Lets go over what the typical investor was thinking over the last 18 months, from the peak to the current recovery phase.

Jan 2008 – Whopee, I am getting rich. Just need to keep buying and selling and trading and I can retire! I am a genius!!!

March 2008 – I knew the market was overvalued, but then I am long term investor. So I am going hold onto my stocks during the this drop, maybe even buy more

Aug 2008 – The market is climbing again!! the bear market is over.

Nov 2008 – What happened ?!! oh boy, why did not sell in august. I have lost too much money. No point in selling

Feb 2008 – This is getting bad. Let me salvage whatever I can and move to fixed deposits. Even the CNBC guys are saying that

April 2008 – The market has risen a bit, but I am not worried. The market will drop once the election results are announced

May 2008 – The results were a surprise and missed the rally. I should have bought in Feb when the market was cheap. Let me wait

Jun 2008 – let me wait for the market to drop

July 2008 – Let me wait for the market to drop
….and the mental circus continues

I know I am exaggerating, but I know there are a lot of investors who went through the above mental roller coaster and will learn all the wrong things like

–        The market is a casino and one has to be able to predict the market in advance to make money
–        I should take more risk and should trade more frantically to make money
–        One needs to be glued to the TV to make money
–        All the losses are not my fault, though the gains were due to my brilliance

I have myself gone through some of the above emotions in the past. There is nothing wrong in experiencing all kinds of conflicting emotions during such volatile times. It will however not do an investor any good, if he or she does not learn the right lessons. Let me state a few things I learnt from bear markets in the past

–        There is only one person to blame for your losses – you
–        There is never a good or a bad time to buy stocks. If you can find a good company, which is undervalued, buying is a smarter decision than guessing what the market will do.
–        Prepare in advance – I have been guilty of being timid in the previous bear market. During 2001-2003 bear market, I lacked the self confidence of investing a meaningful amount of money even though I realized that the market and stocks were cheap. The reaction is understandable if you are new to the market and have suffered losses. After the bear market ended, I realized my mistake and make a mental plan of how much capital I would commit when the inevitable downturn came. During the current downturn, I was prepared psychologically to go ‘all in’ when the valuations became cheap.
–        Stop listening to markets forecast and silly predictions. They will cost you money in the long run
–        Learn continuously. You may make money by luck in the stock market, but will not keep it.
–        Stop looking backwards – I should have or would have done this is not relevant. The question is – knowing what I know now, what do I plan to do?

4 Comments

  1. anurag says:

    Dear Sir,

    With all due respect,The above article gives a impression that this is the time to buy,which I feel is a bit dangreous thing to do at the moment..

    I personally did not think that an seasoned investor like you shld be doing at this moment.

    If you have written this article when nifty was at 3900,then I would have really appreciated your thoughts.But Nifty at 4650 levels,does not give a clear cut BUY signal.

    A rookie like me shld never attempt to time the market,but Iam tempted to mention the following.

    Nifty upside=300 points
    Nifty Downside=1000 points

    After Nifty goes to 4900+ levels,It will start correcting till 4000 Levels and this correction will start somewhere on 14th or 16th of Aug.

  2. admin says:

    Hi anurag
    i have not mentioned anywhere in the post that this is the time to buy. i am not technical analyst and have no clue what is the nifty upside or downside and when the upside or downside will happen.
    i also not worry about the downside and upside of market.
    my point is this – if you can analyse a company well and know what is the intrinsic value with reasonable estimate, and if the stock is cheap then buying is a better decision than waiting for the market to drop.
    my holding period is generally 3years or more, so whether the market will drop in august and rise in september will not impact me in the long run

  3. anurag says:

    Dear Sir,

    Thx for the reply.And your view is taken in good spirit.

  4. Santanu Rakshit says:

    Through my self experience I have felt over the years that being a systematic investor over a long period of time is always the best option in stock market.

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