Lessons Learned from Yesterday’s Stock Market Crash and Today’s Rise

The drop since October and the recent drop of over 2,000 points in the Sensex have left many retail investors in awe. They’ve been told that the stock market can only go one way, and it’s going up.

Take a look at the attached table. It plots new demat accounts opened each month (left) and BSE Sensex level (right).

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Source: Securities and Exchange Board of India and www.bseindia.com

What does the table tell us? He tells us that from April 2020, as the Sensex has grown, the number of new Demat accounts opened each month has also increased. In fact, in October when the Sensex peaked at 61,766 points, the number of new Demat accounts opened in a month reached 35 lakh accounts.

This tells us very clearly and again that many retail investors enter a bull run very late in the day after seeing others make money. This explains why those who entered the market in September must be largely sitting on losses now. Let’s call them strangers.

Foreigners bought the story sold by insiders. Insiders are people who make money from trading in stocks i.e. fund managers, analysts, brokerage houses, portfolio management services etc. They make money when they keep investing more and more money. Therefore, their motivation is to keep saying that the stock market will keep going up to keep attracting more and more money and increase their assets under management and therefore the money they earn. Of course, that doesn’t mean all insiders do it, but many do.

Every fall is a buying opportunity, and every rise is an indicator that the rise will continue. And that happens for a while until it doesn’t. As was the case over the past couple of days, when many retail investors discovered that a stock market could fall as well. There’s a whole generation that hasn’t seen a bear market. And the lack of this experience can be telling.

The fall made many foreign philosophers. Many were shocked to say anything. Yet others thought they were long-term investors. Most people don’t get that long term wealth that can’t be built so randomly by waking up every morning and then figuring out what we should be doing with our money today.

As Morgan Housel writes in his excellent book The psychology of money: “There are universal truths about money, even though people come to different conclusions about how they want to apply these truths to their own finances.”

One universal truth is asset allocation or diversification or not putting all your eggs in one basket. Therefore, it makes sense to spread your money across multiple asset classes, from stocks to real estate (if you can afford it) to gold and term deposits (yes, you heard that right).

No one knows for sure what will happen to stock prices tomorrow morning or a year or ten years from now. The confidence that they project comes with their job of making money through trading in stocks. In the past, the world has experienced bear markets that have lasted for decades. At the same time, there were also bull races, which lasted for decades.

The only way to play serious is to allocate your money so that if a particular asset is doing well, some of your money benefits, and at that point, if that is not doing well, your losses (or the loss). lack of gains) are also limited.

So, every foreigner who made money in 2020 and 2021 and became a guru who thought investing in term deposits was a waste of time because the offered interest rate is lower than inflation or the rate of rise in prices, well it turns out that term deposits still make a lot of sense, simply because the return of capital is more important than the return of capital.

Of course, diversification also has its share of costs. Anyone who ensured that some of their savings continued to be invested in term deposits over the past two years to preserve what they had already built had to pay the price in terms of lower returns. .

But in the end, it all depends on what the money means to you. For me that means independence to make the decisions I want to make. Over the past 18 months, I have tried to protect what I have built more than profit from it. This is simply because I couldn’t handle the uncertainty of income as a freelance writer, the uncertainty on the covid front, and the economic uncertainty, all at the same time. In this sense, our investment situations are unique. But the point is, most outsiders seem to understand this very basic fact and do what the insiders tell them.

As Housel puts it, “We can leave the rich out, but independence has always been my personal financial goal. Seeking the highest returns or leveraging my assets to live the most luxurious life interests me little. Both are like games people make to impress their friends, and both have hidden risks. I especially want to wake up everyday knowing my family and I can do whatever we want on our own terms. Every financial decision we make revolves around this goal. “

As for the universal silver courses, this is a very good course. Oh, but does it really matter because stocks are on the rise again today.

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