Beginning of March, around Holi started speaking to some Market veterans I resonate with and who have seen 2-3 market cycles of this nature. Till then even I was in the sanguine camp, and largely ignoring the “extreme danger” “completely uncharted territory” signs being regularly planted by one of our most experienced members @deepinsight
I quickly realised the response that came almost universally from these astute folks was clear. This is no time to be DEFINITIVE. It was time to create and preserve ammunition. We need to have a better grip on 3 things before we take a position either way
a) Is the India curve going to turn exponential
b) When will the western curve flatten out/elongate - what timeframes
c) Combined economic response of all countries/central banks
Till then we should acknowledge we DON’T KNOW! Watch closely with care to identify above for a better grip on a continuously evolving situation - where no rules, apply. I had some ammunition, but not enough, so decided to purge Portfolio of all non-core bets.
Our @hitesh2710 summed it up nicely, on actions of some trigger-happy friends
There are no additional benefits on being the first-off to buy even if we get it right. Once the sentiments change they will be evident and clear to see. Next 2 weeks remain crucial for india as community transmission/containing takes centre stage.
I’m taking the liberty of selectively quoting Akash Prakash from this BS article Market Meltdown and the Virus! 17 Mar 2020. [Will write to him for permission]
This, however, is unlikely to be a typical recession, as it is a sudden stop to the global economy. Many sectors are going to face severe stress, as consumption evaporates and supply chains collapse. We have no idea how long this will go on. The central banks cannot solve this crisis. It requires action from government. This is primarily a public health crisis, which will morph into a financial crisis. Before this ends, we will most likely see bailouts of the airlines, hospitality and leisure industries.
For India, if we can manage to keep the virus under control, then this will be a buying opportunity. India benefits from lower oil prices, enhanced global liquidity and record low rates. We have been in a slowdown for more than a year, and are not as closely aligned to global supply chains as other countries. The huge redemptions in the EM world (last month has seen outflows of $36 billion) have hit India equally hard, as much of these are passive flows. Some of the tail risks for India are finally being addressed. Much of the corporate clean-up has been done. Valuations are coming into a more sensible range.
If India sees a spiral in cases, then we have a problem. Otherwise, this is a buying opportunity, with a significant longer-term upside. Take a breath and hold your nerve.
The other side of the coin now. There are many friends invested primarily in small caps. They knew they have to purge heavily, but it is very very difficult to have that inner conviction when you see such daily big routs, while hoping against hope for some respite like last Friday’s. Ammunition can be gathered, but at very heavy drawdowns!
I got back to the same seniors to ask what should one do if in that position, in such an unknowable situation like current. Again it was mostly a common refrain that at such times, we have to look at a decent survival first, to fight another day - which by all accounts - if we extend the timeframe - there is huge huge opportunity down the line, which can set you up for the next decade. One can also sell other assets from the overall asset allocation pie to take advantage. Take Loans from family (at zero interest). But all that can happen only if you bite the bullet and ACT to take losses on the chin, bravely. Yes, it takes guts, they said. Inaction is easy, but can be damaging, psychologically.
If you read Rajshekhar Iyer (I am sooo impressed) Interview in Masterclass With Super Investors, by Saurabh Basrar and Vishal Mittal, you might find very useful practical actionable guidelines on limiting drawdown losses. In essence this is what he says " Drawdown Management requires good risk management processes, and decisive decision-making. You have to survive to succeed. He has elaborated quite a lot on how he built his drawdown risk management processes.
They also say this is also the opportunity to work very hard at preparing ourselves for the coming opportunity - but with a peaceful, calm mind. They said you can do that, only if you are at peace, having purged portfolio of all non-core. That’s the only way to sleep well at night, rise up every day with renewed energy, dedicated to do a good job - for the next phase of the market.
I can certainly tell you from my personal experience of last 2 weeks, that yes I have slept very well since having purged my portfolio of non-core bets, with losses.
VP’s most experienced, but reclusive member @deepinsight put it this way, again today.
Wait for things to play out. Wait for personal clarity. See who are the eventual winners. Only then invest.
Presently the time is only to survive and play the losers game.
You win the losers game by not making mistakes!
I am hoping to get the more experienced Market hands to open up here, and advise the community on how to handle current situation, better. The Community will be grateful for it, and their showered blessing will see them prosper more in the next phase of market!
Will try and Invite more seniors inside and outside to contribute here. I am sorry that despite my pushing & pleading I could not make that happen (earlier). And I was too reluctant to pen down anything myself, without getting some inner conviction for myself, which I evidently have now .