Warning, I am not asking a question here. Just some ramblings of a trader.
I can see a lot of members concerned about their portfolios, concerns about Nifty levels, concerns about what more could go wrong. And I wanted to give only ONE piece of advice.
You can make money in the stock market only if you can stay in the stock market. If you want to be there when the next bull market starts (whenever it does), you need to protect your capital now.
Given how human pyschology is, sometimes we throw in the towel, stop looking at our portfolios, just shut the damn laptop. It feels like someone placed a live burning poker in your heart. I know how hard it is, but please don’t do that.
More than ever, you need to protect your capital from further drawdowns as far as possible. Think of like this. You invested 10 lacs to setup a grocery business and it started losing a bit of money every month. If you lost 20%, would you say let me just forget about the store and let the other 8 lacs also go down the drain. I guess you won’t, you will try and save the business whichever way, if you can’t you will sell the inventory, you will sublease the place. You will try to minimize your loss and get as much capital as possible.
So if your portfolio is down 40% now, why are your not making decisions about what to do with it. Indecision is not a decision. Watching it crash and burn is not an option. Evaluate your own psyche very carefully (everyone has a different pain threshold) and then decide what you want to do with your portfolio. You can say 1) I will hold on whatever it takes and wait to see where it goes 2) Sell at whatever loss and get into 100% cash and wait to redeploy in a better frame of mind. There are other financial engineering options (sell puts, buy defensives etc.), but they are just too cute and almost never work.
Simple math, 50% loss on 100 rupees takes you to 50 rupees, but you have to earn 100% to take that 50 back to 100. Twice the effort. The lower you go, the worse you mental condition will be, the more mistakes you would make, the more vulnerable you feel, the more you make the life of everyone around you hell. Most importantly, less inclined you will be to play into the recovery when it happens. Whatever loss you have in your portfolio right now, make an honest assessment of how much more you can take. Based on that, make your trading plan and follow that. More difficult the situation is, more disciplined we all have to be.
I measure my success in how many months I can go without taking a real loss (means I add cost of capital) and not how much money I made. As long as I have staying power, the tide will turn and when it does I am ready to take my chances. But if I blow away my capital I have nothing to get back to.
Think of trading like a normal business. The capital you have deployed is the raw material. There is no finished goods without the raw material. So even if it is a small amount that is left, it is still real money.
I would recommend everyone to also read a book “The Black Swan” by Nassim Nicholas Taleb when you find time. We have to get used to more black swans like CV19, and survive as successful traders.
I wish everyone the very best.