In today’s episode, we are going to talk on the Dos and Don’ts of navigating a Bear Market.
Hrishi K: Hello and welcome to another episode of NSE Presents: Invest – O- Cast (An exclusive investor podcast) Powered by MoneyControl. I am your host Hrishi K and I am your host on this podcast it is all about getting your money to make better investments for you in the new financial year.
You know I was surfing through business channels recently, taking a much needed break from all the yelling that’s going on, on regular news. And there was this news item that was scrolling on the screen that caught my eye. The amount of money going into mutual funds has decreased by 7% in 2019, and continues to drop. This means that a lot of retail investors, people like YOU AND ME, are either cashing out our SIPs (Systematic Investment Plans) or putting a stop to them. Another bit of info popped up. The stock markets have also fallen by roughly the same amount since their peaks in August 2018.
It got me thinking about Bear Market. Let me give you some stock market gyaan. A market is considered to be bearish if the stock exchange drops 20% from a recent high. Yeah, yeah. I know the markets haven’t dropped by so much but it never hurts to understand how a Bear Market functions and what does one need to do to ensure that it doesn’t affect them so badly.
I called up my producers at Moneycontrol to figure out who can help us understand a Bear Market, and what should retail investors do. On today’s podcast, we are going to discuss how to navigate a Bear Market.
National Stock Exchange (NSE) with the help of Invest – O- Cast (An exclusive investor podcast) Powered by Moneycontrol is committed to break the limitations of geographical boundaries and reach investors across the country. In today’s episode, we are going to talk on the Dos and Don’ts of navigating a Bear Market.
You all do know our guest for the day. He’s already made his presence felt on our show. Welcome back, Dipan Mehta, how are you?
Dipan Mehta: Fine, thank you for having me.
Hrishi K: Dipan is the Founder Director of Elixir Capital, and a member of the NSE. Dipan is a veteran in the field of capital markets. He is an expert on stock market and equity research. A regular in the pagers of pink papers and on business news channels, his opinions are really very valued.
Welcome back to the show Dipan. Glad to have you on board. And I am going to dive straight into question number 1. Is a Bear Market normal Dipan? Is it par for the course or should we be worried? Indian stock markets have gone straight up for almost a decade if you look at it.
Dipan Mehta: Well Hrishi thanks for having me and I think it is a very important topic we are discussing today. And I would like to start by saying that Bull Market and Bear Market are 2 sides of the same coin. So you are going to have alternating phases of Bull Market and Bear Market and it’s completely normal and have been so for the past 2 century is nothing new over there. It is just that the big difference between Bull Market and the Bear Market is that Bull Market last longer, they are slower in terms of appreciation of stock prices whereas Bear Market are shorter but they are quite sharp and the value erosion is quite steep in a short period of time there is a big difference. Other than that investors in the long term frame of investing need to account for Bear Market that may come from time to time. So the last Bull Market according to me started somewhere around August 2013 when Dr. Raghuram Rajan was appointed as the RBI governor and then September of 2013 the NDA or rather the BJP selected Narendra Modi as its PM candidate and since then right up to September 2018. We have a nice, gradual, multi-year Bull Market and then for the last one year from September of 2018 and until now we been facing a Bear Market and although the indices may show only a minor correction the damage in the small mid cap and the other side countered have been very steep ranging from 25-50% or so. So this is a full blown Bear Market and investors need to ride out this Bear Market and those were able to do it successfully will emerge much stronger.
Hrishi K: Dipan in the intro to this podcast, I spoke about how the markets are slowing down now, and people are pulling out their money from mutual funds. The question remains is that the right move?
Dipan Mehta: Absolutely not, I think that if you are an investor and who is in the growth phase of his career, of his life and if you visualize over the next few decades you are going to invest in more and more stock market then when something is available whether it is a commodity or an asset or a stock, that is available cheap during the Bear Market shouldn’t you be excited and buy more of it, that’s the logical approach that one should have in consumption of buying any particular asset. So I think investors need not fear a Bear Market, it is an opportunity for those who have the liquidity or those who have kind of wisdom to remain invested they can take advantage of falling prices and if you buy something cheap. As soon as the market start to revive, you will see that overall returns have improved spectacularly just because of those few investments decisions you made in the Bear Market.
Hrishi K: Well said, I want you to put your finger on the main top three things we should do or should not do when the Bear Market hits?
Dipan Mehta: See I think thanks to podcast such as yourself and so much investor education which has taken place what I have noticed these days is that most investors, most savers have a plan for investing in equities. It could be direct through a broker or a portfolio manager; it could be from mutual fund. There are various ways of trading in the stock market, investing in the stock market and everybody has a strategy. They have a strategy as to what amount they should invest and how frequently and when they should invest. So my first piece of advice in a Bear Market is stick to your strategy. You have designed that strategy out of the great deal of thought process and considering your own personal finances so when there is a Bear Market why change it I think the strategy accounted for a Bear Market so the first thing is to stick to the Bear Market, to stick to your strategy rather. Second is not to panic and sell off I think that is the worst mistake that you can make in the Bear Market because then you would not be able to ride out and get full benefit when the Bull Market actually starts and you will usually end-up buying a little late in the Bull Market. Third is to resist that temptation of buying into extremely beaten down stocks. In a Bear Market you will find many scrips which are corrected by 78%, 60%, even 80% or so and one gets tempted that now we should reach bottom and we should buy. But that is not the right strategy I think the stock which is corrected by 60-70% or so there is something fundamentally wrong in them and these stocks are not recovered in a Bull Market, so these are the 3 mistakes that you should avoid in a Bear Market. In a Bear Market the things or the strategy that you should follow is to buy into quality. I think it is the great time to buy stocks which you missed out in previous Bull Market, we all know what those quality companies are they are now available cheap so maybe you should buy into those companies. Second is to remain invested maybe perhaps increase your allocation because you are getting stocks which are cheap and you are getting it at the right price and you are certainly going to improve your chances of getting a higher return. And last but not the least don’t keep on looking at your portfolio every single day and panic about how much it has lost today and how much the stock has fallen. I think it will just add to your anxiety and just not do anything good at all and you will end up making mistakes because of all the anxiety that you have created because you look at portfolio every single day.
Hrishi K: Fair enough Dipan! You are listening to National Stock Exchange (NSE) presents Invest – O- Cast (An exclusive investor podcast) Powered by MoneyControl is committed to break the limitations of geographical boundaries and reach investors across the country. Advising us today is Dipan Mehta. We have been having a very interesting discussion on how do we navigate a Bear Market. It’s easy to say that we should stick to our investment goals. But only once when people start to lose money in stocks and mutual funds, do they realise they are losing money on paper. Often lots people throw in the towel when it seems the darkest. Now thats my next question to you Dipan Mehta? When people thrown in the towel, when it seems the darkest how can we avoid doing something like that?
Dipan Mehta: See I think that in life, in career, in relationships and health we all go through ups and downs and there are periods of time which are extremely challenging for us but we hang in over there, we stick to our target, we continue to strive, we try and face those challenging times and a Bear Market is no different. I think it is the time to show your character and it is a time to build your temperament to invest for a long term in equity to accept that yes stock prices are down and they may go down even further and we mentally prepare that we may have to see the situation for many months if not many quarters but eventually you have to believe in India’s thought, you have to believe in growth, you have to believe in the fact that this Bear Market will also come to an end and as I have so many Bear Market in the past and then you love a raging Bull Market and if at that point of time you are fully invested just at the beginning of a Bull Market by you will make a great deal of money and wealth and the actual Bull Market does start and then you will see the valuation of your portfolio zooming up to levels that you would have not imagined, so just a time to hang in over there, it is a time to build the character, to show temperament and to ride out the tough times.
Hrishi K: That sounds very very promising. So should we rejig our investments in a Bear Market? How does a Bear Market impact investments outside of the stock market? And when I say outside of the stock market I am referring to real estate or debt or buying car or things like that?
Dipan Mehta: Yes, I think when it comes to any consumption items like buying a car or a peace of equipment electronic or otherwise, I think those should be funded out of your own earnings. It is a bad attitude you dip into your capital especially your capital levels are low because it is a Bear Market and the valuations are gone down and then you have to dip into a capital to make purchase a consumption item and that is not a very good strategy. Secondly I think that real estate and other investment classes you could look at them and I think that is something which is very personal in terms of what the investor objective is in life and how much comfort he has investing in equities but I am a diehard equity investor and I have seen a great value being built over a long time by being invested and remaining invested in equities, so maybe my views are biased but I think that equities offers the best scope for improvements and the best scopes for returns and in a Bear Market if you stick to equities rather than going out for other asset classes it could be gold, it could be real estate over the longer run it is been statistically proved that equities offer the highest returns as compared to the commodities or even the real estate or debt for that matter.
Hrishi K: So now it is clear that your fate lies in equities if people are looking to invest in mutual funds Dipan, what are the kinds of funds they should be looking at: Balanced funds or Hybrid or what?
Dipan Mehta: See I think you could consult a professional to see what set of mutual fund you should be investing in but if you ask me personally I am just completely hung over equities and therefore investing in pure play equity mutual fund would be my preference, especially in the Bear Market. I think mutual fund have done exceedingly well over the past few years and they have done a fantastic job managing investor money, they have contained the risk also pretty well, there is no reason not to increase allocation to equity when the chips are really down because that is when the fund manager needs the support of the investor and if he has got cash coming into his fund at that point of time from investor such as you and me then mind he’ll be putting in the best quality stocks available at that point of time, so I would say go with the equity mutual funds to have one sort of safety net or if you feel that you want to get very aggressive investing in risky asset like equity. You know you can go for the liquid funds or you could go for debt market funds and those also could give pre-decent returns forward. But over a longer period of time 5, 10, 15, 20 years or so mind you equity mutual funds will certainly outperform debt market, hybrid or liquid funds.
Hrishi K: Well I can safely tell you that Dipan this has been a very very educative podcast. I am sure our listeners do agree with me. You’ve given us some solid advice that is going to hold us in good stead in Bear Market.Time now for the ‘Wisdom in the Bank’ segment on this show that does a quick recap of all the points that our guest Dipan Mehta has spoken about.
- Bull and Bear Market are 2 sides of the same coin. Bull Market are longer, Bear Market are softer but swifter. They only appear to be painful don’t worry.
- Don’t pull your money out of your mutual fund in the Bear Market; your mind set has to change.
- If you are an investor in the growth phase of your career make the best of this phase.
- Have a strategy for equity in a Bear Market don’t stray away from that strategy.
- No panicking and selling off, these 2 shall pass.
- Don’t buy beaten down stocks. Increase your allocation to equity; don’t keep looking at your portfolio please.
- Investing in equity has lot to do with emotions build your temperament in the Bear Market - to ride out the tough times.
- To buy a cars or electronics don’t dip into your capital. If you are buying it on loan at an attractive interest rate that’s cool but if you feel that your balance of savings is not right then and only then going for real estate and traditional investments.
- Prefer to go with pure equity large or mid cap or invest directly in the market. You are getting stocked at cheaper valuations in a Bear Market stick to SIPs.
Hrishi K: Dipan it’s been a pleasure having you on the show today. I am sure you have put a lot of investor minds at ease. You know it’s really funny how people panic when we really shouldn’t and your words of wisdom will hopefully curb this instinct of theirs. Thank you very much.
Dipan Mehta: Thank you for having me Hrishi.
And that is a wrap on our show NSE presents Invest-o-cast! I am your host Hrishi K for the NSE Presents: Invest – O- Cast (An exclusive investor podcast) Powered by MoneyControl. To know more about our podcast, log on to moneycontrol.com and visit the podcast section. In case you would like us to address any of your investment queries on our show do write into us at: email@example.com that is firstname.lastname@example.org you can also reach out to us on Twitter @moneycontrolcom or Facebook @moneycontrol.com, do remember to use #nseinvestocast that’s #nseinvestocast.Thank you for listening!Subscribe to Moneycontrol Pro and gain access to curated markets data, exclusive trading recommendations, independent equity analysis, actionable investment ideas, nuanced takes on macro, corporate and policy actions, practical insights from market gurus and much more.