The Stock Market Crash of 2018

In this post named ‘The Stock Market Crash of 2018’, I’ll record the time log of 2018 market crash/correction. And, recommend what a long term investor can do, during such crisis.

What was the Macro situation at the time:

  1. Rupee has fallen to historic lows(1$=₹73.77, 5th Oct), and continues
  2. Oil prices are historic high in India
  3. There have been major issues from past few months in the Indian financial sectors:
    Most of PSU Banks have higher NPAs
    Punjab National Bank scam
    RBI rejects Yes Bank CEO Rana Kapur’s reappointment
    IL&FS debt issue
    Trade war between US and China is going on.
  1. Trump has commented that he’d revise the rates with India.

Though some of the above had already occurred, Indian stock markets were behaving awkwardly till it peaked in Aug 2018. Sensex and Nifty50 were gaining(thanks to few large caps in the index), while Mid-Cap, Small-Cap and Micro-Caps were collapsing. This was sufficient to suspect a major correction in near future.

24th Sep 2018:

Sensex lost 1.46%(536 points), Nifty50 lost 1.58%(175 points), Nifty Smallcap 100 lost 2.60%(179 points) and Nifty Midcap 100 lost 2.72%(499 points).

6th Oct 2018:

The carnage continued …

Sensex & Nifty further dropped during the last week.

Look at the below Sensex five day chart:

Clear sign of panic selling.

Oct 14:

This week, 8th to 12th Oct, markets were trying really hard to pull up, but every time it seemed pulling up, there were sudden drops to pull it back towards lower value. The below image shows the same:

Advice for the long term investors:

As there are good amount of corrections in many good companies, below is my current strategy:

(1) DON’T FOLLOW THE CROWD, don’t panic sell your holdings. Just stay invested.

(2)This is for sure one of the greatest opportunity in India Market to buy your favourite, quality stock and make handsome profit over long term.

(3) Monitor your favorite stock for its price movement, and start accumulating in dips.

(4) Most important: Be patient, it may take weeks, months or even years for market to stabilize and recover.

(5) Though I’m not recommending this; I’m Just emphasising on the opportunity: These may be considered the times when someone need not know much of fundamental analysis or company valuation, and still make money by investing in popular, old, large cap companies, by following the above mentioned strategy and staying invested longer.

To be continued…

image credit: www.moneycontrol.com

I subscribed to HDFC AMC IPO

Below are the key reasons why I subscribed to HDFC AMC IPO :

  • HDFC MF is the most trusted AMC in India
  • It is one of the largest AMCs in terms of AUM
  • HDFC AMC has well-known Fund Managers
  • HDFC AMC portfolio is well balanced across industries

More details can be found here .

When I started investigating in equity markets, I always wondered how to invest in IPOs, and it took me almost an year to figure out and successfully subscribe to an IPO. I have shared one of the ways to subscribe to IPOs without a broker in my next post .

To view a model portfolio of stocks, which has give 66.5% returns till date and 270% returns, excluding current year investments, click here

 

Is It time to start buying stocks ?

Is It time to start buying stocks ?

There is no right or wrong time to buy stocks. However, general rule of thumb is if you realize the market or a segment (large, mid, small, auto, pharma etc.,) are falling, then chances are that you may get your favorite stocks at a discount, due to herd mentality of market participants, especially novice retail investors. Many of us might often have this question “Is it time to start buying stocks?”

At present many small and mid cap companies have seen steep fall, and few large caps have shown corrections too. My advice is to keep a watch on your favourite companies and ‘buy at dips’ , as many good companies have already or would, come to buying range soon.

Avoid Panic Selling!

Many Companies which gave hefty returns last year have fallen. Many retail investors have sold in Panick too. But, it is the right time to enter into some good companies for long term.

Stocks are falling as many FIIs are exiting Indian markets. But for a retail or Indian investor this is a great opportunity to enter markets. These kind of opportunities comes once in a decade.

Staggered buying: Buy in chunks

The strategy for buying during big market corrections are:

1. Make list of well managed large and mid caps.( the ones which you always wished to have in your portfolio).

2. Arrive at purchase price for each of them either based on Value or Growth I potential.

3. Prioritise them based on potential returns.

4. Monitor the regularly for stocks which come to YOUR buy price range.

5. Start accumulating them with each correction.

Remember “Be greedy when others are fearful”

Always do your own research before buying the stocks.

Turning bad news or a crisis into profit

Turning bad news or a crisis into profit is one of the key traits of a long term equity investor.

What does bad news mean ?

Bad news or a crisis is something which creates panic in the market, especially by novice or amateur investors. Some of the examples of bad news could be:

  • Exit of a CXO / President / Founding member of a company
  • Failing to adherence to quality norms, in F&B, Pharmaceutical sectors etc
  • Some violence or Strike in the company
  • Etc.,

How can an Investor benefit from it ?

If we take the current situation of the Inter Globe Aviation (Indigo), where the company announced the  departure of  its President & Whole time director Aditya Ghosh. Adding to this, the company has performed poorly during the Quarter ending March’18. This has led to a steep fall in its share price in last four trading days:

Which shows ~20% drop during this period. This definitely looks like a good buying opportunity.

But, Is this single factor enough to make a buying decision ?

Yes and No.

Yes, if the Company:

  • Is well know in its sector.
  • Has good track record of earnings and profits
  • Is one among the top two companies in that industry

No, if the above mentioned points aren’t true for the company. In that case it may just be another company going towards bankruptcy. It would be better to avoid buying the stock.

Will I buy Inter Globe Aviation (Indigo)?

Of course, I’m buying Inter Globe Aviation (Indigo). Not just because of the steep price drop. But also due to other positive factors about the company:

  • Largest fleet operator in India, with over 1000 flights per day
  • Has performed better than peers on flight schedules
  • In Flight crew is well behaved when compared to SpiceJet or Jet Airways
  • Handles crisis well, for instance: smoothly handled situation when recently Aviation Regulator Directorate General of Civil Aviation  grounding of A320 Neo flights.
  • Future cash flow value per share is Rs: 1884, so current share price is at least at 25% discount.
  • P/E and PB are on a higher side, but this is the risk that an invertor should be ready to take.
  • Expected annual growth rate is ~19.8%
  • Revenue growth is expected to be better than its peers and to that of the Market

In my next Post, I’ll be talking about how to buy a falling stock

Strike while the iron is hot – so true for stocks too

You might have heard of the idiom “Strike while the iron is hot”, this phrase can be a very easily related to buying and selling of stocks.

Buying Opportunities:

As in the current market situation, where people are selling off their investments panicked by the global and local volatility. It’s a great opportunity for both value and growth investors. You have to be ready with the bunch of potential winners and their buy prices, so that when the stock falls to this price start buying them. There can be momentary rebound and the stock price may raise higher than your buy price. Or, the prices may fall further, in which case you can accumulate more.

26th Mar, showed similar rebound, where it can be easily understood that value and growth pickers bought truck loads of stocks, especially banking stocks.

Don’t worry if you missed this opportunity to buy, there will be some more opportunities to buy, be vigilant.

Selling Opportunities:

Strike while the iron is hot is also applicable while selling the stocks. But, it’s bit more tougher to identify the peak price of a stock. Moreover, there is no way to know if the stock has peaked! But, it’s not impossible either. Just remember these points :

  • If you sell a stock when it reached your peak/sell price, and you felt it is valued insanely high. But, immediately after you sold the stock, it’s price rose by few percent. Don’t curse yourself, as that’s the way most successful investors sell, including Warren Buffet.
  • What goes up has to come down, hence wait for the next correction and buy it at its next buy price range.

Let’s recall few important lessons for a successful investment:

1. Be greedy while others are fearful

2. Buy when everyone seems to be selling

3. Don’t follow the crowd

For more on investment nuggets, visit here.

This short article is to help us stay focused and disciplined in our investment journey.

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. All About Selling Your Long Term Equity Investments is to comprehensively cover the most aspects of selling a stock.

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 realise something isn’t right in the company (through research): lying management, cooking books, exiting FIIs, exiting promotors etc.,

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