“Humpty dumpty sat on a wall; Humpty dumpty had a great fall;
And when all thought that this could not be put together again; It galloped away!”
The popular nursery rhyme and the financial markets seem to have a lot in common. The memory of market bloodbath is fresh when investors lost lakhs of crores helplessly in what we call the ‘March (23rd) Madness’, where the markets went on a free fall of more than 30%, pushing the indices to the lowest in the last three years.
Barely, a month passed and the Indian markets witnessed ‘The Great Franklin debacle’ when one of the leading fund houses and an established expert in the debt market closed six of its top schemes. This was the final nail in the coffin as investors were left gasping in the debt space too. The panic and uncertainty was everywhere with a general negative sentiment of doom.
In less than 8 months, the indices recovered lost ground to record fresh all-time highs last week setting the mode for optimism and euphoria. Well, the party was on!
Between ‘Then’ and ‘Now’, the investors passed through mixed feelings ranging from total despair; naturally due to the extent of notional losses that many faced, to the current day of elation of seeing their investments back at previous levels and much more. For many who jumped off the market wagon midway, thinking that this was a ‘sinking ship’, there is a regret too!
As many waited for the light at the end of the tunnel, a popular question then was “when will the markets improve?” with a niggling thought in many minds that once it does, we shall exit!
As an investor, a more relevant question should have been “what should be my strategy to ride this market volatility?”
Financial markets always reward the patient and the disciplined and this old adage proves true time and again. Those who had the maturity to remain invested in the right instruments and those who were bold enough to invest when the chips were down a few months back, can see the unprecedented rewards on their investments in just a span of few months.
For those who invested with a strategy; remained disciplined and stuck to an asset allocation were blessed to own a goose that laid golden eggs for them but the others who panic-exited… well they just killed the goose!!
There are always lessons to be learnt from any experience. So, what is it that some did differently from the ones who killed their golden goose!
For starters, they all had a strategy that took care of asset allocation, diversification and points of entry and exits from the markets. To them, the market volatility was a roller coaster ride to be enjoyed if adequate safety precautions were in place. You don’t, after all, jump from a roller coaster ride midway and if you do then you do hurt real bad!
Secondly, they continued to invest steadily and regularly. They rather used this opportunity to refine their investment bouquet adding value through the blue-blooded that was at rock bottom prices and simultaneously cleaning their portfolio of the laggards.
Last and not least, they had access to quality advice and information that helped them make informed decisions. A strategy that works, an investment selection that is suitable, a performance check that is continuous and an allocation that is dynamic; Investment management is more than just picking up the best investment.
What goes up, comes down and vice versa. How one manages to ride these waves is what makes a good investor or a bad one! There would be falls and then there would be highs, one needs to put their act together before the opportunity gallops away!
Cheers to an informed investor!
(The author is CFP, Partner, Beekay Taxation and Investment LLP. Views are personal.)