COVID-19 Crash replay: hold or panic-sell?

The pandemic crash. The Nifty 50 fell 37% in 33 days, then took until November 2020 to climb back. In this replay a ₹1,00,000 portfolio that moves with the Nifty 50 splits in two on day three: one investor holds, the other sells everything at that day's close and stays in cash. Holding finished 5.6% ahead of panic-selling.

Every step of the replay is a real daily closing level of the Nifty 50.

Window
Feb 19, 2020 to Nov 9, 2020
Index fall at its worst
37.2%
Recovery
157 trading days
Held portfolio at the end
₹1,02,764
Panic-sold on day 3
₹97,295

What happened, day by day

  1. Day 0. 19 Feb 2020. The Nifty 50 closes at 12,125.9, about 2% below the record it set in January. The news mentions a new virus in China, but nobody is selling. Your ₹1,00,000 is invested across the Nifty 50.
  2. Day 2. Day 2. The Nifty falls 2.1% in one session. Cases are rising outside China, and your family WhatsApp group is getting loud.
  3. Day 3. Day 3. The Nifty is 2.7% below where you started. You sell everything at the close and keep ₹97,295 in cash. From here, the panic-sold line stays flat.
  4. Day 14. 12 Mar. The day after the WHO calls COVID-19 a pandemic, the Nifty falls 8.3% in a single session. It is now 20.9% below your start.
  5. Day 15. 13 Mar. The market falls 10% within minutes of opening, hits the lower circuit, and trading halts for 45 minutes. Then it turns and closes 3.8% up. Days like this are when most people give up.
  6. Day 21. 23 Mar. The Nifty drops 13% in a day and closes at 7,610.25, 37.2% below your start, 33 days after it began. Held portfolio: ₹62,760. Nobody knows yet that this is the bottom.
  7. Day 23. 25 Mar. The Nifty jumps 6.6% in one session. One green day proves nothing, but this is where the recovery starts.
  8. Day 56. 18 May. Two months on, the held portfolio is ₹72,764, still 27% down. The panic-seller's ₹97,295 in cash looks like the smart call.
  9. Day 130. 31 Aug. Held: ₹93,911. The gap to the panic-seller's ₹97,295 has almost closed, and the market has not stopped climbing.
  10. Day 178. 6 Nov. The Nifty closes above its 19 Feb level for the first time, 157 trading days after the bottom. The held portfolio is back above ₹1,00,000.
  11. Day 179. 9 Nov 2020. The Nifty closes at a record 12,461. Held: ₹1,02,764. Panic-sold: ₹97,295 in cash. Selling on day 3 dodged the crash but missed the whole recovery, and holding finished 5.6% ahead. The gap kept growing: the Nifty ended 2020 at 13,981.75.

The lesson

Crashes feel endless from the inside, and the urge to sell is strongest near the bottom. Replaying one lets you feel that pressure with virtual money and see how the decision played out. StockSaathi's coach uses the same idea in live trading: before a likely panic-sell it shows how often that stock's past falls recovered, how long that took and which never did, then lets you decide.

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