Make the most of corrections

The stock market tends to periodically enter phases of greed and fear. And during phases led by fear, the market provides the best opportunities to long-term investors, only if they are able to control their emotions and stay on course. Even though the Sensex has moved up from 3,500 points in 2002 to 35,000 in 2018, which is a 10 times increase in a span of 16 years, this journey upwards has never been in one direction. And over the last 10 years, the benchmark index has moved up four times, but the rise in the benchmark has never come without its bumps and shocks. I still remember the shock of May 17, 2004, when the Sensex fell by over 800 points in a single day and trading was halted twice. This fall was unprecedented because it was not rational at all. The only person who spoke to me was Motilal Oswal, chairman and managing director of Motilal Oswal Financial Services. He said that it was the best time for investors and that he was not frazzled at all. My first lesson on 'fear management' came from him on that fateful day. So, it was not surprising at all when the fall of May 17th was followed by an equally dramatic recovery, all in a span of 48 hours. Historical data shows that the market tends to recover within one, three or six months after this steep correction. But we will come to that later. On that fateful day of May 17, 2004, the benchmark

This article was originally published on January 01, 2019.