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Investments are risky propositions, but as said, only risks lead to rewards. Famous Asset management managing director of Franklin Templeton, Santosh Kamath, recited this mantra for his portfolio and witnessed substantial success in the past few years. Kamath took calculated risks in funds when bonds were defaulting, making them the best performing funds. Kamath shared his secret of success, when everyone was betting on the government and safe securities, he reduced his investment in them and hence, was overweighing corporate bonds. Franklin India Dynamic Accrual fund has witnessed a substantial increase in its Assets under Management from INR 134 crores to INR 1,412 crores in last one year.
Today’s Scenario: COVID 19 is now a Pandemic!
Stock markets are pummeling since weeks now, and expectations are it will remain volatile owing to the outbreak of coronavirus and plunging prices for oil. The market is down with anxiety, especially with those who were riding high with continued stability in the past months. But this how markets work. It has its own lows and highs. This is not the first time markets has taken a dip and probably not the last either. Thus, it is a good opportunity for all frequent investors to keep a check on their portfolio. Recently, the stock markets have witnessed its biggest losses due to the new declaration by the World Health Organization of Pandemic since the 2008 financial crisis. But some pandemics in the past did spark a market correction, and their impacts were relatively fleeting.
Thus, it is advisable, when looking to safeguard your money in uncertain times the basic investment strategies should be building of portfolio gradually and diversify. It is safer to start small and ensure that all your money is split in different asset classes into different sectors and regions. Here are some recommendations to follow, which might help you to get through difficult times:
- Invest for the longer time span: Amidst all the tension, make sure that you have some money saved for any uncertainty. Invest for the longer term and keep your money safe and secure.
- Build your portfolio gradually: Don’t rush and buy securities. Take time, evaluate and then put your money. Invest some fixed amount regularly. This will help you to accumulate wealth over the time span and will keep your average cost of portfolio low.
- Benefit from Compound Interest: Keeping track of time is more important in a market than timing the market. This means, whatever money you invest, it grows over time due to the compound effect. Interest earned in this span also grows. Thus, sticking to your investment plan might help you to get through difficult times.
- Don’t put all your eggs in one basket: The first and foremost rule of investing is you never invest in similar securities. Diversify as much as you can. Returns might be lower, but that will safeguard your money. Consider investing market portfolio which diversified securities.
The recent downturn in the market has marked a dark sky for the investors, especially the new investors who were riding the high tides before. While some market advisors expect this downturn is going to continue for a longer span, some analysts are betting that this is a short-term downturn and hence are accumulating value stocks. Based on the historical data, the markets are expected to return to its mean reverting levels. Many countries, including China, has shown substantial recovery from the nighttime, and some countries have implemented fiscal measures in order to overcome the effects of coronavirus. In many cases, sitting tight amidst all the chaos might turn out to be the best approach and may help you to limit the damage.
Even before the outbreak of coronavirus, there were speculations of a substantial downturn in the market and many analysts suggested to go defensive in their strategies, that is to cut down on the equity exposure. The sugar high results of the company are not expected to sustain all the negativities at once! However, job training and the right education can help in boosting the economies.
Coronavirus has turned out to be a black swan for some investors. Some stocks have hit down at their 52-weeks’ low, which has proffered an excellent opportunity for the investors to enter into the market and accumulate. It isn’t very easy to time the market and does the opposite of what others might suggest, but this time most of the wealthier people are investing their money with the anticipation of good values in the coming five to ten years. Of course, everyone has their own assumptions and caveats.
Are the mantras changing for 2020? 2019 was the year of a mix, not an outstanding year but was not disappointing either. Despite all the turbulence, the performance of equity was okay! Although, Equities went through a roller-coaster amidst US-China war, but this is what their basic nature is! Right now, the companies are not making a lot of money, neither are growing on the operational front because of coronavirus. Hence, hitting the earnings. But the markets are cyclical, and it is completely normal. We recommend the same old investment techniques which say invest that money in equity which you do not need for the next few years. Stick to your asset allocation and do not make decisions in a panic. Be a regular investor and diversify. Also, if you get any closer to your goal, reverse your positions and do not wait for more profits.
Conclusion: When the economic conditions will normalize, say in the next six months, buying intentions of individuals and corporations is ultimately going to come back. If you have a portfolio with a higher portion of fixed income securities, it is advisable to slowly churn your portfolio to equities without rushing into anything. So, if the person is in his early career stage, it is okay for him to get his toes wet and take the risk and buy some securities, but if you have aged and are saving for the retirement purposes, then we suggest to sit tight and wait for the markets to correct itself.
