Arjuna (Fictional Character): Krishna, Holi is here! The festival of colours fills the air with joy, but my investment portfolio seems to have changed its colour. The stock market has fallen, and now I am wondering about the colour of my investment portfolio.
Krishna (Fictional Character): Arjuna, just like Holi has different colours, every investor's investment portfolio can have a shade either green, red, or no colour at all. Each shade represents a different situation. Just as we choose the right colours to play Holi, we must make the right financial choices to maintain stability.
Arjuna (Fictional Character): Krishna, my friend invested during the COVID-19 market fall, and his investment portfolio is still in the green even after the recent market crash, though his gains have reduced. What steps should he take next?
Krishna (Fictional Character): If the investment portfolio is green, it means your friend made good financial decisions by investing when the Nifty 50 index corrected by around 38-40% from its peak during the COVID-19 fall. However, in the recent fall, the Nifty 50 index has only dropped by 15-16% from its all-time high, which is one of the main reasons for his gains. But just like Holi colours fade over time, financial stability can also fade without proper management of stock in investment portfolio. If a company is debt-free, has consistently increasing sales and profits, and maintains a positive management outlook, then holding onto it confidently is a good idea. In fact, if the stock price has dropped, it could be an opportunity to buy more shares, as the strong fundamentals make it a solid long-term investment. Increasing your position in such quality stocks could help your investment portfolio grow further.
Arjuna (Fictional Character): Krishna, what about those whose investment portfolios are completely in red, like someone covered in red colour during Holi? People are facing financial setbacks and are worried.
Krishna (Fictional Character): Arjuna, if your investment portfolio is deep in red, it means you invested when the market was at or near its peak before this recent fall. It's like being completely drenched in red during Holi. As the Nifty 50 index has fallen around 16% from its peak, many investors are in losses due to buying stocks at all-time high and now they are unsure of what to do next. If we go stock-specific some might be facing losses of 20%, 30%, or even more. The reason for this could be investing in high-value or penny stocks rather than good, fundamental blue-chip stocks. However, just like dark Holi colours can be washed away over time, market losses can also be corrected with the right approach. Instead of holding onto such risky penny stocks (weak companies with High debt, weak profit margins, negative growth, etc) in the hope that they will recover, it's time to sell them. The money saved from these sales should be reinvested in strong, fundamentally sound companies with good growth potential. The goal is simple, turn red into green. If done right, even those who are in red will soon be enjoying the green.
Arjuna (Fictional Character): Krishna, what about those whose financial position has no colour neither red nor green? They are stuck with no gains or losses. What should they do?
Krishna (Fictional Character): Arjuna, the reason for this is that the person made an investment when the market was at today's level, which is why they find themselves in a no profit, no loss situation. They didn't sell when the market was at an all-time high, driven by the greed for more profits. Now, they find themselves at a point where they neither have a profit nor a loss. This situation is like playing Holi with just water-there's no excitement or impact. Investors in this position should focus on proper reallocation of their funds. Reviewing the investment portfolio is crucial. Stocks that have significantly declined from their peak should be analysed for their recovery potential and expected timeline. If better investment opportunities are available, it's wise to exit underperforming stocks and reinvest in stronger ones. Strategic reallocation can help improve future returns and bring vibrant colours back to the portfolio.
Arjuna (Fictional Character): Krishna, some people stay away from Holi, watching from a distance instead of joining the fun. Similarly, many hesitate to take financial decisions. What should they do?
Krishna (Fictional Character): Arjuna, inflation slowly erodes the value of money, just like dull colours on Holi. Instead of letting savings sit idle, people should start with small investments, such as a SIP in mutual funds. Once comfortable, they can gradually explore direct stock investments. Historically, the stock market has provided around 12% average annual returns, making it an essential tool for beating inflation and growing wealth. Just like Holi is best enjoyed by participating, wealth grows only when you invest.
Arjuna (Fictional Character): Krishna, what should one learn from this?
Krishna (Fictional Character): Arjuna, the main lesson is that whether your investment portfolio is green, red, or colourless, you must take action. Just like Holi, financial markets require active participation and smart planning to make the most of opportunities. Whether you are holding good investments, adjusting your portfolio, or just starting to invest, the key is to take action and make informed choices. Don't wait for things to happen; create your own bright future by making smart financial decisions.
CAclubindia
