My experiences of coping with 2008 downturn

Many readers of my blog and others who know me have always asked me to share how I dealt with the 2008 downturn in the equity markets and had the conviction to keep investing in the subsequent years. While I have never thought about it explicitly, being at a loose end in Kuwait at the start of a long Eid break gives me an opportunity to do so. A caveat – like all reminiscences, mine may also appear a tad self congratulatory so bear with me to that extent !!

Some background of my life and financial situation in 2007 end will be important to understand the events and my reactions to them. We had just shifted to Hyderabad in October 2007 and I had plans of working in Four Soft for about 4-5 years. Though I was not the CEO immediately, I knew that I would be made the CEO by April 2008. My daughter was in class 8 and my son was in class 6. We had got them admitted in middle of year in a very good public school ( it was tough but their earlier results and how they fared in the test ensured that ). So from a career viewpoint and family angle, I was in a reasonably good and stable situation where we could be in Hyderabad for the next few years, at least till the children went to college. 

From a financial standpoint, from 2005 onward the main focus of our investments was in equity. We had portfolios in both stocks and MF but the focus at that point was clearly on stocks. We had been aggressive in our pre-payment of home loan by 2005 and that left us in a situation of a fairly high monthly surplus. Except for investments in PPF and payment of insurance premiums, all other investments were in stocks. I must give due credit to my wife for building up the stock portfolio in these years. It was a good selection of industries and stocks, bought over a period of nearly 3 years at price points that made a lot of sense at that time.

By end 2007, the portfolio had grown to an impressive size. So much so that I could harbor thoughts of Four Soft being my last corporate role and being able to start my Consulting practice around 2012. I did realize from the rapid rise in the markets that a correction was going to come and the extent of the cut will be very significant. Yet, I must say when it happened the deep cut left me quite surprised. Over a few days the portfolio went down by more than 30 % and at a later point in 2008, I saw that the portfolio built with great care over the last 3 years had shrunk to 50 % of it’s peak value and was barely in the black. We were still lucky not to be in the red like many others, courtesy a few of our earlier stocks such as L & T, HCL Infosystems, RIL etc where the long term gains were still good, despite the brutal cuts. The MF portfolio that I had built up over 2 years by making selective one time purchases fared no better and was also into the red. The only good point there was I had sold off a few MF investments, seeing that they had run up a lot in December 2007. It was a pity I had not sold off the entire lot.

I wish I could tell the readers that we were not affected much by this but that will not be true. It seemed that our entire financial foundation had been totally shaken up and, for a few months, we were rather despondent about it. Two things helped – we were new to Hyderabad and were busy in settling down, also my job required extensive travel which helped me to think a fair deal and get matters into perspective. In the initial phase we had even bought more equity but as the market went into a tailspin, I had to give up that idea. The one thing we did do was to start an SIP in 4 funds as we realized the value of buying MF units in a declining market. All other surplus went into products like Debt funds, FD etc. We actually started spending more and took a vacation to Thailand as we had more money in hand.

When I looked at the situation objectively by September 2008 or so, life did not seem to be very bad. Yes, the portfolio had shrunk badly and not working in a regular job from 2012 was probably out. At the same time, I was the CEO in a public listed company and could be there pretty much for as long as I wanted. In any case, till our children went to college we did have plans to be in Hyderabad, so what I did was really not a huge issue if it shifted by a few years. I did think of going contrary to the crowd and start buying by end 2008 but the way the markets kept going down dampened my spirits. My wife, who had been the real force in building up the portfolio, simply wanted to stay away from the markets.

By the start of 2009, I realized that it would be a good idea to start investing. I had a fair amount of surplus every month and had reasonable conviction that good companies could not be at such beaten down prices forever. Over the next few months I bought into stocks selectively, despite every person including my family members telling me not to do so. My response was simple – I could not believe that  good Banks, good IT companies and companies in other sectors could do badly forever. Indian economy was not doing badly, it was the global turmoil and pulling out of the FII money that caused the crash in the markets. The markets went all over the place in the next 5 years but from an overall viewpoint the buying of selective stocks had a great positive impact on my portfolio.

From 2008 onward we also continued the SIP in MF regularly and this has helped to build up a substantial portfolio in this area. In fact, if the crash of 2008 had not happened I may not have gone to the SIP route. Obviously, it paid great dividends between 2008 and 2013 in building up the portfolio and 2014 was a great year to see the portfolio performing as though it were on steroids. However, 2015 has been a different story.

To conclude, while it will be tempting to say that I added stocks because of only my knowledge and skills in predicting the market, the reality is a little different. I knew I was in a stable job that paid well, I did not need to touch my portfolio for 15 years or more and so had time on my side and finally as I was investing into fundamentally good companies for the long term it was really not as risky a proposition as everyone was making it out to be. In the end the stock market is a place where the winner takes it all. There are many people who had money in 2008 and subsequently but chose to put it in FD or other similar avenues. Theirs is a case of lost opportunity.

In the next post, I will give some actual examples of stocks that I bought into prior to and after the crash.


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