Worried about 2% single day fall in indices? Be ready for more or leave!

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On Feb 2nd the day after the budget, the Sensex fell by about 2%. If you this is a “big fall” or if you are worried, you only have two choices: get used to it and be ready for more or leave and head to fixed income. The following charts were published on Mar 11, 2015, after a similar 2% fall on Mar 9th, 2015. Nothing has changed!

Looking at investor reactions, I am now confident that if there is a sustained fall, most of them will not add more to equity. Good. Only the fittest survive.

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On Monday last, most Indian stock indices ‘crashed’ by about 2%. Immediately the media  wrote columns as to why this occurred.  The next day there were hand-holding articles as to why one should not be scared of such market movements. A case of, ‘pinch the baby and rock the cradle’.

Here is a series of Nifty graphs in this regard.

A single-day fall of 7% or more

nifty-fall2

We have had a 12% fall and ~ 8% fall in the middle of a bull run (Jan 2004) and another ~8% fall in late 1998.

So, the next time there is such a single day fall, can we assume the market has crashed and that we are heading towards a bear market?

A single-day fall of 5% or more

nifty-fall-1

Should be cut our losses and exit when there is a 5% or higher fall?

A single-day fall of 2% or more

nifty-fall3

A single-day fall of 2-3%

nifty-fall4

Does this put Mondays ‘crash’ (rightmost red dot) in perspective?

If it does, keep calm and MDBSC* on

If it does not, if you feel compelled to fret over the reasons for the fall, if you need hand-holding and reassurances that ‘we are still in a bull market’ and that ‘all will be will’, get out of equity today and stick to fixed-income products.

‘Wealth creation’ is not for the faint hearted.

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About the Author M Pattabiraman author of freefincal.comM. Pattabiraman(PhD) is the author and owner of freefincal.com.  He is an associate professor at the Indian Institute of Technology, Madras since Aug 2006. Pattu” as he is popularly known, has co-authored two print-books, You can be rich too with goal based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management.  He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. Pattu publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year (2.5 million page views) with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis. He conducts free money management sessions for corporates  and associations(see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints, TamilNadu Investors Association etc. Contact information: freefincal {at} Gmail {dot} com (sponsored posts or paid collaborations will not be entertained)
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2 Comments

  1. Really! When I see ‘bloodbath’ being thrown around casually I do SO want to roll up a newspaper and whack the writer on the head.
    P.S. MDBSC full form (My Dull and Boring Sips Continue) is missing in this artcile.

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