Market Volatility, Behaviours & Potential

Updated: Jul 9

Returns from investments are not determined due to knowledge of numbers but they are determined by behaviour. Additionally equity market is the only asset class that gives you regular update on its price - unlike real estate.

The night before the D-Day invasion, the President of the USA Franklin Roosevelt, asked his wife how she felt about now knowing what would happen next. "To be nearly 60 years old and still rebel at uncertainty is ridiculous, isn't it?" she said.

Look at the news headlines today and one is bound to get nervous.....the highest inflation in 40 years, rising interest rates, plenty of stocks down 50%+, a war in Ukraine, supply chains broken, a lingering pandemic, China on lockdown, on and on – it feels like economic uncertainty is rising, maybe the highest it’s been in years. And then anyone and everyone on TV is talking about the dreaded words - Recession and Bear Market.


To enjoy long run investment success, we are required to navigate such exacting periods. Some key learnings from prior bear markets:

  1. They are inevitable - We know they happen; we don't know when or why.

  2. They feel predictable - It will seem obvious that this environment was coming after all warning signs were everywhere.

  3. We will Never call the bottom - Market timing is impossible; after all if we could, we would be Billionaires.

  4. Our time horizons will contract - People who invest saying that they are investing for 7 to 10 years or longer forget this when they see 25% loss in their portfolio.

  5. The world suddenly becomes a dark place - It is hard to see anything but sustained negativity. I have been through many such phases and know that this too shall pass.

The outcomes of bear markets are more about us than they are about the market.

Investors entering a bear market with identical portfolios will have wildly different results based on the decisions that they make during it. The noise of daily market fluctuations are deafening and we will check our portfolios daily.


Focus on your goals, your asset allocation and dont stop your money from working for you.


Why am I positive about India?


We should invest if the markets are cheap(er) relatively and has huge potential.


How expensive is the market?

This is the Price to Earnings (PE) chart of the Nifty. PE until March 2021 considers standalone, trailing 4-quarter earnings. PE considers consolidated earnings from April 2021 and onwards. Current month PE is as on the last traded date for the month. Source: niftyindices.com



Nifty is below 20 now. When was it consistently below 20? During 2012-2014.


What is the potential for India?

GDP growth is a quick way to check that.


Indian GDP is expected to grow almost 4x in 15 years with India expected to be the 3rd largest GDP in the world by 2031.


Source: Morgan Housel, Behaviouralinvestment.com, Primeinvestor, Capitalmind

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