The falling Market, and your Portfolio?What to do?

The falling markets and your Portfolio – what to do?

During the last one month you must have noticed that equity markets have been going down. Large cap index is down about 5-8% from their all time highs. Worst hit are small caps (index down 40-45% from all time high) and Midcaps (index down 20-25% from all time high). Some stocks are down by 60-70% from top. You must be wondering why is all this happening, should you sell now and and is it worth at all to invest in equity markets. I understand your concern.
What you are witnessing right now is painful but a pretty normal behavior for the  markets. They tend to respond to sentiments in the short term and fundamentals in the long term. For no reason, markets can go up and down by 10-15% in a matter of few months. It has happened many times in the past and it will continue to happen in future too. This behavior is not limited to India but seen across world markets.
A few pointers:-
– Most of the times (say 9 out of 10 times), markets recover from short term corrections within a few months or quarters. The best action is to remain invested and ignore the volatility.
– Sometimes (say 1 out of 10 times), markets will go in deep corrections of 30-50%. This happens once or twice every decade and lasts a few years. It starts with a small correction and the slide continues to the bottom. Everything bleeds. The reason of such fall could be weak economy and future outlook, falling international markets or scams like 2008. How to protect this? Well, the honest answer is, we can’t. Almost no one knows for sure that markets will fall so much. At best, it’s a wild guess of a few so called analysts, who shout loud after the incidence. It’s just a matter of being lucky this time with their prediction. We must know that these analysts or predictors are mostly those who got it wrong many times and no one noticed. You may ask – Can I predict it and save your losses? Frankly, my answer is No. At best, I can minimise the impact by proper asset allocation, understanding your needs and monitoring your portfolio regularly. So, the hard truth is that even when markets fall by 30-50%, the only choice and best course of action is to stay invested, continue your SIPs and wait for markets to recover. Trying to time the market (selling and hoping to buy at a lower price) never works.
– During bad times, media will aggrevate the situation by highlighting things even more. I bet, they also know nothing about it and just have a good time by getting all the attention of readers and viewers, increased TRPs and ad revenues.
– Investing through mutual funds is safer than investing directly in stocks. While mutual funds have fallen but the damage is huge in individual stocks. While some stocks may never recover, most mutual funds recover from lows to their previous highs and even better due to expert fund management.
– It is very natural for you to feel the pain because of portfolio value going down. I can understand and I feel the pain too. Trust me, I am reviewing everything and doing my best I can.
– The worst thing to do at this time is to panic. It might so happen that after you redeem/book profits/book losses, markets will continue to slide and you will feel you did the right thing. Well, in the short term, yes. But unless you buy at the bottom, you won’t benefit from this exercise because markets will definitely go up with time. And buying low happens only in theory.
– Events like these are lessons for both you and me to learn and improve our future decisions and action, to stick to asset allocation, to take only those risks which we can and to plan things better.
– Goal based planning works best. We must not take risky bets with short term money. If the money that you have invested is for long term, let it stay long term.
We need to work together in thick and thin. We need to discuss being on the same side of the table. These are tough times and we will go through with it together.
Feel free to call me anytime if you wish to discuss on the portfolio and future action plan.

Best Regards:
Mohit jagga
Financial Advisor.

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What is your style for Investing? Here's a Ready Reckoner!

Stock Investment is very much like a buying a Mobile phone.

Most of us, at least once in our lives, have racked our brains over which phone to buy. With so many options in the market, and each option characterized by its own special attributes, it is a tough decision. Should you buy the one with a larger RAM? Or should you go with the one with a better camera? Or should you just get the pink one?
Investing in stocks is eerily similar. Should you invest in Coal India which recently posted spectacular profit growth? Or should you go with the safe and stable HUL? Or should you just get something which has been rallying? These seemingly simple questions form the basis of factor-investing or style-based investing.
All stocks in the market can be compared based on some common fundamental attributes – profit growth, leverage, return on equity, price-growth, variability of earnings, valuation multiples, and so on. These attributes characterise factors or styles – the Value factor represents stocks available at cheap valuation multiples; Growth factor, as the name suggests, represents the set of stocks which have been posting high growths in profits; Momentum stocks are the ones which have exhibited recent price appreciation; and Quality stocks represent the safe and stable stocks characterized by low leverage, stable earnings, and decent returns on equity.
Just as in the world of phones, all-rounders are hard to come by. Stocks which fare well on some of the attributes may not fare well on others. For example, if a stock has been consistently posting higher profit growths, it is not likely to be available at a low enough valuation multiple. Similarly, a stock which has been posting relatively slow and stable growth in profits, may not provide a steep enough price appreciation. Basically, there is no stock that has a perfect score on all attributes, and is available at cheap valuations. Thus, arises the need to make a choice.
With phones, if you are a video game junkie, you would choose the one with a powerful processor, great display, and a long battery life. If you are into selfies, you would prefer something that has a better camera and fancy filters. Similarly, in investing, if you are looking for a good night's sleep, you would go for Quality stocks. But if you like the thrill of investing and want to experience the ups and downs of the stock market, you should go with the riskier Momentum investing. No factor fits all. You or your investment advisor should first analyse your risk appetite, investment objectives, and constraints before going for any of these styles of investing.
Another important point to note with factor investing is that factors are cyclical. No style of investing does well all the time. The starkest example of this is Momentum investing. When the market is exuberant, rising stocks keep rising, and if you are a Momentum investor, you keep minting money. But the happy ride stops abruptly when bulk of the investors start getting wary of the heights and book profits.
Needless to say, if you stay invested, you would be in for a rude shock when the rally reverses. Similarly, Value stocks can go years with meager returns before people start buying into them, and only then, would you be able to reap benefits on your Value buys. Usually, it is at the turn of a rally, that people start noticing the quiet Value stocks sitting at the corner. What this means is that Value and Momentum are negatively correlated – in trending markets, rising Momentum stocks are the hotspot of all share market activity, and the unpopular Value stocks are sidelined.
However, as soon as the rally ends and people turn risk-averse, Momentum stocks plummet, and Value stocks take the centre-stage.
This behaviour of factors has given way to multi-factor investing, wherein the objective is to invest in the right factor at the right time. But market-timing is an elusive seductress… in the greed to make money in all market scenarios, you could get the timing wrong and end up losing your nest egg. It is, therefore, usually a much smarter bet to stay invested in a single-factor based portfolio provided you have the stomach to patiently ride out the market ups-and-downs, which can be punishing at times.
In this series, we shall explore the most common factors in considerable detail – the intuition behind them, hypothetical portfolios and their performance, and the pitfalls to look out for.