The Stock Market Crash of 2018

Last updated 29th Nov 2018:

In this post: ‘The Stock Market Crash of 2018’, I’ve recorded the 2018 market crash/correction and captured weekly Sensex movement till recovery, week on week. The main intention for doing this is to get a comprehensive view on how the markets behave, what are the macros at the time and which industries behaved how. I’ve captured my investment advice during that period.

Macro situation playing 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
    BJP is accused of foul play in Rafale deal, by making the project awarded to Reliance
  1. Trade war between US and China is going on.
  2. Trump has commented that he’d revise the rates with India.
  3. On 30th Oct, India and Japan signed a multi-year currency swap agreement, which will ease both countries to be less dependent on US dollar for their trades.
  4. Nov 9th, the markets were volatile this week (5th to 9th Nov) with resistance to downward movement, and ended positive with respect to week’s opening price. This week seems to be start of trend reversal.

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).

don’t make any investments until markets stabilise.

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. don’t make any investments until markets stabilise.

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:

don’t make any investments, as markets haven’t stabilised yet.

Markets 15th October to 19th October:

The down trend continued. There was positive movements from 15th & 16th, but on 17th to 19th it went negative(18th was holiday). Below image shows the week’s movement. 1$ was equal to ₹73.32 on 19th Oct.

don’t make any investments until markets stabilise.

Oct 23 to Oct 29:

Ray of hope ?

In this week market kind of bounced back. On 26th Oct Sensex seemed to have hit its bottomed.

don’t make any investments yet, as markets have to show positive trend for at least another week.

Oct 29 to 2nd Nov:

Sensex moved up from 33411 to 35011, about 4.5%, in this week. This looks like trend reversal. Main event that took place in this week was; Indian and Japan signed $17-billion currency Swap multi-year agreement. This would help curtail Rupee depreciation against dollar.

Nov 5 to Nov 9:

Markets continued its upwards trend from last week and ended positive. This affirms trend reversal. You may carefully start investing long term in attractive companies, post research.

Crude price have been falling, and that is the reason for the uptrend from last two weeks.

Nov 12 to 16:

In this week MP Ananthkumar of BJP passed away, this impacted the upward trajectory it Sensex, with a price drop on 13th.

However trend caught up during the rest of the week and ended higher than the week’s opening price.

Nov 15 to 23

Sensex fell this week, reason for the drop isn’t very clear. It seems like Sensex would be range bound around this week’s low for some time, or might drop further down before recovering. I’d recommend not to make any fresh investments at present.

Sensex:

Sensex had crashed 17% in about 3 months, between 29th Aug(Sense: 38989) to 26th Oct 2018.(Sensex: 33291).

Sensex, has shown signs of reversal from 5th Nov onwards.

Advice for the long term investors:

As there were 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

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

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.