“The stock market is an instrument that transfers money from impatient people to patient people.”
You might be an investor or a trader or a dreamer who entered into the equity market in the last two years. The temptation to enter the market might be to become a lakhpati/ crorepati or to achieve some particular amount. You might have believed that the market is a money-printing machine and it has unlimited potential? If you identify yourself as an investor or wish to know how to handle a volatile market please read on to know the art and tricks of handling the turbulances of market.
Before starting please keep in mind that “aapke pitaji ke time mein bhi market tha, aapke time mein bhi market hai aur aapke Bacho ke time mein bhi market rahega’. The equity market is not going anywhere, it is you and I who have limited time.
Market Crash=Bearish Market
One thing which pandemic has taught us finely is how fragile the market can be. There can be numerous reasons for the fall of the equity market eg Pandemic, dot com bubble, wars, etc. but one thing is certain that the market stabilizes and recovers.
The goal of this piece is to make you patient enough to hold your good investments till the market recovers and bounces back.
There are two types of investors, one who gets scared when the market falls and the other one sees this as an opportunity to invest more. I want you to be the latter one and if you are not, it’s alright. It is easy to learn. The simple steps required for handling the stock market crash are:
First, analyze what kind of investor you are. What is your risk-taking capacity? Accordingly, create an emergency fund(money equivalent to your 4-6 months of expenses) so that when you are in need, you don’t have to sell your equities/investments at discounted or throw away prices. Always remember that the longer you stay invested in the market, the better are your chances of making profits.
This is the golden rule of handling the stock market crash. Diversification is not limited to various sectors of the companies but extends to different classes of assets. For example, you can invest in Equity, Debt, NFT, Crypto, Gold(I prefer sovegeign gold bond), Silver, Real Estate, bonds, etc. Diversify since the day you start investing.
- Invest in trenches
The market does not fall in a single day. “Market chad chad ke girta hai aur gir gir kar chadta hai.” Never go all-in with all the money. Divide the money available with you for investment into five to ten parts. Decide the level of the Nifty or Sensex according to your convenience and invest according to those levels.
Eg. The stock market is at 15000 points and the amount you want to invest is 10,000/-. Divide 10,000/- in 5 parts i.e. 2,000/- and invest 2,000/- on every 300 point fall in the market.
- Focus on quality stocks
When the market falls, all the stocks in the market take a downturn but the fundamentally strong stocks do not plunge deep like the fundamentally weak stocks. In such times always focus on the fundamentally strong stocks and try to accumulate them. Eg. In market crash buy shares like Hindustan Unilever, ITC, Bajajfinance, HDFC, etc. instead of yes bank, Punjab National Bank, AURUM, etc.
- Never stop SIP
A Systematic Investment Plan is a proven way of investing for long-term investors. This helps you to pick the stocks at all prices be it all-time low or be it all-time high. Generally, people do not have time to track their investments so they prefer SIP. The SIP has the potential to give more than average return if it can be combined with active investment. You can invest some amount actively on good stocks apart from SIP when the market is bearish.
- What to sell when Market Falls
Many shares are bought by people just on the recommendations of the YouTubers, news paper, news anchors, etc. It is advisable to sell the shares about which you do not have the knowledge and shift that amount in the fundamentally strong shares because the recovery of the good shares is much faster compared to fundamentally weak shares.
The one last golden rule is the easiest one. Do Nothing, if you have fundamentally good shares.