Till last several months, Media has been touting high equity returns and multi-bagger stock picks at expensive prices. But, it seems the positive news has stopped all of the sudden. All news has been perceived negatively in recent times. We believe that this is the time we turn our back towards Media.
Whenever the market corrects, media starts spreading negative news, rather than being optimistic as stocks are getting cheaper. It may start forecasting a crash like 2000 or 2008. But, that’s not how one should think about equities. Corrections are unavoidable, and we must focus on valuations.
Equities were always volatile. We forgot that, but Equities didn’t!
If stocks are cheap, one must buy irrespective of whether they are slipping further. No one can spot the bottom or the peak. For a long-term investor, last year was the year of boredom and patience. But, this year could be one to load up equities. Stocks are not cheap yet, but now coming closer to their fair price. We believe that large caps are close to fair price; but small and mid caps are still in Euphoric zones. We are staying away from this space completely. Stocks, which have run up 3-5X in matter of 2 years, would correct sharply as soon as everyone starts becoming negative. With them, even stocks that are cheap or fairly priced would also correct.
As soon as you buy a house, you see a neighbor selling his house for less than what you bought for, do you sell your house? Or do you keep holding it till you get your price? Stocks are similar; you don’t have to fear about the loss as you aren’t selling them today. You will sell only when prices are right. Don’t get scared seeing negative returns on stocks. That’s how equity works.
(Use MoneyWorks4me’s Decision Maker for making that assessment of right price)
You will contain losses partially versus the market, if you are having liquid funds in your portfolio. Always check portfolio size and portfolio returns. Few stocks may lead to steep losses; however, at a portfolio level, you wouldn’t feel the pinch. It requires courage to buy in correction. If you think of holding a portfolio of good companies, bought at discounted prices, diversified across 18-20 stocks, you wouldn’t lose sleep at all. Over 3-5 years, you will simply forget several small or big corrections. Just treat your stocks like you treat your 5 year Fixed Deposits or Real Estate.
Good returns come to those who think long term and buy aggressively during corrections
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