The notification arrives while you are in the middle of something else. The market is down again. You open the app you had promised yourself you would stop opening, see a number smaller than the one you saw last month, and feel your stomach drop.
This post is about that feeling, not about the market. The market will do what it does. The feeling is the part you can actually work on.
The reason always sounds convincing at the time
When this was written in early 2022, the Sensex had fallen a little over 11% from its January 2022 high of around 61,300. Everybody had a reason ready: the war in Ukraine, Brent crude crossing $100 a barrel for the first time in seven years, the expectation that the US Federal Reserve would raise interest rates, foreign investors selling Indian shares.
Now try a harder question. Without looking anything up, what caused the market to fall roughly 14% in 2018? Or about 16% in 2015? Or 26% in 2011? Or 29% in 2006, in the middle of one of the strongest bull runs most of us have lived through?
Most people cannot answer. That is not because those falls were trivial to the people living through them. They were frightening, and the reasons behind them were serious at the time. It is that falls of that size arrive often enough that the specific reason stops being memorable. What felt like the end of the story turned out to be a paragraph in it.
Whatever reason you are hearing today will probably go the same way. That is not a forecast about prices. It is an observation about memory.
What panic actually does
Selling because the number frightened you does two things at once, and the second one is the expensive one.
First, it converts a loss on a screen into a loss in your bank account. Until you sell, the fall is an unrealised number. Selling makes it real and permanent.
Second, it takes you out at the moment you are least likely to come back. Nobody rings a bell at the bottom. Historically, the days on which markets have risen most have tended to sit very close to the days on which they fell most. In 2020, one of the sharpest single-day falls the Indian market has seen came on 23 March, and one of its sharpest single-day gains came about a fortnight later. Somebody who stepped out during the first would have needed to be back in, and calm, within two weeks. Almost nobody who sells in fear is calm two weeks later.
So the cost of panic is not only the loss you lock in. It is the recovery you are not present for.
What to do with the feeling instead
You cannot decide not to feel it. You can decide what to do while you are feeling it.
- Name it before you act on it. "I want to sell" is a decision. "I am anxious and I want the anxiety to stop" is usually what is actually happening. Those two need different responses, and only one of them involves your portfolio.
- Check the plan, not the price. The useful question is not "how far is it down". It is "has anything changed about why I own this, and about when I need this money".
- Look less often. Somebody on a diet who steps on the scales every hour will watch their weight move up and down all day for reasons that have nothing to do with progress, and will start making food decisions off that noise. A portfolio checked hourly does the same thing to you.
- Do not argue with the past. "I should have sold in January" and "I should have seen this coming" are not analysis. Hardly anyone saw it coming, which is precisely why it moved the price when it arrived.
- Decide in advance. Rules written down in a calm room are better than choices made at half past ten in the morning on a red day.
The honest question
Falls are not a malfunction of equity markets. They are a feature of them, and they are the reason equity behaves differently from a bank deposit. Anything can set one off: a policy nobody liked, a war, a virus, a disappointing earnings season, or nothing anyone can identify at all.
So the question worth answering is not whether the market will fall again. It will, at some point, and nobody can tell you when or how far — including anybody who sounds very certain. The question is whether you can sit through it. Financially, because money you need next year has no business being exposed to it at all. And temperamentally, because a plan you abandon halfway was never really a plan.
That is a question about you, not about the market. It is much better answered before the next fall than during one.
This article is general information for education only. It is not investment advice and does not take account of your circumstances. Investments in securities are subject to market risks; please read all related documents carefully before investing.
