November 30, 2020
Sirach 20:9 “There may be good fortune for a man in adversity…”
We are living in extraordinary times. Lock-down, quarantine, fear, confusion, disruption in business…these are just some of the situations we are dealing with.
Is there an opportunity for wealth creation in the midst of this crisis?
Let’s try to answer this question based on my interactions with Mutual Fund Managers & Research Heads in the last 1 month.
How did the last pandemic play out? The 1918 Spanish flu epidemic resulted in the death of around 18 million people in India and 100 million death worldwide. However there is a big difference in the situation now & then:
1) in those days there were no antibiotics nor vaccines
2) it took many years to figure out the origin of the outbreak
3) it took almost 81 years after the outbreak, to conclude that the epidemic was the result of a virus transmission! and another 20 years to construct the RNA sequence of the virus!
Inspite of these drawbacks the world overcame the virus and economies prospered.
Are we not better placed than 1918?
What’s happening to the Economy now?
The stock market has fallen 30 to 40% in the last 2 months. Fear and panic has gripped investors. At this point of time, it is important to understand the difference between Value & Price.
To understand this, let’s consider a scenario of 20 identical bungalows in a complex, each valued at around 3 Cr. Due to heavy loss incurred in his business, one of the bungalow owners does a distress sale for a price of 2 Cr. Here, though the current selling price of the bungalow is 2 Cr, but the REAL VALUE of the bungalow is 3 Crores!
Similarly, the current price of stocks does not reflect their real value.
Future Outlook – The epidemic of 1918 did come to an end, SO WILL THIS!
China has resumed industrial activities; aviation fuel consumption has jumped 45% compared to February. In Wuhan, demand for cars have gone up as people want to avoid public transport.
On 15th April, South Korea conducted general elections successfully following strict protocol of social distancing and hygiene.
Life has recommenced in these nations, India too is getting there.
Here’s how you can make most of this opportunity. Invest through mutual funds, ideally into Large and Multicap category, with around 60% exposure to Large cap. If your risk profile is aggressive you could have the following allocation – Large 50%, Multicap 30% and Midcap 20%.
If you invest directly in stocks, do not invest based on reputation, tips, assumptions or cheap pricing of stocks. Rather invest based on research and data that hold promise of growth. Consider investing through good advisor’s or quality research based equity advisory services.
Sirach 20:9 “There may be good fortune for a man in adversity…”
Fortune favours the brave, don’t miss out on this opportunity.
Augustine Mendez