SHOULD WE INVEST DURING LOCKDOWN?
“Investments are subject to market risk, please read the offer documents carefully before investing”. We have all heard of this statement either in television adds or read this in newspapers, magazines and websites. In this Corona lockdown the market is already risky, production and income of most organizations are at all time low,lay offs are knocking the door. That means according to the statements we shouldn’t invest now right?
If the market is at loss then investing would lead to our loss, right? Well the second line also states to read the offer documents carefully, let’s modify that a little bit. The modified line becomes,
“Investments are subject to market risk, please study the market conditions carefully before investing”.
Yes just because the market is bad doesn’t mean you should refrain from investment now in contrary you should invest now. Let us consider a very simple example to understand why? You are brilliant student always scoring ninety plus in exams, say before a specific exam you have fever, couldn’t study. As a result your exams goes bad and your average comes down, does that mean you become a bad student in future? No, you study up and get the grades you previously got. Similarly this Corona crisis is a temporary effect pilling down the market it doesn’t mean you shouldn’t invest. It means you should study the history of the mutual fund or the share you are thinking of investing in and then try to guess its return in future. Yes, while considering the past return you must also try to figure out the standing asses of the organization as without feasibility of liquid asset to keep the manpower during lockdown and invest after lockdown many companies would suffer. Hence you must look towards both the past returns and at the same time the standing asset of the entity.
Let us try to understand the current market scenario with another recent practical example, during the initial days of corona outbreak there was a flying news that chicken is susceptible to corona infection and hence should not be eaten whereas expert were at the same time telling us that chickens are safe. Due to the false news people panicked and the cost of chicken fell, that was history now look at the price rising steadily. The market is facing a similar situation, due to the Corona effect the share price is falling, on the outer side people are thinking it’s dangerous to invest now, while people who know the market trends are actively. They are literally buying out good share at low value which will give great return in future when the market normalizes again. Right now with the corona curve flattening in major countries you can see the market slowing getting positive.