6 lessons I learnt from the pandemic about my health and money.
1. The month need not cost so much. Everybody can save if in Covid-19 mode.
2. Emergency fund is a lifeline, build it according to age and stage.
3. Markets go up and down, not you.
4. Implement your age and stage asset allocation, don’t just understand it.
5. Write a Will – your net worth is not protection against falling ill.
6. Do an SIP in your health. Workplace will chew you up and spit you out.
We are now lockdown veterans. We quickly learnt to survive a new situation and most people made the best of it—that is the human spirit, we are determined to live, despite saying otherwise. There are six lessons from the way the pandemic has affected our health, income, wealth and prospects that I want to share. I must admit that in all the years of writing about, planning for and going through rough events, this is something that I never took into my own calculations. So while the big broad rules remain firmly in place, there are finer nuances and learnings. Here are the six things I learnt while still a quarter of the way through this pandemic.
One, it costs very little to live. When the first full cycle credit card bill came, it was a fraction of earlier bills and I am not a spendthrift. But travel and work seem to add to the bills. Petrol costs were down to zero, bills around eating out, clothes and entertainment were all zero. When just the basics are being bought, I found that the month costs very little. Of course, you need to be debt-free for that to happen. Our saving capacity is much higher than we thought. This is especially true for people who had earlier thought that they had no capacity to save. The rising bank FDs tell their own story as more and more people salted away their savings into FDs over the past two months. Once we are out of this, remember that the lockdown mode is there to target a higher saving rate whenever you desire.
Are Indian stocks in bubble territory? An interview given by Uday Kotak to The Indian Express (you can read it here) asks this question. Kotak is making valid points when he says that there is a wall of money coming at the market which does not have enough stocks to absorb the cash. A strong institutional flow is bringing Indian household money to the stock market through mutual funds, unit-linked insurance plans (Ulips), National Pension System (NPS) and the Employees’ Provident Fund Organisation (EPFO). This money is going into a few hundred stocks because the Indian market lacks depth. The market cap of the top stock is Rs6 trillion and that of the 100th stock is just Rs32,000 crore. The market looks overvalued on metrics of the current price-to-earnings (PE) ratio, which is much higher than the 10-year average. Valuations can go back down in two ways—markets can crash, bringing prices down or the earnings can grow; both bring the PE down. The wait for earnings has kept the market buoyant in the past few years and the wait is still on. Which will come first, the market crash or the earnings bump? As retail investors, we have no option but to give our money an equity exposure; see Table 1. But we will never have the relevant insight to time the market. We also know that markets go up and down, get overvalued, crash and then recover. See Table 2. So, is there a way in which we can ride out the bubble, if indeed there is one?
Markets are too high, I will wait for them to cool down before I invest. Nifty broke 10,000 and Sensex is at 32,000, is it too high? We’re in bubble territory for sure. Markets are in an overdrive—this ends badly. Markets are looking ahead and pricing in the structural reform the government is doing. Goods and services tax (GST) will cause markets to drop in the next 2 months—we’re just a few days away from a crash. Market is pricing in the long-term benefits of more taxpayers, less black money and better compliance due to GST.
Listen to the voices about the market and you’d imagine people are talking about two very different things. There are two voices that we hear today—one believes that we are already in a stock market bubble. The other believes that small corrections will happen, but we are in a long-term bull run.
The markets are currently taking a breather but as we pull out of the economic downturn, they will get a fresh burst of energy. The ups and downs of the market in the past three months seem to unnerving investors who are seeking equity exposure to their money. All investors in equity need to remember that markets in the short term are capricious, but reflect the earnings of the corporate sector in the long run. The BSE benchmark equity index, the S&P BSE Sensex, has returned an average of 17% a year since its inception 36 years ago. If you had invested Rs.1 lakh 36 years ago in the Sensex, it would be worth Rs.2.8 crore today. Investors just have to get it out of their head that the stock market is a place to double money overnight. It is a place to double money, but not overnight. It is a slow cook that makes money stay ahead of inflation at best. Here are four things to not do when the markets are falling or rising.
Markets are up about 30% over the past six weeks.Will this stock rally last? Should you buy now?
One view says that post-election, the markets will crash. However, if the Congress manages a stable coalition, they will soar.
Some experts believe that this is a dead cat bounce—a bear market rally that will shatter soon. Others say that the great Indian 20-year bull run is now open. The chief of India’s markets regulator, however, cautions against irrational exuberance.