Why RED is color of Opportunity

 On August 5th, global markets experienced a crash, affecting economies in countries such as the US, Japan, and India. This significant downturn, often termed as "bloodbath," is not unprecedented, nor will it be the last.

My aim here isn't to investigate why markets fallen; experts have already provided their analyses. Instead, I intend to shed light on how investors like us should react in such scenarios. Should we panic and sell? Before offering my perspective, let's review market behaviour over the past 10-15 years.

Revisiting past events:

In 2008-09, the peak Sensex reached 21,206. The collapse of Lehman Brothers and the Satyam scandal led to a market drop, hitting a low to 7,697—a decline of 63.7%. To put it simply, an investment of INR 100,000 would have fallen to approximately INR 37,000. However, within 1.5 to 2 years (by 2010-11), the peak recovered to 21,108,—an increase of 174% from its low.

Moving forward to 2015-16, the peak was 30,024. During this period, factors like demonetisation and GST implementation caused the market to fall to 22,494, a 25.1% decline. Again, within 1.5 to 2 years (by 2017-18), the peak surged to 36,444, marking a 62.02% rise.

Further along, in 2019-20, just before the COVID-19 pandemic, the peak stood at 42,274. The pandemic led to a sharp decrease, with the Sensex falling to 25,638, representing a 39.35% drop. Nevertheless, within 1.5 years (by 2021-22), the Sensex peaked at 62,245, reflecting a 143% increase (not considering the current level).

The pandemic was once in century event…we have seen it all in these years….

Most recall the crashes, but few remember the subsequent recoveries.

Some investors made their losses permanent by selling during downturns, while others viewed these as notational losses and continued investing through SIPs. Imagine if you had maintained your SIPs during all these declines; your CAGR would likely have been rewarding.

So what are our learning?

• View investments with a long-term horizon.
• Avoid Panic Selling: Continue SIPs during market declines to avoid permanent losses.
• See market downturns as opportunities to invest at lower prices.
• Goal-Based Planning: Continue investing as per your goal horizon and shift to non-equity funds as goals approach.
• These falls are key moments where wealth can be amassed, but they are unpredictable. By maintaining disciplined, consistent investments, you can automatically take advantage of these opportunities.
• To all new investors: If your investments appear RED, take it positively—you are buying more at lower prices, provided your investment horizon is long-term.

History shows that markets often recover and surpass previous peaks within couple of years. Therefore, it's essential to maintain a long-term perspective and view market downturns as opportunities to invest at lower prices, avoiding panic selling.

 This article has been created for educational purposes by gathering data from different sources on the internet. Please seek advice from your financial advisor before making any investment decisions.

                  By Ritesh Chaturvedi