Stock Market Investment: Don’t invest just because the market is falling

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Updated: April 13, 2020 9:34:31 AM

Remember your financial goals and your risk appetite. If you have extra cash and investing for the long term, then go ahead and deploy your funds in a staggered manner.

Warren Buffet had said that one must be greedy when others are fearful.

The stock market has been witnessing a sharp fall as cases of coronavirus increase amid apprehensions that the global economy will take a sharp hit because of that. Many of the rating agencies have downgraded world GDP. Falling crude oil prices is also a black swan and domestically, we have been struggling due to the fiasco at one private bank and a slowing economy.

Warren Buffet had said that one must be greedy when others are fearful and I am a firm believer and practitioner of buying when others don’t want to step into the markets. This might sound glamorous but it is difficult to practice when the market has fallen so much from its peak. Even if you have averaged your position, when in the next two days you again find the market falling by another 500 points you tend to think twice before averaging again.

Markets in turmoil

We are living in unusual times where we are living in lockdown. People are being quarantined, travels have been banned and financial markets are in turmoil. In times like this, the first thing is to keep emotions out of your trade and investment. Many a time, we don’t want to trade in losses so we keep on averaging our trade.

So, here are some of the points that you should keep in mind for times like this. Take a step back and remind yourself that you are investing, not gambling. Remember your financial goals and your risk appetite. Don’t invest in the market just because it is falling. If a stock is trading at a cheap valuation, it does not mean it is a quality stock. Similarly, if a stock is trading at a premium it does not mean that it is not a quality stock. Sudden market movement should not act as everyday triggers to act. We need to control that urge to act when the market is falling and also avoid that disappointment that we are left out when the market surges.

Focus on financial goals

Have a clear focus on your financial goals. If you have extra cash and are investing for the long term, then go ahead and deploy your funds in a staggered manner but avoid quick profits from turnaround even though it may seem tempting. Be greedy when others are fearful but only if you are looking at the long term.

Remember 2008? It took a minimum nine months before we saw some rebound and this time the situation is more severe as it is not a financial crisis but health crisis and we don’t know how long it may last. It pays to stay calm and remain objective. Your friends, colleagues might be triggering you to act now in the market but avoid any knee-jerk reactions. Play with a small part of your portfolio if you want to. Remember to keep cash and courage during such crisis times and maintain a sane head. There is no point in panicking as the market is already doing that for us.

The writer is director, Tradebulls Securities

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