Time-tested strategy to tackle volatile markets
Eddy Elfenbein is a Washington DC-based portfolio manager and editor of the blog Crossing Wall Street. He shared this interesting take on equities which I take the liberty to reproduce here.
Mar 2025
5 mins read
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Eddy Elfenbein is a Washington DC-based portfolio manager and editor of the blog Crossing Wall Street. He shared this interesting take on equities which I take the liberty to reproduce here: “Equity is completely different from other asset classes of investment. It’s the only one that captures human ingenuity, which is the ultimate asset.”
I believe that this key insight is necessary while dealing with equity market volatility. Other asset classes like gold and real estate do not share this key characteristic. The point I wish to convey is that unless you are convinced that human progress from ingenuity and innovation is at end, equity will continue to increase in value over time. To benefit from that growth, you just need to be clear about your time frame of investment and have a measure of patience to reap the benefits.
In the end, inefficient companies are punished and efficient ones that leverage ingenuity and innovation continue to thrive. Markets go through this churn over time and active managers too churn their portfolio to include good companies as per their fund’s mandate. Investors therefore benefit by remaining invested.
Timing the market? Think again..
Let’s trace the growth of Indian markets and how it has rewarded investors despite intermittent crashes. We looked at the performance of Sensex when the COVID hit the world. As nations went into lockdown, equities were battered.
On March 23, 2020, the Sensex closed at its lowest at 25981. By the end of 2020, the market had recovered by 84% and in a couple of months doubled (up 101%) on Feb 15, 2021, by crossing the 52,000 level. The Sensex doubled in 329 days, despite witnessing drawdown of -38% in CY2020.
Thus, though the above reflects a short time period, instead of timing the market, staying invested for the long term is a proven strategy for wealth creation. We ran a study internally to see the long term impact of missing the best days in the market by analysing returns of Nifty 50 TRI of the last 24 years (Sep 2001-Jan 2025). The data shows that if you miss the best 50 days during this period, you compound your money at less than 1% a year! Best days are most of the strongest rallies that happen when fear is at its peak - during corrections or recoveries.
On the other hand, if you stayed invested, you end up earning a CAGR of 15.61% during the same period. For instance, Rs 10,000 invested in 2001 grows to Rs 3.25 lakh in 24 years if you stayed invested. On the contrary, if you missed the best 50 days, your 10K investment grows to just Rs 11,550 in 24 years! (Source: MFI ICRA, Varsity, PGIM India Internal)
This shows that trying to predict market tops and bottoms could be a tall order. Many investors who sell during a crash struggle to re-enter at the right time, ending up missing out on the market’s best recovery days.
What should be your strategy in the current market?
Revisit your goals:
Constantly tracking market movements can lead to anxiety and impulsive decisions. Instead, review your portfolio annually unless a major financial change occurs in your life. Ask yourself, why did I invest in the first place? If your goals are long-term - such as retirement, buying a house, or children’s higher education-short-term market fluctuations should not derail your goal.
Diversify your portfolio:
The rich have built fortunes by taking concentrated bets while investing either in their own companies or just one idea. These success stories are in the limelight for every investor to get inspired by, but those who have lost don’t get highlighted or written about. How many of you are ready to bet your entire life savings in one stock? Stock market is surrounded with stories of stocks getting beaten down due to corporate governance failures. Thus, for an average investor who is investing his/her hard earned money, diversification helps in mitigating this risk. A diversified portfolio spread across equities, debt, gold, REITs, real estate, international equities, and other asset classes can cushion market downturns. If equity markets are volatile, debt funds or gold may provide stability.
Continue your investment:
Market corrections allow you to accumulate more units at lower prices, benefiting from rupee cost averaging. While averaging, you must be aware of concentration risks of doing SIP that in any narrow theme or just one sector. A good diversified strategy is a better fit for averaging.
If you have a lumpsum corpus to invest, investing it at one go in equities could also be a good idea if you consider that markets rise in the long term. Let me illustrate this with an example. Assume A invests 5,000 per month through SIP over a ten-year period with an expected return of 10% CAGR. A’s corpus grows to 10.07 lakh over 10 years.
On the other hand, investor B makes a one-time lumpsum investment of 6 lakh, expecting a return of 10%. Investor B’s corpus grows to Rs 15.56 lakh after ten years. Thus, investor B ends up earning 5.48 lakh extra at the end of the tenure.
The decision to invest lumpsum or SIP depends on your cash flows, goals and risk appetite. Risk averse investors who don’t wish to invest lumpsum can take the SIP route, which is a fantastic way to save and invest especially for those with a regular income stream.
Summing up
Morgan Housel in one of his blog states – “No one’s success is proven until they have survived a calamity. Serendipity often masquerades as skill, and the only way to distinguish the two is to see who is still standing after the storm.”
Market downturns of varying degrees and time frames can be very confusing for investors. What can help is to be patient and remain committed to your goals and be convinced of the intrinsic nature of equities which is to capture human innovation and progress over time.
To hold your hand during market downturns, a qualified and trusted advisor becomes invaluable to guide you towards investing for your life goals.
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All the Mutual Fund investors have to go through a one-time KYC (Know Your Customers) process. Investor should deal only with the Registered Mutual Funds (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit https://www.pgimindia.com/mutual-funds/ieid.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY. Read more
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