[thoma]

Originally Posted by SmartCat

But crashes (7% down day) like these are extremely, extremely rare. This is the first time NIFTY has crashed 20% from the top in 3 weeks. These are called BLACK SWAN events.

Just wanted to know how long would it take the market to recover back or won't it ever. Any ball park figures?

[SmartCat]

Originally Posted by thoma

Just wanted to know how long would it take the market to recover back or won't it ever. Any ball park figures?

Historically, NIFTY bear markets have been pretty short when compared to bull markets -> 12 to 18 months.

But as you know by now, past performance does not tell you much about the future. Also, all market participants will be see different results because of sheer number of stocks listed, MF manager's investing style etc. Not to forget the fact the end-result depends on what an investor does during the bear-phase - exits partly, maintains SIP, increases SIP or invests lumpsum.

[ashokrajagopal]

Originally Posted by SmartCat

But crashes (7% down day) like these are extremely, extremely rare. This is the first time NIFTY/S&P500 has crashed 20% from the top in 3 weeks. These are called BLACK SWAN events.

You said Black swan and I had to bring Nassem Taleb in.

Broadly agree with what you said above, but you should probably add a disclaimer. While the probability of hitting a black swan is rare, the probability of escaping from the impact is even lower. Meaning, there is less chance you will get hit at the neck during a black swan event, but if you do, the impact could be very damaging.

To put it in investment perspective, people usually suggest the "move to safer instruments 3/4 years ahead of your objective". Lets say, the 3 to 4 years before is when the actual black swan event. Think about an investor( 10 years investing) in 2008 with an objective for 2012, and was planning for starting the "move to safer zones" in 2008. That whole year was practically really bad time to sell. Yes, I know we could say wait for a year or two, but one never has the strength of hindsight for the present.

[Ithaca]

Originally Posted by thoma

Just wanted to know how long would it take the market to recover back or won't it ever. Any ball park figures?

Experts are predicting an improvement in Coronavirus pandemic by end June 2020.
Markets will only start recovery after that & it may take at least 24 months for them to come back to current levels. Don’t expect sharp rises.

These falls are the best time to streamline your portfolio. Don’t sell anything yet. Buy quality stocks. Let the markets rise & at that time, sell the duds.

[SmartCat]

Originally Posted by ashokrajagopal

You said Black swan and I had to bring Nassem Taleb in.

Have you seen Taleb's Twitter account? He has been bragging (I told you so!) about this for a couple of days now, sharing screenshots of his book . He specifically mentions global pandemics as a black swan event in his book.

Broadly agree with what you said above, but you should probably add a disclaimer. While the probability of hitting a black swan is rare, the probability of escaping from the impact is even lower. Meaning, there is less chance you will get hit at the neck during a black swan event, but if you do, the impact could be very damaging.

So far, asset allocation across stocks, bonds and Gold has worked for both US and Indian investors. 10 Yr US treasury bond funds have returned around 16% in year. Gold value is zooming both in USD and INR terms.

I think (asset allocation + rebalancing) strategy is "black swan" proof because money withdrawn from stocks HAS to go somewhere! And this inflates that particular asset's value.

[poloman]

Originally Posted by SmartCat

This is a low probability event - markets crashing at the same time that this guy needs his money. But there is a solution:



He should have invested 50% of his savings in FD or debt mutual funds every month. In case of low probability events like this, he has the option of liquidating his FD/debt mutual funds

Also, remember that an Fixed deposit investor has worries too.:

1) He needs to worry about falling interest rates. Developed countries are at zero interest rates. Even in India, if crude stays low and inflation stays low, we can see lower and lower rates. In 2003, Fixed deposits returned 4% per year. In 2004, I got a 5 year car loan at 5.5% pa!
2) Worries about bank closures (for FD investors) or NPAs (for debt MFs investors)

Why should a person break FDs or safer instruments when he was advised MF is the best way to fund his children's education? What if those were kept as retirement corpus for day to day living? In case he breaks that,there is a chance he end up in debt in his sunset years if market fails to recover for extended periods.
In bull run people develop disdain for FDs/debt funds and other fixed income instruments either due to ignorance, greed or fear of losing opportunity. My advice is targeted at them. I had given Mr Porinju and his followers as an example few pages back. They thought they were of different kind. Many educated professionals, business men, politicians, bureaucrats all lost even crores in his funds with no road to a recovery.
A person who invested a lumpsum last month will be poorer by min 20% now. It may take years to even recover. That is why I told even in mutual funds entry and exit at right time is very critical. Most common Joe investors enter at peak and exit at troughs. This is human nature.
Also every fall should not be treated as a buying opportunity.
Some big tech stocks in Nasdaq never reached their peaks in 1998 even after 22 years despite multiple bull runs. So such events termed black swan or other fancy words can be extremely damaging.

[ashokrajagopal]

Originally Posted by SmartCat

Have you seen Taleb's Twitter account? He has been bragging (I told you so!) about this for a couple of days now, sharing screenshots of his book . He specifically mentions global pandemics as a black swan event in his book.

Nope, will check out. Read his book a really long time ago.

So far, asset allocation across stocks, bonds and Gold has worked for both US and Indian investors. 10 Yr US treasury bond funds have returned around 16% in year. Gold value is zooming both in USD and INR terms.

I think (asset allocation + rebalancing) strategy is "black swan" proof because money withdrawn from stocks HAS to go somewhere! And this inflates that particular asset's value.

I get it, I get it. And it is very true. Just until a new asset appears from nowhere (which bitcoin tried to be).

[carboy]

Originally Posted by SmartCat

Based on history and based on number trading days, we can say that NIFTY is in a bull market 80% of the time and bear market 20% of the time.

Can you give the source of your data?

Originally Posted by SmartCat

But grinding bear markets don't bother investors much. It does not ring alarm bells. That's because some stocks will be doing quite well, and it is likely that mutual fund manager is invested in those.

I think you are drawing all your conclusions from how the market has behaved in the last 10 years - i.e. 1 data point.

Originally Posted by SmartCat

Historically, NIFTY bear markets have been pretty short when compared to bull markets -> 12 to 18 months.

I think you are looking at primary bull and bear trends under a secular bull trend, because that's all what we had in the last 10 years. The bear markets of the last 10 years have been part of a bullish secular trend. This totally ignores the difference between the secular trend and the primary trend.

This is how a long term market looks like - https://i.imgur.com/ASDyXgu.png
The first half of the above graph has primary bull & bear trends under a secular bull trend. And the second half has primary bull & bear trends under a secular bear trend


I think we are currently in a bullish secular trend which consists of primary bullish trends and primary bearish trends. From 1900 onwards, the US equity markets have alternated between bullish and bearish secular trends, which have averaged 14 and 18.5 years, respectively. When the secular trend is bearish, then even primary bullish trends look very different from primary bull trends of last 10 years & primary bearish trends under a secular bear market is also worse than a primary bear market under a secular bull market.

[m8002?]

Originally Posted by poloman

A person who invested a lumpsum last month will be poorer by min 20% now. It may take years to even recover. That is why I told even in mutual funds entry and exit at right time is very critical. Most common Joe investors enter at peak and exit at troughs. This is human nature.
Also every fall should not be treated as a buying opportunity.
Some big tech stocks in Nasdaq never reached their peaks in 1998 even after 22 years despite multiple bull runs. So such events termed black swan or other fancy words can be extremely damaging.

I think you are mixing up stocks and MFs again. I dont think there would be a large generic MF which even if you had bought in the peak of 1999/2000, it would still not have recovered.

If you had bought an Internet sector fund, you could still be underwater since many companies at that time went bankrupt. But that was as good as buying shares in the hyped up companies that went bust.

At the end of day, its all about knowing what you are getting into based on your risk appetite.

[warrioraks]

Originally Posted by thoma

Just wanted to know how long would it take the market to recover back or won't it ever. Any ball park figures?

Your question actually reminded me of a famous quote - The market can remain irrational longer than you can remain solvent.

Even Warren Buffet or Ben Graham with all their wisdom would not be able to provide authoritative advise here

[poloman]

Originally Posted by m8002?

I think you are mixing up stocks and MFs again.

May I got them mixed up a bit. But the larger message is the same.NASDAQ as an index took 17 years to regain its 2000 peaks. @carboy has clearly explained the cyclical nature in the above post. Most people think market moves only in the upward direction over long durations. This may be be true to some extent in growing economies like India. But markets like US with long history will give a good perspective.

[thoma]

Originally Posted by poloman

NASDAQ as an index took 17 years to regain its 2000 peaks.

Even I had the same doubt and went and checked the American and Chinese index charts over the years. I got the advice that US is a developed nation/market and ours is a developing one. So ours is to come up though later than sooner.

[poloman]

Originally Posted by thoma

Even I had the same doubt and went and checked the American and Chinese index charts over the years. I got the advice that US is a developed nation/market and ours is a developing one. So ours is to come up though later than sooner.

Japan's Nikkei is a classic case of long cyclic bearish and bullish secular trends in developed economies. It is hard to believe that the current Nikkei levels were breached way back in 1987. 33 years have passed since then. It is still half the peak it achieved 3 decades back.
While we were on this, the Dow fell another 7%

[warrioraks]

Originally Posted by poloman

Japan's Nikkei is a classic case of long cyclic bearish and bullish secular trends in developed economies. It is hard to believe that the current Nikkei levels were breached way back in 1987. 33 years have passed since then. It is still half the peak it achieved 3 decades back.
While we were on this, the Dow fell another 7%

Poloman, I get that the point that you have been emphasising from last few posts is that that timing is very important when investing in MFs.

But can I ask you if there is a suggested way to do this? Considering the bloodbath right now, is it time to sell or is it time to buy?

[saket77]

I think we should brace ourselves for another session in red tomorrow. US, CAC, FTSE, SGX Nifty-all under huge pressure.

Regarding questions on selling- I would never sell in such market. Remember, if you are holding the units, it is notional loss; but if you sell it now, you will be booking actual loss.