Once upon a time, there was a tiny island which was secluded from the rest of the world. It was serene and people lived in harmony, until one day, danger knocked their door without prior intimation. A big monster had seized the place and people were in fear and trepidation. They unanimously came up with a solution, which they thought would defeat the monster. They went to their captain Athelo and suggested the plan to attack the monster. The captain calmly replied, “Let’s prepare to defeat the monster, but now is not the time to declare a war!”
This led to many citizens of the island thinking that he was a coward. He lost the trust and his supremacy amongst his people, but that did not last long. After few months, while it was snowing heavily, Athelo called for an emergency assembly. He said to his people, “Let’s attack as per our plan.” Though clueless, the group followed his advice and with a frozen foot marched towards the monster’s cave. As they reached, they were startled to see the monster trembling in the snow. Hence, it became very easy for the people of that island to defeat the weak giant and restore the peace and harmony which they have been craving for long.”
Everyone wanted to hear the reason behind the sudden attack. Athelo replied, “The monster was very strong to defeat on usual days. I was waiting for the snow as I knew he didn’t have a strong fire neither he could survive for long in this strong cold. He becomes very weak in the cold and he hasn’t planned enough to shield him against these snowy days. He became overconfident about his powers and thought we would never attack him in fear.”
Finally, he gained his hegemony and since then, he was fondly remembered as a wise and patient leader.
How the story is related to the ongoing market scenario?
The earnings in the Indian stock market have dwindled by ~9% from its all-time high of 2018, owing to the ghastly effect of scam-infected PSB’s, cosmetic-hype over the LTCG, hike in Fed interest rates and the global trade war. This led to the state of panic and sell-offs on the bourses which further contributed to the market slippage. On the other hand, there is an on-ground recovery in the fundamentals of an economy, hinting further headroom for growth in the coming years.
The negative sentiments coupled with the bullish view on an economy has made these markets an unsolvable maze. We have various irrefutable evidence behind us to suggest that equities have always outperformed other asset classes. Irrespective of the global and domestic crisis in the history as well, Sensex has burgeoned from 400 to 39,000, while the GDP has swelled from 29,000 crores USD to 2.26 lakh crores USD in the last 30 years. There’s no way that the India’s growth saga is going to stop this time as well!
Now here comes the difficult choice: Do we wish to be citizens on that island who are impatient and fearful, and surrender to the immediate relief without thinking much about the long-term implications? Or do we wish to be Athelo, a rational, calm and wise leader, who is thinking long-term to accomplish the goals?
Here’s what you can learn from Athelo in times of market correction
- Don’t get carried away by the rumours and tips: While everyone on an island agreed on a war, Athelo stood strong against it. He knew they would never be able to defeat the humongous monster. The key to becoming a successful investor is rational and logical thinking in days of panic and chaos with a systematic plan in place. There would be many distractions including media news, tips, hearsays, surrounding sentiments, etc. But don’t focus on them, focus on the stocks you hold.
- Strike while the iron is hot: Even though it was snowy, which soared challenges for his troupe as well, he knew it was the time to defeat the monster. The markets are experiencing bloodbath and at the same time improved economic data. This is a great opportunity to enter the markets, given the exponential growth opportunities available at the current low levels.
- Rapid profits dwindle away rapidly: If Athelo would have agreed to a war earlier, his people would have considered him a fighter. But ultimately, what would have happened? The entire island would have been destroyed. He had to take a step back to win a bigger game. Similarly, stock market trading may seem a right option to quickly earn that extra bucks. However, to create wealth, you need to resist emotional decisions and instead, buy rock-solid businesses which you can sit on for 5 years even during the times of market correction.
- Trust the expert: Investors get into frenzied selling or buying as per the ongoing sentiments. However, experts/financial mentors think logically to help them achieve their goals via methodical wealth creation plans. The citizens were not so comfortable with Athelo’s decision at the start. However, paying heed to his advice turned out to be the best decision for an entire island. Similarly, advisors think long-term and may advise few stock recommendations/stock market investment steps which you may not be able to digest currently, however, they would definitely help you to win a bigger game in your wealth creation journey over a long-term.