The Markets have fallen, How should we see it?

 We at Droplet believe in giving a better perspective to a known fact that will help our readers take decisions that make sense. Today's piece is one such attempt. Nifty has corrected about 15% from its current peak and most of our portfolios too would have felt the burnt and the bad news is - It does not look like its going to stop here! 

Many of us know a simple fact that to make profits from Markets (or In fact in any trade), we need to Buy Low, Sell High. Easier said than done because we never know where the low is, right? Below is funny but brutally honest representation of what happens to stock price when we actually buy a stock thinking of becoming the next rich person. 

And we eventually sell at loss or get stuck not knowing what to do. So the Good News is we are going to help you find that "Low". Ah! What? Are you simply going to give the "Holy Grail" over a blog. Well, we can give only the knowledge. Holy Grails are matters of wisdom. 

The Knowledge - Let us introduce you to a concept called the Simple Moving Average. A simple moving average (SMA) is an arithmetic moving average calculated by adding recent prices and then dividing that figure by the number of time periods in the calculation average. So if we are calculating 15 Day SMA, then we sum prices for past 15 days then divide it by 15. We seek and advice long term investors, hence we always look at moving averages over long term periods and found that the 99 Weekly Average price gives us a fair idea of where the low is.

We ran an analysis of the same and found that the Nifty has closed below its 99 Weekly averages only on 4 occasions in last 15 years. Below is the summary of the same. Out of the 4 instances, 2 have been those that affected the world badly and hence we can see that the time to regain the peak was pretty big while the other 2 were because of not so serious global issues and hence the market recovered quickly.  

Lets assume that we started our SIPs at the beginning of the year in which markets started moving down and eventually closed below the 99 weekly moving averages. Here is how the Returns profile look. 

2 Key things to note here - The returns that we are seeing is after a 15% fall in the market and they are still better than Gold, PF or FD. 

Right now, Most Stocks are closer to the 99 Weekly Average and chances are that they may go below and chances are they may not, we are not Gods to know what will happen but financial advisors. And our advice is - As Investors we are primarily asset gatherers who should yearn to gather assets where the margin of safety is high and returns are better. 

• If it Markets fall further, be happy that we are getting more discounts to buy assets with a better risk/reward
• if it stays there then be happy that we are getting more time to buy assets with a better risk/reward
• Well if it rebounds then your faith in the asset class will be intact and you will continue to invest, another reason to be happy. 

With that, one more time let us repeat - right now is the time to get started in your investment journey or ramp up your equity allocation. Nobody can catch the exact bottom so don't overthink, act now. 

For financial planning and investment-related queries, write to us at dropletadvisory@gmail.com or call us at 9962399924 / 9551373455. Visit our website - www.dropletwealth.com