What to do in the Coronavirus Crash?

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Letter to all NJ Investors on current Market from NJ MD, Mr. Neeraj Choksi CORONA VIRUS is a real threat which is disturbing the world and impacting the global economy. However the world has witnessed several such crisis in the past viz. epidemics,  pandemics,  global financial crisis and many more. One common thing witnessed in such crisis is the knee jerk reaction of the markets and plummeting the markets to new bottoms as if there is no tomorrow. While these crisis are real and it impacts the world economy and does damage to several people, but the stock market falls are unreal and far beyond such damages. When and how this crisis will get over is difficult to predict and can only be said in hindsight. However such crisis historically hasn't lasted long as the developed world is competent enough to come out with solutions to address such crisis. It is difficult to predict the magnitude and impact of such crisis including the recent CORONA VIRUS, but will soon be over. Historically such epidemic crisis have lasted for a few months and the markets have bounced back after that, the following research states the same VIRUS OUTBREAK ESTIMATED PERIOD OF OUTBREAK No of Months Returns During Outbreak One year Return after the Outbreak S&P BSE Sensex SARS Jan - Mar 2003 3 months -10.7% 83.38% Avian Influenza Jan - Aug 2004 7 months -12.23% 50.33% Ebola Dec 2013 Feb 2014 3 months 1.58% 39.02% Zika Nov 15 - Feb 2016 4 months -13.14% 24.14% Source: Mint Research The above table is the testimony of the bouncing back of markets after sharp declines or major crisis. We have been always talking about following the asset allocation strategy for the last several years. After the 2008 global economic crisis we started our Dynamic Asset Allocation Portfolio under the PMS platform and in 2013 also started offering through the MARS strategy. The MARS / DAA strategy is a simple asset allocation between Debt and Equity based on the relative market valuation. The strategy changes the Asset Allocation twice in a year in the month of April and October. We can witness that the while the market has fallen approximately 21% from its peak DAAA/MARS Nifty 500 TRI Nifty 50 TRI 1M -9.12 -21.17 -21.32 From 14 Jan 20 (Mkt Peak) -7.56 -21.45 -22.33 CYTD -6.32 -19.84 -21.10 1 YTD -1.56 -17.30 -16.55 3 YTD 4.74 0.81 2.84 5 YTD 7.77 3.78 3.80 Source: Internal As on 12th Mar 2020 CYTD is from 31st Dec 2019 1 YTD is from 31st Mar 2019 3 YTD is from 31st Mar 2017 5 YTD is from 31st Mar 2015 the damage to the MARS/DAA investors is limited to 7.56%, protecting around 14% of downfall for the investor. Even the 3 years and 5 years return in such a low market is positive and outperforming the benchmark by a handsome margin of ~4% CAGR. Since the inception of MARS (December 2013) our average equity allocation has been 50% but after the current fall the equity allocation has triggered to 85% and we have decided to take an interim call to change the asset allocation to 70% in favour of equity. The other change shall be made in the month of April. Below is an interesting table showing one year performance of NIFTY 500 TRI when the MARS/DAA equity allocation in the past had gone above 80% Date Equity All (%) Nifty TRI (%) 02/07/2013 85% 39.69 07/08/2013 90% 47.70 25/11/2013 85% 45.98 26/02/2014 80% 48.40 Source : Internal After February 2014 it is for the first time equity allocation in the dynamic strategy is going above 80%. Experience the power of MARS in the years to come. Normally 80% and above level of equity allocation comes when the market is available at extremely cheap valuations most of the times preceded by crisis or a pessimistic economic outlook currently in India it is primarily because of the CORONA VIRUS coupled with banking and financial crisis. I would like to empathetically quote that Predicting markets is inviting FAILURE, Practicing asset allocation is the key to SUCCESS. While I am not an expert on CORONA VIRUS to predict its damage but am very clear based on historical and statistical evidence that the crisis will end sooner than we think and the damage would be far lower than what the market has reacted too. Generally such are times when the investors are scared and full of scepticism, the plethora of negative news flows and easy access to such information only enhances negativity and scare. Most of these negative news flows or experts talks are generally with a very short term orientation and are driven by subscribers attention rather than an authentic investment advice. It becomes fashionable to discuss in social gatherings the bugbear of such events and you will always find the self proclaimed experts predicting the impact of such events on the economy and the stock market. All this only diminishes the confidence of investors and investors often takes decisions detrimental to their long term well being. Either investors makes notional loss real or miss the opportunity to buy at attractive valuations. Some smart investors intending to enhance their equity exposure try to do bottom fishing and more often than not tend to miss the bus. As an investor, the most important task is to find the right advisor / distributor - a caring and competent advisor who believes in practicing asset allocation rather than predicting markets or feeding investors with market information which may enhance your knowledge but ends up adding no meaning to your investment decision or well being. Being a successful investor is simple but not easy. Only your caring and competent advisor/distributor will help you easily become a successful investor. I would like to reiterate that "Expecting market predictions from your distributor/adviser is an invitation to long term investment failure, it is the caring and competent adviser/distributor practicing asset allocation will take you course by helping you manage your asset allocation and keeping you away from the nuances and rumours in the market and will keep you focussed on your goals according to your long term financial plan." If you have any doubts regarding asset allocation/ MARS, allow your NJ Partner, your caring and competent distributor to explain the same to you and have a superior investment experience with much lower volatility. I sincerely wish and pray that going forward no one gets impacted from CORONAVIRUS and all those affected regains normalcy and peace very fast, do take adequate care and precautions to avoid any vulnerability from this unprecedented monster. May God Bless you and I wish you all a very Happy and Healthy FY 2021. Mr. NEERAJ CHOKSI Jt. MD - NJ Group