In the equity markets, one makes more money not despite the crashes but because of the crashes. Let us see how with an assunmption that post-tech crash of 2000-2001 never happened the way that crash actually happened. The Sensex reached a peak of about 5900 in Feb.2000. It then crahed and went as low as 2600 in Sept. 2001. It started rising and reached the previous peak of 6190 again only in Jan.2004.
Let`s assume that the crash never happened. The sensex reached 5600 in March 2000 and then stayed at that level till Oct. 2004. If that happened, then an investment of say Rs. 20000 a month in Sensex based index fund in early 1997 would be 55 lakh at 14% till today instead of 66 Lakh. that is right. for the long term investor, the crash of 2000 was worth a lot of money.
How did you make more money because of the market crash? The answer is obvious who understands the basic arithmetic of what is happening here. The crash unabled you to buy cheap and thus eventually raised your total returns. If you are steadily investing for the long term, then intermttent crashes help you make more money, not less.
And this is how you will make profit eventually from this great panic of 2008. THe longer and deeper this crash, more money you will eventually make.
Fo a long term investor, equity is good precisely because it crashes. Volatility is your friend, and volatility is what will make you reach.
Wishing all of you happy Diwali and a very prosperous new year.
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