue chips have got hammered. So, while I have not changed my current holdings, I will be looking to change my future asset allocation with a provision for debts and a bit of cash reserves to go with.
But, thankfully, I am not even 40 yet, so retirement is still a long way. I am sleeping peacefully, for I know I do not need this money for another 15 years at least.
My advice would also be on the same lines. It is always wise to have a properly diversified investment strategy based on your risk tolerance and as you age, you should become more conservative and shed your aggressiveness and shift towards debt and Large Cap Mutual funds.
I also plan to diversify further by investing in some International Funds.
I also plan to invest through SIPs to take advantage of NAV volatility (and indirectly time the market!) and restrain myself from making Lumpsum Investment.
I also plan to diversify further by investing in Other Asset Classes too like Gold, Silver and commodity funds by committing a small percentage.
I have decided not to borrow funds for investing. (this lesson I learnt in 1992-93 bear run).
I have decided to avoid ULIPs.
I intend to invest only for Long Term.
I`d like to end with some quotes that are defining my behaviour on the market these days -'Be fearful when people are greedy and be greedy when people are fearful.' - Warren Buffet
“Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell,” - Sir John Templeton (founder of Franklin-Templeton).
'buy when there`s blood in the streets'
Also visit http://equityadvise.blogspot.com for an indepth Equity Analysis
Srikanth Matrubai is known as the WEALTH ARCHITECT. He is practitioner of Wealthy Habits and author of Amazon Best Selling Book DON'T RETIRE RICH. We strongly urge to follow your Advisor. This blog is purely for information. However, we strongly suggest you to consult a Financial adviser. This blog is purely for information purposes only and we do not take any responsibility whatsoever as the blog content may be changed from time to time and is generic in nature.
Tuesday, March 17, 2009
Lesson learnt in this Market Meltdown
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