USA Downgrade--An Apocalypse

Every time the markets tumble, not only do we try to find the reason for it, but we try to compare with similar situations in the past. Since Friday 5^th. August, 2011, investment media has been awash with articles trying to prove how the present crash is similar to or different from the one of 2008. It was as if the sky had collapsed with USA downgraded. An apocalypse of sorts!

Now there are two ways to react to situations like this. Either you can stay permanently scared, panicking every time conditions resemble the original disaster. Or emerge as a wiser; more confident you-- ready to face what ever the future brings to you.

It is evident that the worst thing to do now is to panic. Agreed that we’ve had a few weeks of nerve-wrecking bad news—regularly flashed by investment media-- globally as well as domestically.  However, you should also remember that the news bites are mostly targeted at short term traders.

However, for long term equity investors (either funds or direct) none of this should matter. We believe that things in India are bad only on a relative basis. Relative to the rest of the world, or relative to what they should have been.  Remember, in crisis like this, you should focus on the absolute rather than relative! For this is an economy that is still growing faster than many others in the world and will continue to do so for many more years. There are and will be plenty of businesses of different sizes that will continue to grow and create wealth.

History is a great teacher. What happened in 2008-2009? The only investors who lost money were the ones who stopped investing—when the markets plunged-- and moved over to safer avenues like fixed deposits. Hindsight tells that all that happened then was that when the buying opportunity was at its best, investors were scared. Those who let their SIPs continue during the crash emerged winners.

So what does the present crisis tells us? Restructure your life around the present condition—as it is going to stay for a long time. You’ve got to live with it—much the same way as we live with a chronic condition—say diabetes. What is it about the rest of the world that’s going to change? Will USA start growing at 5%? Will the EU find a solution to the sick economies? No. However, one thing's for sure that countries like India, China will continue to grow—despite all the impediments—both globally and domestically. The question is not how long you’ll have to wait for the crisis to end to start investing. The question is how long before you realize the truth and get on with your investments.

Your goals are waiting for you to realise this—sooner the better!