ULTIMATELY, you cannot really lose money in the stock market! If you have, then either you have not been in the stock market long enough or you are in the process of getting the most expensive education. In the last 15 years, I have portfolios earning about Rs 5 lakh from share dividends alone against others who started with Rs 5 lakh and today owe the broker about Rs 3 lakh.
When the markets, Sensex moved from 4,000 to 7,000 points, people thought it was a bubble and many sold out by the time it reached 12,000 points. A huge majority lost the run from 9k to 16k. Seeing their folly, many entered around 17-18k levels and in two months, saw their portfolios doubling. Greed peaked, speculation peaked and the fall shattered millions of dreams.
Is there someone sitting on profits today? The answer is a resounding yes! Here are examples. HDFC was quoting at Rs 300 in 1999 and touched about Rs 3,000 earlier this year. Today, it’s at about Rs 1400 and that too after a 1:1 bonus. Hence, the actual price being Rs 2800. ITC was at Rs 100 in 2003 and today it is at about Rs 200. L&T was at Rs 400 in 2003 and today it’s at Rs 800 and that’s after a 1:1 bonus. L&T touched about Rs 4,100 earlier this year. Sun Pharma was at Rs 200 in 2002 and today it’s at Rs 750, again after a 1:1 bonus. The Reliance group de-merger happened when Reliance was at Rs 500 and today the total value of all shares of both Reliance groups is around Rs 3,000. The list goes on…. Much of this happened in the last five years. Imagine if you were holding these shares for 10 or 15 years.
If you have lost money, then have a hard look at your holdings. It is time to be patient if you hold good companies. They will come back. If you do not have, then no point worrying about what has happened. Shift to better companies. Shift to business models that have been around successfully for decades. Shift to companies whose businesses make sense to you. For example, would you buy a real estate property where the price doubled in one year? You know it’s exorbitant and unrealistic, so why would you buy shares of such a company?
How does one handle the current situation?
Firstly, understand that inflation is an economic parameter which is dependent on many other factors such as demand and supply of goods and services, interest rates, government policies, etc. All these movements are something we have to live with.
Secondly, understand business and economic cycles. Without making things complex, all I want to submit to you is to remember the old adage — good and bad times oscillate. But you must be prepared for it.
What should you be doing now?
1) Use profits to prepay loans.
Inflation and high interest rates make loans expensive. Consider prepayments. Such prepayments should be made only from profits. And profits come from investments. Profits do not come from the savings you made in fixed deposits and similar so-called “safe” instruments.
2) Invest aggressively.
Most people think this is not the best time to invest in the stock market. The same people will return when markets touch 20,000 or more. Increase your investment budget now if you can.
3) Keep your financial goals in perspective — always!
a) If your goals are to achieve something in one-two years, avoid equity.
b) Between two-four years, consider dividing your assets between equity and debt in the ratio of 60:40 or 70:30 or similar.
c) Over four, five years’ goals can move to equity markets.
d) All the same, I am not only advocating equity investments. Find something else that has the capability of giving you returns of about 5% to 6% more than inflation and invest in that category.
The probability of getting 12% to 20% average returns over five-seven year period is highest with equity investments and this is a known fact proved across the world markets. Needless to say, patience, financial discipline and resilience will always be amply rewarded.
If you still don’t believe this, mark this day and make a fictitious investment of Rs 1 lakh in your mind into some diversified equity fund or in the index. Forget it thereafter and compare the value five years later.
Inflation, economic turbulence, adverse government policies, failures, scams and all other bad things will be there always. You need to be able to steer clear and it is only you who will be ultimately responsible for what do you for yourself, your family, for your children and their children.
