Most beginners think about how much they could make. Experienced investors think first about how much they could lose, and whether they could live with it. This lesson is about protecting yourself, so you are still invested when the good years come.
How far can the market fall?
A drawdown is the fall from a peak to a later low. Every stock market has them, and the PSX has had some sharp ones.
Here is 2026 so far:
| Date | KSE-100 | From the high |
|---|---|---|
| 23 January 2026 (all-time high) | 189,167 | 0% |
| 2 March 2026 (record one-day fall) | 151,973 | -19.7% |
| 30 September 2026 | 169,969 | -10.1% |
| 1 October 2026 | 168,637 | -10.9% |
On 2 March 2026, after the US-Israel strikes on Iran, the KSE-100 fell 16,089 points (9.57%) in a single day. Trading was halted for about an hour, and the index still closed at 151,973. Someone who had invested Rs 100,000 in an index fund at the January high would have seen it worth roughly Rs 80,000 a few weeks later.
By 1 October 2026, the index had recovered part of that fall but was still about 11% below its peak, closing at 168,637, right on its 200-day average of about 168,600, while investors waited on the IMF review, oil prices and inflation.
Single stocks fall further
Individual stocks swing more than the index. Over the five years to September 2026, these were the largest peak-to-low falls in some well-known, profitable companies:
| Company | Maximum fall in 5 years |
|---|---|
| HBL | -54% |
| MEBL | -46% |
| UBL | -39% |
| MCB | -35% |
| OGDC | -31% |
| FFC | -30% |
All of these are large, dividend-paying companies that ended the period much higher. Even so, holders had to sit through falls of 30% to 50% along the way. Smaller and speculative companies can fall much further and may never recover. CNERGY, one of the most traded stocks, had a 66% drawdown in the same period.
The point: if a 30% fall in your portfolio would make you panic and sell, you are investing too much, or in the wrong things.
Before you invest: the emergency fund
Never invest money you may need soon. The market might be down exactly when you need it.
Before buying shares, keep an emergency fund of at least 3 to 6 months of essential expenses in a safe, easy-to-access place, such as:
- a bank savings account
- a money-market or Islamic income fund
Also clear expensive debts first, such as credit card balances. Their interest cost is far higher than any likely share market return.
Never borrow to invest
Do not use loans, credit cards, committee money you owe, or borrowed family money to buy shares. And be very careful with margin financing (borrowing from your broker).
Why this rule matters:
- Borrowing multiplies losses as well as gains. A 20% fall on borrowed money can wipe out your own money entirely.
- Loans must be repaid on time, but the market does not recover on a schedule.
- Forced selling at the bottom turns a temporary fall into a permanent loss.
Many of the saddest PSX stories, including in 2008 and in sharp falls since, involved people who borrowed to invest.
How much to invest in shares
There is no single right answer. It depends on your age, income stability, goals and nerves. A sensible approach:
- Only invest money you will not need for at least 5 years.
- Start small. Begin with an amount whose loss would hurt but not change your life, for example Rs 10,000 to Rs 50,000, and learn how it feels when prices move.
- Add regularly. Investing a fixed amount every month (for example Rs 5,000 or Rs 10,000) means you buy more shares when prices are low and fewer when high. This is often called rupee-cost averaging.
- Keep some of your savings in safer assets, such as income funds or savings certificates, so that a market fall does not affect your whole net worth.
Diversification: do not put all your eggs in one basket
Diversification means spreading your money so that one bad event does not sink you.
Across companies
Owning one stock is risky. A single bad result, a government decision or a scandal can halve its price. Owning 8 to 15 solid companies, or a fund, reduces this risk a lot.
Across sectors
PSX sectors react differently to the same news. In 2026, for example:
- Oil and gas producers (OGDC, PPL, MARI) benefit from high oil prices but are hurt by circular debt.
- Banks (UBL, MCB, MEBL) earn more when interest rates are high.
- Cement, autos and steel suffer when rates are high, and often rally when rates are cut.
- Fertiliser (FFC, EFERT) is more defensive but sensitive to gas prices.
Owning just banks, or just cement, is a bet on one story.
Across asset types
Shares are only one part of your savings. Bank deposits, savings certificates, income funds, gold and property each behave differently. Do not put all your savings in the stock market.
Position size: how much in each stock
Position size is how much of your portfolio goes into a single stock. Simple guardrails for beginners:
- No single stock above 10% to 15% of your share portfolio.
- No single sector above 25% to 30%.
- Small, speculative stocks: if you buy them at all, keep the total to a small amount you can afford to lose completely.
Example: with Rs 200,000 in shares, a 10% limit means no more than Rs 20,000 in any one company. If OGDC is at about Rs 317, that is around 63 shares. You might spread the rest across 8 to 10 other companies in different sectors.
Plan your behaviour in advance
Decide now what you will do in a fall, while you are calm:
- Will you keep your monthly investment going? (Usually the best choice.)
- Will you review the companies you own, rather than the price alone?
- Under what conditions would you sell? For example, if the business itself has deteriorated, not just the share price.
Write this down. In March 2026, many beginners sold in panic after the record fall. The KSE-100 had recovered to around 169,000 to 170,000 by the end of September.
Key points
- Drawdowns are normal. The KSE-100 fell about 20% from its January 2026 high within six weeks, and solid stocks fell 30% to 50% at times over five years.
- Keep an emergency fund of 3 to 6 months of expenses before investing, and clear expensive debt.
- Never borrow to invest. Borrowing turns temporary falls into permanent losses.
- Diversify across companies, sectors and asset types. Keep each stock to about 10% to 15% of your portfolio.
- Start small, invest regularly, and decide your plan for a fall in advance.
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