Time for action! | Value Research A market crash is a great time to buy tomorrow's stocks at yesterday's prices
First Page

Time for action!

A market crash is a great time to buy tomorrow's stocks at yesterday's prices

Nine-and-a-half years ago, just when the global financial crisis was getting bad to worse on an almost daily basis, I had written the following editorial for the sixth anniversary issue of Mutual Fund Insight. At that point when I was writing this in early October, the Sensex was down by more than 40 per cent for the year and was plunging down further. It would eventually lose almost two-third of its value by March next year. And yet, it was clear even then that the decline was an investment opportunity. Here are some excerpts from the October 2008 editorial:

Six years ago, when I sat down to write this 'First Page' for the first time, the BSE Sensex was at about 3,000 points. More to the point, we were in a deep bear market. At that point, the Sensex was 50 per cent lower than it had been 18 months before that. Not just that, the Sensex was at a one-decade low since it had first reached 3,000 points on February 29, 1992. Things looked quite bleak back in 2002 and I must admit that many people thought that it was an act of foolishness to launch a mutual fund magazine. ... I've always thought that launching this magazine at a time when the investing world was at a low point was a good idea, just like investing at a low point is a good idea. 2002 was a bleak time, not just for the stock markets but for fixed-income investing, too. In fact, our first cover headline, 'Are the Good Times Gone?' referred not to stocks but to debt funds. However, as we all know, the good times in the stock markets were just beginning.

Today, as I write this column the stock market is in the grip of yet another bear market and the Sensex is less than half of what it was just a few months ago. However, it is still more than three times what it was six years ago. If you had put Rs 1 lakh in the Sensex at the time, it would grow to Rs 3.5 lakh today.

More importantly, a vast bulk of equity mutual funds have made fantastic profits for their investors over this period. Back in October 2002, there were just about 50 diversified equity funds in India. Till now, as many as 40 of those would have given you better returns than the Sensex. Rs 1 lakh invested in these would have been more than the Rs 3.5 lakh that you would have got from the Sensex.

A lot of people believe that the real moral of the last few months is that falling stock markets can harm your financial well-being. ...The real moral of this story is how well-off long-term investors fare better even after such crashes.

...The long-term investor's returns gets a big boost from market crashes. Crashes are a great opportunity for buying tomorrow's stocks at yesterday's prices. If you missed out in 2002, don't miss out now.

When I read that today, a 2008 editorial that is looking back at 2002, I think the key thing I said was that a market crash is a great time to buy tomorrow's stocks at yesterday's prices. Of course, if you are invested in a good fund, that is exactly what your fund manager will be doing on your behalf. I've invested - and given investment advice - through many crashes and mini crashes since the original Harshad Mehta crash of 1991. But I have never, not even once, seen a crash which did not turn out to be a buying opportunity, an opportunity to enhance the returns that one gets from the equity markets.

Equity markets are down, and that's great news. Really.

Other Categories