A stark reminder from the stock market on Wealth Creation

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“You didn’t know it then, you don’t know it now!” As simple a reminder as it can be. Earlier this year (2020), fear was at its peak with investors looking at a full scale recession, drop in business activity and hence a very long period of no growth (even negative) in stocks.

This was around Holi and the only colour visible was RED.

Not a palatable colour. There were those who threw in the towel, withdrew money during and after the crash hoping for a more meaningful level to enter again / invest in stocks – directly or via mutual funds.

Today. We are just finishing Deepavali celebrations, a festival of lights, wisdom and prosperity. Markets have not only recovered from their lows, they are at all time highs.

A stark reminder from the stock market about wealth creation
A stark reminder from the stock market about wealth creation – NIFTY 50 – FROM JAN 1, 2020 TO NOV 18, 2020

Those who continued to stock to their asset allocation and investment plans, are looking at all time highs in their portfolios too.

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You too?

Let me congratulate you! You have just completed your Graduation in Wealth Creation with the markets.

You have truly realised Rudyard Kipling’s famous words in his poem “If”

If you can keep your head when all about you   
    Are losing theirs and blaming it on you,   
If you can trust yourself when all men doubt you,
    But make allowance for their doubting too;   
If you can wait and not be tired by waiting,
    Or being lied about, don’t deal in lies,
Or being hated, don’t give way to hating,
    And yet don’t look too good, nor talk too wise:

In many ways, specially due to the swiftness of the moves, this was a bigger lesson than 2008. And you have received and imbibed it well. Read more, why?

This is not to say that the next time around this happen (and it will happen), you will not panic or have doubts. This now means that you are practiced and hence in a better position to take on the next time.

In all this, there is the stark reminder from the markets – we don’t know it all! Hence, our plans, our rules and in some cases, our advisors, is the only way to go through something of this “roller coaster on a deep canyon” magnitude.

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To all others, who bowed out or have felt indecisive all through, I am reminded of the famous saying :

Loosely translated as – Indecisiveness gets you nowhere – neither towards Gold, nor towards God.

No, this is not mockery. This is the real reminder that only a plan, an asset allocation and rules to rebalance / adjustments will help you confidently walk through the journey of wealth creation and help you meet your goals.

There doesn’t seem to be any other way.

Now, are you ready for a simple test?

If markets fall significantly from here, will you use the extra cash meant for long term to add more to your investments?

Are you withdrawing money now in anticipation of a big fall and stopping your regular investments as well?

Are you rebalancing your future cash flows or current investments in line with your requirements?

Looking forward to see your comments and learnings.

Vipin Khandelwal

Vipin Khandelwal

Vipin is a SEBI Registered Investment Adviser. He works with investors to make better decisions and create behaviour alpha.
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