When every index worth its while comes down crashing, I suppose it is a difficult time for all who have some market investments, Vishal and Suhas included.
The past 1.5 years have been a great learning for me as far as markets is concerned. (When you have internet and no work and all social networking sites are blocked, I suppose watching the market rise and fall is a great hobby) I started investing officially sometime start of 2007. I did not know anything about the market when I started. So I stuck to mutual funds. One thing led to the other and I ended up with a bunch of funds by end of the year including a tax saver fund bought when BSE was at 21000 :) Oh yeah a demat account to trade shares was opened on 3rd Jan 2008. By end of 2008, I have seen, learnt and understood (hopefully) how the markets work! Wonder if it all were staged just for me ;-)
The stocks I thought had hit the bottom and bought started hitting new bottoms the next day. The stocks that I thought reached their peaks and exited started rallies or stayed put there! Well if only I sold the stocks I bought and bought the ones I sold, I'd have been a great investor now ;-) When I login to my demat account these days, it asks me 'Bharathy, do you really, really really want to see your portfolio? Are you sure?' and then shows me the shades of darkest reds possible!
Ever since I bought my first mutual fund, I started advising everyone I know to put their money in the market ;-) One of my managers at Dell – in spite of being a financial risk expert and years of project financing experience – says a strict no to markets. I tried to convince him it was a great way to diversify his funds… I am glad he didn’t listen to me. My dad, a wonderful banker – doesn’t have a demat account – except for managing my sister’s account once in a while. Another person I tried to convert and failed. My previous functional manager – another guy who saved his money by not heeding to my advice :D
When you see a 10K investment grow to 16K on your first fund in under one year, you tend to do that! You don’t start asking a 'Why' when you haven’t seen downsides at all... You don’t start by asking 'What is your financial objective' or 'What is your investment timeframe'. You just 'invest' at 60% per annum!!! You talk about 'concentration' putting eggs in a single basket. You start giving financial advice to every single person you meet in the cab. And yeah, one of the cab conversations I overheard – when two salesreps where talking… One said ‘stock market is a great thing. We all must start our demat accounts. Even if we get JUST 5000 per month, its extra money, no?’
When Sensex went down to 19000 from 21000, I was in a deep asset allocation dilemma. Whether to extend my loans and invest my money or just pay the loans off with the spare cash? Of course the market had a 'crucial support' at 18924 ;-) Somehow my instincts led me to believe 'even if you miss a 50% investment opportunity, you meet your obligations first' - that old fashioned scenario of giving up 'investment' opportunities to clear credit first you know! So, I finished off my earnings in paying back loans and missing great opportunity at 18000, greater opportunity at 16000 and whatever at 14000.
I loved ‘One up on wall street’ by Peter Lynch when I read it first. Now, I am thinking of making it a Bible for financial markets. When I read it in late 2007 where the markets were up up and away, some of what he says looked like a bit outdated - like pearls of wisdom from the past century. Of course this century is the technological marvel… You can just make 60-70% a year just like that! Now with sensex down at 10000 odd from 21000 odd a year ago, those pearls remain pearls instead. I also get reminded of reading Warren Buffet say most people get rich by investing in them than by trading in the stock market... May be that is true as well.
One thing that strikes me so hard over this period is the brokerage ratings - when sensex was at 21000, they predicted 28000 by year end. Now the same guys say 8500... ICICI bank was a great buy at 1200 with a target of 1400. Yesterday its price was 300 odd. Well that’s why Lynch says 'Analysis' has to be done by self. Or maybe just index investing is a good strategy without much analysis... Ya, some difficult time this is - to clarify for oneself what one wants to achieve financially!
I wonder about all those 'early retirement' guys. What are they doing now? Whatever would have lasted for 40 years they thought would now last only 20 years? May the best way to retire early is to get a job you love - you just don’t have to work a single day!
I got my peak of fears when I saw 300 people queued in ICICI bank to withdraw their savings. I did not have much left to withdraw is a different issue, but that is even possible! In today's technology and advancements in finance, that is a possibility one should consider. It was worse than the only bank run I've ever seen (in 'Its a wonderful life' movie). While I'm worried about my job, the better half's job, the economy, the slowdown, the crisis, I am thankful in a few ways...
I am glad - none of my father's or grandfather's savings are there in the market. For them life is as usual - at least financially. Just fighting inflation is all they have to do
I am glad - I had seen 'a black swan' right at the start of my investing history (in just a year and half that is). Now I know what is possible... atleast I will account for it somewhere.
I am glad - it happened when I am near 30 and not when I am near 60.
Thank you Peter Lynch, Warren Buffet and Taleb for educating me by your words, SUCH crashes are possible.
Thank you God for everything else :)