The greatest stock market wisdom is having the right temperament to ride its volatility As the markets recover and memories of drawdowns fade, the allure of maximum exposure will again become irresistible. The investors, who lament their inability to buy on the dip today, will convince themselves that ‘this time is different
Dhirendra Kumar
CEO, Value Research
If there’s one thing that financial commentators love more than explaining the market movements, it’s giving advice after those movements have already taken place. As I write this, the Sensex sits at around 79,800, having completed, what could only be described as a thrilling roller coaster, over the past year, peaking near 86,000 in late September, before plummeting, recovering, plummeting again, and now finding itself on yet another upswing.
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Investing irony
In online investment forums and WhatsApp groups across India, a familiar conversation plays out. The self-proclaimed market geniuses declare with absolute certainty that “this is the time to buy”, pointing to attractive valuations that have suddenly materialised after being completely invisible to them during the market’s euphoric rise. Meanwhile, the majority responds with a lament that has echoed through every market cycle in history: “Who has the money to buy when I’m sitting on severe losses?”This predicament reveals one of investing’s most persistent ironies—the very people who should be positioned to capitalise on market declines are typically the ones most financially and psychologically ill-equipped to do so. Their portfolios are under water, their confidence shaken, and their available capital non-existent. The market presents an opportunity that they are structurally unable to seize.
The solution to this conundrum isn’t a complex trading strategy or sudden ability to time the market tops and bottoms. Rather, it’s one of the oldest principles in investing, so old and so simple that it’s routinely ignored during bull markets, when everyone is busy congratulating themselves on their investing genius—asset allocation and rebalancing.
Imagine an alternative scenario. Instead of going all in on equities during the market rise, what if these investors had maintained a disciplined 75-25 split between stocks and fixed-income assets like liquid or short-term mutual funds? When the Sensex was racing toward 86,000 and valuations were stretching beyond reason, they would have been gradually selling portions of their overperforming equity holdings and shifting the proceeds to fixed income. This would have seemed painfully conservative at the time as others would have been generating larger paper profits.
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However, at the time of the inevitable correction, their positions would have looked markedly different. Not only would their portfolios have suffered smaller drawdowns, but they would also have had the precious commodity most investors lack during corrections— dry powder. As quality stocks tumbled to attractive valuations, they could have redeployed capital from their fixed-income bucket, effectively buying low after having sold high.
This isn’t market timing; it’s discipline. It doesn’t require you to predict when the markets will peak or bottom. It simply involves adherence to predetermined allocation targets and the willingness to trim your winners and feed your laggards, even when it feels uncomfortable to do so.
Why rebalancing matters
The past year’s Sensex chart is a perfect illustration of why this matters. Those who maintained balanced portfolios through the rally to 86,000 would have captured a good portion of those gains while building reserves. When the market tumbled below 74,000 in March 2025, they would have had capital ready to deploy. Now, with the market recovering, they’d be sitting on gains from their long-term equity holdings and well-timed purchases during the decline.Here’s the real question: will investors learn from this cycle? History suggests the lesson will be short-lived. As the markets recover and memories of drawdowns fade, the allure of maximum exposure will again become irresistible. The investors, who lament their inability to buy on the dip today, will convince themselves that ‘this time is different’, and that holding anything other than equity is leaving money on the table.
So the cycle will continue, not because the markets are unpredictable, but because investors are predictably human. We chase performance, confuse bull markets with brilliance, and re-learn lessons that the markets have taught since trading began. Perhaps the greatest investing advantage isn’t having superior information or analysis; it’s having the temperament to follow through on what you already know you should be doing. In the grand scheme of investment wisdom, that may be the most valuable asset allocation of all.
The author is CEO, Value Research
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This story originally appeared on: India Times - Author:Faqs of Insurances
