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Time to be greedy when others are fearful?
Aug 25, 2015

When identifying the most vulnerable stocks to throw out of your portfolio, never forget that such market corrections are often the best time to buy good quality stocks. Warren Buffett is famous for buying when others are fearful. So should you. The chart below clearly brings out this logic. Yesterday's crash was the biggest in terms of a one-day movement in the so called 'fear index' i.e. the India VIX. This measure of volatility tells you why Buffett is right.

You might notice that the biggest one day jump in the India VIX before yesterday happened in August 2013. A casual glance at this 5-year Sensex chart shows us that August 2013 was a great time to buy stocks! Also, the year 2011 features four such 'fearful days'. As we all know, the market bottomed out at the end of that year. The conclusion is simple. Protect your portfolio from bad stocks (as we have stated above) but don't be afraid of a market crash like the one we saw yesterday. This is usually a great time to start buying good quality businesses.

Data Source:Livemint, Bloomberg

This Chart Of The Day was published in The 5 Minute WrapUp - How Crash Proof is Your Portfolio?

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