Wise Wealth Advisors

D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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This is bear market

Posted by Muthu on October 5, 2018

I’ve been writing every week for last few weeks. Even if I miss writing in bull markets, it is fine because things are rosy. Bear markets are painful and I need to reinforce few basic tenets of good investing.

I was reading this piece last evening. There is no hard and fast rule for definition of bear markets. Generally it is said that a fall of 20% or more by index is bear market.

Index is yet to fall 20%. But a third of all stocks have fallen by more than 50%. Another one third of stocks have fallen in the range of 25% to 50%. The BSE smallcap index is down by more than 30% and BSE midcap index is down around 20%. If this is not bear market, then what is bear market? This is my understanding.

Your portfolio consists predominantly of multicap funds. Considering the above brutal carnage, the fall for you have been bearable. This is because we create a portfolio keeping in mind bear markets as well. We never suggest smallcaps. We don’t go overboard on midcaps. Our preference is always for multicap. Equity by nature is very volatile. Pure mid and smallcap are extremely volatile. Anyhow multicaps also have decent exposure to midcaps. We should not only focus on returns but what we undergo to earn that returns. Pain is inevitable. But we should not make it more painful than necessary.

Yields have hardened a lot resulting in hybrid like balanced and MIPs also not doing well. This year has been very rough both on equity and debt. It is difficult to predict how much more pain is left in the system. We’ve no ability to predict tops and bottoms. It is good that our memory is short. In your investing journey of more than a decade with us, you’ve faced similar situations but may not remember now because markets have always recovered.

In the long run markets only keep going up. It is never a linear movement. For two steps forward, market again a take a step backward before moving forward again. As we repeatedly mention, markets are up 70% of time (in years). There is no way to avoid the remaining 30%. Bear markets are painful and gut wrenching. Though we cannot avoid pain, we need not react to the same. We make temporary losses into permanent one if we react with panic.

We’ve not faced any redemption or SIP stoppage due to current fall. This shows your maturity. Our aim is to ensure you stay the course despite ups and downs and earn the good long term returns which markets offer. I would like to repeat again that try to avoid looking at your portfolio now because it would be very painful and pain sometimes bring undesirable reaction.

What we are going through is very normal. This is how markets behave. No pain no gain is applicable to investing as well.

In nutshell, avoid looking at portfolio, don’t panic and stay the course remembering this too shall pass.

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