I keep receiving questions from readers about what they should be doing with their investments, and more so when the markets are falling. Here is my attempt to answers a few such questions I have received over the past few days.
You won’t find perfect answers below, but this is just my attempt to help you get over your fears, which may otherwise lead you to act in haste, which can cause some damage to your process of long term wealth creation.
Let’s start right here.
1. Why is the market crashing?
It hasn’t crashed…so far! The BSE-Sensex is down just 11% from its peak one-month ago. And so are the BSE-Smallcap and BSE-Midcap indices. 11% down isn not a crash!
If you think it is, you maybe be suffering from ‘denominator blindness’, which is the tendency to focus on the absolute number than the percentage decline. Or you just seem to have been spoilt by rising markets over the past few years, that a 11% fall seems like a crash.
I still see rampant speculation and short-termism around. Like Warren Buffett said at the recent Berkshire meeting –
My general assumption — there’s no way to prove it — but essentially, people are now behaving somewhat more tribal than they have for a long time. It’s fun to participate in, but it can get very dangerous when people say two plus two is five and the other says two plus two is three, you know, and they’re gonna give you those answers.
I also see companies with extremely poor financials and track record are quoting at market capitalisations and valuations more than much established, profitable, dividend paying companies. So, we are still not on a slippery slope as of now.[Read more…] about Should You Sell in May and Go Away?