GOOD RETURNS ARE USUALLY PRECEDED BY PAIN

Sensex, in the last six trading days, lost 6 percent. There is panic like situation for equity investors. Not many have clarity on what strategy will work. Not a single sector has been immune from this carnage, albeit few sectors falling less than others.

This blog is written to guide you. This is not a summary of what has happened in the last few days. This blog is to help you navigate this tough time.

Let me assure you that whatever I am preaching you here, I have been following myself. I must also harp on the fact that I added stocks in my portfolio last Friday when Senex tanked by 1400+ points, and I have bought today too when Sensex is down by more than 1000 points. The reason I have bought as I know that this decision of mine would prove me right in the next 12 months. I am confident that this kind of fall can’t sustain over a more extended period.

Don’t panic

First thing first, this is not the time to panic. Don’t decide out of fear. If you are weak-hearted, please stop tracking the stock market immediately. Don’t buy nor sell till the dust settles down. You would be much better off by just ignoring market turbulence.

If you are strong and have some money, please follow simple procedure to select stocks as many are available at perfect valuations. Share prices have fallen due to weak sentiment, but the business case continues to remain healthy. There is a fair possibility that they may further correct from this level. But as an investor, you are not playing a T20 or one-day match. We should be playing the five-day match.

So don’t try to time the market with the hope that I will buy only at the bottom. No one knows when the bottom would be formed, and once you realized that bottom had been established, it would be rather late for you to commit fresh funds as you would again wait for correction.

So how do you buy stocks in this market?

Look for three essential criteria: First company enjoying reasonable good ROE. Second, the company is being run by honest and able managers (we can learn from Yes Bank saga), and last but not least, stocks that you are buying should be available at a reasonable price.

One of the most common mistakes many investors would make is that they will try to buy expensive stock as the same has been corrected by 10-15 percent in the recent meltdown. I know when the Lehman crisis happened, many investors bought Infra and real estate companies thinking that 15-20 percent fall in their price have made them attractive. Even today, stock prices from the infra sector are nowhere close to what investors paid then. I am getting feeling that private banks and NBFCs seem to be losing their fancy. In YTD, they have fallen higher than the benchmark, suggesting that smart money is finding shelter elsewhere. Hence any fall in some of the private sector banks and NBFCs, not necessarily a good buy.

For some reason, you don’t have wherewithal about how to go about investing. We have solution for you. www.marketsmojo.com where I work as Chief Investment officer offers model portfolio, which has been curated based on our IP. Let me also highlight the point that our model portfolios have shown high resilience in the recent meltdown, suggesting that good quality companies at reasonable valuation backed by honest management would give you good returns. It will also ensure that you would have fewer jerks in the portfolio.

Now coming back to the title of my blog- Good returns are normally preceded by pain. This is based on my 30 years’ experience. If you can bear this short-term pain, good returns will follow. I am betting on good returns and hence ignoring this short-term pain.