Hi guys
This is how I think about the situation :
To me, there are 3 kind of bear markets
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Structural – Country and hence GDP is in decline. Inflation could be increasing dramatically, policies could be weak and the justice system probably flawed. Obviously, It is best to avoid investing in such countries
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Cyclical – This happens when the leverage in the system is extremely high and a situation of over supply is created through mindless capex. This was the situation in 2009. Usually Sensex earnings would have grown well in the past, market cap/GDP, PE and other macro indicators would indicate optimism
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Demand side – This is mostly an event based shock that dramatically increases the uncertainty in the near term. People are confused and in the chaos, action freezes. Examples would be Demonetization, GST, War, Health issues amongst others
Based on the above, it is clear to me that we are experiencing a demand slowdown based on a completely unpredictable event. The claim of the Sensex being overvalued (before the coronavirus scare) on a PE basis does not make sense, since we did not experience an increase in earnings in the recent past. Which is why on a P/B, Market cap/GDP or dividend yield basis, at best we were fairly valued.
I am currently witnessing two kinds of portfolios;
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The investor was already fully invested before the Coronavirus scare. In this case it would make sense to switch from weaker business models to stronger ones, keeping in mind the valuation differentials. And then just sit tight, shut shop and do some other work in life until this scare is over and done with
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The process of the investor enabled him/her to raise some cash in 2017, when markets were expensive in general or the person has currently accumulated cash through another source (a job, liquid funds etc) . In this case, either staggered buying on dips or buying once the trend of lower tops and lower bottom breaks would make sense to me.
According to me, once the market even has a whiff that humanity has figured a way out of this situation, it will go up with the same speed it has dropped. Which is why sitting on cash and waiting for some clarity to emerge could mean that you sold at exactly the wrong time. Feel we need to make sure that whatever approach we use, our cash is at play whenever markets reverse. And we all know everyone is trying to think the same way and time their last rupee, right to the bottom of this downturn. So either we remain completely invested throughout the madness, knowing very well that no matter when we buy, the prices will go down further or then we try and get in really early once there is some form of clarity (tough but maybe possible)