Deja Vu !!!

Seduction of pessimism, Learnings from past bear markets, Strategies for surviving and thriving through bear market

2025 has been incredibly harsh on the Indian stock market so far. Even though it's only been two months, it already feels like the market has been in a prolonged decline.

Nifty 50 is down 16% 🔻
Nifty Midcap 100 is down 21% 🔻
Nifty SmallCap 100 is down 25% 🔻
The portfolio gains we achieved in 2024 are disappearing like this in 2025.

Around mid-2024, almost everyone knew that the Indian market was overvalued but many including myself, wanted to ride the momentum. I managed to sell a few stocks at very good prices, but the rest of my portfolio suffered when the overall market shifted from a bull phase to a bear phase. It is difficult to exit an entire portfolio based on valuation and the most challenging part is reentering at attractive valuations. Very few have the courage to exit everything and wait for a significant market correction before reinvesting. At least, I don't have that skill.

An overvalued market is always just one piece of negative news away from attracting a cascade of negative news.

In our case, the market was overvalued and then a series of events unfolded: earnings declined, rupee depreciated, FIIs started heavy selling, followed by retail investors. This led to discussions about stopping small and mid cap SIPs and then Trump introduced his tariffs, among many other reasons.

This is very common in a bear market: you mention one bad news and the media & investors will bring up ten more bad news to paint an overly pessimistic picture and declare that the India story is over.

I started my investing journey at the peak of Mid & Small cap bull run in Sept 2017. Liquidity was so abundant that you pick any stock with good story & you can easily make money. Back in the days, promoters just had to whisper "IPO" or "QIP," and people would practically throw their wallets at them. It was like a magic spell for instant cash. No one was worried about valuations and risk. Everyone was chasing new growth stories in town and were taking valuations higher & higher.

However, those golden days were short-lived. Within just four months of my investing journey, the stock market began to plummet. It didn't matter which Small or Mid cap stock you picked; you could easily lose 10-20% in a matter of weeks. Suddenly, everyone was talking about risk, valuations and countless reasons behind the market's decline.

During that period, Nifty Midcap 100 index was down by 32 % , Nifty Smallcap 100 Index was down by 47% & My personal stocks & mutual funds were down by 30-40% over 2 years. Literally, there was no motivation to be in market & Only thought was “Am I just wasting my money & efforts by investing in market ?“

During those tough times, I turned to investing videos on YouTube, particularly shows on Bloomberg Quint like Alpha Moguls. One show that truly changed my perspective and inspired me to stay in the market for the long haul was "How To Invest with Raamdeo Agrawal - Part 2: The Power Of Compounding" on Bloomberg Quint.

And we know, what happened in last 6-7 years. We have seen IL&FS crisis, Covid, Russia - Ukraine war & many worst situations that caused stock market corrections & crash BUT here we are, Indian stock market did reasonably well over the period of time. India has consistently managed to surprise both overly optimistic and overly pessimistic investors over the decades.

Being Reasonable across the cycles is the Key & we will do well over the period of time. It’s important to understand that these corrections are the price we pay to earn higher returns than fixed deposit instruments.

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Learnings from Past Bear Markets :

1. Seduction of Pessimism :

In every bear market, you will see same pattern. News channels and social media accounts those were hyping the top 10 stocks to buy for 10% gains in a week suddenly become professors of risk and valuations in bear market. People will start showing what was the exact point where we should have booked profit and went in cash because WE KNOW EVERYTHING IN HINDSIGHT :)
Mainstream media, which were chanting "BUY BUY BUY" and "SIP SIP SIP," will suddenly switch to "GOLD GOLD GOLD" and "CASH CASH CASH." Most of these channels and accounts are just chasing TRP and views.
In a bull market, they amplify greed & in a bear market, they amplify fear.🎭📺

Tell someone that everything will be great and they’re likely to either shrug you off or offer a skeptical eye. Tell someone they’re in danger and you have their undivided attention.
Hearing that the world is going to hell is more interesting than forecasting that things will gradually get better over time, even if the latter is accurate for most people most of the time. - Morgan Housel

People always find reason to declare END OF THE WORLD each & every time. Data is available for both positive & negative front but We highlight positive data in Bull market & we highlight Negative data in Bold & CAPITAL letter during Bear market.

In Bull phase, We overestimate everything.
In Bear Phase, We underestimate everything.
But the actual way to follow in investing is Be Reasonable in both the phases.

In bull market, people start talking about 5 year forward basis PE and in bear market, they don’t want to even wait for 5 months.
There is no point in panicking each & every time. Ideally, when we start investing in equities, we should understand what we are signing up for. Returns will come, but you will have to ride out a lot of volatility which will stir up a range of emotions. That's the price we pay for the potential higher returns compared to fixed-income investments.

Invert.Always Invert !!! Most people who have built significant wealth share one common trait : when the world was super pessimistic, they became optimistic and seized those panic opportunities with both hands. When there is panic, we need to focus on more on investing because these are the times when we get wonderful stocks and beautiful valuations.
When whole world is super pessimistic then it is worth to be little more optimistic.

2. Luck Is What Happens When Preparation Meets Opportunity :

We Humans are funny creatures. We keep putting off good things for tomorrow and most of the times when luck is there we are not able to grasp the opportunity due to our lack of preparedness.
Most of the people made BIG money when bear market transitioned into bull market. We don’t get such many opportunities in life. We need to focus more in this period and observe everything. Whenever we find excellent companies priced attractively with promising future growth prospects then we need just one thing : PATIENCE.

Good News & Good Prices Never Come Together.
Keep watchlist ready & up to date because we all know, how mr market & WE behave when any bad news comes in.
We should prepare a list of stocks with promising future growth and wait for reasonable valuations. When the opportunity arises, seize it with both hands.

Sector Tailwind + Growth + Reasonable Starting Valuation + Fundamental Catalyst + Technical strength + PATIENCE OR Sector Headwind + Decent Growth + Extremely Cheap Valuation + Fundamental Catalyst + LOT OF PATIENCE = Long Term Investing Journey !!!

3. Behaviour Intelligence > High IQ :

A genius is the man who can do the average thing when everyone else around him is losing their mind. - Napoleon

In Investing, Everyone has the brainpower to make money in stocks but Not everyone has the stomach - Peter Lynch

All past declines look like an Opportunity .
All future declines look like a Risk . - Morgan Housel

Throughout the investing journey, we will witness such fall multiple times & many time people will declare END OF THE WORLD or END OF INDIA STORY but Game of investing is all about keeping your behaviour in control when whole world is panicking & Keeping Bigger Picture In Mind.

After 6-12 months from here, we will be discussing more about lost opportunities than the risk & that's how behaviour works in investing.

Always keep in mind, Money has a little to do with how smart you are & a LOT TO DO WITH HOW YOU BEHAVE !!!

4. Blame Game :

In a bear market, it is common for investors to point fingers at the government, advisers, fund managers, regulators or anyone else they can find to blame for their stock market losses. This is the worst way to handle market volatility and this approach will never allow us to grow as investors.
Only person we should praise or blame for anything goes right or wrong in investing is the PERSON IN THE MIRROR.

Only way to grow in investing is to OWN the responsibility.

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Surviving and Thriving through Bear Market :

1. New Bull market comes with New Winners :

This is one of the best quote which has significant impact on my investing journey. I have made good money & lost some excellent opportunities by ignoring this quote.
Whenever market transitions from sideways or bear phase to bull phase, it throw some new set of stocks where stock move from pessimism, realism, optimism, and finally euphoria. This is the phase where new set of stocks witness Earnings growth with PE rerating and that’s how we make good money in next bull market.

During the last bull phase when market transitioned from bear to bull phase, there was a clear trend where PSUs, Defence, Railways, and PSEs started hitting fresh 52-week highs . However, I avoided these sectors due to my biases against B2G companies and they ended up delivering incredible returns that I never imagined. On the bright side, I did capture gains in sectors like Recycling, Water Treatment,Pumps, Pharma and few other themes & made decent money there.

On the other side, when we saw rally in whole chemical sectors post covid & it made top around OCT 2021, I keep on averaging down chemical sector stock despite of cycle turning around, companies trading at peak of margin and peak of valuations with earnings deteriorating and I paid the price for it.
Also, few years back, there was bull market in large cap quality stocks but post that bull market, it’s been 3-4 years now and despite of posting good numbers, these stocks have gone nowhere and trading in the same range.

Biggest learning from past cycles was - Rarely recent bull market winners become next bull market winners.📝 So there is no point of averaging down recent bull market winners until they show strength and reclaim their 52 week high. If they are really the winner of next bull market then let them hit 52 week high and prove themselves and then revisit.

Why this happens :
Bull market take new themes & associated winners to extreme heights & unsustainable valuations with tons of euphoric investors. When bear market starts, it takes time for the market to re-adjust these stocks to reality. Additionally, many investors hold onto recent bull market winners at different prices in their portfolios because of hype around these stocks in bull phase. During each rise in a bear market (frustrated by poor price performance), many investors will keep on selling these hyped stocks at different prices . So irrespective of what happens to company earnings, many past investors will act as resistance on each rise & which result in either price correction or time correction.

Meanwhile, few stocks will keep on proving their strength across the phase, in bull market they will do extremely well & in bear market they fall less compared to whole market and that's where strength will be.

2. Strong Relative Strength & 52 Week High List :

Prepare, Don’t Predict.
As highlighted in previous point, new bull market will throw some new set of winners but we will get to know them only in hindsights :) but there are some ways using which we can get rough idea about new winners.

Strong Relative Strength -
In a bear market, when the entire market is declining and no stock is spared, you will notice that a few stocks manage to fall less. These stocks often start showing strength as soon as the market begins to stabilize.
This could be the first sign of winners for next cycle.

52 Week High List -
When same bear market starts to get some stability post one way fall, few sectors & stocks will start hitting fresh 52 week high. During this phase, we should always keep eye on 52 week high sectors & stocks list.
This could be the second sign of winners for next cycle.

Observing These Sectors -
Start reading more about these sectors and stocks, Observe the trends within these sectors, Start monitoring quarterly earnings results of all these sectors & associated stocks.
If, over the next few quarters, you notice that earnings results across these sectors start to improve then try to find fundamental catalyst behind earnings growth across the sectors & stocks. Because of sector tailwinds, you will start seeing many stocks from these sectors start posting good earnings together.
AND this could be your third and final sign of winners for the next cycle.

3. Put Your Ego Aside, You Don’t Need To Make Money From Same Stocks :

Investing is not about proving to the world that you are right, Investing is about making money. We as a investors get attached to stocks & most of the times, we don’t want to sell stock in loss despite of having some clear signals for exit. I did the same mistake year back, there is one chemical stock which I could have easily sold because earnings growth was deteriorating, Stock & sector was hitting 52 week low in bull market, sectors was going through headwind & many more such triggers but most of the times, we don’t want to book loss and want to make money from the same stocks which is highly unnecessary.

Most common mistake we do in bear market is - Averaging down last bull market winners in the hope of they will come back when they actually just had there bull cycle and trading at some crazy valuation so much so that post correction also they don’t trade at reasonable valuation.

Don't cut your flowers and water your weeds.
It is okay to hold onto stocks that are fundamentally strong & have good growth ahead but are falling due to the bear market. However, if you see clear signs of sector headwinds, earnings decline & sector & stocks hitting 52-week lows then we should not hold onto these stocks or at least we should NOT average down.
You don't need to make money from the same stocks. There are many ways to profit from different stocks as the market shifts from a bear phase to a bull phase.

4. Let it form the BASE :

Whenever market transition from bull market to bear market, we see sudden fall across the market for some time (Price Correction) and at some level market start stabilizing and remain the range (Time Correction) and that’s where base formation happens. We should not be in hurry to add stocks because Once structure of the market get broken it takes some time to form a base and restart its upward journey.

There is interesting post written by Rohit Chauhan on twitter about analyzing bear markets.

As we know most of world markets are near ATH and Indian market going through bear market, we are Endogenous bear market which is internal. This occur when markets get stretched in bull market & market take time to re-adjust itself.
I feel, Market might take time to form a base and we will most likely not see V shaped recovery and it will be like W shaped recovery over the period of time.

Longer The BASE, Stronger The BREAKOUT.
Let sectors & stocks form the base, start tracking fundamental triggers around these sectors & stocks and when they start showing signs of reversal or start hitting fresh 52 week high & start breaking the range that’s where we can think of building big positions.

5. Market Environment > Theme > Catalyst > Strategy :

These phases are inevitable and anyone looking to make money in the market must navigate through them by adapting to the prevailing conditions. We need to adjust our expectations and Strategies according to market environment. Having basic understanding of Valuation from Fundamental point of view & Technicals triggers from technical point of view, Will help you to decide when to go aggressive & when to go slow in taking bets.

6. Be Humble and Be Agile :

You will see lot of things happening in this phase which will not align with your mindset but have faith on market and be with the market. We sometimes miss lot of opportunities because of our biases. We should be agile in this phase and make necessary changes in portfolio.

Shuffle - As there will be a broad market decline, many stocks and sectors will start to look attractive. We should take a broader view of the overall market and opportunities, comparing our portfolio stocks with the new opportunities available post-correction. If we find new opportunities with better growth potential than the stocks we currently hold, we should consider reshuffling our portfolio based on the risk-to-reward ratio.

7. Only Optimist Can Buy The Pessimism :

When there is tons of negative news floating around all the news channels, Youtube channels, Twitter, Whatsapp & Telegram, It is very difficult to remain positive but that is the game of investing. When People around you are panicking and painting everything with same brush, that’s the time we need to ZOOM OUT and KEEP BIGGER PICTURE IN MIND.

To make money in stocks you must have “the vision to see them, the courage to buy them and the patience to hold them.”

Surround yourself with like-minded people who focus on the bigger picture rather than the gloom.

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To summarize this newsletter : -

This is not a time to throw in the towel on stock investing. To the contrary, with each passing day you should be getting more excited about the eventual opportunity. In the middle of turmoil, one can easily lose sight of the fact that every bear market leads to a new bull market.

Be optimistic & Keep bigger picture in mind.
Opportunities comes to prepared mind. Prepare, Don’t Predict.
Be with the strength.
Don’t chase last bull market winners, They will take time.
Be extremely choosy when averaging down.
You don’t need to make money from same stocks.
Be agile & If post correction, you are getting more attractive growth opportunities at reasonable starting valuation then consider reshuffling of portfolio.

After 6-12 months from here, we will be discussing more about lost opportunities. :)

When whole world is super Pessimistic then its worth to be little more Optimistic.!!!

Disclosure: I am not SEBI registered. The information provided here is for education purpose only. Hence, always check with your financial advisor before acting on any contents of this newsletter.