Patience best virtue for investors when markets fall

As the equity markets rumble, all of a sudden there is too much talk of recession and panic among the investors. There is a lot of noise around in media, on social networks and emotions run high as fears elevate. All the talk of long-term investing is gone off the thoughts and anxiety (of loss) takes over.

While the actual markets didn't even fall to those levels of hypothetical questions asked in the risk assessment profiles, most investors have responded exactly opposite to that of what they said then.

Sanity is lost and started to seek for an action in their portfolios just upon stumbling on a WhatsApp link whose narrative changed with each forward.

In contrary, these are times of less action and is the time to display more patience as a strategy to counter the evolving events. I know it's easier said than done but that's possibly the best solution to this problem.

Peter Brannen in his book, 'The Ends of The World' which talks about Volcanic apocalypses, lethal weapons and our quest to understand earth's past mass extinctions describes that earth endured five mass extinctions in its history.

Remember the asteroid theory, when a rock larger than Mount Everest hits the earth travelling twenty times faster than a bullet, the aftermath was an estimated 75 per cent of all species were extinct and more than 99.9999 per cent of all organisms on earth died.

And if you have thought this was the deadliest, this is nothing compared to the Permian mass extinction which occurred about 251 million years ago, eliminate about 96 per cent of all species and virtually purged all living things.

This is the period that mocks some of the atmospheres we've known or present in our solar system. With 60-degree celsius temperatures combined with 500 mph hypercanes along with an unprecedented volcanic activity across the land or water, making the sea waters reach temperatures of 40-degree celsius, killed most of the sea life. Most of the animals, plants and organisms were just annihilated.

Even according to the Hindu eschatology, the concept of 'yug' is accepted where a particular phase of life ends bringing to a new cycle of life. Even the Christian eschatology talks about resurrection of the dead and new earth.

Similar views are shared even in the Islamic eschatology. So, from the ecological or philosophical point, extinction is common and accepted. But, despite the highest losses it also propounds that new life is originated and the cycle goes on.

The reason I have ventured on to these topics is to draw parallels to the economic cycles and the investment world. Our physical world has proven that energy is neither created nor destroyed so is the capital, it's just fluid, moves from one asset class to other or one investment avenue to other. And at each of these economic cycles, the markets respond with newer winners to lead the next cycle of growth.

The concept of boom and doom is for the investors who oscillate between greed and fear but it's just another cycle for the world economy which rules the markets. Though, a cliched phrase, 'this time is different' is true at least for the reasons of cyclical changes in the economy.

The world has witnessed the Great Depression in the 1930s then again the Great Financial Crisis (GFC) in '08 while in between we witnessed number of turmoil due to inflation, deflation, technology boom, currency crisis, etc, but as debilitating as it was the world limped forward and turned healthy again.

We could debate about Indian economic integration with that of the world in all of those past situations and when juxtaposed to the present, would find insulation to be thinner. Having said that one can't prepare for those extreme disruptions and plan.

Any model built with these only these outliers wouldn't fully participate in the growth. Please note that one can't build model based on exceptions. No amount of preparation would be sufficient for an extreme event and it wouldn't be an extreme one if we're prepared for.

I could go with conviction that 99 per cent of the people who were referring to that particular WhatsApp link didn't read any of the other posts written by that author.

No, I'm not outrightly rejecting the claims made or contesting the content but it's the context that I would like to refer to and others to focus on!

The need of the hour is to review the portfolios and check for any exposures that are beyond one's risk appetite and if so, realign the portfolios to best suited levels. At these moments of time, first cut the noise, you need not take daring or evasive steps but just survive.

Be fit (psychologically) enough to scrape through these testing times like the adage says, survival of the fittest. As Mark Faber put it once, "the biggest important thing is to make sure that you live to invest another day. A lot of the very basic stupid mistakes are the most important things to avoid."

(The author is a co-founder of "Wealocity", a wealth management firm and could be reached at knk@wealocity.com)