The economy is gradually opening up, and the markets have recovered sharply. We need to prepare for the worst, and I think preparation has to be a habit, rather than a one time act . Even though at times, we may have to sacrifice short term returns. Our ability to withstand future storms will depend on how deep our roots are!
While we look to the past for the worst case, there’s no reason why future experience will be limited to the past. Having said that, but without reliance from the past to inform us regarding the worst case, we can’t know much about how to invest. Let’s look at some of the past financial crises.
The Great Depression 1929,
The Dow Jones crashed- 50% down in a quarter from peak, and in the next 5 months retraced +50% from the low, only to plunge -85% in the next two years.
Can Nifty correct another -80% from 10000? I don’t know!
Are we prepared for such a fall? Absolutely, Yes!
What is the probability of -80% fall from 10K? I think less than 10%
The panic of 1987,
The Dow Jones plunged -41% in a couple of months from 2746 to 1616 in 1987. After which we have never seen 1616 levels, it took a year to recover to previous high and as I am writing this Dow Jones is trading at 27111 as on 5th June 2020.
Covid-19 crisis in 2020
Nifty has corrected -40% approx from peak of 12430 to 7511, only to retrace 35% to 10140.
Will Nifty never see 7511? I don’t know
For having a look at past crises in the Indian financial markets go to http://www.nooreshtech.co.in/2020/05/opportunities-in-bear-markets-and-consolidations-post-1992-2000-2008-and-2020.html
Happy investing
Bhuvan Batra
