The following table gives you the big picture of how the market crashes during the last decade.
Markets Date P/E P/B Div.Yield Nifty Index % of Drop
Peak 11-Feb-00 28.47 5.11 0.90 1756 30.29
Bottom 23-May-00 18.40 3.45 1.91 1224
Peak 12-Feb-01 22.73 4.71 1.08 1400 26.78
Bottom 12-Apr-01 14.73 3.30 0.94 1025
Peak 2-Apr-04 21.53 3.64 1.70 1841 24.60
Bottom 17-May-04 12.87 2.74 2.64 1388
Peak 21-Apr-06 21.01 5.41 1.26 3573 26.33
Bottom 14-Jun-06 14.92 3.79 1.83 2632
Peak 8-Jan-08 28.29 6.55 0.82 6288 29.25
Bottom 22-Jan-08 20.96 5.10 1.05 4449
Peak 11-Aug-08 19.49 4.25 1.20 4620 45.36
Bottom 27-Oct-08 10.68 2.12 2.24 2524
Few Points we can learn and under stand from the great falls are:
Stock Market Crashes are inevitable: Stock Market crashes are inevitable. Nobody can avoid the corrections and no one can escape from the corrections by simply investing stocks.
Never commit 100 % of funds: Never commit 100% of the funds any point of time in the stock market. Always be prepared for opportunity (crash or correction) and also be prepared ready with cash in hand. At some point of time when market ends its fall you can start accumulating quality stocks at best valuations.
Buy Low Sell High: One has to under stand that market crashes can be used for accumulating stocks at cheaper prices. To achieve this market mantra “Buy low sell high” one has to be knowledgeable (He/she must know market dynamics or how the market works before investing his funds) patient and quick to seize the opportunity. Sir Claude Maxwell MacDonald British Diplomat once said “Opportunity is a bird that never perches.”
Always check index PE ratio before investing Funds: Always remember there is a market risk involved for the money committed with stock markets. You may be best in picking stocks in the market , your skills are wasted when you put money in over heated condition. The index PE above 20 to be considered as over heated situation, at most caution to be taken to avoid new commitments with markets.
Don’t jump too quickly: Be patient during the crash time and wait for the dust to settle completely. Please do not take chances to invest funds during correction time. The above table tells you corrections usually last at least 3 months to 6 months period and you enough time to react and make decisions.
No Charity Program from Govt: Government is there to earn money every day from the stock markets by charging Service Tax, Securities transaction Tax, Education Cess and stamp duty. There is no charity program available currently from the Governments any where from world for who lost their money in the stock markets, hence be prepared and manage the market crash with your own skills.