Yes, you read the subject right but…..
With all the ongoing volatility in the stock market, I thought it would be a good time to point out that this is only natural. After two great years of one-sided movement in the stock market (2020-21), investors experienced volatility for the first time during Russia Ukraine war when the Nifty slumped 18% in Mar’22.
But within 5 months, Nifty not only recovered but reached an all-time high of 18,887 (up 24% since the lows of March 2022) – That’s volatility [Please note that volatility is different from risk, the risk is permanent loss of capital whereas volatility is unpredicted fluctuation in the stock market. Volatility is an inherent feature of the stock market] 
Legendary investor Peter Lynch mentioned that most stocks fluctuate 50% from top to bottom EVERY YEAR, without any fanfare.
From the year 2000 to 2022, in 19 out of 23 years, Nifty’s fluctuation was greater than 20% which means 83% of the time an investor may witness his portfolio fluctuate 20% either way (chart below for reference). Even then Nifty has performed exceptionally well over the years, rising from 1,100 to 18,800 – Majority of the mutual funds have performed even better during this period.
Source: Money Simplified (Ankur Jhaveri)
Despite the short-term volatilities highlighted above, equity markets have created great wealth for investors – lumpsum investment in Nifty at the beginning of 2000 has yielded around 12% whereas SIPs have performed even better with an IRR of 14%!
You may want to read our article on ‘Why market crashes are inevitable & beneficial for a long-term disciplined investor’
Here’s what legendary investors have to say about volatility:
Warren Buffet: The true investor welcomes volatility… a wildly fluctuating market means that irrationally low prices will periodically be attached to solid businesses.
Peter Lynch: I’ve always said, the key organ here isn’t the brain, it’s the stomach. When things start to decline – there are bad headlines in the papers & on television – will you have the stomach for the market volatility and the broad-based pessimism that tends to come with it?
George Soros: Outperforming the market with low volatility on a consistent basis is an impossibility. I outperformed the market for 30-odd years, but not with low volatility.
John Train: For the investor who knows what he is doing, volatility creates opportunity.
Going forward, we expect the market to be extremely volatile with sharp moves both on the upside as well as the downside till the time global challenges like Russia Ukraine war, inflation in developed nations, etc. are solved. Further, upcoming elections in India & USA may add volatility to the market.
But do remember:
Million $ question: What should you do as an investor?
Time & again, we have advocated simple but not easy ways to generate wealth:
- Invest in equities with a long-term view & believe in India’s growth story,
- Keep an emergency fund equivalent to 4-6 months of expenses and invest the rest as per your life goals,
- In case any of your goals is approaching within the next 3 years, shift a part of your equity portfolio to debt,
- Delete all market tracking apps and reap the benefits of volatility by investing via SIPs. Top up with lump sums at every 10% market correction.
Our team with 32+ years of professional experience will be glad to assist you in managing your finances – be it taxes, insurance, investment, or loan!
Hidden Treasure
We found a frontpage of a business daily, Mint published in May 2012 wherein all the negative headlines were published– High inflation, dollar depreciation & downgrade of Reliance stock (a situation similar to today) but here we are, in 2022, the Sensex has increased from 16,000 to 63,000 (4X jump), Reliance has increased from 345 to 2856 (8X jump) in the last 10 years.
We don’t find any specific reason to not invest in India for the next 10 years!!!
Disclaimer: The views expressed herein constitute only the opinions/ facts and do not constitute any guidelines or recommendations on any course of action to be followed by the reader. This information is meant for general reading purposes only and is not meant to serve as a professional guide for the readers
Mutual Fund Investments are subject to market risks. Read all scheme-related documents carefully before investing.
