Saturday, 19 November 2016

Should You Worry about the Demonetization?

The recent demonetization of Rs 500 and Rs 1,000 notes has again unleashed intellectuals, who are debating the positives and negatives of it. The obvious positive is the economic clean-up; the negative is a loss of jobs and the fears of a recession. The market has reacted sharply to the demonetization.

Similar to what I wrote for US election outcome in my previous blog, “How to Protect Your Portfolio from the US Election Outcome,” your best response to the demonetization is no response at all. Don’t let it derail your investments. Don’t wait for some “better” times to make your investments. Don’t exit the market in haste to cut your losses. Simply carry on with your investments normally.

The worst thing you can do in the current uncertainty is respond to it in any way. Many investors feel that it’s smart to sell out presently and buy again at lower levels. Don’t fall for this trap. That’s not smartness but outright fear. Volatility is a part and parcel of the stock market, and this is the time when you need to show some courage rather than run away. Those who run away now will soon find the market taking a U-turn and they will never be able to reenter it, for they will then fear about the market falling again.

The latest evidence of this lies in the way the market reacted on Trump’s victory. It did fall but the very same day, it recovered. What’s more, the US and European markets actually rose. It looked like the market was poking fun at those who had tried to outwit it.

Only time will tell whether the demonetization turns out to be good or not. For now, the financial community has found itself a new stressor to stay busy. If you must worry about something, worry about insulating yourself from the financial pundits.

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