What To Do With Your Equity Investments In Volatile Markets
HDFC, Tester
The period from 2014 onwards is often called as the best period for stock market investors because everyone was optimistic about India and the trend was positive. This resulted in a prolonged upward journey for innumerable stocks. Fast forward to 2018 and the stock market is uncertain. While the levels may be at an all-time high, there is no particular fixed direction in which the market is heading, unlike the 2014 upward trend or the 2008 downward trend. There are sharp declines and sometimes sharp rises – confusing the investors no end.
There are several high-quality stocks which have increased multiple times from the initial price levels of 2008 up until 2018. For example, a quality stock like Maruti Suzuki was available around Rs.1000 levels about a decade back and the same is available at Rs.8000 in 2018 - huge returns for patient investors who smartly tackled the volatile markets during 2008.
So, what is it that such investors did differently than others? For starters, they got their basics right by not panicking. They had conviction in their invested stocks and allowed the tide to turn in favour of the stock market. In simple words, they understood that the unpredictability in markets would sort itself in the long run – it always does. Compare the levels of the market in 2001 and now (2018) or even 2008-2009 and now – Sensex has increased by almost 5 times since 2001 and over 2 times since 2008.
These are nothing but volatile market conditions – where the majority of the investors are not clear whether the market will be up or down in the short term or medium term. During this phase, the pessimists start predicting the worst and ask everyone to stay away from equity investments, while the optimists start predicting the best and suggest everyone to invest in bulk.
So, what should you do with your existing equity investments and new stock investment plans during such volatile market conditions? Let us quickly glance through a few key tips to keep in mind.
Every investor must have few extremely long-term stocks (of the highest quality) in their portfolio which they need to keep with them for generating wealth. This time period could be anywhere between 5 years to 15 years or even more. If you have such stocks in your equity portfolio, hold them tight. Do not worry about the daily rise or fall – remember the reason why you bought those stocks and ignore temporary price movements in either direction!
The idea is to stick with such winners (probably identified by you or some expert after extensive research about the company) and ignore the temptation of selling them when there is a temporary price fall!
Consider other investments people make in fixed deposits or PPF or National Savings Certificates or so on. In all these cases, you directly check your returns only at the end of the lock-in period, which can be anything between 5 years to above 10 years. But, the same logic is not applied by you (or for that matter any stock investor) with regards to their long-term stock investments – just because there is no lock-in period. Even if you have invested in stocks for the long-term (over 10 years), you would still keep following the markets regularly and react to the different levels.
Accumulate Quality Stocks at a Slow Pace
When markets are volatile and several stock prices fall considerably, you might be tempted to buy them. However, no one knows how far a stock price may fall. So, avoid buying any of your preferred stocks in one go, and instead buy them using the SIP (Systematic Investment Planning) approach. Buy few shares at regular intervals of time so that you can keep your purchase price nominal against the market price of the stock at any point in time.
Book Partial Profits
You probably can’t predict how long the markets would remain volatile. To ensure you do not give away all your profits to the volatile markets, ensure that you book partial profits in stocks that are profitable. In simple words, if you are holding 100 shares of a company that is giving you positive returns at current levels, try booking few of these shares (but not all if you are convinced that this company stock will rise again in the long term). The reason for doing so is you would feel good that you made some money and the frustration levels would decrease to a great extent (if the stock price goes down temporarily).
More importantly, it would allow you to have some cash in hand, to buy stocks at low levels, if the market experiences a sharp fall.
Don’t Wait Too Long for Targets
Most of the stock investors buy equities with a particular target price in mind. If you are buying any stock in volatile markets for short-term trading, it would make better sense to sell them off even for quick 10-15% profits instead of hoping to get 30-50% profits in the future. This is because the stock price can change direction anytime in the volatile market scenario.
These are just some of the pointers you need to keep in mind to effectively handle your equity investments in volatile market conditions. Most important thing is to avoid panic, remain calm, and execute some of these stock investment strategies.
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