Trust the capitalists

Remember the doomsday feeling of 2008? Or the panic of March 2020? And in between there have been several instances of the market dropping by 10% or more over a short period.  And each time everyone has felt panic.  That feeling of absolute nervousness.  As if the end is near. 

And in every one of those cases, the markets recovered to make new highs!.  Remember this. The next time the market drops quickly and by a large value, trust the capitalists.  They will continue to build value in the market.  And every one of those drops will be followed by a recovery and a new high.

If you look back into history, you will see this happen over and over again.  A quick glance at the 20 year trend of the Nifty 50 will only confirm this.  That markets have dropped sharply in the past, always to recover and go on to make new highs. Remember October 2005?  The Nifty took a sharp drop from 2644 in early Oct to go down to 2316 by  the end of the month. But the recovery took less than 30 days.  The Nifty 50 moved from a low of 2316 on 28th Oct to trace back to 2664 on 25th Nov 2005. Take a look at Myy 2006. After hovering around the 3754 mark  in early May, the market dropped quickly to 2632 by the middle of June, almost 30% lower.  Then again, the market went on to recover to 3769 by the end of Oct, taking a little while longer. Trust the capitalists!

While the above examples may not be in many people's memories, I am sure the events of 2008 and 2020 will be.  Even the investors who have begun the journey recently will remember the big one of 2020. The panic of COVID-19 was jsut setting in. The sense of an upcoming global pandemic was being felt by the market. I remember watching the news closely as businesses started shutting operations. And then the Nifty 50 took a sharp nosedive. From 12,201 in the middle of February 2020, the market collapsed quickly to reach a low of 7610 within a month on 23rd March.  That amounts a sharp nosedive of about 38%!! Several people were predicting the end of the markets.  Emotions were running high as some even pointed to a very long period of pain. At that point and in the following days, many distraught investors fled the marekt. Some making huge losses as the chaos continued for a few weeks.

 And as I have said several times in this blog, trust the capitalists. Despite the doom and gloom of the pandemic, the market recovered back to the 12,200 mark by early November of 2020. It is not just the recovery that begs attention. It is the strength of the recovery and the momentum thereafter!

It is importatnt that I mention an important consideration. The market will always rise. That does not mean every company will. The markets and investors are vicious.  They celebrate the performers and severely punish the laggards.  And hence every few years, some companies will die, while some others will zoom to the top.  What matters is that you have a broad portfolio that is balanced.  Invest into broad and diversified funds. Have some allocation to broad index funds. It is difficult to pin point which company will be a winner. But not too difficult to point to the fact that the broader markets will continue to rise after every fall. You only got to make sure that you stay the course. 

So as we reflect upon the slight nervousness in the market over the recent moves of the Nifty 50, remember this.  Trust the capitalists.