I have a friend-let’s call him SK-who is a quintessential Indian in more ways than one. Like most of us, he’s resolute and determined. He displays the Indian attitude of taking things in their stride and moving on and rising up from difficult situations. He’s the kind who will take what is rightfully his and protest for his rights if he has to. Like most of us, he’s not one to take things lying down and has a general happy-go-lucky nature. SK believes in making hay while the sun shines, but like a lot of us, when it comes to the stock markets, he doesn’t really know when the sun is actually shinning.
And predictably, SK has missed the golden investment period of the last year and a half. Yes, that’s correct, the period starting from January 2008, which witnessed one of our country’s biggest market crashes, has been a heaven-sent opportunity to make money. This is even truer for the long-term non-professional investor who likes to keep things simple and follow basic investment principles. What I’m trying to say is that if you are the kind of investor who invests in mutual funds through SIPs, irrespective of the Sensex’s gyrations, then the size of your investments will increase big time from this crash. But if you are like my friend SK, who invested during the market’s peak and stopped during the crash, then maybe even God can’t save you from incurring losses.
Allow me to do a thought experiment to vindicate myself. Let’s imagine an investor has been investing regularly for the last ten years through an SIP of Rs 10,000 in a fund that tracks the BSE Sensex. Now let’s see how his investments have actually fared and compare that to how his investments would have fared had the stock markets not crashed in 2000. In actuality, his investments would be worth Rs 25.7 lakh by now. But considering that the 2000 market crash never happened and the Sensex, which was at 6,100 in February 2000 when the markets crashed remained flat at 6,100 till January 2004, then the investor’s investments would be worth only Rs 20 lakh today. Hence, essentially, the investor made a profit of over Rs 5 lakh from the crash of 2000. And obviously, all of us who have been investing since before the crash have profited from it as well. Our investments are worth an extra 25% because the stocks crashed in 2000.
I guess you must have realised by now that my friend SK isn’t one of those who have benefited from that crash. And he’s not even one of those who will benefit from this crash. Crash time is boom time for long-term investors. This is the time when the sun is shining and one should take full advantage of it. After all, doesn’t it make sense to buy at a low and sell at a high? It does, but still, many of us buy when the markets are at a high and stop when they hit lows. It is during such periods of gloom, when the markets are touching all-time lows that the sun is actually shining for investors. Buy now and reap later.
The good news for investors like SK is that the markets haven’t recovered as yet. The signs of recuperation that they have shown in the past few weeks are an indication of the fact that they eventually will touch previously seen highs. So if you haven’t invested during the crash as yet, then start doing now. This crash will do you more good than the crash of 2000.
The author is CEO, Value Research
