{"id":18179,"date":"2020-03-20T00:13:26","date_gmt":"2020-03-19T18:43:26","guid":{"rendered":"https:\/\/www.fundsindia.com\/blog\/?p=18179"},"modified":"2020-03-20T14:59:05","modified_gmt":"2020-03-20T09:29:05","slug":"should-you-exit-now-and-enter-at-lower-levels","status":"publish","type":"post","link":"https:\/\/fundsindia.com\/blog\/mf-research\/should-you-exit-now-and-enter-at-lower-levels\/18179","title":{"rendered":"6 reasons why you shouldn’t exit now"},"content":{"rendered":"
Should we press the \u2018exit\u2019 button?<\/b><\/span><\/h5>\n

Most of us at this juncture, will have a narrative similar to this running in our minds..<\/p>\n

    \n
  1. Coronavirus is dangerous and it\u2019s spreading across the world<\/li>\n
  2. It will have a negative impact on business & economy<\/li>\n
  3. Sharp fall in oil prices is adding to the worries on global growth<\/li>\n
  4. There can be second order impacts (unintended consequences) which we don\u2019t know yet<\/li>\n
  5. It has already kicked off of a sharp equity market decline<\/li>\n
  6. This decline will continue<\/li>\n
  7. I should sell my current equity holdings to avoid further impact<\/li>\n
  8. I can enter back at lower levels<\/li>\n<\/ol>\n

    Conclusion: Let me exit now, and enter later at lower levels<\/em><\/b><\/p>\n

    While logically the above argument makes perfect sense, we think there are several challenges in executing the above view.<\/p>\n

     <\/p>\n

    Challenge 1:The market is already down more than 35% from its peak<\/b><\/span><\/h5>\n

    While losses till date are still notional, the moment we sell, they become actual losses. To offset a sharp decline, historically equity markets have always provided a sharp recovery in the future.<\/p>\n

    The recoveries are usually extremely fast (sample this: 2009 recovery was 85% in the first 3 months).<\/p>\n

    If we are not able to re-enter at lower levels, the cost of missing the recovery can be significant.<\/b><\/p>\n

     <\/p>\n

    Challenge 2: There are several false upsides during a market fall and several false downsides in a market recovery – How will you know the real one?<\/b><\/span><\/h5>\n

    2008 Sub Prime Crisis – 61% Decline<\/b><\/p>\n\"\"<\/a>\n

    2011 Euro Crisis – 28% Decline<\/b><\/p>\n\"\"<\/a>\n

    2015 Chinese Market Crash – 23% Decline<\/b><\/p>\n\"\"<\/a>\n

     <\/p>\n

     <\/p>\n

    Challenge 3: Market keeps alternating between positive and negative weekly returns making it – Confusing and Emotionally Challenging<\/b><\/span><\/h5>\n

    Can you differentiate between the decline and recovery?<\/p>\n

    2008 Sub Prime Crisis – 61% Decline<\/b><\/p>\n\"\"<\/a>\n

    2011 Euro Crisis – 28% Decline<\/b><\/p>\n\"\"<\/a>\n

    2015 Chinese Market Crash – 23% Decline<\/b><\/p>\n\"\"<\/a>\n

     <\/p>\n

     <\/p>\n

    Challenge 4: The initial recovery is extremely fast – usually first 1 to 3 months capture most of the recovery gains – cost of mis-timing is substantial<\/b><\/span><\/h5>\n\"\"<\/a>\n\"\"<\/a>\n

     <\/p>\n\"\"<\/a>\n\"\"<\/a>\n

    The first 1-3 months end up capturing a significant portion of the recovery. The risk of delay in re-entering is significant!<\/em><\/p>\n

     <\/p>\n

    Challenge 5: The pace of moves are extremely fast<\/span> <\/b><\/h5>\n\"\"<\/a>\n\"\"<\/a>\n

     <\/p>\n

    Challenge 6: We haven\u2019t factored the government and central bank response<\/b><\/span><\/h5>\n

    Negatives:<\/b><\/p>\n