Market is ‘Resting In Peace’ as of early 2008. Someone had remarked it right, “At this rate India would be available for free within two months”. That is the kind of fall which has been going on.
Imagine you had a portfolio of 50 lakhs (5 million) invested in Indian equity markets (Best Indian Companies) at the beginning of Jan 2008. Markets would have easily reduced it to an unimaginable 30 – 25 lakhs (3 – 2.5 million) in just about three months. This is a true story for many investors (who did not sell quickly and stopped loss) during the first three months of 2008. They all lost a proportion similar to this one example true story.
Question is how on earth you can stop it from happening to you or how to save your 50, 10, 1 lakh or whatever at least the next time. The loss may be temporary though it did happen.
Now on to how to save your ’50’.
There is only one way I can imagine. That’s, the day before the fall, you sell your complete holding! Problem is how on earth do you know beginning the next day there is going to be a great fall? Answer is… No expert can tell you that! But at least on the day the fall starts, you can sell assuming from your intuition and your prior reading into the market situation that the selling in bulk would begin any time now.
And then, when to buy it back? (assuming you want to ultimately make money through shares). Again, No expert can tell you that! But why not buy at least when the companies themselves would start buying back their own shares from the open market seeing good value by the end of March.
To use market’s terms, from the above example, understand that while in the share market, you don’t know when you reached a top and you don’t know even after you reached the bottom of the market. What you can do best is to arrive at your own conclusions from your reading and intuition. Remembering the adage such as “what goes up comes down” and watching financial and economic trends, news, and keeping an alert mind would help a lot.
As I write this in the end of March, SENSEX is trying to raise its head again from the ruins, after falling throughout the first three months of 2008 which was spine chilling for the trader and investor community.
The point of the story is, though I am a strong believer of long term investment and the great Indian economic growth story, time is not on my side and not with many who are late comers into the market. So losing 50% of your money even for a short term is not a nice proposition. Hence keep your eyes open! When experts are warning of imminent correction and when there is so much negative news arising out of the global markets , be skeptical and be ready to sell and stay in cash. That’s the only way I can think of to save your money in the short term from painful depreciation.
For your information; I didn’t sell anything waiting and hoping that somehow the fall would stop. But it didn’t. Though I do wish today that I had sold on the first day. Because I could have bought back more shares at the lower levels if I did sell when the fall started. At the moment my favourite companies are on sale at a much smaller value. But for a long term believer, it is not an essential move but may be a wishful move.
In fact you may be now wondering whether I got the feeling about the imminent crash. I did get the feeling from the news flowing out of the global market turmoil that started sometime August 2007 with the sub-prime problem and the talk of recession in the US later on. But often though you have the signals you do the mistake of not acting on those signals. This was one such.
Like many experts have said, share trading can not be taught but has to be experienced. Hence, you may need to jump in; start small but do start, grow small, watch your sides but do jump to achieve that coveted financial freedom to escape at least a lot of the everyday life’s perils which stems from lack of money.
Richest in the world, best known investor, Warren Buffet is known to regret that he had only started investing at the age of eleven.
I and many others started much late. That’s why we don’t have the time for the long term which is easier than short term and far better than speculation. Let me reiterate my confidence in Indian markets and encourage you to buy in dips at this point. Wish you happy investing!
