Client Conversation - Types of market corrections

Client - I don't understand why you reduced my equity holding @18000 on 12th October, 21 and now you recommend buying around the same @18000 since January, 23 ? Why so?

Myself- Let me explain -

Typically all of us are aware of Market corrections in 'number terms'.

So say in 2020, Nifty fell by 30% is a correction or crash and we all understand this. (as shown in pic.-crash)

What most find it difficult to identify and understand is 'time correction'.

So market has 2 types of corrections -

1- Number corrections
2- Time corrections

Since the majority of us understand 1st - ' Number correction ', I will jump to help you understand the 2nd point - ' time correction ' in simple terms.

Let us take this same headline sample as an example for dates and numbers.

September to December, 21 Nifty 50 index was around 18000 and even today -May, 23 around the same level.

So you may say this is not correction, right in number terms (18000) we are at the same level, but the same level since 1 and half years.

Client - How then, does it mean a correction?

September, 21 Nifty PE (price to earning ratio) was around 27 and currently it is 21.

The run up from April, 2020 to September 21 was so sharp that it was way above it's valuations -had reached PE of 34+ and so either it had to number correct which means fall down, or time correct which it has done (I am no where saying now markets will go up and up only)

This time correction is also called ' consolidation' and in this type it generally remains in a range. (as shown in pic.'

Now the most important question-

Client - So how does this call to reduce in October, 21 and move in since Jan 23 helps?

Myself - We are not GOD to time the market, but If we had remain invested, most likely earned nothing (largecap most likely), rather we reduced equity allocation in October, 21 parked the same in medium term, Long term and some in liquid funds (earning around 7.7%) and since january, 23 moving back slowly to equity.

Most important is during the Nifty downward movements there was absolutely peace of mind and the money was growing safely.

Client - Good you were able to time the market - so why are we now entering slowly, why can't you tell me to enter when the time is right? You are experts in identifying and timing ?

Myself - SURELY NOT, but with 17+ years experience there are higher chances we may be able to safeguard and grow your money rightly with full financial literacy based clarity and aware decisions.

At least this client was convinced fully now aware of types of correction and also about risk averse way of investing, with clarity.

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