We think too much about PE, EPS, Large cap, Mid-cap, etc. However, during a pain we think of death, loss of jobs, cash crunch, etc. The way we buy, the way we keep the portfolio, and the way we sell are so different. That is the problem.

If you did panic in March, it means your asset allocation is not in sync with your personality. There are two things that you can/ should do:

  1. Change the asset allocation to have more debt instruments
  2. Increase your understanding of volatility

Let us say that you had 40% equity, 40% debt, and 20% gold you may not have panicked. However assuming that your portfolio fell by 30%, your total portfolio may not have fallen much because gold may have gone up by 24% and debt by 10%.

However, if you had a portfolio with about 80% in equity and 20% in a credit risk fund, your all would have been terrible. To make it worse assume that you were in mid and small-cap portfolio, at least predominantly.

So you can go and learn about:

a. asset allocation – what will ensure a good nights sleep AND will be able to meet your goals

b. How volatility has to be embraced in the short term to create wealth in the long term

c. how chasing winners can be harmful, and buying losers can be gainful in the long run.

d. keeping emotions under control

e. Indexing, in case you can’t locate a good adviser or fund manager

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  1. Hello Subra Sir, Thanks for your post. Had a question regarding the P/E ratio, my understanding basis your blogs is to balance risk with return. Wouldn’t a high P/E ratio mean higher risk as the markets may be overpriced? and therefore wouldn’t it make sense to adjust allocation by withdrawing mutual funds at high PE ratio and parking funds in a more liquid fund? Would love to hear your thoughts about this

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