Global Markets Turmoil: A time to introspect

Diwali is round the corner, and there is a pall of gloom over the markets and in the minds of the investors. This will probably go down as the darkest Diwali in the living memory of most of us. This is because the sensex has lost over 53% of its value since last Diwali. It has fallen from 18737 (last diwali) to 8701 on 24th October 2008. The gains in the past 5 years (diwali to diwali) had been 50%, 57%, 32%, 27%, 61% respectively. So we are in a situation of doom after 5 years of boom.

Most of us have been teribbly off the mark in estimating the unprecedented fall in the markets. It's a time to introspect. Where did we go wrong:

• Greed factor: Many investors entered the markets at the wrong time to make a quick buck, and have burnt a deep hole in their pockets. This definitely is not the time to sell and wow not to enter the markets ever again, rather it is the time to take a break, do not focus on the movement of the sensex for a few days. Maybe you can get out of the market in the next rally (or relief rally) which could give you an upside of 20-25% soon.
• Fear Factor: Those investors who are having sleepless nights due to the fear of further losses, must take due care to address their stress levels, because inability to control stress can be fatal. Just remember, that the market was at unreasonable levels at 21000 on the sensex and even now at 8700 on the sensex. The fair value of the sensex is somewhere in between these two extremes. Wait for the cycle to complete, things will be back to normal in the next 6-9 months time.
• Notional Gain/Loss: Those of us who have enterted the market with a long term perspective (long term would mean a period of atleast 3-5 years) have no need to worry. Do not count your paper losses, but wait for the market to stabilise. There should be no doubt in your mind that your investments would fetch you a decent return in the long term. If your liquidity position permits you may add to your investments at these levels to bring down your average cost of acquisition.

It will be wrong to hazard any guess on the immediate movement of the sensex, but historic factors tell us that the rebound in the markets is also ferocious after steep falls. So this time too the markets would rebound with vengeance, once the liquidity crises is addressed. But we have to wait patiently to catch the next outbound flight, you never know how much delayed that flight is.

Wishing all investors a happy and prosperous 'DIWALI'. May this Diwali bring back the happiness to the markets and in the lives of all of us.