Tag: flattening

Mimi Partha Sarathy, MD, Sinhasi Consultants, shares her views on investment during tough times that we’re facing right now. Here are some financial tips that can help you survive through the current crisis when the markets are down. “COVID19 – Market Crash – What should I do – Some Answers to Investor Questions?” “Covid-19 is indeed a game changer and ‘shocking’ event in the way we all see our lives and live today, confined to our homes wondering what next. And, the Equity markets have crashed in just eight weeks and continue to remain extremely volatile and unpredictable. Over the past one month, Large and Mid-cap indices have fallen by 35% and 50% respectively. This has led to a sharp correction in stock prices and NAVs of equity mutual funds significantly. And this sharp crash has happened just in eight weeks – unlike any previous market ‘crash’. Everyone today is rightly working only on curtailing the spread of the Corona Virus, ensuring social distancing, saving lives, and the news is focussed on whether the curve is ‘flattening’ or spiking’ upwards with every passing day, across all countries including India. And with the lock down enforced across the world, some questions lurking in our minds are – when will normalcy resume? What will be the economic impact of Covid 19 and the lock downs on global economies and our own? What will be the ‘new’ normal? What will be the impact on our investments? Have I got ‘shock-absorbers’ for my money and investments? What is most valuable to me today is my 22 years of experience as an Investment Adviser. And, there is no short cut to experience, especially for crisis management. Having been part of the financial service industry as an adviser during two earlier such ‘shocking’ global events namely the 2000 Tech Bubble Crash and the 2008 Sub-Prime Global Crisis, I understand and value even more these earlier experiences and their lessons and learnings. It is these great experiences and learnings that have cultivated resilient best practices combined with intuition to ensure that Dynamic Balance can always be practiced and maintained for sustainable financial success over the long term for our clients. Though equity investments form only part of our financial plans, much of our focus is on our equity investments and the paper or notional losses that are seen during such crashes. And to see this notional loss is definitely painful and very challenging. At the same time the stock markets can be seen as one of ‘the’ best real time live indicators of a combination of both fundamental plus emotional factors. We are indeed confident that this time too will pass. But in the meantime, this is the best time to ask important pertinent questions, which will help us become clearer about our finances and investments, so we feel more confident and ‘on top of our game’ with regard to our money and investments, even during these challenging times. Dynamic Balance with money and investments with prudent resilient action – regular and event based, is the key to financial success with our plans as well as investing in equities. Warren Buffet’s famous quotes are worthy to note – “It is not necessary to do extraordinary things to get extraordinary results” & “Beware the investment activity that produces applause; the great moves are usually greeted by yawns.” “The things we DO or NOT DO might be small, simple, & boring acts of excellence. But they maybe just right and most prudent to do for long term sustainable success with our investments. Covid 19 – Market Crash – Since predicting such events in the stock markets are difficult, do I have sufficient ‘shock-absorbers’ for my investments and money? Should we panic or remain calm with regard to our finances and investments? This is a very important question. And the answers to this question are very relevant especially now. The best ‘shock-absorber’ for your money and finances to manage stock market volatility is if you have a good Financial Plan in place, and if you stick to it! If you have a clear financial plan where your goals are clearly defined along with proper asset allocation and risk profiling, then you as an investor will surely be able to handle such a challenging situation. All we need to do is to stick to it if the plan has been prepared well by a competent financial planner. No doubt our money invested in equities will see negative returns for some time, since in such ‘shocking’ events the markets correct at a very rapid speed in a few trading sessions giving no time to exit. Investments in shares and equity mutual funds come with daily values and NAVs, and, are therefore very transparent for us to see – both daily ups and downs. We don’t give much thought to price corrections or crashes in real estate since we don’t see a ‘daily NAV’ for real estate. And if we did, we would have panicked perhaps even more. But, our asset allocation into equity investments in our plans should be made with a time horizon of 5 years minimum, and only this will ensure that we are able to tide over whatever requirements we would need over the next 12 months. And past experience has clearly shown that because stock markets react rather badly to such ‘shocks’ with very sharp falls, they recover too, and to higher levels. Some examples of Financial Goals are – My retirement plan, my pension during retirement, my children’s education, purchase of my house, upgrading my car, emergency fund (medical, etc). Some examples of Asset allocation are: Allocation between various asset classes i.e. equity, debt, real estate, gold, etc Liquid (FDs, Mutual funds, shares, etc) VS illiquid assets (real estate) Equity (shares, equity mutual funds, etc) VS Debt investments (FDs, debt mutual funds, etc) Lock in Investments (PPF, PF, Structured Products, AIFs) VS Open-Ended Investments (Mutual funds, Shares). Understanding market volatility and the ability to ‘stomach’ such