What to do when Stock Markets Crash! ?

I’m really excited about the opportunity the current stock market crash is providing to create wealth. At present we might be in one of the biggest correction of all time. Many of us have this question: “What to do when Stock markets crash! ?” And, I’ll try to answer this in this post.

Market Trend Analysis

The longest Bull runs of recent times, which started in March 2009, seems to have come to an end (About which, I had cautioned my readers in this post , before the sell off started). As on 9th March: The Sensex & Nifty has lost 8.6% and 8.45% since their peak in Jan 2018.

Sensex historic trend analysis, since 2000:

  • Bull Run : From Feb 2003 to Jan 2008: Sensex rose from 2904 to 21206, gaining whooping 730 % in 57 months.
  • Bear Run / Crash : From Jan 2008 to Oct 2008, Sensex lost 63% (- 63 %) in 9 months.
  • Bull Run : From Oct 2008 to Jan 2018: Sensex rose from 7697 to 36443, gaining whooping 473% in 110 months.
  • Bear Run / Crash : From Jan 2018 to Oct 2018? (only time will tell)

What triggers a Market Crash ?

There are lot of parameters that will lead to market crash. But, we can never predict a crash through some data. Though, eventually “experts” will be able to attribute the crash to some cause, pointing to some charts and trends. But, if you ask me, I’d say, “Markets crash, once in a while, to make people like you and me wealthy !!”

What should a long term investor do?

The correction has just begun, it will go for few months before the trend reverses. So, be very thoughtful about what you are going to do.

Make sure to have enough cash to buy during dips. You may get opportunity to invest in your favourite company, which you were not till now, due to its premium price.

If you haven’t booked your profits yet, consider doing it, if your investments have grown in value considerably since you purchased. So that you can buy the stock at a lower price, while the markets correct.

There are few companies, which survive crash, whose share price drop are negligible or nil. If you have holding in such companies, just stay invested.

If your investments have dropped considerably during the current correction, and you believe that the company is good and the drop is due to current market situation. Don’t panic and sell off, instead just stay invested or better yet, buy more shares at dips.

Remember the Persian adage, “This too shall pass”

Which stocks to buy during Feb 2018 Crash / Correction

I had published an article on 1st Jan 2018: “Time to exit equity market and book profits” the markets have started correcting and this might be the  Crash that has just started. Only time will tell.

I have sold most of my holdings which are high gain stocks and high gain mutual funds by end of Jan-2018.

I am still holding few stocks that have not appreciated much. So selling them was not a good idea, as the returns would be minimum. Moreover these were potentially good companies, such as Apollo Tyres, M & M etc. I held them as I wouldn’t gain much if I sold them, and moreover It would be good idea to buy more of same stock when the price dropped for a better overall gain, over long term.

I bought shares of some of my shortlisted companies such as, Kitex(@225.4), Avanti Feeds(@2287.7), Motherson Sumi(@325.4), as they were available at discounted price. With a conservative target growth of 15% to 20% CAGR. I’ll continue to accumulate them  when the prices fall further, .

I have few more companies in my wishlist, which have not yet reached our purchase price. I’ll mention them in another post when the prices drop further and I buy them for my portfolio.

If you couldn’t book your profits during peak price, don’t worry, just hold the stock for longer.

I still feel there is still downside to Market at current levels, and use every dip as buying opportunity.

Don’t sell in panic. Instead, keep an eye on your watch-list, and buy them when the price is right.

All About Selling Your Long Term Equity Investments: Part 1

This is the most difficult question for most investors. Decision of Selling the shares or booking profit is more difficult than buying them. I have read many books on investing, and very few have touched the topic of selling or profit booking. Moreover, it is based on individual style of investing and risk appetite. Hence, bear with me as this topic requires more than one Post to comprehensively cover the most aspects of selling.

Reasons why selling is more difficult than buying:

There are two main reasons for this behaviour :

  • Unless you are speculating,  the purchase price of a stock is calculated based on analysis of the company, and the % of minimum return on investment that one is looking, and when the market price goes below that, you start accumulating it
  • Whereas, when it come to selling, even when the stock has achieved the target price, many of us don’t sell them assuming the  stock has still potential  to  grow. Most of the times we forget to  book profits, only to repent on our decision to not sell, at a later point in time, when the market crash and you lose all your profits, plus some.

Below are the common worries due to which people avoid selling.

  1. What if the prices go further high after I sell ?
  2. Experts on TV and Financial periodicals are telling the markets still have upper potential.

The solution for the above worries are:  Its OK to sell the shares when the scenarios mentioned in below section are true, than to lose all your investments, due to inaction. And, believe me experts are ‘NOT’ always right.

Sometimes it makes sense to even sell your holding, at purchase price or even a loss, when you’re  sure that the company is going through irrevocable hard times, or isn’t innovating much, or going towards bankruptcy.

Then what should be the major factors influencing sell decision?

  1. When the markets seems to be running on steroids, that is, when the market’s valuation stretched beyond historic highs (especially indicating an end to bull run ) ?
  2. Plus, Has  the stock has achieved it’s target sell price ? (which would be based on ones average purchase price)
  3. Is there a better investment opportunity than the current one ?
  4. When you fell something isn’t right (gut feeling)

First point mentioned above is bit hard to predict. With Experience, keen observation on market trends will help to assess and make informed decision.

When should I stay invested?

Below are some considerations to stay invested:

  1. When we are just into bull market, or mind of bull market.
  2. If the stock price is fallen due to temporary causes like strike in facility, rumours, election results Etc., This is the time to accumulate.
  3. Even when the company might be going through tough time and has impacted earnings, but if the long term vision is intact. And it has good portfolio of existing and future products.
  4. Sometimes, fundamentally good companies will neither go up nor go down for very long time,  seeing this many make mistake of selling that and loose opportunity of making multi-bagger returns. For instance See below chart of Titan Company:

I’ll explain some of the above mentioned points in coming posts in detail with examples.

That takes us to the next question: How should I go about selling, Should I offload all the shares at once or sell them in chunks?

In my next post I’ll cover the approach that I’ve followed in selling the long term investments of mine. I don’t claim this is the best way, but it has worked out well for me, giving decent profits.

I’ve captured some of the my favourite investment nuggets here



Investment Nuggets : First Set

Investment nuggets captures some interesting investment lessons, following them would definitely help us become better investors. The nuggets are captured in sets of ten.

power of compounding
money grows over time

Below are some of my favorite investment nuggets. Some are mine and some are not.

Investment Nuggets: First Set 

  1. Be fearful when others are greedy and be greedy when others are fearful
  2. Only risk what you are ready to loose – don’t invest the money that you might need for someone or something important such as your kid’s education, daughter’s marriage etc.
  3. The best investment that you can make is, in YOU. So, read as many books as possible, and equip yourself with necessary knowledge to become an investor
  4. A disciplined investor would enter markets when they are bottoming and exit when they are on top – but, that’s the toughest ting to do
  5. Experts can be wrong too – Do your own research before investing
  6. Speculating is not a good approach  to building wealth
  7. Failure is prerequisite  to learning
  8. Everyone is a millionaire on hindsight – so don’t crib for lost opportunities, its never late to start and there is always an opportunity
  9. Patience and perseverance are the two most important virtues of investment
  10.   Start with small and equal amounts in max five companies, to test your hypothesis, at least for 3 years. Once you find your analysis and hypothesis is giving better returns than Index (Nifty / Sensex) , then you can increase your stake or apply the hypothesis to other potential winners.

I’ll elaborate each of the above nuggets and publish few more investment nuggets in my coming posts. Please feel free to contact me if you need more  info on the above nuggets.

Happy learning & Think before you act.

Time to exit equity market and book profits

Is it really time to exit equity market and book profits ?

Many of us do research to identify which stock to buy and at what price. When you know how to value a company, and what kind of return you are expecting from your investment, decide the buy price. If the current market price(CMP) is lesser than that price, you will go ahead and buy it. If the CMP is higher than the calculated buy price, be patient and wait for the correction.

The first bull market was from Sep 2001 which ended in Jan 2008(76 months) with biggest market crash of – 63%, which started in Oct 2008 post 2008 crash.

We are in the second largest bull market which started in Oct 2008 continuing till date (110 months), BSE Sensex has quadrupled gained with whooping 443.5% increase during this period.

It is almost always impossible to catch the bottom or top of the  market, so the best thing to do is exit the market towards the top and enter the market towards the bottom of the market cycle.

The writing on the wall is clear; Inaction is our biggest enemy, it may cost us dearly. If your neighbor, who knows nothing about stocks,  is suggesting you to buys a stock, its a sign that your should think about selling your investments and sit on cash to re-invest it once the market bottoms. Recently while I was in our pediatrician’s clinic, I heard his assistant suggesting the doctor to buy Infosys shares. I also stumbled upon an article mentioning that uber/Ola drivers are seen trading on their mobiles in their spare time. Next thing I did was, started selling my equity investments.

See this post to understand All about selling long-term equity investments