5 Ways to handle with Volatile Markets
- Volatility is ever-present
Consider the Sensex movement over the previous year 36048 to 36546 (1 Feb 2018 to 10 th Feb 2019). The Sensex peaked at 38896 (on 28 Aug 2018) and hit the bottom at 34001 (on 11th Oct 2018) during this period , which is a difference of 4895 points between the highest and lowest levels and virtually index is at same level for 1 year.
Volatility is even more pronounced in case of individual stocks, Small & Mid cap Segment. Even the strong and fundamental stocks can go hammered in short term.
To do – Market declines and panics will impact nearly all stocks – some more, some less; you must deal with it to succeed as an investor.
2. In the long term, there is only one way – up
The stock markets have historically proven that eventually, the direction is up. The truth is – while markets can be unpredictable in the short term, they are surprising predictable in the long term. Consider the NSE Nifty over the last 18 years. From 1349 points on 1 June 2000, 18 years later, it stands at 10736.15 points, having risen about 8 times.
To do : Being a successful investor requires you to be disciplined and patient with the ability to keep emotions away from your investment decisions.
3. A correction provides an attractive investment opportunity
Let’s say the market corrected by 4000 points on the Sensex… it would in all likelihood be traumatic. In fact, you may consider quitting the markets right away. Don’t!
Remember, corrections and panics are truly the best opportunities. In fact, the famous investor Warren Buffett once stated that if the market was at near-bottom, he would use the opportunity to increase his positions.
To do : Market corrections provide you with an attractive opportunity to buy at great valuations, which, in turn, increases your stock appreciation potential.
4. Stay liquid to some extent
A correction is only useful if you have the funds available to increase your positions. In other words, don’t be 100% invested at all times. At the same time, it would not be wise to hold cash beyond 5-10% of your total portfolio.
To do: Maintain some liquidity to take advantage of market dips. In fact, greater the volatile, higher the chances of getting attractive entry opportunities.
5. Avoid over-trading and following the crowd
Most investors tend to get influenced by news, rumours, trading recommendations, stock tips… and the short term noise. This results in frequent buying and selling based on ‘the latest update’. A successful investor has the temperament to stay invested and ignore this noise.
To do: Build the right temperament to be a successful investor. Buy based on the stock’s strength and not on rumours, tips, etc.
To conclude, making an investment decision based on extensive research, deep knowledge about the 4 Factors which is Quality, Financials, Valuation and Technicals Trending. is what makes an investor successful. Volatility is the icing on the cake offering attractive entry points for fundamentally strong stocks.
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