#1 During the festival of Ugadi (beginning of a new age), we have the tradition of preparing a pacchadi (loosely translated to pickle) with a mix of jaggery, tamarind, raw mango, neem flower, pepper and banana. The mouth explodes with a rush of flavours, sweet and bitter. But we all enjoy the bitter and the sweet. There is much to learn from this, isn’t it? Think about it, every aspect of our lives have a mix of good times and bad times – career, business, personal relations and family. There have been times when we thought we were the most unlucky in the world and then times when we are on top of the world. In spite of the lowest of depths we never gave up, we kept fighting till things became better. No two crises can ever be the same. What remains constant is our knowledge that after bad times are good times.
It is the law of nature. Knowing this is not extraordinary.
#2 Some want to sell out when fear is at its worst converting a notional loss into a real loss. The moment they do that, they are out of the game. They can never get back in, and if they do it will be after the markets recover and are already high. To win the game, you have to stay in the game. Can you for a moment think it plausible that Federer would throw his racquet down and announce that he will re-enter the tournament when things get better? Ridiculous isn’t it? Stay the course to reach your goal.
This is a life lesson you already know. Recalling it is not an extraordinary measure.
#3 This is a black swan event. No one saw it coming. But when we allowed equity in our portfolio, we knew such falls can happen. Now that it has happened we should not waste the crisis. We have always taken advantage of an extraordinary rise or a fall to re-balance the portfolio. This is one more time that we will re-balance and add equity to the portfolio.
Re-balancing is par for the course, nothing extraordinary.
#4 We should not make the mistake of trying to predict the market. It is a waste of time and is mis-directed energy. Whatever be the tool one uses, no one cannot figure out how millions of market participants are going to think and decide. If the market metrics show that it is in value zone, go ahead and buy it. Even if it falls further due to those who do not realise its value, it will bounce back to fair value once more investors realise it (the value). When you are out shopping do you get scared to buy stuff at a discount? You don’t, and in fact you jump headlong into dumping stuff into your shopping basket!
Realising this is not extraordinary….you do it atleast twice a year!
#5 You have an asset allocation for a reason. It has only as much risk exposure as you can tolerate and not to unduly effect the outcome…..at the time the outcome was planned for. For those who are conservative, remember that the maximum exposure to equity is only 30%. It is only that portion of your portfolio that is subject to so much volatility. Not all of it. The 70% is safe and growing. Those who have more than 30% equity also have more time on their hands, and do not need to draw on the portfolio for a couple of years. Enough for things to get better. The world will do it, not you.
Sitting back is simple….nothing extraordinary about it!
Fight well, and Keep faith
T. Srikanth Bhagavat
Managing Director & Principal Advisor