IMPORTANT MESSAGE
From the beginning of 2017 until recently, the overall general trend for markets was upwards. Nifty has moved from around 8150 in Jan 2017 to 11750 just few days back. This is a rise of around 44% for the entire index consisting of 50 Stocks. Many Individual Stocks during the same period have appreciated by more than 100 % (doubled).
Now, during the last few days, due to various factors markets have started to reverse their direction and started falling. The Fuel prices are at very high levels and also the Indian Rupee value has depreciated a lot. Both these factors will have temporary negative effect on the growth of the country. Lower Rupee value hurts companies which are importing goods from foreign countries as they have to pay more in Dollars to purchase the goods. Also, many companies borrow loans from foreign investors and banks and they need to repay them in Dollars. With the Rupee falling to Rs.72 per US Dollar as compared to Rs.65 or so, these companies who have borrowed have to pay more Rupees to repay loans and hence it impacts their profitability.
However, the above reasons are just few of the reasons for the fall in our Markets. The other main reason could be the natural downtrend which was due after such a good rise for the last 1.5- to 2 years for all global Stock Markets including ours.
Just like how we cannot expect Virat Kohli to score hundreds in every match he plays, we cannot expect markets to always go up without any downward movement for certain periods. Nobody knows how much more markets will fall but it is likely that it will fall more since it has hardly fallen around 5% from the all the high levels compared to the huge 40% plus rise during last 18 months.
We have been writing in the blog since many weeks that we should not be surprised if markets fall. As long term investors with vision of 10-15-20-30 years, these short term downtrends do not matter since over a long period, good companies always do well.
If you hold bluechip companies suggested in the Workshop, then you should continue to hold and not worry about market weakness.
Question from a Participant –
Recently, all good companies which we have invested for long term have drastically fallen. Some of share prices are almost equal to last year’s price . Please reconfirm whether we should continue holding these stocks even if a loss or sell it at cost price?
Our Answer –
This is a question which would have come to the minds of many investors, especially if you are quite new to markets and have still not seen market up and down over a period.
As you would know, the Stock prices of companies go up because of the good performance of the company’s business in terms of Revenues and Profits. For example, L&T’s company’s profits were up around 29% last year and hence it is normal for the Stock to appreciate around 20-30% due to this good performance. However, when Stock price of L&T or any company falls by 10% or so, does it mean that profits of the company has fallen 10% or the company has made 10% loss compared to previous year. Your answer will be – “No, the company continues to make profits as it is running its Business and Projects very well.”
Then why did the price of the Share fall? It is just because of the overall market sentiment in the Stock Markets and the situation in the economy. The market fall currently does not have much to do with the overall performance of the company’s business. It has more to do with the market getting ‘tired’ of rising and is now taking a break for some period.
Many investors wrongly understand that if we buy good companies, there will never be a temporary short term fall in prices. Just because you have good players in your cricket team, it does not mean that they will perform well in all matches and that they will never lose. Of course, by having a good set of players in your team, the chance of winning is much higher. This is what happens in Stock Markets too when you invest in bluechip companies.
When you are long term investor, it means you have made up your mind to hold good Stocks for a minimum of 10 years if not more. In temporary phases, your portfolio value may be below your invested amount. Such a situation is not called a “Loss.” It is just a simple fall in the value of the Shares you have invested in. It is a temporary fall and not a permanent, irrecoverable loss. But when investors do not have a long term investor mindset and are looking to see gains everyday, then there is a high chance that they will not make profits in Stock Markets since their approach to Stock Markets is like a ‘Short term Trader.’
Always remember that long term investing is like planting a Teak Tree and not growing Tomatoes. Teak Tree takes long to mature and give value. It tests your patience discipline and dedication. However, the Value you get when you Sell One Teak Tree many years later will be much more than selling Hundreds of Kgs of Tomatoes over the years. This is exactly the case with Long term investments and short term trading.
Stock Markets tests your Character regularly and investors who are Mature will make profits and the investors who panic and become short-sighted will lose money.
SUMMARY
If you are a long term investor, continue to hold good companies for many years to come. You will be rewarded for your patience and discipline by the Power of Compounding. Do not panic and sell unnecessarily.
Read our blog daily without fail. Also, read the above message at least 3-5 times and save this for future reading too since you may now and then get distracted by market fluctuations.
