What a wonderful thought by Morgan Housel.
Do you ever feel - “I must have purchased quality stocks during the 2008 crisis or the 2020 crisis?” Then the above quote is for you.
Whenever we look at a past decline it looks like an opportunity, we say काश तब invest किया होता!
But when we see the markets going down in front of us or when someone talks about it that it will fall in future, we take it as a risk.
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Be Fearful When Others Are Greedy and Be Greedy when others are fearful - Warren Buffet
Thoughts on “Buy the dip”
Here is another one from the one and only Vishal Khandelwal.
Buying on dips or declines is not as simple as it seems. I am not a big fan of the deeply discounted prices, but you must go slow when you are buying on dips.
Also, be mentally prepared even the greatest of the business can keep dipping for a few days in a row. Don’t go all in.
How much will the market fall?
Believe me, no one knows it. Go slow.
What not to do when the market is falling?
Don’t sell in panic.
Don’t borrow for investing with the thought that the market will recover soon.
Don’t stop your SIPs in your equity mutual funds.
Don’t let temporary falls affect your mental health at all.
Don’t use your emergency funds to invest in falling stocks.
Don’t fall for FOMO when markets corrects.
A stock can be priced very high because of temporary news but if the business is not good stay away. In the same way, stock can be beaten down in prices because of temporary events, it does not mean you should sell it.
The bottom line is - Focus on Business, not on the prices
Cash is the king
Buffett's large cash balance not only insulated Berkshire from the broader market turmoil, but it also gave the group the optionality to take advantage of others' weaknesses. Buffett explained this principle in a meeting with the University of Maryland students in November 2013:
"BRK always has $20 billion or more in cash. It sounds crazy, never need anything like it, but some day in the next 100 years when the world stops again, we will be ready. There will be some incident, it could be tomorrow. At that time, you need cash. Cash at that time is like oxygen.
When you don't need it, you don't notice it. When you do need it, it's the only thing you need. We operate from a level of liquidity that no one else does. We don't want to operate on bank lines.
Something like that will happen maybe a couple of times in your lifetime. Two things when it happens again - don't let it ruin you, and if you have money/guts, you'll have an opportunity to buy things at prices that don't make sense. Fear spreads fast, it is contagious. It doesn't have anything to do with IQ. Confidence only comes back one at a time, not en masse. There are periods when fear paralyzes the investment world. You don't want to owe money at that time, and if you have money, then you want to buy at those times. Be greedy when others are fearful and fearful when others are greedy."
Holding cash gives you options and freedom. You might miss out on some market gains in a bull market, but how can you put a price on cash's optionality in a recession?
While it might be painful to hold a lot of cash in the short term, it will undoubtedly pay off for patient, long-term investors.
My own Experience
The most important asset when the stock market is falling is cash. Always set aside some cash in 100% liquid funds. I prefer to keep it in a savings bank account. You might feel a little surprised at this idea, because this cash will not earn you anything, but you will realise the importance of this cash when the stock market falls and you will have some amount to invest.
This is not at all an attempt to time the market.
It is like an opportunity fund to be utilized when markets give chance. It can be tempting to invest all of your assets in stocks during a bull market. People ignore the value of cash in the portfolio. Keeping cash helps in avoiding the overvalued companies and also gives an opportunity to buy quality ones when opportunity knocks on the door.
Suggested Reading - The importance of Saving
I personally follow this rule and it has helped me a lot. People regret not having cash in their portfolios.
How you can learn about stock markets?
By writing or recording your feelings and thoughts about the current dip. Writing about your urges to sell or exit at low prices. Reflecting upon your decisions in the past. Basically create a journal of your stock market experiences and learn from your own experiences and mistakes.
All the best. God bless you
❤️ Neeraj Arora
और हाँ, सीखते रहें, क्यूँकि सीखना शुरू तो जीतना शुरू 🚀
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