How to Train the Mind to Buy When The Market is Bleeding?

We all know the money is made in the market when an investor invests is the most gripping fear in the market. But why is it that it is almost impossible to buy in the market when it is bleeding?

Have you ever bought a stock when the market was bleeding?

Do you know what plays into the mind of an investor when he tries to buy in the bleeding market that stops him from actually investing?

We will find the answer to all those questions in a bit.

Why it is so easy to grab a deal on any other product at offer at a 10% discount, but when the market offers a discount of close to 10%, we find it tough even to consider investing.

So what is it?

There are two reasons I found are the root cause of all the problems one has in buying when Mr. Market provides us with opportunity.

1. We Expect More Correction

When the market goes down, we get the messages it will get down another 20%. I am sure you all now have the messages on WhatsApp with Nifty hitting 9k.

The so-called experts on TV who want to be predicting the market to perfection has only one agenda with such predictions.

One day they will predict the market will hit 9k. A few days later, they will forecast the market will hit 13k. Six months later, when on the same news channel, they will boast about how they predicted the market correctly.

The fact of the matter is, no one expected such a deep correction in Mid Feb. However, now people give a reason market was due for a correction, and they had predicted it.

There is no harm in expecting a correction for sure, but listening to such advice may not be wise.

I agree with the fact that we don’t know how the virus will impact the business. Some companies, some key components may be unavailable due to factories shut in China, and so the company will see issues in the business. Others who export to China may also see an impact.

However, the critical question is, can companies like Nestle, HUL, Asian Paints, Pidilite, HDFC Bank, Axis Bank, Marico, Page Industries, Lupin, Divi’s Lab, TCS, Infy, etc. outlive the Coronavirus or not?

If the answer is yes, why aren’t people investing? The fact lies in the second point, which is the root cause of the problems one has in buying when Mr. Market provides us with opportunity.

2. We Buy to Sell

Do you have a single stock in your portfolio that you bought forever?

If you have excellent, however, the more likely outcome is, you bought it for selling and make a profit.

We lie to ourselves.

I am the biggest culprit.

My investment checklist, business checklist, and finally, the fundamental analysis has always worked.

Yet, I invested in Jubilant Foodworks and booked out. Invested in Infosys and booked out.

I invested in them forever. No regrets because I moved over to other better stocks like Divi’s and Pidilite as well.

However, the point remains, why should you book out when you invested in the stock to stay invested forever.

We lie to ourselves.

Now consider a jeans company offering a discount. You aren’t buying to sell at other stores for gains. Are you?

So you can buy it at a 10% discount.

Moreover, you don’t expect the discount to go higher anytime soon either.

But when the Nifty falls by 7% in a week and 10% from the top, we want to wait.

The reasons are clear, and we assume it can fall further. Moreover, the most important of all is, we want to buy to sell higher.

Keep Learning

Some of my decisions, like Ashok Leyland and Tata Steel, Proved right, but Jubilant Foodworks and Infosys, helped me learn a vital lesson.

Once you have done your homework, and even if you hurried buying, don’t be in a hurry to sell.

The worst performing stock of my portfolio is Lupin. I have more than 15% invested in the stock, and it has done poorly for sure. In the DIY members’ area, I have questions about the loss the company is posting.

Still, I think the process for which I invested in the company is ON. They are moving away from generics.

With such a large business making a move, it will take time. The company reported losses in almost three quarters now, but the main reason for the loss is, they are doing the cleaning. In one quarter, they paid European Union Violation settlement fees. Next, they paid taxes for the gains they did for selling off an arm. So on and so forth.

The move is working, and the team is moving the business as intended. So it gives me the confidence they can steer the ship. So I am okay to see another 4 to 6 quarters before making any decision.

It is the lesson I learned, and either I will gain from this investment or learn.

Let’s hope for the best.

Moreover, the reason to share the story here is not to recommend Lupin but to understand the process and learn. The company is currently in bad shape for sure. They may pull things off, but investing 15% on hope and may is never a wise decision.

My process is working for me but you don’t need to be following the same process. Adopt your own process of investing by taking hints from others. The one that works better for many is to buy high dividend yield stocks like Hero Moto Corp or some PSUs.

Final Thoughts

Getting back to the original question of what it is so hard to invest in the falling market.

Some may say it is terrible times for the US market now. The US Markets have seen two World Wars, Nuclear bombing, Financial Crisis, Recession, and a lot more. Still, the market hit an all-time high a few months back.

Similarly, the Indian market is still new to gauge the impact of Coronavirus for sure, but I am sure it won’t have an effect on the market for the whole decade.

You may fall another 10% as well, but if you plan to buy forever, the question may not be what if we fall another 10%, but it will be what if China slows down and India takes its place?