Recently, there was an interesting article floating on social media about a Bridge in Honduras, a country in the Caribbean region (Link). This suspension bridge was constructed over the river Choluteca during 1930 and then later rebuilt in 1996. The entire Caribbean region, including Honduras, is prone to extreme weather conditions. Knowing this, the Honduras government assigned some of the best architectural minds in the world to build this bridge so that it could withstand any hurricane.

Following this, during 1998, Honduras was hit hard by a category 5 storm - Hurricane Mirch. There was significant damage to property, buildings and roads. Every other bridge in town was destroyed by this hurricane. But the Choluteca bridge stood its ground and survived in near perfection. However, the most unexpected part was that the Hurricane Mirch caused the river to carve a completely new path and it no longer ran under the bridge. That’s right, the Choluteca Bridge no longer stood over the river, making it essentially futile. It is an irony that the architects of the bridge did not anticipate this extreme situation.

This is a clear example of how things can change drastically and reveal unthinkable possibilities. Historically, we have seen such disruptions in the business world as well like one of the leading cellphone company  succumbed due to technological innovations by competitors and one of the leading company into photography  missed opportunities in digital photography. Bottom line, disruptive innovations can suddenly change the course of the business completely.

Year 2020 is one such unthinkable disruption for businesses following the Covid-19 Pandemic. Being under lockdown for months together (almost half a year already) was unanticipated by any business model including the financial markets.

Infact, we saw a sharp correction across global markets during the first quarter of 2020. During such times of extreme market volatility and changing business dynamics, should an investor stay away from equity investing? Well, the answer is available in “history”. Let’s look at some historical events that resulted in a sharp correction of equity markets and how markets fared after these events.

Past performance may or may not be sustained in future. Source: NSE India

These numbers clearly suggest that a crisis can become an opportunity if one has the conviction to stay invested over the long-term. Even in the current crisis, the returns from 31 March to 31 July 2020 are 30% for the Nifty 500 TRI. Below are some of the tips to sail through such market volatility and make optimum gains out of your investments:

1. Stay Disciplined: Do not stop your Systematic Investment Plans (SIPs) which can help to accumulate more units when the market falls through rupee cost averaging.
2. Diversify, Diversify, Diversify: Mutual funds are built on the basic premise of diversification across stocks, market cap, sectors, asset classes and geography. One must diversify appropriately as per one’s risk appetite and goal horizon.
3. Time vs Timing: It is historically proven that market volatility is generally transient with a high probability of getting ironed out in the long run (see above table). Hence ‘time in’ the market generally wins over ‘timing’ the market.
4. Seek Hand Holding: It is during such challenging times that one needs hand holding from professional financial advisors who can guide you like a mentor to ride over these volatile times.

To sum-up, here are a few words of wisdom from the legendary value investor Sir John Templeton, “To buy when others are despondently selling and to sell when others are avidly buying requires the greatest fortitude and pays the greatest ultimate rewards.”