How to Align Your Portfolio for the Next Market Crash?

I am not sure when is the next market crash coming, but I know for sure it will be coming. The reason I am so sure is that every bull market ends with a bear phase only.

You will see market experts compare this bull run similar to the 2003 to 2007 phase on TV. Some agree it is identical, and others say this time it is a lot different.

I want to emphasise that if the history repeats for the bull run, there will be 2008.

So what one can learn from the fall of 2008 is that one can align now to safeguard the portfolio. And I don’t mean to raise the cash levels. The reason being, if you increase the cash levels, you miss on the bull run for sure.

So then, what can one do?

Move to Quality

There are two types of investments.

1. One that goes up many folds in good times and then moves down the same amount in bad times but doesn’t go up again.
2. One that goes up in good times and then moves down in bad times and then recovers.

So are you invested in the first kind or the second kind?

Let me share an example from the telecom sector. Of course, I never prefer investing in the telecom or aviation sector but let’s understand the two types of investment with an example of Voda Idea and Bharti Airtel.

Voda Idea may have gone up 4 to 5 times from its lows. So a trader could have made 2x or 3x returns.

Investors in Bharti Airtel may look foolish because the stock has only doubled from its low. So an investor may have made meagre 30% or 50% returns, assuming it has purchased little above the low.

The reality will kick in when the music stops. Do you think a company with a debt of 1.8Lac-crore will have a chance to bounce back?

Better to be Foolish Than Sorry

Right now, the investor in Bharti will look foolish, but unless the trader can control the greed and exit, it is better to be foolish.

Many stocks in my portfolio have either just doubled from March 2020 or are yet to double from the lows.

Stocks like Page Industries or Pidilite, or Zydus Wellness has not outperformed Nifty or Sensex from the low of 2020. Still, it doesn’t matter because I am not invested in them outperforming Nifty every year.

If the stock can give me around 20% returns for the next decade, I am fine to remain invested in them though they are underperforming the indices for some years.

I may sound foolish now, but I will not feel sorry for my investments when the party stops.

Invest for the Future

Future is good for the Indian equity market right at this moment. The expectation is the market will remain buoyant for the next couple of years. However, we should be investing for the next decade.

And in the next decade, if the market continues like now, you are likely to see the next market crash, similar to 2008.

So invest in a manner such that you can handle anything thrown at you by the market.

Learn from the past bull and bear phase in the market. If this bull market is better than the 2003 to 2007 phase, you should also remember it ended with 2008.

Ride the wave now and be prepared that 2008 will also come. It may not come in the next couple of years, but eventually, it will come.

In the bull run, traders look like experts. In corrections, traders look for an expert.

So make sure you are safeguarding your portfolio and making a switch to high-quality stocks. I am doing the same to some of my not so good investments.

Invest in companies that you think you will still make decent returns if there is 2008 in between.