Create an "All-Weather" Portfolio to stay safe during market crashes: Vijay Kedia

Vijay Kedia has sent the timely warning that the markets are in an euphoric stage and making new highs every week.

He has advised that while we should participate in the Bull run, we should not get carried away and buy all sorts of junk stocks.

"Undoubtedly, this market is in an euphoric stage. I have seen such situations in the market 5-6 times before in my 30-year-long career. In fact, I have seen more euphoria than this. There was a time when shares used to go up 30-40 per cent in a day and double in a week," he said.

"You must participate in the ongoing bulls party, but don’t get intoxicated enough to forget valuation metrics or take leveraged positions," he added.

He pointed out that in a bull market, weak shares also see price rises along with the strong ones. If investors hold some good stocks and they have rallied quite a bit but do not have the visibility for the future or if the price does not justify the fundamentals of the stock, then holding it can be dangerous.

"In the stock market, one must always keep the mind balanced. Participate in the rally with mindfulness. Your mind should be active, and not get carried away with the bulls," he said.

"Those who are playing safe always exit the stadium before the match ends. So it is entirely an individual’s call when to exit, depending on what suits her and what kind of regret she is ready to accept. You sell and the market goes up or you don't sell and the market goes down. Regret is bound to happen, as it is a lifestyle disease of equity investing," he added.

Three phases of dust, must and lust.

Kedia pointed out that the stock markets witness three phases.

In March 2020, stocks had became ‘dust’ as if the world was coming to an end.

Thereafter, after July, millions of new demat accounts were opened and a fresh breed of investors got in. People around the world also realised that ultimately Covid is a passing phase and stocks moved from the category of ‘dust’ to a ‘must’.

The third and the highest category is ‘lust’, in which people are not bothered about valuations.

To illustrate his point, Kedia referred to Alkyl Amines which announced a stock split and the share price went up from Rs 3,800 to Rs 5,600 in a matter of two days.

"This is a classic example of madness in the market," he exclaimed.

Fortunately, all stocks are not over-priced. Some stocks are still reasonably priced compared with their peers and investors can still hunt for valuation in some pockets, he said.

Crash does not mean Bull market will end

Kedia also pointed out that the fact that we are at the higher end of the euphoria and it could be the beginning of the end does not mean that the bull market is going to end.

"A new bull market has just begun. When the euphoria fades away, it leads to a sharp correction in the market. This will remove the froth and is good for the long term. If the market is having small upsides, then corrections can help build strength as things go step by step," he said.

He also cautioned that a bear market comes all of a sudden, and it comes crashing down. There have been instances when the market has fallen continuously for 7-8 days and crashed 25-30 per cent in just a week.

Stay fully invested in good stocks

He confirmed that despite the worry about the crash, he is still almost fully invested.

"Despite believing that this market is going to correct and that too very strongly, I am 96-97 per cent invested because one should stay in a sunrise industry at any cost and stay out of the sunset industry at any cost. Although, I am also sitting with 3-4 per cent cash," he said.

The secret to the confidence in staying invested is the all-weather portfolio that Vijay Kedia holds.

"I am structuring my portfolio in such a way that it turns into an all-weather stock portfolio. When the market falls in a crisis, the portfolio falls less and when the market recovers, the portfolio rises more. If you take this theory, even if the market falls, you need not worry about a bear market, because this is the lifecycle of the stock market," he said.

In earlier interviews, Vijay Kedia has freely discussed all the stocks in his "all-weather" portfolio. (see Vijay Kedia Discusses three multibagger stocks in his portfolio and Vijay Kedia explains the merits of his latest small-cap stock pick.

This will help us also to construct our own portfolio which can withstand the jolts of a market correction.