We all understand markets by nature are volatile. Also we understand that there are broadly three phases in the markets.
Bull Market – When
the markets go up for a sustainable period of time.
Bear Market – When
the markets go down for a sustainable period of time.
Sideways – When the
markets are rangebound i.e. The Markets do not go up or down.
In today’s blog,
we shall try and look into a peculiar aspect i.e. The PACE of
rise and fall in stock markets and what can we do about it.
The Bull
Run - Tame the Bull by its Horns
Lets look into
the positive aspect first which we generally like – The Bull Run.
Indian Markets
has witnessed 6 major bull run.
|
Time Frame |
Return |
Period |
|
Jan-1991 to Apr-1992 |
350% |
16 Months |
|
Nov-1998 to Feb-2000 |
116% |
16 Months |
|
Jan-2004 to Jan-2008 |
236% |
48 Months |
|
Dec-2013 to Feb 2015 |
41% |
15 Months |
|
Feb-2016 to Jan-2020 |
79% |
47 Months |
|
Apr-2020 to Oct-2021 |
106% |
19 Months |
|
Total
Average |
155% |
27 Months |
The Average return earned during the bull markets are in the range of 155%
while the average tenor for bull run is 27 months.
The Bear Market
– An Opportunity During Chaos
Indian Markets
has witnessed 8 major Bear Markets.
|
Time Frame |
Return |
Period |
|
Oct 1990
- Jan 1991 |
-39% |
4 Months |
|
Apr 1992
- Apr 1993 |
-56% |
13 Months |
|
Sep 1994
- Nov 1998 |
-41% |
50 Months |
|
Feb 2000
- Sep 2001 |
-58% |
20 Months |
|
Jan 2008
- Mar 2009 |
-62% |
14 Months |
|
Nov 2010
- Dec 2011 |
-28% |
14 Months |
|
Mar 2015
- Feb 2016 |
-23% |
11 Months |
|
Mar 2020
- Apr 2020 |
-33% |
2 Months |
|
Total
Average |
-43% |
16 Months |
The Average downside
during the bear markets are in the range of 43% while the average tenor for bear
markets is 16 months.
Rationale
The bears are generally
faster to penetrate the market. This is primarily because of the fact that
panic sells faster while good news takes time to settle.
This can be
validated from the fact that average tenor for bear markets vis-à-vis bull
market is 16 months vis-à-vis 27 months.
Further with the advent of technology, the dissemination of
the information has been faster like never before.
This may result into faster bear markets as compared to the
historical average. Further the same logic applies to bull markets and they may
also result into the faster bull markets than the historical averages.
However the core principle of faster bear markets as compared
to bull markets may continue to prevail.
Reversal
to Mean
The markets do
tend to follow the concept of “Reversal to Mean”
Wherever there is
an excess, the market shall correct the same. If there is an excess in terms of
bull market, markets shall decrease in the subsequent period.
While in case of
excess in terms of bear markets, the markets generally recover in terms of
increase in the prices.
There is also a
concept of Time Correction in Side ways markets. Which means that the market
are range bound in a given territory. In this case, the markets generally tend
to be indecisive unless it finds a trigger for entering into the bull or the
bear market.
What’s in
it for Me?
It has been
historically found quite difficult to time the markets. How many of times we
hear the fancy stories of the picking the bottom and selling at the top.
However these things seldom happen as planned.
Most people do
not actively track the market or does not have the expertise to take actions based
on the continuously evolving data presented by Mr. Market. However investment
does not have to be hard for them as well.
Remember the popular
adage?
“Don’t Time
the Market, Give Time to the Markets”
Staying invested in
the market is the best Mantra for the vast majority of us.
Hello parth bhai yash this side very informative article , i believe options selling and hedging is the more sincere way to tackle the market incase of buying and also i agreed value investing is supreme .
ReplyDeleteHello
ReplyDeleteFor an average investor it is not. SEBI came out with consultation paper recently which says 89% options trader are in losses.