Answer to – How to find the courage to buy in bad market conditions? Where to look for investment opportunities? The most crucial – when will the current downturn end?
Warren Buffett quote comes to mind when I consider the current discount of 2019 from Mr. Market.
It is so true.
Mr. Market is offering a discount. In most cases, the discount is as high as 75%. However, it is so tough to get the courage to go out and place the buy order.
So, the question is, how does one get the courage to buy things in such crisis times?
How to Get the Courage to Buy?
The courage comes from your knowledge about the company, management, and business.
In short, the courage will come from experience. How much you know about the company from the past. Do you understand the business?
There is no other way to get the courage to buy a stock.
As an example, when I added Ashok Leyland in my portfolio but in a few months, I was out of it as well. I saw a correction in the auto sector quite eminent.
After I sold, the stock almost doubled.
But I never got back into the stock because I was convinced it is a cyclical sector. The demand will follow up with supply. It moves in a wave.
How I manage to foresee it?
From my experience about the sector – the auto sector is cyclical.
One can argue I was wrong in timing the exit for sure. I could have doubled the money before exiting. Again, the reason to share the same isn’t what I can manage, but knowledge about the sector is essential in investing.
Such experience from the past helps you with the courage in the current downturn.
I dared to exit and not look at it again.
Now when the stock price is even below my purchase price, will I consider the same?
Maybe, but then when we have many other stocks available at attractive valuations, I may not consider the same stock but some other stock in the sector.
Where Should One Look To Invest in the Current Turmoil?
Mr. Market is offering a considerable discount, but it doesn’t mean you can buy anything.
Tough companies and management will make it past the turmoil, whereas others will fall off the cliff.
So how can one know which are the companies that will make it past the turmoil?
The answer isn’t as simple as it may sound.
Any company who has managed to be in the past turmoil will surely be able to pass this one as well.
Companies which are large enough, have the right team, with the right mix of products for the future.
Again, when it comes to the auto sector, there are ways to invest where you can safeguard yourself from the EV cycle, and I have shared it in an article here.
But auto is not the only sector to look out for.
India growth story will continue no matter what.
People will need the basics to sustain their life. Even at a slower pace, the growth will still exist.
Companies like HUL, Nestle, Asian Paints, Pidilite will continue to grow may be at a slower rate. Currently, they haven’t corrected much, but if Mr. Market offers a discount on them, I will be more than happy to latch on to them?
Similarly, Pharma as a sector was down for almost three years, but it is time to relook at that sector selectively. There are companies which have passed the bad times with flying color.
And if you aren’t sure of any sector or companies as a whole, why not just invest in the Nifty ETF. It is the best choice to start a SIP for a passive retail investor.
As a side note, I have added positions to almost all the stocks in my portfolio in the month of July.
When will the Down Turn End?
Yes, I know everyone wants to know the answer.
What if I can give you the exact date and time when the current turmoil will end?
The fact of the matter is, No one knows.
The market is smarter than every one of us. Even more intelligent than the smartest of the FII or DII investor.
Instead of trying to know when the turmoil will end, why don’t we hope the turmoil continues for a longer time. So we accumulate a lot more at a discount. More the crisis continues, it will give us more time to invest at lower levels.
And a couple of years before we require the invested amount, the turmoil should end.
Wouldn’t that be just ideal?
Once the stock qualifies the above checklist and analysis, analyze the business with these checklists.
You will be fine investing in a business that passes all the three checklists.
After a decade, in 2029, do you see the Sensex and the Nifty above or below? Have you started investing for 2029?
Share your investment ideas in comments, and we all can discuss.