5 Share Market Tips by Swarup Mohanty
If you study the market for a period of time, you will realise that they always move in cycles, and these transitions strongly mirror economic cycles. Markets also respond to major internal events and macro developments such as government elections and economic growth as well as external events like global crises. A near-term example here is the ongoing pandemic which sent markets into a tizzy in the initial stages. When the market goes into a nosedive, it can be very challenging to continue investing as we are, inherently, emotional and biased.
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Yet, there is no rule as cardinal as the need to stay invested. Through the market cycles over the last three decades, there have been a number of learnings which continue to be relevant and can guide us in our future trading and investing journey.
Guest: Mr. Swarup Mohanty, Chief Executive Officer at Mirae Asset Investment Managers (India) Pvt. Ltd. With over two decades of experience in financial services, Swarup is someone who you can truly call a market man. Swarup has seen and navigated the market through everything, right from the post-liberalisation days of the ‘90s, to the recent COVID pandemic. And today, he has very kindly agreed to share with us his top 5 learnings from the markets, through the decades.
5 Lessons to learn on Share Market
1. The ‘90s were an interesting time for India. Literally everything changed. Stories of riches and crashes from that era continue to hold fancy. Any one incident from that time that had a particularly large impact on your learnings and journey?
The ‘90s was when things began to alter in India and the major factor behind this transformation was liberalization. As students of the stock market, the first event that shocked us, and the country at large, was the Harshad Mehta scam. Suddenly, the stock market fell sharply and everything collapsed. Key learnings from this event were:
i. Where there is money, there is theft.
ii. To counter this, there is a need for strong regulations.
iii. Rules must be followed strictly.
iv. Investment and regulatory frameworks ensure discipline.
Sticking to frameworks, both personal and regulatory, will ensure success and a prime example here is American business magnate Warren Buffett.
2. The ‘90s were also the time when the true meaning of globalization revealed itself – the fact that when the globe is closely integrated, then the good and the bad impacts everyone. Lessons from that time are more relevant today than ever before.
The first lesson during the ‘90s came during the 1997 Asian market crash. Even though the crisis occurred outside the country, Indian markets went down 20-30%. However, over the longer term, India and China benefited from the crash as the global money flow shifted from the impacted countries to emerging markets. Lessons from this time period include:
i. Realizing that we were not alone – global events would have an impact on India, especially as the country was opening up. When anything major happens on a global scale, your country will feel the tremors.
ii. We should not be caught by surprise when global events impact us.
iii. The impact could be both positive and negative.
3. Many of us would remember the turn of the century and the expected Y2K destruction. While, thankfully, that didn’t pan out, technology ensured that we started the century with a crash! Can you enlighten us on what crash this could have been and how you navigated that period?
What we went through in 2000 changed perspectives, perpetually, for asset management representatives in the market. Stock markets were clearly led by the technology boom and funds were being sold like never before. Realizing that fund NAVs could fall to 20-25% of the principal value was a shocking lesson from the period. People give fiduciary agents their money with the intention of growing it. From that perspective, it is important to understand that while the mutual fund business looks like a return generation business, it is, in fact, the business of risk management.
i. Focus on risk. The crisis made everybody assess risk better.
ii. There is a risk to investing and also to not investing in the markets.
iii. How a person should be investing depends on individual risk profiles.
iv. Every person’s risk profile is unique and consistently changing. It is about controlling the controllable aspects.
4. So far, the two decades of this century have been fairly eventful. Barely had we recovered from one crisis than the next was upon us. What are the two periods in this century that have impacted your thought process and urged you to reimagine the way you invest and even live your life?
The events that unfolded in 2008 were unbelievable. The top 5 entities crashed and global markets reacted in an unprecedented manner. Every fund was correcting itself, making people realise that markets are not under our control. The thing we can control is asset allocation. Volatile markets create great opportunities and it is imperative that we learn from past crises. When COVID-19 happened, we incorporated previous learnings into asset management and these include:
i. Never stop your SIPs during a crisis as volatility is the best time for investments and rebalancing portfolios.
ii. Every crisis has a start and end date and the world will move on.
iii. Sharp market corrections at the beginning of a crisis is an opportunity.
iv. It is necessary to build a strong emergency fund and have sufficient health insurance.
v. During a crisis, and even otherwise, transition from a straight-line financial plan to a glide path financial plan. This means that you need to rebalance in response to a change in your personal circumstance and the market environment and also systematically shift money from risky assets to safer assets as you near your goal as it ensures a safer landing.
vi. You cannot control the market. But, you can control how you react to the markets during a crisis.
vii. Never repeat your mistakes, rather, apply lessons from the previous crisis to the next one.
5. What is your advice to investors out there?
i. Frameworks, rules and regulations need to be followed
ii. Asset allocation and following the glide path financial plan is of utmost importance.
iii. Allocations should be based on unique circumstances. Rebalance to ensure these circumstances are reflected in your portfolio.
iv. Never stop your SIPs as the market fall is the best time to continue.
v. When you are investing, remember that volatility is your best friend. Accept and build it in your portfolio. If there was no volatility, there would be no opportunity.
vi. Before beginning your investment journey, ask yourself why you are investing. If you know why you are investing, you can easily figure out where to invest.
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