A 3-step plan to thrive in a falling equity market

Indian equity markets are down 10-15% over the last few months. Will they fall further? Unfortunately, historical evidence shows that it is impossible to consistently predict short- term market movements.

So, how do we deal with this dilemma? Here is where you can use the ‘preparation approach’ vs the ‘prediction approach’. 

The preparation approach consists of 3 steps: 

Phase 1—The worry phase:

 Phase 2—Act before it’s too late: 

 Phase 3—Resistance

Phase 4—Oops! The market falls further by 5-10%. 

Phase 5—‘I Knew It All Along’: In hindsight, it will seem obvious that this fall was coming—the red flags were everywhere and this fall could have been predicted.  

Phase 6—Regret: This phase in a falling market is where your intuition comes right in the short term. You regret not having listened to your intuition—‘If only I had sold earlier…’  

Phase 7—Frustration: In this phase, initially, you will find your portfolio returns fall below that offered by fixed deposits (FDs). Then all your positive gains vanish and your portfolio value is now lower than the amount invested. 

Phase 8—Doubting phase: This is the phase where you start doubting your plan. Should you still believe in equities? What if this plan is not working anymore?  What if this time it’s different?