Today (on 16th Jan 2018) the market corrected by only 0.38% but all small cap and mid cap stocks were down by 4-5%. My portfolio went down to 12.5%. I wanted to put this on my blog because it will help beginners learn few things about market corrections, selling pressure and profit booking.
Before I explain what happened let me show these images :
Top image is my portfolio on 16th Jan 2018. If you notice it was up by 16% on Jan 12, 2018. In the morning session, market went up by 0.3% and my portfolio was up by almost 17.5%. Which means that within 4-5 hrs. time, my portfolio lost almost 5% gains which is approximately Rs. 50,000. I saw this coming because market is at high and most of the people would book profit at this level.
Bottom image shows how much individual stocks corrected. As you can see majority corrected by almost 4%-5%. Because all the stocks are down my portfolio also went down.
Now imagine if someone had initiated longs today in the morning (if someone bought all stocks today itself in his portfolio). His portfolio would have been down by 5% too (assuming he was holding mid cap stocks). His invested value would be down by 5% (1 lakh would have become Rs. 95,000) and he could have panicked.
However I feel that this is just profit booking (which means that people who bought stocks few weeks or months back, sold all their holdings and the market went down).
I personally am not going to sell any stock and will hold all these stocks (unless ofcourse something bad happens with the economy or with any company in particular). I am expecting market to go down for 2-3 days more and my portfolio could go down by 6%-7%.
Why Didn’t I book Profits ?
The main reason is no one knows how the market will move. It could move up (pre-budget rally) or it could go down (more profit booking). However since the macros of the economy remain unchanged, there is no reason to panic and the market won’t see a bear phase so soon.
Because I cannot predict the market, I will remain invested. It will take another month to recover (or maybe sooner) and it won’t make sense in exiting any stock because then you won’t know when to buy again.
What if market goes down till 10,600 and you wait for it to go down further (till 10,300) and instead it makes new high. You will miss an opportunity and now will have to either invest at new high and be scared of another correction, or wait for another correction which no one can predict.
Since I invested near 10,300-10,400 mark I can wait till nifty corrects by 3-4%. I will panic when nifty goes below 9,900 which I don’t see happening (but then who knows).
How Do I Know There Is No Selling Pressure ?
I keep some stocks which are favorite of investors in my watch-list. Here is a screenshot of those stocks :
Stocks like Titan, Voltas, Maruti, TVSMotor etc. are down by only 2-3% which suggests profit booking and not selling pressure. To understand selling pressure check these images :
This was during the demonetization phase. When Government announced it, all stocks went down by almost 25-30% which is a lot. This is a time when I would have regretted investing or could have exited and booked losses (which would have been a mistake as all shares climbed back within few weeks). In the above case a fundamental part of our economy (cash in circulation) took a hit and hence whole market tumbled (although crashes are bigger than this).
So there is a chance companies like Titan and all will go down by maybe 8-10% because of profit booking but then those who are waiting to enter will invest and the prices will rise again, and to re-iterate because it is difficult to predict where the market will go, study the fundamentals of stock companies and economy and remain in invested with conviction.
Another Day Of Correction In Midcaps
Most of the caps corrected by another 4%. This is what the portfolio looks like right now :
Entire portfolio went down to 8% from 16%. That is loss of almost Rs. 80,000 in profit, within just 2-3 days. This is how midcaps usually correct.
I will ofcourse remain invested for one whole year.