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What I learnt from the great market crash
February 25, 2016

The article discusses the lessons that a particular investor learnt from the market crash of 2008.


Author : iFAST Content Team



 What I learnt from the great market crash

Market crashes come with a lot of imbalances in one’s cardiovascular system. True indeed, it is your hard earned money at stake, worse; it might also involve your entire life savings including your provision for retirement funds.

Most investors panic and take decisions hastily to exit the market before the heat gets to their investments.

But is that the right way forward?

The Sensex graph of 2016 seems to have a faint resemblance to that of 2008; at least this is what the layperson fears. Back then, many investors suffered huge losses. Indeed, it was a sorry state of affairs and the people who lost huge sums of money back then still carry the heavy feeling with them till date.

Even I, as a supposedly wise investor made a certain few mistakes that I deeply regret and swear to not repeat. Here are the lessons I learnt the hard way:

When the going gets tough, stay PUT:

The market crash caught me in a panic mode and, after a dip of 5175 points, the first thing I did was sell off 80% of my holdings in mutual funds – and what a mistake that was! I left the remaining 20% untouched (almost after placing a rock on my heart) just to see how worse it could get; to feel at ease that, yes, at least I saved most of my funds by exiting on time. I had retained 20% of my investments in mutual funds, that amounted to roughly Rs. 66000 (minus a few hundred) which today is worth Rs.3,25,900. This means, had I stayed put, my portfolio value of Rs.5,00,000 would’ve today been Rs.16,29,499 !

 

The graph depicts what my entire portfolio could have been had I stayed invested in the market till date


 


Lesson learnt:
I shouldn’t have sold because the market was crashing.

Do not invest contingency funds:

I thought I was a good investor until I realized I never had any savings for contingencies – which is why I panicked when the markets crashed. A good practice would be to save about 3-4 months worth of mundane expenses, bills and other fees. The market crash scared me no doubt, but that phase of dismay came with a huge unaccounted expense in the form of additional “school donation”. I couldn’t let my toddler face issues at school just because I didn’t begin saving for his education – another reason to pull out funds.

Lesson learnt: Always have contingency funds in hand, do not invest those funds and certainly do not touch those funds unless the situation qualifies as an emergency expense.

If you have the money – invest

Given the situation back then, it was obvious that I didn’t have the funds to pump into the market and gain from the bruising economic conditions. However, in retrospect, I wish I had the money to invest. This time around, the market conditions are shaky once again and I go by experience – I have started rebalancing my portfolio and investing further, to be prepared for the worst. 

 

Sensex Performance of Oct 2006-2009 vs. Feb 2014-2016

 

Lesson learnt: Instead of running out of the equity market, pump in more funds (leaving your emergency funds untouched).

These are the things I have learnt as an investor. I am certainly not going to repeat the mistakes I made back then, should there be a déjà vu for real!

 

 

 

 

 


Disclaimer: iFAST and/or its content and research team's licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's scheme information document including statement of additional information. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer on the website.Please read our disclaimer in the website.



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