This Shall Also Pass

Due to the ongoing Russia-Ukraine conflict, the month of February has witnessed excessive volatility in the market. Nifty retraced from the high of 18604 seen in Oct 2021 to the low of 16134. A drawdown of 2500 points. In normal situations, this could have been a warranted correction. However, the geopolitical situation as of today is highly uncertain and fluid. No one really knows what may emerge out of this conflict. The situation mostly depends on what decision the global political leaders take. It is not a military decision but a political one. We are not experts in this field of global politics and hence prefer not to comment on the situation in depth. We can only hope and wish that this won’t lead us into a full-fledged war.

The so-called experts on the news channels are busy predicting the outcome of the conflict and also about the market. We are not fortune tellers and hence we do not believe in predicting anything, Neither markets nor the outcome of the conflict. We can only analyse the probable risks associated with the situation, prepare ourselves for the worst and take advantage of the crisis. We love to remain in our circle of competence. However small it may be.

Retail investors are bound to get worried by this conflict and the bombarding of negative news flow. There is nothing wrong with this. It is absolutely normal. Historically, fear and greed drive the markets. Human behaviour gets highly affected by the negative news flow than the positive one. We are soft-wired to react impulsively to negative situations. This is the time to hold on to your horses. Be mindful of the fact that at times doing nothing is more beneficial than doing something irrational. Prepare your mind to be more patient, calm, and detached. Remember, excessive attachment is the root cause of misery and unhappiness. If you have never been to any meditation course, this is the time to take some discourses. I suggest undergoing Vipassana. That is by far I found the most effective one. Markets will be irrational, volatile, and even unforgiving. We need to train ourselves to align our behaviour accordingly. Remember, it is always about the mindset and nothing else.

In this challenging situation, retail investors may be confused about their portfolios. Someone who had bought stocks or mutual funds at a high level would be seeing notional losses, someone who was sitting in good profits in Oct 2021 would be cursing him for not booking the profits. All such emotions will run through. The question on everyone’s mind is, what should long-term investors do now? Let me add my two cents here. The simple answer is just to relax and leave it to the experts to manage your funds.

We believe that the conflict will progress into two scenarios. First, Russia withdraws and the conflict ends here. In this situation, the market will rally for sure and may test new highs again. In the second scenario, if it escalates further, then the Nifty is likely to test the level of 15000. The portfolio may start showing negative notional losses. However, if you are investing through SIP, you will get the benefit of averaging. Hence over the long term, the portfolio will provide desired results once this episode is over and done. So, long-term investors having ongoing SIPs need not worry at all about the present geopolitical situation.

• Should one exit the portfolio completely or book profit partially or book losses?

No, this is not the right time to pull the trigger. Never ever do this mistake of selling under crisis situations. In fact, such crises should be seen as opportunities to invest and reap benefits in future

• So, should one invest now?

No. At the present juncture, it is suggested to wait and watch the situation. If Nifty reaches the level of 15500, then one can start nibbling. Add a small amount on every 500 points dip. The market can surprise us on both sides. It is futile to predict markets. No one can do this. Hence, it is wise to prepare for the downside. Hold on to the cash and be ready to invest at every dip.

• Should one stop ongoing SIP/STP?

Again, strictly no. Never ever stop your ongoing SIP/STP under any situations unless your cash flow has stopped. Remember SIP is the Weapon of Wealth Creation (WWC). When the entire world is investing in the Weapons of Mass Destruction (WMD), it is prudent to invest in WWCs. This is the only thing left with the retail investors to do.

• Should one start fresh SIP/STP now?

Yes, definitely. This is the best opportunity to invest through SIP/STP. If you could muster the courage and invest in such fearful times then you will be richly rewarded in times to come. We have experienced this during the COVID pandemic.

Even with this conflict going on, the fundamentals of the Indian economy are still intact. So, do not get unnecessarily worried by seeing the drawdown in the index level or negative returns in the portfolio. Please be mindful of the fact that this is a temporary phase and these are notional losses. We must prepare our minds to accept the markets as they are and not get excessively attached to the short-term gains or losses. In past, the market has gone through many such situations and emerged victorious every time.

The wise old man, Warren Buffett said, “The most important quality for an investor is temperament, not intellect.” So, enjoy your life, look after your dear ones, and rest be assured that this also shall pass!!!