Don't patch your leaky boats!

Don't patch your leaky boats!

The Warren Buffett quotes hold great meaning in this time of crisis. Many of us are dealing with so many dilemmas nowadays and many of us might be regretting the mistakes they have made in this time of panic. If you are one of them then don't worry because mistakes can become your lifetime friends if you have learned a lesson from them. Nobody is perfect in this world even warren buffet also made many mistakes during the time of crises because this comes from experience that panic only makes things worse. We have to learn some good things from our bad time to convert our bad time into the good one.

How the market crash, and how it recovers after panic selling?

A market crash from panic selling when everybody is selling, there are no or very fewer buyers but only sellers exist in the market and due to demand and supply chain disturbance the prices of the stocks crash while on the other hand in panic buying, there are no sellers, only buyers are there and due to only demand and very less supply, the market surges.

You can see the Nifty 50 index chart below for your understanding, Please note that I have taken this chart from Moneycontrol.com

The chart is self-explanatory that on 24 march there was the lowest point made on the index and after that, you can see the sudden jump and rallies goes on till today. Always remember if you want to be a successful investor then you have to invest when everyone is selling and you have to sell when everybody is buying. If you will go with the flow into this business then you would be in trouble.

You can see the same happened in the chart for 2016 February, the market crashed and recovered with more speed. The best investor waits for this opportunity to buy the ownership in the fundamentally strong companies when the sale is going on.

In my opinion, this time comes every 5 years, you should not leave this opportunity to invest your money and also exit at the right time. The market gives the opportunity to everyone at least once in a decade. Recovery can be delayed due to economic conditions, government changing norms, etc but you will get a good return for sure. Even the one who invested their money on 24 march 2020 has made their money much bigger by today. Most of the stocks are giving 50% return till now when the situation is getting worsen day by day, think the day when everything resolved and we will have 0 corona cases.

What generally any investors do?

Investors' general behavior is to hold the losers and sell the winners when they see recovery after this crash, then it comes only in fundamentally strong stocks and the bad companies become worst in this type of scenario. Fundamentally strong companies are well versed with all the angles to tolerate the hard-hit, on the other hand, bad companies or very small companies like penny stocks can go in negative in this crises but what people think that we can accumulate it on lower levels so that the average will come down, and they keep on accumulating the bad companies in their portfolios and their portfolio never recovers.

You don't have to patch your leaky boats, means you don't have to accumulate the bad companies which are having a lot of debt, most of the shares are pledged, which is continuously coming down since months without any good recovery sign, net cash flow is negative, profits and sales continuously decreasing. You have to accumulate good companies at the lowest price in this panic because these are the only ones that will give you the fastest recovery and money appreciation in the future.

This is the time to rethink your investments which you had made at the highest levels and all of now are in red, investors are waiting for recovery but don't know when it will come or not come.

Warren Buffet says" Should you find yourself in chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patch leaks"

Find how to know your stock is fundamentally strong or not by Fundamental Analysis 

You should know better about your boat from anyone because you are the master of your money, you should know that the boat is leaky or it is ready to sink before taking any decision, you should consider all the aspects, there is always a certain risk involved in everything but we have to decide that we are taking that risk at which cost and we are not taking that risk at which cost. 

For instance, I have an investment of 100000 in any medicare company and during the crisis, my stock price falls to 50% and becomes 50000, on the other hand, I am getting the far better company stock(in which I always wanted to invest but due to high prices I was unable to invest) at 50% discount. In this case, I would like to change my investment because for my dream company I am 100% sure that it would be double soon because the company does not have any debt on it and recovery chances are much better than my previous investment so it will at least recover my principal soon while on my investment, it is loaded by debt and pledge shares so the chances of recovery are slower than that. Here you are not patching your leaky boat but changing the vessels at a very less risky cost.

https://bijimoney.blogspot.com/2020/07/Investment-Mistakes-2020.html