COVID-19 is a strong disrupting force and is likely to leave an indelible mark on the history of mankind.
While there will certainly be a time free from this pandemic, there will be lessons taught by it that will never fade away, or at least, they should never be ignored.
In the world of investing, there is a popular saying that market crashes should be seen as opportunities to lap up quality stocks. This may be true even for now and other than this, there are several lessons that must be kept in mind when you embark on the journey of investing.
Periodic review of asset allocation
Don't put all your eggs in one basket. The idiom should be abided by as a thumb rule if you want to become a successful investor.
But, only diversification of investment will not help unless you do a periodical review of it as it will help you rebalance your asset allocation.
"Periodical review and rebalancing your asset allocation will help you to take profits when a particular asset class is bubbly and deploy that fund in other asset classes that have not seen that kind of a run. Also when a particular asset class suffers a selloff, it will make you relook and invest some money back into that asset class," said Deepak Jasani, Head Of Research, HDFC Securities.
Jasani added it is high time that you make one considering your risk profile and lifecycle stage. Within the equity asset class, a proper mix of large-caps, mid-caps and small-caps needs to be maintained and reviewed.
Be an active and prudent investor:
There is always an element of risk and uncertainty in investing but they can be reduced if one takes a well-calculated call and avoids getting carried away by greed and fear.
"Do not rely too much on media and fund managers, especially at bubbly times. Also, the government and regulatory functionaries are normally expected to douse fears and hence their words, too, need to be taken with an element of skepticism in troubled times. Try to control the emotion of greed and reduce leverage as indices keep rising," said Jasani of HDFC Securities.
Avoid the herd mentality:
Have you ever wondered why only a few people become successful investors and they follow different investing styles?
Herd mentality can be fatal for investing.
During the time of market rally or corrections, a large chunk of investors rushes to experts to get cues on the trend. Since the main objective of investing is to gain profit and minimise losses, investors tend to embark on panic selling.
But there is always a thin line between panic selling or taking a good call. One must try to assess the ongoing trend and be judicious before going with the flow or taking a contrarian move.
For instance, in the last few days, many experts were claiming that the market will fall further, but the market showed resilience and moved up. Even the breadth of the market has improved.
Hoping against the hope:
Investing always requires patience and prudence and to some extent hope too. But hoping against hope can never be termed as a prudent strategy.
During the outbreak of COVID-19, many investors thought some pockets of businesses will remain firm and will be less impacted by the sell-off. The trend, however, shows that the sell-off was widespread and only a few stocks could withstand it.
"Hoping against hope cannot be considered beneficial in most cases. Notably, the USA and Indian benchmark indices are still down by nearly 18 percent and about 24 percent, respectively, from their February 2020 highs and hence, we still consider the recent rally as a relief rally in the absence of formidable resolution of COVID-19 crisis," said Lav Chaturvedi, ED & CEO at Reliance Securities.
Hope is justified in most cases, but blind or irrational hope can erode the value of your investment.
Bluest of the blue-chip is fall-proof?
The coronavirus pandemic showed how big this myth is.
"Who says bluest of the blue-chip is fall-proof’? It’s a blunder to assume that anything is absolutely fall-proof in the market. Had that been the case, all the historical blue-chip companies would have been still existing and going strong," said Pranjal Kamra, CEO, Finology.
Kamra pointed out that as a matter of fact, 22 companies that were a part of Nifty50 in 2008, are no more there. Many of those companies are now either bankrupt or on the verge of it.
Aamar Deo Singh, Head Advisory, Angel Broking concurs to the view.
"The belief that the bluest of blue-chip is fall-proof is mistaken. Markets change and stocks change, what was once a blue-chip might not forever remain so. Focus on quality and growth, rest all will fall in place. And neither of this is permanent for any stock as the business landscape becomes as dynamic as ever,” he said.
One's investing style can be different but the basics of investing never change. COVID-19 is an opportunity when we revise the basics and keep the lessons in mind.
Don't change your long-term financial goals just because the market is going through a bear phase. You need to remind yourself about why you invested in those stocks.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.