For the first time in a decade, Indian investors are witnessing a full-blown bear market. The frontline BSE Sensex index has tanked 30% from its January peak. The earlier crash had seen the index lose 60% of its value. Investors are worried how big the cut will be this time and how they can protect their finances. While the reasons for stock market crashes vary every time, the basic tenets of surviving these events remain the same. If you follow the principles outlined below, you should be able to safely manoeuvre your finances through this challenging phase.
What to do
Create a financial cushion
Since severe bear markets are usually accompanied by crippling economic downturns, they can wreak havoc on your finances. Retrenchments, salary cuts or delays in payout are inevitable outcomes of a sputtering economy. Be prepared for the worst. Before you think of making moves in your portfolio, arm yourself with adequate buffer. “A prolonged bear market not only drags down returns but can hurt incomes too. It is prudent to have sufficient buffer for such an eventuality,” says Tarun Birani, Founder and Director, TBNG Capital Advisors.
Build a contingency fund to cover at least 6 months’ expenses. This way you will not be forced to dip into your retirement savings in a cash crunch. Prableen Bajpai, Founder and Managing Partner, FinFix Research & Analytics, suggests clearing pending dues immediately. “If you have cash, personal loan or card dues should be paid off before any investment,” she says.
Reassess risk tolerance
You think you understand your risk taking ability? If you assessed your risk tolerance during sunnier days, chances are you assessed wrong. During good times, we tend to be complacent and have misplaced notions about how much downside we can withstand. Finding yourself in the grips of a bear market will upend any haughty notions you may have about your risk appetite. It is in this situation that you must ideally revisit your risk profile. It will yield a more accurate reading. “If you are severely uncomfortable now, perhaps you have been taking more risk than you can realistically handle,” points out Rohit Shah, Founder, Getting You Rich. More importantly, remember to adhere to this version of your risk profile when the next bull market sweeps you off your feet.
Longer you wait for market recovery, further behind you will fall
A study found that stocks generate their biggest gains in the first 12 months of a recovery, and that missing even the first month of gains after the market hits bottom leads to substantially lower returns over time.
Data analyzes the five periods from 1970 through 2017 during which S&P500 fell by 20% or more. Source: Schwab Centre for Financial Research and Morningstar
Keep the war chest ready
When it comes to deploying money, investors get cold feet in a full-blown bear market. Even when the market recovers, they hesitate to get back onto the saddle. It is only when the market recovers fully that investors realise that they missed the bus. So, the longer you remain on the sidelines, the further behind you find yourself when the market recovers
(see table). At some point, you should start making a staggered entry. However, for this you need to have surplus cash in hand.
Be ready to put your money to work quickly. “If you have money you can afford to invest with a long-term view, this point in the market may pose a good opportunity. Invest in tranches,” suggests Suresh Sadagopan, Founder, Ladder7 Financial Advisories. Identify that part of your portfolio that can be liquidated to give you the necessary arsenal. For instance, some of your existing debt funds can be used to provide cash flow. Consider initiating a STP from the debt fund into an equity fund over 6-12 months. Hemant Rustagi, CEO, Wiseinvest Advisors, feels this is the time to deploy a lump sum in phases apart from existing SIP commitments. “You don’t get to see such steep cuts often. Investors should make the most of it,” he says.
Stick to fundamentals
While the root of the current crash is not economic, the upheavals it will bring will play out similar to previous crises. In bad times, typically fundamentally strong businesses sail through. While these do get rocked, they are able to plough through and reach the shore safely even as weaker businesses sink. Better run companies will be able to withstand the turbulence and bounce back quickly. It makes sense to stick with proven businesses now. Do not be adventurous and bet on relatively unknown businesses. “Stick with quality names and avoid aggressive bets at this stage,” says Shah.
Intermittent rebounds in a bear market can fool you into believing the worst is over
Instead of trying to time the market, investors should look at staggering their entry into the market over 6-12 months.
Buying the dips can also backfire spectacularly during a bear market
If you try bottom fishing—deploying money at a perceived market low— chances are you will burn your fingers badly.
Compiled by ETIG Database
Get that financial plan in place
Investing should never be guided by specific moments; it should be a part of a process over time. If you are like most investors, chances are you have been randomly accumulating investments for your portfolio without a clearly defined purpose for each rupee invested. In the absence of a plan, there is a greater risk that you will make rash decisions about your portfolio during a market upheaval. You may end up liquidating long-term investments that would jeopardise goals far on the horizon.
If you don’t have a long-term financial plan, creating one—and sticking to it—is the best action you could take at this time. “This is a ripe time to have your health check-up done and get clarity on your financial goals,” insists Birani. Consider engaging the services of a good adviser for this purpose.
How previous two bear markets shaped up
Market exhibited prolonged weakness even after 2000 bear run, but gained sharply after 2008 sell-off.
Start date: 11 Feb 2000
End date: 18 Oct 2000
No. of trading days: 171
Start date: 8 Jan 2008
End date: 9 Mar 2009
No. of trading days: 286
What not to do
Don’t try to catch market bottom
It is any investor’s dream to identify the time when the stock market is about to hit the bottom of its downturn phase. Nothing is more rewarding than being able to ride the recovery to the fullest. But market tops and bottoms are only clear in hindsight. If you try bottom fishing—deploying money at a perceived market low—chances are you will burn your fingers badly. It is alright if you miss the precise point when the market touches bottom. You can position yourself even after the market makes a move upwards.
Do not commit your cash in one shot. A staggered entry spread over several months is ideal. You may not be able to capture the swing in its entirety, but will avoid getting whipsawed by sucker rallies. Says Bajpai, “It’s crucial to stick to asset allocation and rebalance one’s portfolio instead of calling a market bottom.”
Even if long-term SIP has fetched poor returns, stay committed
Past data shows that if you continued your SIPs for a bit longer, your returns would have been signifi cantly better.
Source: FundsIndia Research
Don’t review funds now
If you find yourself looking at your portfolio value daily, stop now. Finding your portfolio take a knock every day will lead you to question your investing choices. You will start finding fault in individual bets. Avoid reviewing your portfolio at this point so as not to form a misguided opinion. “Do not look at portfolio performance for the next few months,” advises Birani.
Most of your equity funds will seem like a horrible choice whereas the gold fund will look like the best decision ever. You may be tempted to pull out of equity funds and redirect the money into gold or stay in cash. Any review you undertake at this stage should be purely from an asset allocation perspective. If the asset mix has changed substantially from desired levels, rebalance portfolio to its original shape. Leave the microscopic review for later. “Do not exit for lack of return. Do it if your asset mix warrants rebalancing,” says Shah.
Don’t change investing strategy
Don’t try your hand at a new investing approach in the midst of a bear market. If you are a different investor today than what you were before the bear market started, you are not doing it right. It is during a bear market that investors shift strategy. Overwhelmed by panic, they are prone to abandon years of investing principles. For instance, investors following a focused strategy may suddenly start diversifying to the extreme. This fickle nature undermines long-term strategy which may come in the way of achieving longer term goals.
In past crashes, recovery time was varied
In 2000, it took 806 days, while in 2008, Sensex recovered ground in 411 days.
Don’t get overly defensive
After seeing relentless erosion in the market, you might want to throw in the towel and turn ultra-cautious. Do not succumb and press the panic button. “Avoid rash decisions and exiting an investment mid-way. Doing so turns the whole exercise of investing futile, ending in a bad investing experience,” says Bajpai. If the market is down 25% in a month, it doesn’t mean that in four more months you will have lost everything.
Sure, you can go 100% into cash now. This way you are secured for the rest of the bear market. But when do you get back in? By the time you firm up the resolve to do so, the market may have moved on. Opportunities abound when there is panic, but you can’t benefit from them if you are storing money under the mattress. Sadagopan argues, “Do not withdraw from equity thinking that when the markets starts to recover you will put it back. It is very difficult for anyone to predict when the markets will recover and when it does, human psychology will prevent us from getting back in.”
Some may try to reduce risk by spreading their money across multiple companies, sectors and asset classes. This may help you temporarily arrest the downside and cushion your portfolio. But overdoing it will prevent you from gaining meaningfully when the market recovers. Markets tend to move in cycles. Bear markets follow bulls and bulls follow bears. When everyone expects the worst, that’s usually about the time markets turn around.
Don’t do nothing at all
An oft-repeated advice during a bear market is to ‘play dead’ or do nothing. Essentially, you let your investments run and don’t tinker with your portfolio. This advice may not be suited for all. Actually, how aloof you remain should be guided by your age or time horizon for each invested rupee. For younger investors, who would not need the money for at least 8-10 years are indeed better off doing nothing—at least to the extent that you remain calm throughout. “Continue with your investment process. But make sure you realign your portfolio when required,” insists Rustagi.
However, if you are only years away from retirement or otherwise need to draw money within the next few years, doing nothing would be harmful. It means you are willing to accept all the risk of the market at a critical juncture. Equity markets can take years to fully recover. Keep any money you need in the next five years out of the stock markets.
8 Best Investment Strategies During A Recession – Yahoo Finance
For more than a decade, making money investing in stocks has been extremely easy. A combination of robust economic growth and record-low interest rates has made it easy for U.S. companies to thrive and stock prices to rise.
However, making (or preserving) money in the market during a recession is a much more difficult prospect, and successful investors often take a completely different approach to the market during an economic downturn.
A recession is a general decline in economic activity over an extended period. Many define a recession as two consecutive quarters of negative GDP growth.
Whether it’s the first recession you’ve experienced firsthand or your portfolio has gotten burned badly in previous recessions, here are eight recession investing strategies that could help you navigate the downturn.
1. Do Not Dump All Stocks
When a recession hits, stocks underperform in the near term. But while it may seem like a good idea to sell all the stocks in your portfolio, selling them when they are down is rarely a good idea.
If you’re losing sleep over the day-to-day fluctuations in the stock market, it may be a good idea to dial back your exposure to stocks. It’s likely a sign you had too much of your investments in stocks in the first place. However, recessions are a relatively routine occurrence in the market. In fact, there have been 33 U.S. recessions since 1854 (about one every five years), and investors who held onto stocks or bought the dip eventually came out ahead every single time.
2. Reassess Your Holdings
Once again, everything looks like a good investment when the economy is booming and the credit market is flowing. When a recession appears imminent, investors should take a fresh look at all their stocks and other holdings and remember why they invested in the first place. Ask yourself what was your thesis on each stock you own when you bought it. Has the near-term economic outlook fundamentally changed that thesis? Or has it simply created a near-term hurdle for the company to overcome?
The coronavirus sell-off may have hurt the near-term outlook for Apple, Inc. (NASDAQ: AAPL), but iPhone demand will likely ultimately be just fine in the long-term.
3. Buy Consumer Staples
Every stock is at risk during an economic downturn. Even stocks that don’t lose money are at risk of experiencing earnings multiple compression. However, certain stocks have businesses that are not cyclical in nature and are relatively insulated from economic downturns.
Consumer staple stocks are historically relatively good investments during stock market downturns. Americans may buy fewer gadgets or go on fewer vacations during a recession. But they will still buy toilet paper, shampoo and trash bags.
Discount retailers like Walmart Inc (NYSE: WMT) sell these products, and their low prices appeal even more to shoppers when the economy is on shaky ground.
4. Raise Cash
One of the best ways to get defensive during a recession is to increase your cash position. Cash provides the ultimate flexibility and the most peace of mind when times get tough in the market.
The U.S. dollar is the closest thing to a zero-risk asset over the short term. However, given interest rates on savings and money market accounts have recently plummeted to near zero, investors likely won’t be able to offset inflation over the medium to long-term. In other words, your cash slowly loses buying power to inflation the longer you hold it.
5. Buy Dividend Stocks
Following two emergency Federal Reserve interest rate cuts in March, the yield on 10-year U.S. Treasury bonds has fallen all the way to 0.8% (at time of publication). Income investors have few choices these days other than buying dividend stocks, which have historically been good sources of income during recessions. The only thing dividend stock investors must watch out for during an economic downturn is dividend cuts.
For example, Boeing Co (NYSE: BA) completely suspended its 6.8% dividend on March 27. To minimize the risk of buying a stock in danger of a dividend cut, look for stocks with positive free cash flow, stable earnings, low debt levels and a relatively low payout ratio.
6. Buy Utilities
One of the more defensive sectors to buy during a recession is the utilities sector.
Like consumer staples, even in a worst-case scenario, Americans will do everything they can to keep the lights on and the water flowing in their house. Many utilities have rates set or limited by regulations, meaning their pricing and margins are relatively stable even during a downturn. In addition, utility stocks often trade at low earnings multiples, suggesting valuation protection to the downside.
Finally, utility stocks are known for their dividends and can generate income for investors assuming they pass the dividend risk test mentioned above.
See Also: 7 ETFs To Buy In A Recession
7. Consider Your Investing Time Horizon
If you’ve been reading about different recession investing strategies from different sources and finding conflicting information, it may be because the two sources are making recommendations based on two different investing time horizons.
Younger investors that can be patient for years or even decades can afford to be more aggressive in buying stocks. Stocks are extremely unpredictable in the short term, but have historically been extremely consistent over the long-term (30+ years). Investors that need access to cash for retirement or a large purchase within the next several years should take a more cautious approach to investing, sacrificing potential upside to reduce risk.
8. Have A Watch List
It’s extremely difficult to make rational decisions on a day where the S&P 500 is up or down 5% or more. Investors that make buy and sell orders based on fear and/or greed typically don’t perform well over the long term. One way to avoid impulsive trades is to create a watchlist of stocks you are interested in buying well before they hit your target prices. By creating a watch list, you can take your time in performing your due diligence in learning and analyzing a stock well in advance of when you actually pull the trigger.
During the next big down day in the market, you don’t have to scramble to react. Just trust in the work you put in beforehand and buy the stocks on your watchlist.
See more from Benzinga
© 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Big Oil's interest in renewable energy investments expected to waver: report – Yahoo Canada Finance
CALGARY — Budget cutting in response to the twin challenges of COVID-19 demand destruction and low oil prices mean the world’s oil and gas industry will likely spend less on renewable energy going forward.
But a report from consultancy Wood Mackenzie says that won’t likely slow the overall investment in renewables — fossil fuel players really weren’t putting much money into it anyway.
“In a US$60 per barrel oil price environment, most companies were generating strong cash flow and could afford to think about carbon mitigation strategies,” said Valentina Kretzschmar, vice-president, corporate analysis, at Wood Mackenzie.
“But now … all discretionary spend will be under review — that includes additional budget allocated for carbon mitigation. And companies that haven’t yet engaged in carbon reduction strategies are likely to put the issue on the back burner.”
Earlier this week, Calgary-based oilsands giant Suncor Energy Inc. announced it would cut its 2020 capital budget by 26 per cent or $1.5 billion in response to lower global oil prices linked to a price war between Saudi Arabia and Russia.
Two previously approved projects were put on hold for as much as two years: A $1.4-billion plan to install two cogeneration units at its Oil Sands Base Plant in northern Alberta that would have reduced greenhouse gas emissions, as well as a $300-million wind power plant in southern Alberta.
But the company insists it still intends to meet its environmental targets.
“We’re committed to our 2030 goal to reduce the GHG intensity of our operations by 30 per cent,” said Suncor spokeswoman Erin Rees. “Commissioning of the cogen was originally slated for 2023.”
Fellow oilsands producer Cenovus Energy Inc. has cut its capital spending plan for 2020 by 32 per cent and, although the details haven’t all been worked out, spokeswoman Sonja Franklin said it remains committed to its target of net zero GHG emissions by 2050 and a 30 per cent reduction in carbon intensity per barrel by 2030.
Choosing fossil fuel investments over renewables is like Kodak investing in film after inventing the digital camera in the 1970s, said Greenpeace Canada campaigner Keith Stewart.
“The current oil price crash is a preview of what will play out in the coming years, as electric vehicles coupled with cheap solar and wind power do to oil demand what digital cameras did to the market for film,” he said.
“If oil companies can’t evolve to deal with investors increasingly concerned about climate risk, then we should make sure they don’t take their workers and communities down with them.”
On Wednesday, Spanish energy giant Repsol, which produces some of its oil and gas in Canada, said it would cut its 2020 capital budget by more than one billion euros (about C$1.55 billion), but would still maintain its target to reduce its carbon intensity for 2020 by three per cent compared to 2016.
It vowed to significantly increase its renewable power generation capacity and to reduce carbon dioxide emissions across all its businesses.
“With these measures, amidst the current extraordinary conditions, Repsol ensures the robustness of its balance sheet in the short term while it continues to pursue its goal to achieve net zero carbon emissions in 2050,” it said in a statement.
In its report, Wood Mackenzie notes that the five European oil and gas majors have committed to spend just over US$5 billion per year between them on zero carbon technologies in the near term, about nine per cent of their pre-crisis upstream development budget out to 2022.
But it notes the total renewable energy portfolio by the group, including those most focused on diversifying into renewables such as Repsol and Portugal’s Galp, is about 7.4 gigawatts of operational renewable capacity (a gigawatt is enough to power roughly 700,000 homes).
By comparison, Iberdrola, one of the world’s largest renewable power asset owners, has almost five times that capacity (32 GW, including hydro) and added almost three GW during 2019, it said.
Installations of both wind and solar continued to increase through the last oil price downturn, Wood Mackenzie’s analysis shows, because most investment comes from outside the oil and gas sector.
It adds that oil prices that average around US$35 per barrel reduce the returns from new oil and gas projects to a level where renewable investments can compete on an economically level playing field.
“Capital allocation is no longer a one-way street for Big Oil. Renewables projects suddenly look as attractive as upstream projects at US$35 per barrel.”
This report by The Canadian Press was first published March 29, 2020.
Companies in this story: (TSX:SU, TSX:CVE)
Dan Healing, The Canadian Press
An Investment Opportunity for a Better Pharmaceutical Industry – Entrepreneur
NowRx is improving the way we get our prescriptions.
2 min read
Disclosure: Our goal is to feature products and services that we think you’ll find interesting and useful. If you purchase them, Entrepreneur may get a small share of the revenue from the sale from our commerce partners.
It’s no secret to anyone that the American pharmaceutical industry is firmly entrenched in its ways. And that’s not necessarily a good thing for customers. Retail pharmacy is a $330 billion industry, driven by high medication costs and stringent means of delivery through brick-and-mortar stores.
NowRx, however, is disrupting the market. Founded in 2016, NowRx is spearheading innovations in technology, convenience and service, carving out a significant chunk of the pharmaceutical market. They say they’ve seen a 280 percent jump in revenue since 2017 and a 1,000 percent account growth rate since 2016, demonstrating clear resonance in a market that is desperate for change.
NowRx’s modern business model focuses on low-cost, highly automated micro fulfillment centers that facilitate same-day delivery to patients in cities across the U.S. Their fast, over-the-phone pharmacist consultations allow customers to get prescriptions quickly, cutting out the middleman pharmacies and reducing overhead to a fraction of what a regular pharmacy costs. In short, NowRx is pioneering a better, more convenient way for people to get the prescriptions they need.
As NowRx continues to grow, it’s looking for new investors to help it continue shaking up the field. Right now, you can invest at any level you’d like, giving you the opportunity to be on the ground floor of an exciting new innovation in the pharmaceutical industry.
You can find NowRx on the SeedInvest platform, which offers ground floor investment opportunities at highly vetted startups on the verge of exploding into the mainstream. Read more about NowRx here.
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