Worried about a 2% single day fall in indices?

Published: March 11, 2015 at 10:16 am

Last Updated on

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?

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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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8 Comments

  1. Not indeed for the fainthearted, but for the shrewd and brave. If there were a 12% fall now in index(and usually that means somewhat more fall in fund NAV or some direct stocks), how many of us would still remain in the market? Some would vow to exit as soon as they get their capital back(on a notional loss!), and not come back to markets in their whole life. The bravehearts may increase their stake in the market(maybe in the company that fell most, which is also foolishness unless one has a good reason). The truly shrewd person would remain “Sam-buddhi” (level headed) among such chaos and hunt for opportunities. Probably an HUL or a Gillette, or a Colgate or some other great company can be found at a good price then.
    This is also the one should always have some cash that can be quickly mobilized to take advantage of such opportunities.

  2. Not indeed for the fainthearted, but for the shrewd and brave. If there were a 12% fall now in index(and usually that means somewhat more fall in fund NAV or some direct stocks), how many of us would still remain in the market? Some would vow to exit as soon as they get their capital back(on a notional loss!), and not come back to markets in their whole life. The bravehearts may increase their stake in the market(maybe in the company that fell most, which is also foolishness unless one has a good reason). The truly shrewd person would remain “Sam-buddhi” (level headed) among such chaos and hunt for opportunities. Probably an HUL or a Gillette, or a Colgate or some other great company can be found at a good price then.
    This is also the one should always have some cash that can be quickly mobilized to take advantage of such opportunities.

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