We don’t know.
You don’t know.
Nobody knows.
Those who say they know do not know.
Funnily enough, the longer the time spent in the markets, the harder it becomes to answer this question. Hence, knowing this question has no correct answer is an honest and rewarding answer.
Today, markets are trading at almost all-time highs, as they did in 2019, 2018, 2017, and backward, respecting the values of the time.
So, if markets have made new all-time highs every calendar year, what’s to say they won’t make another next year.
Statistically speaking, it is more probable for the market to breach new highs next year than not!
So, it is an investor’s choice to book profits out of emotions today and pay with opposite emotions tomorrow.
For example, investors who exited in 2015 in euphoria today cry foul for missing out on 40%+ returns.
We suggest investors adopt the active approach to maintaining asset allocation in times and tides like these and stay wallet-vested and emotion-divested.
After all the highs and falls, markets have shown a stellar 13x+ growth in the last 20 years!
Which Is the Strategy to Adopt in Times Like These?
The graph above shows what the markets had in store for us today.
This year was a year for active management, by which we mean regular and rigorous asset allocation. Portfolios that were equity skewed earlier in the year saw sharp reductions with asset allocation going askew.
Portfolio value in red-shifted the market mood from wealth generation (fresh off the all-time high in Jan’20) to wealth conservation.
The opposite is observed as of a few days back, where the market rally has bumped equity allocation to significantly higher exposures, painting portfolios in deep green.
So, what strategy could an investor adopt in light of recent learnings?
Time the market? – Regular readers will already know the answer to this one—a bug Two-lettered NO.
Portfolio Rebalance? Yes.
Rebalancing portfolio asset exposure at right/relevant times (after conversing with the advisor, if necessary) could have helped investors arrest losses on the downside and amplify returns on the upside.
If you’d rebalanced correctly, you could save your portfolio from learning basic math facts as follows:
- If a stock falls by 75% from ₹100 to ₹25, it will need to gain 300% to recover to its original price
- If it falls by 90%, it needs to go up by 900% to recover its original price.
We conclude our brief note on Friday’s Most Asked Questions.
Keep writing/sharing to/with us, and we shall incorporate your thoughts in our weekly newsletter!
Happy Weekend!
