My Blog Entry 'This Bear Market is Different' evoked a number of thoughtful comments. You can read the entry and the comments Here .
I am pleased to say that the comments have caught the market scenario better than my own thoughts.
Now, on Friday, the Nifty fell by 14% - (four standard deviation move) - this is a rare event which should happen once in a few hundred years. But financial markets do show a lot of variation from the laws of probability - hence, events that should not take place, do take place often.
We have no control over the markets. But, we can define our own response. What should investor response be ?
This is how I thought on Friday, 3:15 PM.
We are looking at a rare market movement - a 14% decline which is coming after a significant decline has cut the Nifty by 60%. The only example I could think of quickly was the 1987 crash in the Dow. It fell 23% on 'black monday'. The next day, Tuesday, the Dow opened lower but rallied soon. The Dow remained in a trading range for over 12 months subsequent to the crash, but did not fall below the lows made on Tuesday.
The Nifty may fall more, I am not making a call on the lows of the bear market. Yet, there appears to be probability that the decline may result in a bounce. I do not suggest ever to catch to buy in a falling market. Yet, a once in two decade event calls for exceptions. Therefore, my suggestion to investors to invest 5% of their available funds in the market today.
My weekend reading suggests that there is much more pain ahead. But the markets have a mind of their own. After a large range expansion (RE Bar) it is wise to trade lesser volumes and expect choppy markets.