Worried about the market fall? Here are ways to de-stress

Published: May 7, 2015 at 9:58 am

Last Updated on

So the indices fell the sharpest yesterday in recent memory. So the Sensex rose by 19% in the last year, but much of it was in the first 6 months. For in the last 6 months, the index fell by about 4%. Six months of a sideways market!

oh my! oh my! Is this it? Is the end of the ‘bull run’? Is this the start of a ‘bear run?’

If you had asked questions such as these in the last few days, chances are that your equity portfolio is quite young.

Welcome to the wonderful world of equity investing! That, my friend is how the cookie crumbles.

Here are some de-stressing suggestions:

1. Who cares?!

So the FIIs are pulling out. So there is no semblance of earnings growth.  Who cares? There are 100s of reasons for short-term movements. Equity investing requires faith, conviction and periodic review.

Faith and conviction that sooner or later industrial/corporate growth will have to kick in.

Periodic review is crucial but excludes following day to day market movements.

If you are worried as to why the market is falling, ask yourself how you reacted when the markets soared?

Snippets from Rudyard Kipling’s  poem if sound perfect here (a bit out of context though!)

If you can keep your head when all about you   
    Are losing theirs …….
If you can trust yourself when all men doubt ……
If you can wait and not be tired by waiting …..
If you can meet with Triumph and Disaster
    And treat those two impostors just the same; 
Markets reacted to the arrival of the new government in the hope of a recovery. Now they realized that change cannot happen overnight. In the meanwhile, practical governance has its own hindrances.
Voting for change is fine, in fact, that is what we should be doing every 5 years, but we must realize that change takes time and, well, co-operation.

2. Uninstall!

Get rid of any app in your mobile that updates indices or fund nav, portfolio every day. Grow out of the eagerness to find out the days gains/losses.

3. Unsubscribe!

Unsubscribe from your demat account providers daily market view updates. Same goes for portals like moneycontrol and the like.

Lesser the information, you have access to, the calmer you can be.

In fact, I think you should unsubscribe from all personal finance blogs, (especially mine) and get out of Asan Ideas of Wealth and all other facebook groups.

4. Understand!

If you wish to spend time reading about finance or otherwise, try coursera. Try analyzing past equity returns. Try understanding risk-return metrics etc.

Understand the nature if stock market returns. Understand how much it can fluctuate.

That is knowledge, not information. It will help you calm down.

The most important peice of gyan that I have understood is that, equity returns are clumped. There would be few years of highs, followed by several years of nothing. Rinse and repeat.

Therefore, all good things come to those who wait patience is a virtue, and all that sort of thing.

The most mathematical statement on the markets that I have encountered in plain english is from R Balakrishnan (CRISIL founder, analyst, organic farmer to name just a few):

“Equity will give you returns, but not when you want it too”!

5.  “Do you think everything will be alright in the end?

That is a quote from the film Mortdecai.

The answer from the movie is perfect:

“I couldn’t say sir.”

There are no guarantees with equity investing. Only people who sell or are clueless can offer you guarantees.

If want reassurances each time the market ‘crashes’ by 2% (which is as normal as they come), stay out of equity.

If you want to create wealth, if you want to beat inflation after taxes (even if gains from equity was taxed as 30% – a study by the late Parag Parikh), then you got to step in the roller coaster and stay put.

6. Let it be!

Do not monitor your equity portfolio if it is less than 5 years old (assuming you are investing for a long term goals several years away). Ensure you invest enough for you goals and let it be.

7. Say no to monkey business!

Forget about PE based investing, moving averages, tactical asset allocation,storing cash in liquid funds and other blah blah. Simply too stressful.

Invest what you can each month as per a fixed asset allocation and think no further. Let others break their head about investing tactics. Let them get a higher CAGR than you. Everyone is going to die anyway, so might as well adopt simple techniques and enjoy other pursuits.

Keep calm and MDBSC on!

Cracking under stress! By Bernard Goldbach (flickr)
Cracking under stress! By Bernard Goldbach (flickr)
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About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman 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. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com
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