Do you remember the story of the Trojan horse used by Greeks to win the war against the kingdom of Troy?
The city of Troy was protected by a high wall built around the city and Greek warriors had been trying to breach the wall for about ten years. After a failed 10-year siege, the Greeks constructed a beautiful and huge wooden horse, and hid some soldiers inside and pretended to sail away. Trojans were so impressed by the horse that without thinking about anything else pulled the horse into their city as a trophy. That night the Greek force crept out of the horse and opened the gates for the rest of the Greek army, which had sailed back under cover of night. The Greeks entered and destroyed the city of Troy, winning the war. That was the end of Troy.
What happened in the above incident was that the Trojans were so focussed on the horse that they failed to see the bigger picture i.e. the Greek enemy soldiers hiding inside the horse which ultimately led to their downfall.
With an aim to find how many people failed to notice other things (the bigger picture), when asked to focus on a particular task, a thought-provoking study was conducted in the year 1999. In a study conducted by cognitive psychologists Daniel Simons and Christopher Chabris, the participants were told to watch a video and asked to count how many times three basketball players wearing white t-shirts passed a ball. After a few seconds, a woman dressed in a gorilla suit entered the room, faced the camera and even thumped the chest before walking away. Nearly half the viewers missed the gorilla and did not see it.
After a few months, there was a sequel to the video. The viewers were expecting a gorilla, and it did make an appearance. But they were so focussed on the gorilla, that they missed the other prominent changes such as a change in color of the curtains and one player exiting the match.
The question is: How could they miss something so evident? This limitation is not in the vision of the eye, but of the mind. When one develops ‘inattentional blindness’, it is difficult to spot the details they are not looking for.
But why I am telling you this story?
A few weeks back, the stock markets had touched new lifetime highs.
From a high of 38,896.63 points in August 2018, the BSE Sensex has fallen to 34,790.93 losing around 4105.7 points due to unfavourable global cues, depreciating rupee, soaring oil prices and a default by mega infra-finance company, IL&FS. There is a sense of panic among a large section of investors who are worried about the future direction of the markets.
Many investors are watching the market movements and ticker price so closely, that they have almost forgotten that there is a gorilla in the stock market.
But what is this gorilla we’re talking about?
Considering the Q1 2018 – 2019, India’s GDP grew at 8.2%, which is the highest in the last two years. With this, credit rating giant Fitch has upgraded its forecast for India’s growth from 7.4% to 7.8%.
GDP of a country tells a lot about the size of an economy, and the stock markets are nothing but a reflection of the health of an economy.
India’s growth is at an inflection point and the best time is yet to come. There is an uptick in the credit growth, expansion of capacity utilization, acceleration in manufacturing activity as well as the surge in consumption power.
While inflation has moderated, foreign direct investments are at a historic high and foreign exchange reserves have peaked. At the same time, ease of making investments and doing business in India has increased attracting new businesses.
India’s structural growth story is just beginning to play out! For long-term investors who wish to ride on India’s ascent story, this market correction is a golden opportunity to accumulate stocks of sound businesses at a bargain price.
In spite of this opportunity, many investors have become cautious and are focussing their full attention on the current volatility just like we discussed in the gorilla story above. However in this process of waiting they are likely to miss-out this untapped goldmine in the market.
While the stock market is loaded with vulnerability, certain proven standards can help investors to support their changes for long term investment.
Market correction is a great time to buy high-quality stocks at a bargain.
For the long-term investor, a stock market correction is a best time to pick up high-quality companies at a good discount because fundamentally strong stocks are first to recover when the market reverses from a correction. In fact, investments over a long run have always delivered better returns on account of the phenomenal effect of the ‘Power of Compounding.’
When asked about the uncertainty in the markets, Warren Buffett in an interview told CNBC, “Don't watch the market closely. If you're trying to buy and sell stocks, and worry when they go down a little bit … and think you should maybe sell them when they go up, you're not going to have very good results."
Stop focussing on the temporary ups and downs of the market and maintain a long term view. Remember a fall in the price of a fundamentally sound stock does not mean its values have also fallen. It has just corrected as a part of broader market correction. As long as the quality of the stocks in your portfolio remains intact and is in sync with your financial goals, remember this – Doing Nothing Can Be The Best Thing!