'Equity must be sold only from a position of strength'

Let me tell you what I have learnt from every crash that I have gone through. And remember, when I was an equity broker, my annual income would fall 90 per cent. NINETY PER CENT! Yes, you heard it right!

 Buy and hold does not work UNLESS you have patience. Suppose you had bought a good company like Gillette at Rs 70 and then you held it for 20 years. Then you saw it at Rs 7,000. You are still holding it. In this fall it has come to, say Rs 4,000. The sad part is that you don’t feel like selling it. This is because you have seen Rs 7,000. Wrong reason, but common emotion. What do you do? Use your debt fund to tide over, wait for the price/earning ratio to change and sell after you do your research. Not now.

Equity must be sold ONLY from a position of strength. One year, say 2021 or 2022 or 2024, the market will go up by 70 per cent. This is a reward for staying invested in 2020 when the market fell, say 35 per cent (or 40 per cent for all I care). You may be happy with the result. You SHOULD take some money off the table (a sector that leads the rally) and buy yourself some fancy gadget, or go on a vacation. Equity withdrawal is for indulgences or loan payment.

You need to have enough activity, income sources and hobbies. There are times when you do not want to spend 13 hours thinking or looking at markets.

Unlike in 1929, going forward the fall (and rise) will be mechanical; electronic, I mean. This will mean the BULL effect will reach some senseless levels in a few weeks; not few months like it happened even in 2008.

Paying too much for growth can be hurtful. Page industries, for example, have fallen by 30 per cent in the past one month. DMart has fallen only 20 per cent in this period. Would you be able to stand this? Well many shares have fallen. In fact, Gillette has fallen 50 per cent from October 2019 till March 2020. It has been taken to the cleaners. Go do the math.

When you invest for dividend rather than growth, you look good in a fall. So your portfolio has to have a mix of both — growth and value. So if you had Gillette, Marico, HUL and P&G, your fall would have been cushioned. However, by doing this, make sure that you don’t overload with FMCG. I was just giving an example!

A crash can come completely unexpected; it is like death! When a person dies, the people around are generally not prepared for death. Even at 90, people feel there could have been better good-byes!
 In the current fall (2020), most of us knew that the market was overvalued, but we kept our eyes closed. We told ourselves, “If we don’t buy it for our clients, somebody else will.” Nonsense, but we will continue to think that we could have seen it coming.Of course, that is our brain telling us a lie.

We WRONGLY relate GDP growth to market. Not true. There is no connection of the Macros to the markets. There is no connection of corporate profits to share price. In the short run. We know that macro, ESG and good financials matter in the long run.

A market can keep going up even with negative news. A market can drop like a log even with great corporate results, and vice versa.

Each fall or rise is different. If you have learnt (a wrong lesson) from 2009, remember it was a V-shaped recovery. In 2020, it could be V, U or L.

Every time there is a fall, we think we learn. However, we are prepared for the previous war. Remember the three-pigs story? I have done it on my blog. Go and search for it.

PV subramanyam
writes at www.subramoney.com and has authored the best seller ‘Retire Rich - Invest C 40 a day’