For those who have been fans of the wonderful Asterix comics, you know that the ancient Gauls were very brave people who did not know the meaning of fear. However, there was one thing that they were afraid of, and that was the sky falling on their heads. Of course, the sky didn’t ever actually fall. But that didn’t stop the Gauls from thinking that it might fall.
Four months ago, in these pages, I started my column with the following sentences: Why isn’t the market falling? When will it fall? That’s the core question that a huge number of people are compulsively asking.
Of course, a lot of them are putting the questions in more sophisticated language — about valuations, the pace of recovery, or some technical mumbo-jumbo.
Fundamentally, there is a widespread belief that there is some hidden variable, some trick to the rising markets or that it’s an illusion. Like the Cinderella story, the clock will strike midnight and then it will all disappear.
Well, here we are. I guess all those people now must have heaved a sigh of relief. The event that they were so eagerly waiting for is here. The market has fallen. Happy now?
Of course, as things stand this is hardly a fall. As I write this, the sensex and the Nifty are at just a one month low and are actually above a level that they first reached in late August, meaning the current level would have been an all time high just five months back. They are also more than 2X their initial virus crash and about 38 per cent higher than the previous historic peak that was reached before the Chinese virus came, which was in January 2020.
All in all, except in the perspective that short-term punters have, the large-cap indices are around their all-time high.
That’s the point to understand. Nothing has actually happened. There is no crash. The sky has not fallen, not even close.
The problem is that there is an enormous amount of noise and lamentation in social media as well as legacy media about a stock market crash. Why is this the case?
Part of the problem is that there is always noise nowadays. We live in a time when TV channels have to pretend that there is some breaking news 24/7 and on social media, things are even more shrill. If anyone says that the markets are doing OK, they will be shrilly denounced by others who will claim to have been ruined, and vice-versa. This is normal now, the way things are in public interactions.
There is also an additional problem. Since about mid-2020 a huge surge of new investors have come into the markets. This can be clearly seen in the demat account numbers and have also been noted by everyone from the regulator to market intermediaries. This generation of investors are now experiencing their first spell of shaky markets.
The cycle of bull and bear markets you would be familiar with, but this is overlaid on another cycle — that of new investors coming in, experiencing the whole thing and learning something.
It’s a learning experience that everyone has to go through. You may know in theory and through history that markets crash but unless you have experienced a complete market cycle, your education is incomplete.
In the long run, people who win at investing have some things in common. They start and keep investing gradually. Most importantly, they take care to choose stocks with some attention to quality. This meant that even if the value of their investments declines in a crash, eventually it recovers and gains again. There was no permanent damage.
Of course, a lot of this comes down to the psychology of the individual. Don’t sell and run and then come back again when the markets start rising. Instead, switch to quality stocks and hang around, build up your investments. It’s a cliche that failure is the best teacher, but it became a cliche because it’s true. One just has to try and learn from it.
(The author is the founder and CEO of Value Research)