COVID-19 resolution

Coronavirus disease 2019 (COVID-19) is an infectious disease caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2).

-Wikipedia

The world is fighting to contain the spread of COVID-19. To stop the infection from spreading person to person countries have enforced lockdown of population, which is a curfew like condition, everyone is locked in their home, preventing person to person contact and hence arresting the spread of Novel Corona Virus.

I am also confined to my home. But this situation is giving ample time to reflect. So I thought about making a resolution just like the new year resolution. But this time it gave me a lot of time to reflect.

Ladies and gentlemen this time I am thinking about wealth.

I am thinking about this stock market crash. Most global markets have crashed around 30%. What should I do?

To get the answer of what should I do now, I have to compare it with last great stock market crash I have experienced. That was the 2008 market crash, the subprime crisis. I have seen how the market crashed, how it recovered, what I felt at that time, what I did at that time, what was the result of what I did.

It was hell of a roller coaster ride of emotions. First because of the lower circuits, and the commentary on business channels, I was mortified, I was feeling like there is no end to this fall, but my rational mind was telling that market won't go to zero. Some businesses will use this condition to their advantage. Or the business environment will come to normalcy. So I should buy the blue chip companies which were quoting at very low PE multiples (price to earning ratio). There was a battle going on in my head, my rational brain fighting against my feelings. And of course the feelings had the upper hand.

So what I did was, market was falling, so tried to hedge my position by buying the put options of the index, I made a decent profit in it. Actually this profit gave strength to my rational mind. So I bought some good quality stocks quoting at throwaway valuations. But I bought only little.

After only 3-4 months in to recession, the market started going up quickly, my purchases quickly went up 2-3 times, I was very happy. I booked the profit, thinking the companies are now quoting at expensive valuations. Moved the money in other companies.

But then if I see those companies now, even when down more than 30% from their top, they are still 5-10 times more than my purchase price of 2008-9, some are even shelling out dividends more than my then purchase price every year. Almost every company which I purchased then has eps (earning per share) more than my purchase price in 2008-9. So the bottom line is, I have lost a lot of profit. I wish I had just sat idle with my investments.

Warren Buffett has always advised to purchase only those shares of great companies at great price so that you don't have to worry if the stock market never opens again.

This advice and my experience till now combined are having a great impact on me in current situation.

So the COVID-19 resolution is buy only those businesses which you don't need to sell for atleast 3 years, no profit booking. Sell only if there is some permanent change in the profit making capacity of a business. Otherwise let the profit rise, don't worry if the valuations go expensive.

I don't really know how this will play out.

But I would definitely try.

What is your COVID-19 resolution?

Are you reflecting on your past mistakes?

Do write your thoughts..

Have a nice day..

Sumit,

The POWER is when,
You use ODDS,
To get EVEN.