This question is on top of every investor’s mind. The last time the same question popped up was during the Covid crash. Many people habituated to painting doomsday scenarios and raising fears are already in full flow. The fall in the US markets has been sharp and there is a clamour for a similar fall in the Indian markets.
These market reactions must be dealt with responsibly. Firstly, this crisis may not affect the entire economy. Parts of our economy will be severely impacted. Some areas may experience a marginal impact, while others may experience little to nothing. Our investing cannot deal with these three areas in the same way. We must be judicious in our investment approach and look at how to deploy capital in this crisis. We cannot sit out of a crisis like this. That would mean saying no to some juicy investment opportunities.
But, this is not a secular bear market. It is crucial to distinguish between the risky parts of this market and the not-so-risky areas. By identifying that difference, you can invest in this correction exactly where you need to. In this correction, knowing where to invest matters far more. The recovery will not be secular or symmetric.
This is a bottom-up stock picker’s market. It is more likely for bottom-up investors and managers to outperform fund managers who have followed a club approach to owning the same subset of stocks. The small cap space will showcase how genuine bottom-up stock picking will trump the herd of managers in small cap stocks.
Overall, we are in a very interesting situation. This market is throwing numerous opportunities at investors. These opportunities can be classified as good, bad, and ugly. Where the investor develops interest now matters far more than ever before. If you are focusing on the good, chances are you will be laughing your way to the bank after a few years. Focus matters more now than ever before. But make sure you don’t buy the bad and ugly stocks. That would become doubly disastrous.