The biggest falls leave some mark.
When people think about the bad days in the markets, they are reminded easily of a few periods.
The pandemic period from 2020 comes to mind easily.
Before that?
Before that, all seems great. All seems smooth. Until 2008 – the Great Recession.
A large number of investors today were not active investors in 2008. So, they have only read about 2008 or watched a video on it.
And before that?
The internet keeps talking about the Dot Com Bubble, in the year 2000.
So that’s mostly it. Three giant falls – separated by about ~10 years.
But what most investors miss is the smaller falls. Even more than falls, people miss the flat periods.
The past is seen as a golden period of stock markets rising smoothly.
For example, the last 25 years are seen as years of growth interrupted by 3 falls – 2000, 2008, and 2020.
The reality is much nuanced than that.
2011 to 2014
This period in the markets is not discussed much.
Between 2011 and 2014, the markets barely grew.
Why?
There were many reasons for this.
Globally, the markets were a bit scared. The world had just emerged from 2008’s recession. Fears of yet another recession loomed in people’s minds.
Greece was suffering from debt. Since it is a part of the Eurozone, troubles in the Greek economy could have easily spread to the rest of Europe.
And from there, it could have spread to the rest of the global economy. This fear kept investors up at night.
To add to that, the Indian economy on its own was not doing very well.
GDP growth numbers looked bleak. Inflation was higher than normal. There was a government-level decision paralysis.
All the reasons aside, what it meant was investors barely saw the value of their investments rise – for 3 years.
Yet, we almost never hear of investors talking about this period.
2015 to 2017
In 2015, the Chinese stock markets were suffering from some problems.
An immense number of investors were trying to invest in stocks and a bubble of sorts formed.
When this bubble burst, it sent waves in stock markets around the world.
This marked the start of yet another low-returns period.
The markets did not crash. But they did not grow either. And that, seems less harmful than a crash.
But it is still quite harmful.
Why should anyone invest in the markets if they are not growing? Isn’t it better to just invest in FDs that are growing slowly all the time?
This period was marked by a slowdown, which started by the Chinese stock markets.
But this was coupled with other factors within India.
We had the demonetisation and implementation of GST. This transition affected the economy.
The result: a flat market.
Investors wondered if it even made sense to invest in stocks or mutual funds at all.
End 2021 to Mid 2023
This period is the closest example we have.
The world was reeling from the pandemic and its aftereffects.
To fight the economic slowdown, governments worldwide had lowered interest rates.
These lower interest rates had resulted in more economic output. But, the side effect of that is higher inflation.
By the end of 2021, inflation had started to affect people’s lives across the world.
To deal with this, central banks across the world started raising interest rates. Higher interest rates managed to control inflation.
But higher interest rates lead to lower economic output.
And that showed in the share markets.
Further, the Russia-Ukraine conflict started in Fed 2022 – scaring the world about a larger conflict. That scared the markets and triggered higher crude oil prices.
A chain of events followed, and the stock markets continued to remain mostly flat.
The Big Ones
And of course, we know about the big ones – 2000, 2008, and 2020.
Those hit the markets hard and took a few years of growth away.
Whatever growth we have seen has happened outside of these years.
Which means, the markets never really grew smoothly.
It either was flat, or crashing, or rising fast.
Almost no years were spent with a smooth, consistent expected growth rate.
Accounting for all of those ups and downs, the markets have managed to return about 12-14% per annum.
That sounds all good.
It is at this point that many investors commit one of the biggest mistakes in this investment journey: timing.
Many investors look at the periods of ups and downs and flats. They determine that if they can exit the markets in the down years, and get in during the up years, they will make fantastic returns.
Theoretically, yes, that is correct.
The challenge arises in practice.
There is no pattern.
Down markets do not last a fixed number of years.
Up markets do not last a fixed number of years. Same with markets being flat.
Nearly all investors fail to sell their investments right before a crash.
Further, most also fail to invest when the markets have reached a bottom and start climbing again.
If you miss those two points, your returns suffer massively.
Remember: you lost the most money going from a high point to a low point. You gain the most money going from a low point to a high point.
If you start investing once the markets are already doing well, you will not make any returns.
Just like how you will make losses if you exit after a market has fallen.
This is why it is simply a better strategy not to try and time the markets.
For most investors, it is simply better to remain invested for the longer run.
And even more importantly, it is necessary for an investor to remember that this is not the first time.
The markets have fallen before. They have risen before.
This is not the first time. And it will not be the last time.
The images above were generated using AI tools.
Quick Takes
+India's GST collections rose by 9.1% year-on-year to around Rs 1.84 lakh crore in Feb.
+China imposed 15% tariffs on US agricultural goods like chicken and cotton, and added 10 firms to an ‘unreliable entities’ list. This is in response to the US doubling the tariffs to 20% on Chinese exports.
+Tesla signed a rental agreement in the Bandra Kurla Complex for its first showroom in India.
+Number of high-net-worth individuals (HNIs) in India rose 6% to 85,698 in 2024. The number of billionaires also rose by 26 to total 191, having a combined wealth of $950 billion. According to the report, HNIs are those who have a net worth of more than $10 million: Knight Frank’s ‘World Wealth Report 2025’
+The RBI will deploy Rs 1 lakh crore into the banking sector through 2 Open Market Operations (OMO) on 12 March and 18 March. It will also conduct a $10 billion USD-INR swap on 24 March.
+Retail automobile sales in India fell 7% year-on-year in Feb. All segments recorded a fall in sales — 2-wheelers by 6%, 3-wheelers by 2%, Passenger vehicles by 10%, tractors by 14.5%, and commercial vehicles fell by 8.6%: FADA.
+India’s forex reserves fell by $1.78 billion to $638.7 billion in the week that ended on 28 Feb.
+The European Central Bank reduced its interest rate from 2.9% to 2.65% in its March meeting.
+The US President has signed an executive order to create a reserve to hold forfeited digital assets.
+Tata Electronics, Tata Semiconductor Manufacturing and India Semiconductor Mission signed an agreement for a Rs 91,000 crore semiconductor plant in Gujarat. The government will fund 50% of the entire investment.
6-Day-Course
Theme of the week: under-valued stocks
We’ve reached the end of this week’s course that started on Monday. Here’s a test you should take. Get pen and paper!
Question 1:
What metric helps to assess undervaluation of a stock by comparing price to earnings?
-PE ratio
-Dividend yield
-Cash flow
Question 2:
A company investing heavily in a new factory might experience _____________.
-Immediate revenue drop
-Future growth surge
-Dividend increase
Question 3:
Under peer group analysis, tech stocks can’t be directly compared with bank stocks, because of different industries.
-True
-False
Question 4:
A stock is often overvalued if it pays regular dividends.
-True
-False
Question 5:
A stock with strong YoY earnings growth is most probably undervalued.
-True
-False
Answers:
Q1: PE ratio
Q2: Future growth surge
Q3: True
Q4: False
Q5: False
The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.
Team Groww Digest