Many investors in, such as you and I, are seeing history being made. Unfortunately, it’s not the kind of history that’s “fun” to experience. Most of us are seeing our individual portfolios getting hammered. There are no two ways about it. As I write this the is at 32000 levels. Just a month ago it was at 41,000 and most of us were looking at relatively healthy growth in our portfolios.
Then COVID-19 (apart from other things) happened
COVID-19 is no laughing matter and we all should be extra careful to avoid this disease irrespective of what it is doing to our equity wealth. The pandemic is not the only thing to blame though as there were other challenges (Yes bank comes to mind) facing the economy and many smart individuals had said as much. However, this is the short-term story. The long-term story remains optimistic despite what we are witnessing.
History – it matters
At the risk of sounding pedantic, I would like to remind my fellow investors of only one thing. Equity is ownership of companies involved in the economy of our nation and the world. Many of the companies you and I own indirectly throughhave seen terrible times that many of us aren’t old enough to remember.
Let’s take one example, Hindustan Unilever. It’s part of the portfolio of almost all goodinvesting in large cap companies. The firm was established in 1933, or 6 years before the second world war. The great depression was just about getting over then. India was still over a decade away from independence and mobile phones weren’t even dreamt of, as telegraph ruled the roost. It was a time the vast majority of us can’t even imagine living in.
The point is, many companies in which we as investors indirectly invest through mutual funds are older than us and have seen events we have read about only in our history text books.
Firms such as these have been around for so long that there is little that they haven’t seen including natural disasters, wars, epidemics, and economic uncertainty. Another example, Asian paints was started in 1942 when the second world war was raging, and the outcome didn’t look good for what was then the free world. Today it is a company whose products are ubiquitous.
The point is, many companies in which we as investors indirectly invest throughare older than us and have seen events we have read about only in our history text books.
There have been countless instances of their stock prices falling and rising again. That’s the nature of businesses as well. Their fortunes wax and wane in line with the larger economy.
History tells us that good businesses tend to survive despite world shaking events simply because their products continue to have a demand even during the bad phases or they manage to ride out phases of poor demand.
Equity investing is about cautious optimism, and most importantly, faith
It is times like these that our faith in equities as an asset class is tested. This is also why a “long term” perspective is not just a marketing phrase but a sobering reality when it comes to equities.
Asinvestors, you and I have some very smart people trying to figure out, for us, which companies stand to best survive the tough times we find ourselves in. Let’s have faith in them to do their jobs well.
Let’s also believe that the Indian economy can handle this. While it may take a while for the economy (both India’s and the world’s) to recover, the ability to survive and overcome crises is not new to entrepreneurs and businesses.
History, after all, gives us all the proof that we need. When you wake up tomorrow and brush your teeth, look at the toothpaste brand. Chances are it belongs to a company that has been around for decades and will be around decades hence. I will leave you with a chart to ponder. It shows what thelooked like during the last big market fall – the global financial crisis of 2007-08.
The market lost half its value and regained the same over slightly more than two years. So have faith and believe in the power of businesses to improvise, adapt, and overcome. Because they will, even if it gets worse before it gets better.