CORONA SE DARO NA! - PART 2 - Brutal and ferocious

Greetings,

If I had asked you, dear investors, about a month back 

“What would you feel if you could buy Indian bluechips like HDFC BANK, ITC, RELIANCE, TCS at 25 % less” ?
You would have jumped up from the seat and would have exclaimed “Oh…I would love that”.

Good Monsoon, Corporate Rate Cut, Good Liquidity, Interest Rate cut, IIP improving all these positive things were just about converging to give Good returns to Equity investors when COVID-19 (Corona Virus) hit like a Tsunami.

Tsunami is too mild a word as this pandemic has left in its trail brutally devastating affecting more countries than World War II.  And its not even over yet !!!

Unprecedented fear and panic gripped investors is evident in the ferocious fall in the Sensex/Nifty.  Not just bad companies, good companies and even great companies were pretty much thrown away by Panic stricken investors.

Even Gold was not spared.

Pretty much every asset class demolished.

Millennial investors who had never seen a True Bear Market and were displaying false bravado on every fall got a real scare and a lesson which I learnt way back in 1992 itself.

Last month’s dream of 25% fall is now a reality and has actually turned into a nightmare as the fall has been much more than 25%. The fall has been lethal, lightning quick, ferocious and across the board where even the Bluest of Blue chips hasn’t been spared.

Many experts fear that this could lead to World Wide Recession !

CORONA is bigger than 9/11, bigger than 1918 flu pandemic, bigger than the Great Depression of US.

It’s pretty obvious that many economies across the Globe is affected including India but is the damage permanent?

Beyond Repair?

Absolutely Not !!!

Yes...it will take time but Humans have seen these kind of disasters before (1918 flu) and come out stronger.

CANNOT ANTICIPATE FOR UNKNOWN

In 1942, in a German unit, there were 104 Tanks. Most sophisticated and technologically advanced. But, shockingly, right at the time when it was most needed in a Battle, only 20 were operable.

Engineers quickly found the issue.

During weeks of inactivity, Field Mice has nested inside the vehicles and eaten away insulation covering the electrical systems.

Germans had the best equipment but were defeated by...err...mice.

No engineer had anticipated this !

How could they ?

EXPERIENCE SAYS :

One thing that I have observed in my 29 years of Stock Market Experience that whenever equities fall rapidly especially due to a panic or an exaggerated event, the bounce back has been equally lightning quick.

Being in the 2^nd stage of the Virus, in about a month’s time, we should be CORONA VIRUS FREE (just like China is today) and then the bounce could happen. Whether it will happen immediately, before that or after that is a mere guess but IT WILL HAPPEN for sure.

If you have observed GOLD too has fallen by 15% but when I meet investors and ask about their view on Gold, they are actually happy Gold has fallen and intend to buy more.
Why give step-motherly treatment to Equities ?
In fact, history has proved time and again that Equities beat Gold by a fair distance in all time frames across geographies.

The accompanying graphs shows how the Markets have always bounced back and that too with renewed vigor.

 

So apt to remember Baron Rothschild famous advise "The time to buy is when the blood is running in the streets".
The full statement was ...
THE TIME TO BUY IS WHEN THE BLOOD IS RUNNING IN THE STREETS.....EVEN IF IT IS THE BLOOD IS YOUR OWN"!!!

WHY ARE PROMOTERS INCREASING STAKE ? !!

The Promoters of Indian companies seem to know something which we don’t know or choosing to ignore.

Several of them are INCREASING their stakes in their companies in this battered time.

More than 200 company promoters are making full use of the Big fall and buying their own company shares at rock bottom prices.

TATAs bought Rs.569 crores worth of Tata Chemicals

Rs.457 crores of Tata Steel

Rs.178 crores of Indian Hotels

Suzuki has acquired Rs.135 crores of Maruti Suzuki

Bajaj family brought Rs.91 crores of Bajaj Auto

Rs.50 crores of Bajaj Holding

Rs.36 crores of Bajaj Finserve

All these purchases by these promoters only goes to prove how much confidence they have in their company’s growth. Are they foreseeing what we cannot foresee?

WHAT ABOUT THE GOOD NEWS?
1. Good Monsoon

2. Corporate Rate Cut

3. Good Liquidity

4. Interest Rate Cut

5. Improving IIP

It seems that investors and experts alike have suddenly forgotten all the good news.
But once the tide turns…. the experts themselves will be talking about these positive points and by that time, the markets may have already zoomed.

Media in general hardly reports good news.
Many victims are fully recovered and it clearly shows it is not a deadly disease.
If someone is in quarantine, in a couple of weeks time, chance of cure is very high, but this news was not spread!!!
CARONA IS CURABLE.

What is the way forward for you :

Someday soon all negatives will vanish, some businesses may get disrupted, some businesses will emerge, some fund managers will identify them too along with the existing good businesses. We need to stay put, don't jump out of the roller coaster during the run. Every time these downslides are not the same, some will be steeper some will be less steep. The more the steep fall the quicker the recovery will be.

1. Be Calm.
I know its difficult when you see your portfolio getting eroded day by day (in fact, hour by hour) but that’s the best thing to do now. Don’t be tempted to take action just for the heck of it.

2. DONT USE LIQUID MONEY FOR EQUITIES : 

Do NOT touch your Emergency Fund for investing into Equities just because they are so attractively valued. Its time to be intelligent not adventurous. 

3. DO NOT SELL 
If you are in Cash Crunch, DO NOT SELL your stocks.  

Do not convert your Paper Loss into Real Loss.

If the stocks/funds continue to sit there, there is definite potential of capturing all future growths.

4. STAGGER YOUR PURCHASES : 
If you do have spare cash/spare money to invest…do not go FULL HOG right now….Invest about 25% and stagger your investment.

5. DO NOT STOP YOUR SIP.
Don’t make the absolute silly mistake of stopping your sip.

6. TAKE A LOAN IF REQUIRED : 
If you have are in Cash Crunch, you can consider taking a Loan on your Stock/Mutual fund portfolio.
Yes…there are dime a dozen firms that are ready to offer loans at about 50% of your equity valuation.
And the rates too are quite decent.

7. SHOW PATIENCE :
Never go for Spectacular. Be Happy with the Slow and Steady Approach. Believe in being ABOVE AVERAGE In both UP and DOWN markets. That should be enough.

You've heard the old adage, it's not timing the market, it's time in the market. And at times like these, it's really important to remember that.

 

BACK TO BASICS :
One good thing that these BIG DECLINES do is…it makes us go back to BASICS.
We should never forget the basics.
In the pursuit of new knowledge…. basics tend to get ignored.

The BEST way to prevent the spread of the Corona Virus is a simple thing of WASH YOUR HANDS.
And it’s a Basic hygienic thing to do.
But humans do not like to do simple things. They are awed by Complex ones.

And at the same time, they forget the basics.

To get back on track, just follow simple basics.

Wash your hands to kick out Corona Virus

Do Asset Allocation to increase your overall Returns

 BTW, when its equities, be prepared for the Long Haul !

Regards,

Srikanth Matrubai

Srikanth Matrubai Author of the Amazon Best Seller DON'T RETIRE RICH

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