Received the following question over email this week from one of our early investors. It is a very pertinent question - one that all investors and advisors run into every now and then, hence sharing it and my reply.
Thanks for your note/ blog on demonetization affecting market. This is certainly helpful for novice investors like me.
Recently, I came across the following article from an expert (saying markets could go down another 10% in 6 months ) and it has forced me to think -
If the mentioned analysis is true what should be the best strategy? Should we stay away from market for upcoming 6 months and wait for it settle down and then restart investing? Please suggest and share your views.
My two cents -
Thanks a lot for your email. The expert quoted in the article you mentioned is indeed a very accomplished analyst. However I personally don't set much store by such articles, because:
1) Every year there are many people who predict a crisis. By default, some will be right when a crisis actually happens. I am sure he saw it coming in 2008 (and so did a lot of other people- watch the Big Short!) but that doesn't mean his accuracy is going to be 100%.
2) The same analyst in May was predicting Sensex going down to 22,000 by year end but by August was saying next 12 months are good for equities and Sensex will be at 29,500 .
You can find such articles dime a dozen (my own being one of them). Every analyst by virtue of her job will have to make some such prediction for the near-term. No one likes an analyst who can't predict. We are all suckers for it.
The truth is that the markets will do their own thing, analysts will do their own. Don't think too much every time you come across such articles. This is just business as usual. :)
3) Now, let's just say I believe the forecast. Which means that I believe that the market is going to go down another 10% from here and then rebound - I would be buying periodically to take advantage of that and not selling/stalling.
4) But more importantly, forget the analysts and markets and have your own benchmarks. For example, my benchmark is how disciplined I can be when investing. If I skip my SIP for a couple of months, even though I may side step a 5-10% fall, I will count it as a failure to be disciplined. Another benchmark I keep for myself is how much I can save. These two things combined (savings + investing with discipline) will beat any fine-tuning that I can do otherwise (especially when the basis of such fine-tuning itself is dubious).
If today I get an opportunity to go back and invest more at say 2010 prices, I will take that with both hands. I wont bother waiting for another 10% discount on that. This is what we will feel for today, 6-7 years later.
As I wrote in the blog as well, economic events, markets going up and down and analysts making forecasts are all business as usual for them. The sooner we make it business as usual for us, the better off we will be.
Hope this helped. Feel free to write back if you have any questions at any time :)
Have a question regarding your investments? Feel free to write to me at firstname.lastname@example.org or leave a comment below. :)
Invest in goals, not markets. :)