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Markets are volatile but your investing shouldn’t be!


🔆 Did the war get you worried? 

The Russia Ukraine conflict, which the world thought Russia was bluffing about, got real very fast.

Uncertainty and volatility scare investors. It is even scarier for those who started investing after March 2020 and hadn’t ever seen a bear phase or a 5% single-day correction.

This week’s newsletter is curated to offer some insights that help deal with bearish markets –

  • Case Study: How are we re-calibrating our fundamental portfolio now?
  • Big Picture: How to survive a bear market?
  • Beyond Obvious: You should time the market (Yes, you read it right)
  • Psychology: Why do experts keep saying the same thing again, and again?
  • Money Models: Minsky’s explains boom and bust cycles in markets
  • Pop Poll: What action did you take, on Thursday, when the market fell by almost 5% due to the Russia Ukraine war?

(Flash Sale – We’re running a 20% discount offer on Premium & Smallcase. Details at the end of this post)

When markets go volatile 🌧

Markets get volatile often. Not as often as they used to – thanks to the printing press of the central banks – but they still do. This also gives us the opportunity to go back on the drawing board and re-calibrate our plans.

Thanks to the Russia Ukraine situation, we recently did this exercise for our discretionary model portfolio. We are sharing a short note on our thought process here that may give you some insights into dealing with your own portfolio.

Firstly, a quick glance at the portfolio theme to set some context. The Capitalmind Focused Portfolio is a long-term portfolio designed to invest in market leaders across sectors. It’s market-cap agnostic & invests in up to 18 stocks across sectors. The focus is on growth triggers in the next 3-5 years with sectoral tailwinds. It’s an actively managed portfolio factoring in fundamental as well as technical parameters.

It has been a tough week for the global markets. Indian VIX had reached 33, which was last seen in May 2020. Currently, our portfolio is holding 15 stocks for ~71% allocation to equity while we hold the rest ~29% as cash.

Also, note that there are no developments in the companies we are holding. For now, the risk is at the market level and not at the stock level.

Let’s see all the possible scenarios for this portfolio –

The worst-case scenario: World war 3

  • What happens:The possibility of World war 3 is the ultimate fear. Things may slowly start to go from bad to worse in no time. Countries will form allies and take sides. Irrespective of India participating, our markets will be impacted by the global turmoil. If that happens, another 25-30% fall from here, is on the cards.
  • How do we react: We will start to deploy our cash aggressively back into the market. We have been waiting to buy a few well-run financials and consumption companies. However, the rest of the portfolio will see huge volatility.

The base-case scenario: War & then peace

  • What happens: As Russia is adamant to stop Ukraine from joining NATO, Russia will showcase its power and then get into the second round of talks with the US, Europe, and the UN. Putin will get what he wanted (although it’s impossible to know what he actually wants) and then withdraw the troops.
  • How do we react: We will start to deploy the cash into the market once Nifty is down 20% from its peak.

The best-case scenario: Immediate withdrawal of the troops

  • What happens: Putin will withdraw his troops in a day or two, and everything is back to business as usual.
  • How do we react: The bottom is near and BTFD worked again. We are still stuck with ~29% cash and our search for opportunities continues.

So what are we doing now?

As of now, we are staying put. After this week’s fall, CM Focused is down by -11.8% from the peak when compared to Nifty 50 which is down by -9.8%. Excluding the last year, this kind of fall was normal every 1-2 years. Be it Tamper Tantrum 2013, fear of PIIGS default, Brexit in 2016, etc.

The biggest output in analyzing all these scenarios is that we have a high-level plan. There can always be surprises and new developments which we will have to face as they come. Most importantly – we won’t act in panic.

Whatever happens, we’re ready for a volatile year ahead, if it is going to be so.

Sit tight, things eventually get better ☘️

Stock markets have been around for a long time. They have jumped over the “wall of worry” multiple times and kept growing. Yet every time the is a bear phase or a little crash, it scares investors.

It’s human psychology – we get impacted by the recent developments and discount the past learnings. Here’s a detailed article that brilliantly captures the thought of living through a bear market.

Read – How to survive a bear market?

Why you SHOULD time the market 😎

There is overwhelming advice in any market crash to sit tight and do nothing. The phrase most used is “Time in the market is more important than timing the market”.

This strategy works for most people as it stops them from making rash decisions during crashes like selling their stocks and never buying them again. Selling during a crash is not bad, never buying back again is. It’s not us telling you this, it’s the data.

Read – Time the market. Sleep Better.

How would an expert make a decision? 🤓

heuristics(n) – a method of solving problems by using practical ways of dealing with them and learning from past experiences.

Every expert, after a time, uses heuristics (learnings from the past) to make decisions – just like when advisors keep asking to start a SIP even in falling markets. This is because they have seen markets recovering – so why change now! But if they are going to say this all the time, why don’t we replace such people with a poster that says “Start SIP, macha”?

99.9% of the experts follow heuristics while making decisions, the rest 0.1% are the ones who break the barriers.

Read – Heuristics That Almost Always Work

Booms and Busts – the Minsky Way ⭐️

Hyman Minsky was a 20th-century economist whose “financial instability hypothesis” is probably the best-known explanation for the boom and bust cycles that characterize public financial markets. If you haven’t heard of this before, this article is a must-read.

We’re currently in the midst of an unprecedented boom in the private equity market. Tech entrepreneurship, angel investing, and venture capital have never been so widespread. Can Minsky cycles happen in this realm as well?

Markets are volatile but your investing shouldn't be!

Read – Minsky Moments in Venture Capital

Pop Poll 📝

What action did you take, on Thursday, when the market fell by almost 5% due to the Russia Ukraine war?

  1. Did Nothing
  2. Bought Stocks or Mutual Funds
  3. Sold Stocks or Mutual Funds
  4. Long with F&O Instrument
  5. Short with F&O Instrument
  6. Moved to Gold or Crypto


Click here to answer anonymously 

Last week’s poll results

Big Insight – Older hands worry about macro factors like Inflation, global slowdown while the newer investors are scared that their stock picks are not as good.

Markets are volatile but your investing shouldn't be!

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Markets are volatile but your investing shouldn't be!


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