How to handle the market downturn?

__God, grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference. __

This prayer sums up the required action points during the market downturn as what is happening currently. So, let’s understand what we can and should do and what we should accept and let that be.

This is the culmination of what I experienced during my 25 years of career in the field of investments, readings of some of the fantastic experts in this field and observation over the years of what great investors did and continue to do. So here is the list of things-

First of all, the things that you need to accept and carry on-

Let’s accept that you can’t time the market. Period- I saw investors continuously repenting the lost opportunities. Just the other day, I was talking to one of my clients and he said- Manoj, I knew the market would go down and I told you so as well. I should have got out of my equity and now reinvest again. Earlier, investors were saying that- I knew the market is going to go up and I should have invested my entire amount in equity. I lost the opportunity. So here you are!
Please accept the fact that you can’t predict the market. No one can. So, stop beating yourself. It’s not your fault nor your advisor’s fault. No one knows the future, no one knows the movement of the stock market. It’s not in your control so gracefully accept the fact that the market will go up and down from time to time and make yourself mentally ready for the unpredictable nature of the market.

Let’s accept that your portfolio will go down from time to time- When market goes down, your own portfolio goes down simultaneously. You have to accept this. I tell my investors that mentally be ready that at least once in your lifetime your equity portfolio will go down 50%. This resilience is crucial for investors. When market continued the upward journey for 4-5 years then people forgot that the market does go down also. And sometimes they remain low for substantial time as well. This mental fortitude is extremely important for investors to navigate the downturn.

Let’s accept that not all asset classes perform equally- Till 6 months back, I was so tired of explaining my clients why you need to keep debt funds! They regularly complain,Manoj Ji, why you kept debt funds in my portfolio. They are clocking 6-7% return whereas my equity funds have been generating 20% plus return. If equity continues to perform poorly as has been happening for the last 6 months, some of the clients may complain, why should I continue to hold on to equity when debt funds are giving better return! You have to accept that some or the other asset class will perform better than others. Sometime its equity, sometime its debt, sometime its gold and sometime its international equity. You don’t need to chase the best performing asset class; you need to include all the asset classes. So, you need to humbly accept that every asset class is important for your long-term wealth creation. You don’t need to have either-or, you need to have all.

So that was the acceptance part. Now let’s see what you need to control-

1) Asset Allocation- Even at the risk of sounding cliché, let me repeat again, you need to have the right asset allocation to make your portfolio all weather portfolio. Yes, you cannot control the market, you cannot control the interest rates and you cannot control the market timing ,but you can certainly divide your investments in equity, debt, gold and international equity. Also, there is no right or wrong time for right asset allocation. Every time is right for asset allocation. In fact, you need to revisit your portfolio now and ensure that it has the right asset allocation as per your goals, time horizon and risk profile. Do this exercise today itself.

2) Positive self -talk- How you talk to yourself makes a huge difference to everything you do or experience. If you are in a traffic jam and keep cursing it then you are unnecessarily creating stress for yourself. If you instead say that traffic jams don’t bother me, I am relaxed, alert and positive. Then you will experience a different energy and resilience. Similarly, in the wake of market downturn, don’t keep reminding yourself, oh I lost this much, I lost that much. Instead say to yourself- the market has always been experiencing such ups and downs. I was always mentally ready for such downfall. My SIPs are getting more units. I don’t mind if market remains low for some more time because I will keep getting better opportunities for buying. This self-talk will create a magical impact and suddenly you will see market downturn as a good opportunity rather than fear it.

3) Your Savings- Can you control your expenses? If you remain alert then you can certainly find various areas where you can reduce your expenses and thus increase your savings. Especially when the stock market is low, make a vow to sow the seed of your long-term wealth. Promise to yourself that during the downturn of the stock market, you will increase your savings. I think if you are creative enough, you can find ways to reduce your expenses, increase your investments and take advantage of the lower market.

Friends, situations are not exactly good or bad but our reactions make them so. Even the down period of the stock market can be benefitted by using the steps described above. So, make the downturn a period of “Blessing in disguise”.

Manoj Pandey
CFP