Yet another day where the stock markets close on the negative. Business channels are already gloomy and there is a visible mourning with lots of red everywhere. What awaits us tomorrow morning is newspapers of all colours with headlines stating thousands of crores of investor wealth destroyed in a single day. Add to it words like crashes, tanks, tumbles and you have a perfect scary narrative ready to be served. Nothing sells more than fear and business news is no different. Welcome to the world of stock market crashes!!
Somewhere inside is lot of gyan on how to invest in current markets, how not to lose money and top buys at this level of market. The aam investor is already scared – so he pays extra attention to what has to be done now. He ends up following some expert advise without realizing it might not be the best thing to do at that moment.
Are the markets actually tumbling, crashing and sinking? Are thousands of crores of investor wealth being lost? To be precise, the answer is NO! The last few days has seen markets falling in the range of 1% to 2% on any day which by any parameter is very normal for any stock market.
So the real question is what exactly should the investor do? A quick look at the last ten years of Indian stock markets provide us with some interesting insights. Let us understand this with a story of two friends Ram and Shyam.
Ram is blessed with the best of luck. Over the last ten years, he invested on all days when stock market crashes by more than 5% on a single day. He made it a point to sell these investments after holding them for exactly one year from the date he invested. His track record has been that he has been able to make profits on almost 75% of these transactions and his average profit has been a phenomenal 23.2% p.a!!
Shyam is the unluckiest guy in the world. Whenever he invests, stock market crashes the very next day. Shyam also held on to these investments for a year. We can easily predict that Shyam would have lost miserably as all his investments were at a time when markets were ‘high’. To utter surprise, Shyam also made profits – an average of 14.5% p.a on his transactions!!
We all have a bit of Ram in us and a bit of Shyam too. It doesn’t matter whether the stock market crashes immediately after you invested. The only thing that matters is that you invest and give your investments sufficient time to work for you. If you have are already invested in the market, sit back and enjoy and for those who haven’t invested yet, there is no better opportunity to start as you are already late!!