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When crisis becomes an opportunity

by Ramaswamy P
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The year 2020 could be remembered for many reasons – prominent among them are, once in a century pandemic and once in a century investment opportunity. And there are a few important lessons to be learnt from this crisis:

What led to the market fall

· As we walked into the COVID-19 crisis, total shutdown became the order of the day. There was utter panic everywhere – be it among employers, employees, students or retired persons.

· Investors reflected these sentiments and stock market (Sensex) fell from 41306 on March 23 to 25981 on June 1, 2020. That’s a 37% fall in flat 3 months.

What led to market recovery

· While analysts and fund managers predicted prolonged recovery – over a period of 18 months or so –, ground realities decoupled and started improving as and when normalcy was restored.

· It was obvious that we can’t remain in prolonged lockdown; it has to end one day and normalcy has to be restored – either with a vaccine discovery or herd immunity.

And those who invested ‘meaningfully’ would consider the year 2020 to be an extremely rewarding one, in spite of the crisis.

· Acting as a final trigger was the US election. News anchors and analysts boiled down to the thesis that a Trump win will be favourable for markets and Biden win will be catastrophic. But they failed to understand that who so ever wins, it will be a big relief for the markets.

· As a result, markets recovered strongly to 43277 on November 10. It is an all-time high. From the lows of 25981, at current levels of 43277, it is a 66% gain!

· Many investors who intended to invest just in time, when the price is low, missed out due to panic and noises in the market.

Buy (invest) low and sell high is an ultra-simple investment formula. Many investors intend to practise this. But for the price falls (to low levels), when there is bad news, a majority of investors panic. Investors with an open mind need to continuously assess the evolving situation and invest somewhere around the bottom, if not at the lowest point. In 2020, investors got lots of such opportunities. And those who invested ‘meaningfully’ would consider the year 2020 to be an extremely rewarding one, in spite of the crisis.

What should investors do now?

Investors usually invest seeing the immediate past performance. But two major events – COVID-19 crisis and US elections have just passed by. Investing today and expecting a 66% return in the next year is almost impossible.

Past year’s glorious returns could be due to this unusual, once in a lifetime opportunity. Those who invested (incrementally) during this crisis would have captured this. All others need to satisfy themselves with emerging ‘regular opportunities’. Rather than regretting the missed opportunity, they need to take it as a lesson learnt – of getting distracted by all the noises in the markets, listening to too many people and losing focus on investment opportunities. They need to keep investing gradually and increase their quantum of investments when such a crisis/opportunity strikes. By doing so, you could catch the next big opportunity – hopefully in a lifetime.

1 comment

Balachandran S November 23, 2020 - 9:48 am

Crisp and clear.

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