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LEARN TO ENJOY THE ROLLER COASTER RIDE

Posted By: Admin

I am sure we have all been through roller coaster rides in our childhood. Some of the giant Roller Coaster rides outside India that I have travelled in offer some spectacular drops , twists and turns. The more sharper the drop, tighter the turn , the more exciting it is for the rider. I have had my share of heart stopping moments as the roller coaster reaches the very top and as you peer below you see a massive drop that you're about to experience and your stomach feels uneasy with the prospects of dropping. This uneasy feeling is nature’s way of providing the survival instinct which you need to overcome. The real excitement and joy is in overcoming this natural instinct of fear.

Let us see the investment connect to the Roller Coaster Ride, the Indian Stock Market indices are at a record high, Sensex closed at 44,523 ( Nifty 13055) at the end of 24th November, the Indian equity indices have rallied almost 60 % since 1st April when the first news of Covid led lockdown had dealt a strong blow to stock markets. That was the low for the market i.e. on 23rd March, Sensex was at 27,000 ( Nifty 7800 pts). Since then the rapid climb can be attributed to the massive amounts of money being pumped into the Indian markets. For example in the month of November alone so far i.e as of 24th Nov Foreign Institutional Investors ( FIIs) have been net buyers in Stocks to the tune of Rs 50,501.07 Crores. The promise of Vaccine, Easy liquidity , a relatively robust economy that is expected to bounce back fast post the covid are all the reasons for the FIIs interest in Indian stocks. While they are all right, the valuations appear a bit stretched with the Sensex PE quoting beyond 30 times the 2021 earnings.

How far will the markets continue its upward march and what should investors do at this level ? It seems inevitable that at some point in the next few months, the markets have to take a breather that these valuations are not sustainable.

Just as you near the top on a roller coaster, it makes sense to brace yourself, so to in investing we need to do the following :

  1. Ensure that your investments are aligned to the Desired Asset Allocation of your portfolio as per your financial plan;
  2. Don’t panic or react when the markets are down, wait for the markets to settle a bit before you reassess the situation. Everytime the market is down, you don’t have a loss, your loss is only if you exit your investments at these levels ;
  3. Long term wealth gets created only when investors ride through myriad ups and downs, don’t worry if you have the time, your portfolio will bounce back.

While in the Roller Coaster, these ups and downs give one a sense of excitement and a high, dealing with these ups and downs of stock markets can lead to a feeling of panic, leading to portfolio exits which are unwarranted.

While we would like to say enjoy the ride toward creating your wealth, let's learn to keep a steady nerve and soon you will see wealth creation happening.

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