How to protect portfolio from Stock market crash?

By     |     May 6, 2015     |     62 Comments

Capital protection should be the first priority for investors. We invest in stock market to maximize overall portfolio return. Over the last several years we noticed instead of return maximization,many investors ended up with capital erosion. Specially during stock market crash investors find difficulty to protect their portfolio. However with right strategy and strict discipline one can protect equity portfolio during any kind of market crash. Implementing the strategies and discipline mentioned in this article will help retail investors to safeguard their portfolio during adverse situation.

Depending upon the quantum of stock market crash, we are dividing it into two parts –

  1. Minor stock market crash (Index fall by 5%-30%)
  2. Major stock market crash (Index fall by more than 50%)

Minor Stock Market Crash-

There are many such example where market (index) corrected by 5%-30% over a period of 1-2 months. Such corrections are part of any bull run. Like during July-August 2013 while Sensex corrected by around 14% from the recent high.(From the high of around 20,200 during July,2013 Sensex crashed to around 17,800). Current market correction (April-May,2015) is another example of such minor stock market crash.

What to do during minor stock market crash ?

During minor stock market crash it is more of discipline that can save your portfolio. Followings are the disciplines and required action –

  1. Don’t sell-of your entire equity holdings to re-enter at lower level. Nobody in this world can predict short term market movement correctly. So, it may happen that after your sell-off market takes U-turn and you are not able to invest at lower level. You may end up with selling at lower level and buying at higher level. Further frequent buying and selling increases transaction cost (brokerage,STT,exchange fees etc) and taxes. You need to pay extra 15% capital gain tax if you sell your holdings within 1 year of purchase. However holding your investment for 1+ year won’t attract capital gain tax. So, in short even if luckily you can time the market then also the situation is against you.
  2. Don’t seek answer of questions like “How long the market will correct?” During any kind of market correction if you follow analysts on TV,newspaper or internet you will find most of them expressing bearish view. The same person will express bullish view if the market starts rising from tomorrow on wards.For live example, check out the current situation(May,2015).Today Sensex crashed by around 700 points and everywhere you will find bearish view. However just 1 month ago (April,2015) while Sensex climbed UP for 8-10 consecutive days there were bullish viewpoint everywhere! The reality is it is next to impossible to predict short term market movement correctly and consistently. However one can predict long term price movement of any individual stock based on the underlying business. Based on the same one should invest in stocks while they are cheap. So, if you continuously seek the answer of “How long market will correct?” or if you try to figure out short term market movement then you will find all on a sudden market surprise you and takes a U-turn. In this regard, you can check one of our old article.Way back during September,2013 Sensex was corrected and came down below 18,000 level. There was bearish view point all over. In contrary, we mentioned that Sensex will cross 23,000 mark within December,2014. Sensex crossed 23k mark much earlier and our prediction during bearish market proved correct. Click here to read that old article.
  3. Don’t panic. If you can’t tolerate volatility then stop checking stock price daily. Checking price once or twice in a week will be sufficient. For any attractive investment option during stock market crash we notify our paid members. So, it is not necessary for our members to check daily price movement to invest in quality stocks during stock market crash.
  4. Accumulate high quality stocks during market correction. History says you can’t suffer loss if you invest in any stock market crash or any point of time while 90% analysts are in bearish view. For example, you won’t find a single person who lost money investing during August,2013 or during Oct-Dec,2008.Here we assume the person is holding his position for at least next 1 year after investing during stock market crash.
  5. During stock market crash investors may not have enough cash to re-invest in quality scrips. There can be another situation like, you invested a hefty sum in market correction and then again market falls further. One can’t have unlimited amount of cash to average out during every correction. In such situation the best and simple solution is to HOLD on your current position. However don’t wait to find out the bottom and then invest. You can’t buy at bottom and sell at top every time because it is also next to impossible to find out exact top and bottom.

Major Stock Market Crash – 

After dot com bubble crash (during 2000-01), post January,2008 we experienced major market crash while index dropped by more than 50%.

First consideration-

Historically it is proved that not a single equity analyst in the world can completely save your equity only portfolio during major stock market crash. For example if market collapse by 50% (or more) then it is next to impossible to earn 20%-30%+ return from portfolio that consists only equity share exactly on the same duration. Till date not a single equity fund manager or equity analyst across the world have such track record. The reason is simple. Best swimmer in the world can’t survive during Tsunami. If atom bomb blast then it doesn’t matter how fast you can run or how well-protected is our house, you can’t save yourself. Similarly during stock market crash it doesn’t matter how well-experienced or well-qualified an analyst/investor is, it is next to  impossible to save equity only portfolio.

The good news is with tweak in asset allocation and some pre-cautions one can save his portfolio even during major stock market crash.

Strategies to save portfolio during major stock market correction –

The term “save” indicates generating 5%-10% positive return from overall portfolio while market corrected by more than 50%. You can’t expect 20%-30% return while market corrects by 50%+. Even marginal positive return will be great during those situation. You need to take the following steps  during major stock market crash –

  1. You need to sell-off your entire portfolio much before such stock market crash and seat  in cash. Keeping huge cash in hand is another painful experience. For example, as per economic indicators and market data, one should sold-off his entire equity portfolio during October,2007. However from October,2007 to January,2008 bull run continued. Post January,2008 market crashed. Now, if some one sold-off his entire holding during Oct,07 he had to witness another 10%-15% up move before crash. Many investors can’t tolerate the same.For example, recently we put partial profit booking call in one of our old recommendation, Caplin Point Lab at around 1000-1050 due to over-valuation. After that the stock moved till 1350 level and now again come back around 950. We recommended to buy it at 150 during March,2014 and again around 450 level during September,2014.Click here for old article. Surprisingly few of our members those purchased at 150 or 450 are not still happy selling at 1000 because after that the stock moved till 1350. The point is you can’t exit at top. You need to exit as per rationale. After that market may move up further but sooner or later it will come down.
  2. You need to keep huge cash in hand for 3-4 months or more. A part of that cash can be utilized in few other asset classes. Depending upon the situation you need to re-start investing in selected stocks. A thumb rule is don’t invest in previous bull market stocks. Like real estate (DLF,Unitech) and infra related stocks gained the most during 2007 bull run. Post 2008 crash, one should avoid investing on those sectors or the stocks that lead the previous bull run.
  3. During the middle of the bull run (like current scenario) you need to start tweaking your asset allocation.

Do you suggest me when to sell-off my entire portfolio?

Very soon in May,2015 we are launching a special feature, first of its kind in India called “Recession Proof Portfolio”. It’s not an one-time suggestion with few stocks rather it’s a continuous process to safeguard your portfolio via tweaking asset allocation and portfolio mix-up. For example, right now in May,2015 we are in the middle of bull run that started from October,2013. So, from now on wards you need to tweak in asset allocation. Not 100% monthly investable amount in equities. Further we will guide on when to sell-off your entire equity holdings before major crash. As it is our trade secret so we can’t disclose the reasoning and logic. The feature is not live till now so don’t ask for details. Very soon it will be live for Diamond Members and you will get the details.

Do you have enough experience to handle 2008-09 like stock market crash?

“The person behind Paul Asset (Prasenjit Paul) is just 24 years old.He is in the market since 2010, only 4-5 years experience.He didn’t witness 2008-09 market crash like situation. How he can handle others portfolio during any major market crash? Are you experienced enough”

Till date nobody mentioned the above point directly. However I am quite sure that many of our members,new subscribers, non-subscribers and to some extent few competitors have the same doubt. Well to reply in a sentence –

“If a 24 years old guy can beat Sensex return by a huge margin over the last 5 years in his investment career and over the last 3 years in advisory career then he can protect your portfolio during any kind of stock market crash.” The only condition is that you need to follow that guy “as it is” and act on his every advise. If you want to mix up your own expertise then I can’t help you. So either fully follow or don’t follow at all. We care for your overall return more than you do.

The reason of being so confident – With the advent of internet, today you can book foreign hotels without visiting there. It is not necessary to visit airport to book air-ticket. Similarly, I can check the entire market data and economical indicators over the past 30 years. If you can closely monitor and analyze those data, you will find there are many similarities among major market crashes like dot com bubble crash (2000), 1991 crash and post 2008 market crash. It is not necessary to be present in the market during dot com bubble crash (2000) to analyze the situation. There are same set of economic indicators provided “Warning” signal before any major stock market crash. Analyzing those same indicators I can conclude that at present (May,2015) we are far away from 2008 like market crash. Recent correction may drag Sensex by 10%-20% from recent peak but not more than 30%. Our paid members will receive notification whenever 2008 like situation will arrive under the upcoming “Recession Proof Portfolio” feature.

Further over the last few years in my advisory business we had experienced many minor stock market crash. One such is during July-August 2013 while Sensex crashed to 17,800 level from 20,200 within 2 months. In spite of all those I believe not a single subscribers of ours suffered overall loss in his portfolio following our words “as-it-is” for at least 1 year. If there are any such investor who suffered overall loss in spite of following 1 year, they can comment under this article. Comment section is open for all.

Existing subscribers (those are for 1+ year) can also share their view on our claims compared to your portfolio return.(This article is posted on a day while market crashed badly, almost all stocks are in red.Few negative-neutral review is expected)

Update as on 15th May,2015 – “Recession Proof Portfolio” is released for all of our paid members.

By     |     May 6, 2015     |     62 Comments

62 comments on “How to protect portfolio from Stock market crash?

  1. Article is full of knowledge … After reading your article … I am going to apply for your 4 months trial … hope if your recommendations are really good .. I will become your permanent customer.

    1. Prasenjit Paul is GOOD…..love the way he writes with conviction…..nobody can beat knowledge……i just wonder where he will be by the time he reaches 40:-))

  2. i am happy to be member.i just follow what you are saying because i belive in you.
    thanks & regards
    subramanian

  3. Though I am your paid member and following you on Twitter n Facebook, I m unable to view hidden content.. this is ridiculous..

    1. Click on any one button from this page,either “Follow” or “Like” or “Tweet”or “G+”.The content will open instantly…The same is implemented so that all paid members and also others can stay connected with us across all social media for more updates..

  4. Dear Mr.Paul,

    Your suggestions are always pragmatic , explaining the ground reality and very useful for an investor in the long term .

    Hats off to you

    Thanks.

    Dr.Selva

  5. Dear Sir, i am new trial member from just a week before. And i am very impressed that at age of 24 you are at great analytic heights. i am interested to be analyst, so kindly suggest how and in what way i can start from basics. i keep reading some steps like bollinger bands, macd, rsi etc. but still do not know the proper way to go for all this. i hope you ll guide

    1. Read as many books as possible and practice day and night..You will learn via trail and error mode in this market..

    2. he is right. coz no analyst wants to share his secrets free of cost even some time at any cost. also it is true that no one can get knowledge by either only studying books or investing in market, combination of both activity at a time along with several trial and error method you can be the good analyst within two to three years.

      1. “An investment in knowledge pays the best interest.” – Benjamin Franklin.
        The lose you incurred during the initial two to three year is the cost of learning. However, three important things you have to remember that 1) you are paying tuition fees to Mr. Market to learn about him in the initial stage. 2) by start with small investment you can minimize tuition fees. 3) make sure that you started your learning in your young age or you are paying the tuition fees out of the money which you don’t want to maintain the present life style.
        All the best.

  6. Hi Mr.Paul,

    Very nice article with deep insight. I have one doubt about your recommendations, i have subscribed to your trial package and planning to upgrade to full membership shortly. But what i observed with your recommendations are that you will give proper entry and exit points but you are not giving any stop loss -SL. It would be great if you provide SL also along with the recommendation.

  7. If you look at last stock Market Crash– there were stocks like Hawkins Cookers, Titan Industries, HDFC Bank (Highest CASA score among banks) etc and FMCG stocks that didn’t fall too much.I believe Free cash flow business with a dominant Consumer Brand (sector leader in their own segment and sticky business) can save your skin in the falling Market because they don’t correct by more than 30- 50%. Because people won’t stop using these brands just because stock market have crashed.

    Powerful Brand we use everyday without realizing (everday essentials) –Colgate (toothpaste), Nestle, Britannia, HUL,Glaxosmithkline Consumer (Horlicks), Page Industries (Jockey) etc.

    1. Yes, there are many such defensive FMCG companies are there which will offer around 5%-10% annualized return even during while market corrected by 50% or more, at the same time keeping such stocks during bull period won’t offer above average return..So an ideal portfolio should have proper mix of various kinds of stocks..

      1. Having said that can you please project an ideal portfolio mixing various kinds of stocks. Now I’m really worried that all my stocks (100%) I bought on your recommendations(in your website) only after opting for your subscription in Mar’15.My portfolio is totally dependant on small-cap stocks you recommended . Will there be any risk?

        1. If you can hold all of our recommended stocks for at least 1 year then there’s no risk..Very soon once we launch that “Recession Proof Portfolio”, you will get the details..

  8. Your article is excellent. What I like most is Your Personal touch given to the Artcle. I am a paid member for last one and half years and fully satisfied.Intersting part is that I don’t have to worry now about what to and what not to do about my equity portfolio. I just eagerly wait for your mail,and act upon it, that’s it. I had been in the market since 1995 but never ever had such an equity analyst,portfolio advisor like you. Althrough the years what I was really searching for a person who can guide me in equity investment, now I am more than 100% sure that I have found one that is you, I don’t care whether you are 22 years old or 25 years old, what matters for me is your regular guidance which you are doing so perfectly without failure.
    Please carry on.

    This is my instant expression of my sincere appreciation which came out deep down from my heart just after reading your article.

  9. Prasenji
    Presently my portfolio is in red but DOES NOT GIVE SLEEPLESS NIGHTS. I have conviction from your articles, that this will turn out to be wealthy in long term.
    I have subscribed to your trial package in jan 15 and going to upgrade to permanent membership in may-15

    All the very best

    1. Thanks for keeping faith us..I think maximum investors those who invested during January-February,2015 have “red portfolio” right now on current date..

  10. 100% agree with your views. I am always surprise the analysts views. Their analysis flow according to market flow.

  11. Huge Market crash…My polio is +ve….only 2k but you proved evrything……I never ask any query and never bother as your funda is as simple as mine..believe or not believe…and i have the result awesome Bro….really nice recommendation…please check only 2-3 stocks in negative all are positive…i started in oct as diamond member. Thanks a lot to save all of us from Fake world. God Bless.

  12. I am a paid customer for the last 4 years. I am yet to lose money on any of your recommendation. I have been investing in share market since 1991 based on tips & recommendation from friends & analysts. Am yet to recover my principal amount from those investments. In fact your recommendations have helped me cover my losses. Keep up your good work. I still remember when the market crashed, you were upbeat on Yes Bank while all analysts were asking to sell. Thank god I listened to you & held on. I also thank you so much that you gave me a scrip like Caplin lab. It has paid me many many times the investment i did in your services. Sorry, just spoke my heart out.

    1. Thanks a lot..You are also one of our first 10 clients, associating with us from our early days…expecting life-long association.. 🙂

  13. though not exactly one can predict the market movement and the exact peak but technical analysis can indicate you that what would be the next level of price of any stock if the momentum remains. as an example…I think you can remember that i predicted for your RATNAMANI METAL that its price at its peak on 27.02.15 at around 744 and said it will fall soon….you said me that i am not your paid member so its my choice what i want to do…the fact is in front of you….though its a short term fall but one can save his profits to reenter in lower level and i can show you that it can be done perfectly if you follow the price movement minutely…

    1. The major problem with technical analysis is out of 10 predictions only 5-6 will work and rest won’t work at all..I had followed many renowned technical analyst in India and few in US..The same problem with every one and they admit it…On the other hand proper fundamental analysis with long term holding period can offer 100% positive outcome and this is why I prefer second route..Now, another question will come why not mixing up the both? If I mix-up fundamental and technical then I will end up with frequent buying and selling that can only make my broker and government rich. (not for me)

  14. I hav been a member since last 8 months I have already booked profit of 100 % in cappl. Now my proftfolio shows some negative just yesterday. Definitely I not worried since I am in safe hands of paulasset

  15. Hi Prasenjit! 1 query to ask. If “Recession Proof Portfolio” will protect diamond member, then how the people like me as a silver member will get assisted while major market crash?

  16. nice article . but i thought you work on stocks and not on nifty. I am loosing money at the moments on stocks, and hope the direction will change if i hold the stocks for a year as recommended by you.

  17. Hi,

    Can u provide some details about the “Recession Proof Portfolio”. Do one need to subscribe separately for that or just becoming the full time is enough. I am very new to Paulasset and still in trial period and yet to taste some profit from your recent calls. So has few doubts about how the new service will work.

  18. Hi Prasenjit,Thanx for enlightening us with this valuable article which personally reinstills my faith in your professional acumen.I am presently a paid member, soon going to upgrade to diamond membership,however I have a humble suggestion to make….pl make the upcoming update to clean off your entire portfolio in case of a likely major market crash available to all paid members, as all members irrespective of the type of membership they hold as all members have reposed their faith&trust on you.I FEEL THAT THIS SHALL PAY PAUL ASSET RICH DIVIDENDS IN THE FUTURE APART FROM A GREAT SENSE OF PERSONAL SATISFACTION TO YOU ALSO.WARM REGARDS&GOD SPEED…..LIEUTENANT COLONEL SANDEEP KUMAR

    1. Thanks for the detailed suggestion..We will surely work-on to some extent for all members..

  19. I invested one cr in stocks.Rs 10 lacs X 10 scrips..Present portfolio value is less than 33 lacs.I am conviced with your article.You very nicely presented the things.But I have apprehension about implementing your SELL OFF idea..At one side you are telling to HOLD and otherside SELLING OFF all scrips to reinvest.I give you name of one stock @ price of Rs 250, X 5 lacs.Then another 5 lacs when they offered the stock @ rs 145.The current price is around Rs 50.The stock is SCI,the so called NAV ratna company.
    Just please put your comment on this stock .If convinced with your reply ,I will decide to be your obidient member.Can You?
    Regards
    Arvind

    1. 1. We are saying that we will SELL-OFF entire holding if we foresee 50%+ market crash but if we foresee 10%-30% crash then it will be HOLD…Different situation,different strategy..Kindly read the entire article once again for further clarification.

      2. Shipping Corporation of India (SCI) will be a “SELL” anytime.Poor ROE,ROCE,high debt,weak balance sheet – it has all criteria that a poor business have…In such case, the long you hold the loss may increase,so don’t count your loss,just exit and re-invest in other quality stocks like Can Fin Homes,Suven to recover loss.

  20. Dear Paul
    Thanks for the nice article. I think you have forgotten other way of option or strategy to protect stock market crash. Government offering/allowing us to use insurance strategy like NIFTY PUT CALL (F&O)during market sell off. Will it work out? what’s your view on this? I am asking this question since you should know this strategy but purposefully avoiding it. I like to know the reason.

    1. Nifty Put call strategy is there in the market for long, but we suggest not to go for it because it requires accurate short term market prediction..If your short term market prediction is wrong then you will be in loss and over short run it is almost impossible to predict market accurately and consistently.

  21. Dear sir,
    PLS TELL US THE BEST BOOK ( in hindi ) IF POSSIABLE
    WITH REGARDS
    RAVINDER KUMAR

  22. Dear Sir,
    I want to invest in Indian Share market. I am singapore based NRI. Could you please guide me how to proceed on this. I do not have trading & demat account. Could you please suggest me some cheap yet good & reliable trading platform and demat account. ICICI direct`s charges are quite high NRI customers. I am quite confused about this.
    Thanks,

    1. You can go with zerodha or rksv for cheap and reliable trading platform..However I am not sure whether they can open account for Singapore based NRI…

      1. Dear Sir,
        Could you please suggest some trading platform on banking sector who can provide for NRI customer

        1. Trading platform on banking sector like ICICI direct, HDFC sec, Axis, Kotak – all have higher brokerage..

  23. Dear Prasenjit..
    I am your customer from March this year . only one week as Trial Member, then now as diamond member.

    My experience is that during initial portfolio review, you had mentioned few stocks does not have any value to hold.
    In subsequent week I had sold all that you said to get ride of.

    Later in a month those stocks went down by 25% and you saved me from big loss.

    I treat as a gain, as without your review my loss would have been more.

    I have invested nearly 5 times more than April investment, added during correction, now I meet the break even.
    I will continue to trust with your words and be a long term customer.
    Thanks
    Sundaram

    1. Thanks for your kind appreciation..It’s my pleasure to serve investors like you..

  24. Dear Sir,

    I have bought 180 RIL share 4-5 years back on high price at 1200-1300 per share. After that market dropped heavily

    Should I continue to hold or sell RIL now ? I need some immediate guidance from you.

    Thanks,

    1. We don’t prefer to Hold RIL. Book loss and shift to quality stocks for better return.

  25. Sir
    I am a new member from Nov-2015 onwards
    I am a new face in this stock market area. I don’t know the symbel name , some of the share recomended. For example anuh pharma, kovai medicals ets. when I enter these name in NSC list , I failed to get the stok data. So please send me The name which is not with is very helpful

    Thanks

    Ravindran K

    1. Next time onwards we will implement the same. Alternatively, you can visit BSE/NSE website to get the symbol name any stocks.

  26. Have subscribed in nov 2015 based on what I read in your book. Hope I am able to benefit also and hope that you are able to prevent wipe out in event of market crash also. I am hoping to earn enough to finance my kids education 10-12 years from now from your stock market recommendations. Looking forward to a lifelong association….

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