Two Years After COVID – Lessons For Investors

Two years ago, around this time, the world was in the grips of a “great unknown” – a pandemic that threatened dire consequences. Global equity markets collapsed and oil prices hit rock bottom. Everywhere you looked, there were doomsday predictions being made. And while it’s true that “hindsight is 20:20” and it’s impossible to predict the outcome of any event in advance, it does ring true that the past two years brought to the fore a number of well-worn investing lessons. Here are the top five.

Don’t panic

The worst thing an investor can do when markets crash is to panic. Fear leads us to take all sorts of irrational decisions. Investors who panicked when markets were falling like nine pins back in 2020 would have ended up redeeming their funds or selling their stocks somewhere between NIFTY levels of 8,000 and 10,000. Which brings us to the next point.

Don’t try to time the market

The same investors who panicked and redeemed would have sat on the side lines in shock and awe when the tide turned so ferociously. When you’ve redeemed your funds at a certain market level, it’s completely natural to want to wait for a level that’s lower than your selling price to jump back in. But what if that level never comes? You’ll be left fence sitting and missing out on some great returns. It’s a double whammy – you would have ended up booking losses, but not reaping the rewards on the upside.

Be goal focused, not returns focused

Investors who are “returns-centric” tend to check their portfolios every day, compete with friends and family on returns, and fixate on the smallest notional loss or profit. In the long run, this clouds judgment and investment decision making greatly. Comparatively, investors who have clearly defined financial goals (for instance, retire with 5 Crores in 25 years) will be a lot less prone to taking short term investment decisions as they’ll have their eyes on the big picture.

Keep your SIP’s running like clockwork

A lot of investors ended up stopping their SIP’s in 2020, with the intent of restarting them “after things got better”. This is a regrettable mistake for two reasons. First, there is no “better time” because it’s impossible to predict whether things will get better or worse tomorrow, compared to today. Two, SIP’s derive their power from volatility and the ensuing rupee cost averaging effect. If anything, it’s more critical than ever to keep them running in bearish markets.

Remain Optimistic

The worst thing a long-term investor can do is to “trade the news”, and the past two years have proven that. News channels tend to sensationalize and overplay the doom and gloom to boost TRP’s and eyeballs. Panic sells! But remember, the world is resilient. Never underestimate the collective force of the human race – we’ve been through worse and come up triumphant. Betting against equities is akin to betting against the combined ambitions of billions of people. Use corrections as buying opportunities and hold on for the long term.