Learnings from the market crash of 2008

The stock market crash of 2008 took most of the world by surprise.

Triggered by the housing mortgage collapse in the U.S, it snowballed into the biggest financial crisis our generation has seen, wiping out nearly half the wealth for some investors in less than a year.

Yet it is reality, and harsh reality like this teaches us a lot in order to correct course for the future.

We look at some of the key learnings from the spectacular stock market crash a decade ago, which will resonate with investors across time.

1. Volatility is the name of the game

Equity investments have been and always will be volatile, there is no way to get around that. It is a simple demand-supply game between views of investors relating to a particular company, as to whether the valuations justify buying it with good future prospects or the other way round.

Not just that, volatility is all set to go further up with the easier availability and transmission of information than ever before.

Investors who expect smooth sailing must look at other asset classes.

2. The era of true globalisation

In today's day and age, the word 'Globalisation' has taken on a whole new meaning when it comes to investments.

The larger investors are constantly looking at the best possible businesses to invest in, even if it means crossing borders.

Availability of complex investment products and vehicles has made their job so much more easier too.

So if the U.S government decides to impose tariffs on chinese products and vice versa, it could have an impact on companies and markets across the globe in very different ways.

No longer is any large economy working in isolation from the rest of the world, and flow of funds across shores will determine the movements of equities internationally.

3. Simple is good

Part of the reason complex financial products are developed is the ease in selling them.

Investors don't typically understand the working and they feel they are buying into something special, something different which distinguishes them from their peers.

However I still feel plain vanilla products have enough in them to help achieve your goals with relative ease. Atleast the objective is clear whether it is equity, debt, gold, real estate or cash. By buying a complex structured product, investors often feel they are getting the best of everything but it's more like combining Indian, chinese and continental food in one plate.

4. Sentiments may dominate, but don't desert the fundamentals

Smarter investors would have realised that market crashes are often the best opportunities to buy. At a point when the crash is underway, the sentiment drops to such an extent that people often forget the fundamentals and the focus instead is on cutting losses.

Some companies are doing everything right at this juncture and still the share price gets hammered due to macro sentiments turning bearish, and the time is ripe for some good cherry picking of stocks.

5. Diversify deep and wide

Not putting your eggs in one basket is a given, however just dividing your investments across equity, debt, cash and physical assets might not be enough anymore. Equities also need to be divided across geographies, across sectors. Debt across different time frames and real estate across commercial and residential in different cities. True diversification is what will mitigate your risk seriously rather than just a basic division across asset classes.

6. Don't try to time the markets

I'm not saying one should keep investing uniformly throughout, however the success in trying to predict the future movement of markets and holding onto your decisions may be more of a luck factor than one's skill. If markets have fallen, valuations are good and future is solid, one should invest irrespective of a further potential fall or not. In the long run, it is better to have missed part of a rally by being early/late rather than having missed the entire bit by holding on too long.

7. Stick to the basics

Lastly, don't go by fads and hot new fundas. The time tested fundamentals and advise from genuinely capable individuals or teams must be a significant factor in your investment decisions always.