In bull markets, you often make the mistake of buying at higher valuations, spend money judiciously, borrow frequently & enjoy thoroughly.
The risk is highest in bull markets.
A correction can virtually wipe off your equity portfolio anywhere by 50-80%.
Yes, it’s quite possible & has happened in past.
No, I’m not scaring you. I’m preparing you.
My target is to tell you the right things. Nobody knows when the next corrections will come. It may be in 2023, 2025, 2030, etc. But it will come.
And the best way to fight such huge drawdowns is to be mentally prepared.
At any time, I virtually think, my actual networth is 25% of the current portfolio size.
If your portfolio is of ₹1 crore, it’s better to live as if it’s worth ₹25 lakhs only. In case of market corrections, you won’t be taken aback when actually the portfolio falls from ₹1cr to ₹25 lakhs.
This helps in 2 ways. It helps you control the reckless financial decisions while ensuring your mental sanity & keeps you stay grounded.
Life hacks like this makes investing possible in long run. Those who don’t think this way would quit the markets when it falls.
Next a correction comes, you should be mentally prepared for it. Stock markets rise & fall. That’s the reality of it.
