Stock market will recover, will your portfolio?

This weekend must have been the busiest for investment advisors in years, answering phone calls from anxious investors whether their equity commitments are safe as the value of risk assets sank.The obvious answer would have been historical data – the market has bounced back every time it crashed over the past 150 years. So, go get some sleep. Data doesn’t lie. Stock indices show that the market has rebounded from every crisis as the past sins get washed away and a new set of bulls enter the battered arena. But data can, at the same time, be deceptive. Just to jog recent memory, Indian equities have had precipitous falls in 1992, 1997, 2000, 2008, 2013, and 2020. There have been at least six major recoveries from what appeared to be the end of the world when the events were unfolding. What these recoveries hide is the hundreds and thousands of stocks that were riding the bull wave with thousands of crores of valuations turning into just pieces of paper. Some investment theme or the other is associated with every one of the previous boom-and-bust episodes. A new fancy catches the market attention, the euphoria, and the inevitable bust. The stock market indices, comprising some of the best-performing companies (duds are regularly weeded out), in general capture the nation’s economic journey and its status. What it doesn’t is how much of investor capital turned into ash. Investors do really make big money in stock markets, but it is not by buying any stock at any price. Seasoned institutional investors do assess markets and potential returns determined by valuations, prospects of a company and management.Most talking heads would say that you can’t time the market so keep buying regularly over a period of time you’d average well. Is it a genius investment advice? Be that as it may. The mutual fund industry managed to bring in an equity cult in a country predominantly dominated by fixed income as the best option. To its credit, it delivered returns that even during some selloffs, investors continued to repose faith, which in hindsight turn questionable not because of temporary losses, but some products that were peddled to capture a fad and boost its revenue. It is for sure that many diversified funds and even small and mid-cap funds could bounce back, but thematic funds and other concept investments even if they come back, it may not be in a time period that one would enjoy. Prior to the Lehman Brothers triggered blow-up, infrastructure was a prominent theme - when a company declared winning of a INR500 crore order, the market value went up by a thousand crores.The NSE Infra Index was around 5,000 in January 2008. Companies such as Larsen & Toubro, Nagarjuna Construction, Punj Lloyd, IVRCL were the stars. The index rose back to those levels only in Nov. ’22, nearly a decade and a half later. Investments into some companies vanished into thin air. Even if companies survive, if an investor had paid too high a price, he could still be at loss. During the real estate boom, DLF was peddled as next to gold. Anyone invested in late ’07 or early ‘08 is still in losses.The current market would leave a trail of destruction as well in some themes such as defence or electronic manufacturing or digital. Fund flows into thematic or sectoral funds soared to INR1.5 lakh crores, from INR30,800 crores a year earlier. Remember, most of these investments were made at the peak of valuations. Anyone who has started investing in the past two years is probably sitting on losses which as a first-time investor may be quite a shock. Indices may gain again and companies such as Bharat Dynamics and Dixon Technologies may for years produce missiles and mobile phone screens, but will investors who bought with the herd see those prices again? When it comes to investing, the most basic principle is what you pay, rather than what you buy.