Notwithstanding the size of the newspaper headlines today, none of us who are part of the investment community-whether as investors, or as investment managers or as analysts-have any right to be surprised by the events of the last few days. The reasons behind this global collapse are well-known and have been widely discussed for months now. Anyone who kept his eyes and ears open knew that this could happen at any time.
The question that is uppermost on everyone's mind is what will happen now. And the answer to that is that it doesn't actually matter. Let's look at three typical investor profiles:
1. If you are a long-term investor and you entered the market a long time ago and have invested only long-term money in stocks then relax. Ignore your investments for a few days, don't watch business TV, don't read the pink newspapers and don't come and check your portfolio on valueresearchonline.com.
2. On the other hand, if you've been invested for a long time, have made a lot of gains but will probably need to disinvest and use your money in the near future (any time within a year or so), then it's time to sell out. The market will bounce up and down but there are enormous short-term risks which will not go away easily. Do not, under any circumstances, leave any money invested unless it's for the long-term.
3. If you are punting on margins using rumours and tips then I hope you've already pulled out enough money and spent it on something useful because the market could send you home empty handed any time now. That is, if it hasn't already done so.
The basic economic growth of the country, which is what matters to stocks in the long run, is intact. What has been disappearing over the last few days is the froth that had gathered on a lot of stocks. For example, just yesterday (20th January) when the BSE Sensex fell 1400 points, the worst performing company in the index fell 16.38 per cent while the best performing one fell only 0.32 per cent. If you take a look at the Sensex companies individual drops yesterday, you'll realise that the Sensex may be sensitive, but it's not senseless.
The principles of good investing are intact, and will stay intact no matter what happens. As that ad says, 'Lage Raho.'
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