Year 2019 has been a tumultuous and volatile year but the good news is that we are likely to end in positive territory, close to all-time highs. The year saw the emphatic return of the ruling NDA at the centre, a grinding growth slowdown and an ambitious corporate tax cut. But the markets in 2019 have also given some real life lessons to investors and traders. Here are 10 key lessons to take away from the stock markets in 2019.
Starting small today is better than not starting at all
Year 2019 began with a lot of scepticism after the FPI selling last year and the NFBC crisis. But, it would have been crazy to have waited in the sidelines. Blue chip stocks like Reliance Industries, ICICI Bank, Hindustan Unilever Kotak Bank and SBI gave phenomenal returns in the last one year. The lesson is not to wait too long to start investing. Start even if small!
When you are in the wrong stocks, it’s OK to look silly
Quite a few stocks virtually saw their values evaporating in 2019. Jet Airways was one example and Yes Bank was the other. In both counters, value damage was substantial. But, the indications of trouble were there well in advance. You may have held on to the stock not wanting to look silly. But, when a stock is swept off its feet, it is OK to look silly and exit.
Great stocks make great comebacks
There were some amazing recovery stories during the year. In some cases, the correction had been sharp and valuations had been steep. But these stocks managed to bounce back with a vengeance to new highs. Two stocks that come to mind are Bajaj Finance and HDFC AMC. After teething problems, both stocks gave more than 100% returns during the year, notwithstanding steep valuations. To a lesser extent, Bharti Airtel also fell in this category.
Demand and liquidity are often more powerful than valuations
The quality crisis in the stock markets has narrowed the demand to just a handful of stocks. Just run a screener on the BSE-100 stocks and you will get the answer. The valuations may surprise you but stay on the side of momentum. When demand is strong and liquidity is abundant, they can make valuations look slightly irrelevant.
In every stock story, look at the other side
Year 2019 taught us that every stock story has a visible side but the latent side is more important. For HDFC AMC, the issue was not valuations but the geometric growth in MF AUMs. Vodafone Idea may have looked underpriced at lower levels but the other side was that it was still losing money per customer. The other side scored in 2019.
Debt is not exactly risk-free
You surely learnt this lesson with FMPs and credit risk funds in 2019. Suddenly, equity risk appeared to be more palatable compared to the latent risk of debt funds. It is one thing to face interest rate risk and another thing to face rampant credit risk. That is what debt fund investors faced and it drove home the point that debt is risky after all.
Irrationality can outlast your bank account
What Keynes said 75 years ago proved right in 2019. You just thought that markets had no business to go up when the economic growth rate was trending lower. But, growth just trended lower and the indices scaled higher. If you were short, you would have learnt that markets can be irrational longer than you can be solvent.
Economy and markets don’t necessarily tango
If you thought the stock market was the barometer of economic health, you must be disappointed. When liquidity flows are strong and equity is the preferred asset class, then the hope of a better tomorrow trounces the fears of a shaky today. That is a lesson most of us learnt the hard way in 2019.
There is no finish line so don’t stop learning
If 2019 was a year of surprises, the biggest learning was that in the stock markets there is no finish line. You always need to invest for a better and sounder future. Above all, you cannot stop learning in the markets. The markets have a unique and ruthless way of surprising you when you least expect it to.
There is power in passive investing
Yes, 80% of active funds in India underperformed the index. India is finally going global and active managers are finding it hard to beat market indices. The lesson is to set aside part of your portfolio allocation to passive asset classes like index funds, index ETFs etc. In 2019, the markets were surely smarter and savvier than most investors!