Market up 400 points; how are you preparing for the crash?

by Manshu on September 13, 2010

in Opinion

The market went up by 400 points today, and there was cheer all around with plenty of analysts predicting 20,000 by the end of the year, 22 by the end of next year, so on and so forth.

But no one knows what’s going to happen. No one ever did, and no one ever will. It is natural for people to be optimistic and cheer for the market when it’s going up, and be pessimistic and all gloomy when the market is going down.

That’s just how things are.

During the peak of the recession, and much afterwards there was a lot of talk about protecting your portfolio from a crash, looking out for the next bubble, the Greek crisis,  and generally stuffing your money in your pillows, but all that is slowly receding now.

As the tide turns people are looking to get more adventurous, looking for that penny stock that will rise 10 times, the IPO that will scorch on listing, and the gold bar that’ll surely triple in three months.

The market moves in cycles, so don’t let its positive momentum numb your senses and make you throw caution out of the window.

What goes up eventually comes down. Of course, I don’t know when the crash will come, but I do know that a lot of people will be blinded by it when it eventually does.

Personally, when the market goes up and away – I try to remind myself that this is just part of the natural cycle, and not get too carried away by it. It becomes quite hard when everyone around you seems to be making a killing on the penny stock their brother in law recommended, but when you’ve been through the cycle a few times, and burned your fingers, it is easier to ignore the noise.

All the best.

{ 12 comments… read them below or add one }

Chirag September 13, 2010 at 9:09 pm

One of the best days for Indian markets 🙂

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Manshu September 14, 2010 at 5:55 am

Yeah reminded me of the day when the Congress victory was announced.

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Chirag September 14, 2010 at 7:19 pm

But that day we didnt get to trade 🙂 But it was kind of similar!!

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Chirag September 14, 2010 at 7:20 pm

Manshu read this is a nice one : Tall buildings lead to market falls? – http://www.squamble.com/2010/09/15/tall-buildings-lead-to-market-falls/

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Manshu September 15, 2010 at 3:22 am

There’s another similar study which has the relationship between hemlines and market movements…when the economy is booming – skirts become shorter and vice versa 🙂

http://www.entreprenomics.net/theeconomicsofhemlines.html

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Indian Thoughts September 13, 2010 at 11:01 pm

I was talking on same lines with my DH yesterday. I take SIP route so I don’t think I should have much problem. 🙂

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Manshu September 14, 2010 at 6:03 am

SIPs are a good way to smooth out the volatility, and hopefully it will work well for most investors over a longer time period.

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Marshal September 14, 2010 at 12:33 am

very well said, i personally agree with you ..
these ups and downs should not affect your long term wealth creation plans.

@indian thoughts, in my experience of SIP from 2006-2010. SIP route for 3-4yrs shouldn’t give you much problem.

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Manshu September 14, 2010 at 6:00 am

Yeah, if you are in it for the longer term – 10, 20 years, preparing for retirement etc. you are best off ignoring the day to day noise of the markets.

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Gaurav Malik September 14, 2010 at 2:37 am

I guess SIP-MF is the best route but then analysts keep on predicting and I am not sure where were these analysts when the crash happened. Markets have risen only due to FII and HNI buying, once these FII’s make enough profit and when they exit the market, I am sure we would see 16,000 levels soon in mid October/early November. I guess its a good time to wait and watch and see what happens. I am sure a lot of investors would want to get into and catch this wave but there would be another 2 rounds of correction. I am no analyst and our market is heavily dependent on FII’s and global markets.

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Manshu September 14, 2010 at 5:59 am

To your point, the correlation between various global markets is really high, and all of them move in tandem. That makes sense if you think about how global trade has intertwined the destinies of various countries. I feel that the size of the move might differ among different countries but most of them move in the same direction.

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Gaurav Palvia September 14, 2010 at 9:32 pm

I think its a very compact article but a must read all the time whenever market is bouncing. Just brings you to ground level and help think rationally.

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