Everything about the Stock Market Crash 2022!
Created on 25 Feb 2022
Wraps up in 5 Min
Read by 3k people
Updated on 07 Sep 2022
We learnt about perishable and non-perishable products in our middle school. We would generally categorize food such as vegetables and fruits as perishable and mostly non-edible things as non-perishable. But this is not middle school and in the finance world, we don’t talk about aloo pyaaz ke dam.
In the finance world, we talk about shares and investments. And shares and investments are not perishable items that in times of crisis, you sell all of them to save yourself from incurring further losses. They are more like fine wine. The more you age them, the better they get (well, most of them)!
The market took one of the biggest hits yesterday in 21 months, with NIFTY down by 13% from its three-month high of 18,308 points. Sensex tanked 2,702 points, and Nifty cracked below 16,250. Well, when the market moves in some basis points every day, a decline of 5%, even more, means a heart attack for the investors. This is what the dip looked like on 24/02/2022.
Once you are done reading today’s article, you won’t have to panic (or panic sell) during a market crash ever again. Let us begin then, shall we?
Why do we worry when the market crashes?
Of all, the most difficult dilemma we face during a market crash is should I sell my shares for whatever price I can get now or should I hold on to them till they return to their pre-crash value? Let’s self analyse this question as to why we face this dilemma.
Human beings are trained to protect themselves at all costs. Naturally, they want to protect their assets as well. When the market takes a dip, this feeling of being secured is challenged and replaced with fear. We fear that we have already lost enough, are we ready to lose further? We fear that “What if the share takes years to jump back to its value?” and we might not have the patience for it.
Now change your perspective and question yourself, why did you invest in an X company? Because you believed that the company’s future is promising, with a good business model, it will grow and you will get good returns. It is your faith in the company that drives your investment decision.
Now if this was your thought process while buying the share, the question of “What if the shares prices fall and I never regain the returns?” should never take shelter in your mind. You know what the intrinsic value of the share is. You know the scope of industry growth. You know the scope of the company’s growth. If you are betting on the long term future of the company, then a dip of a day, a week or a month should never impact your rational mind.
What if the market never recovers?
Let us assume the dip keeps getting deeper and this goes on for a month, then six months, then maybe even a year. The value of shares in your portfolio keeps on decreasing, you become more apprehensive about holding on to them.
Remember, in those moments, when you are most doubtful, that- SHARES ARE NOT PERISHABLE, as Mr Pranjal Kamra says on Market crash. They might lose their value today, but if you were sure about the company, it is bound to be back where it was and grow from there.
But you might need that invested money in a short while and what if before that the shares still provide negative returns? If that is the case, my friend, then you should not even invest the sum in the first place, be it in whatever company.
Recently, I read somewhere that, “checking your portfolio every day for returns is like installing a camera in the forest to keep a track of the trees’ growth”.
How to correct your mistakes (and portfolio)?
A lot of people would advocate otherwise but, a stock market crash is the best time to disinvest and invest parallelly. “How?”, you may ask. We tend to buy a lot of stocks that are influenced by someone else’s sentiments or may appear fancy. Deep down we know that we don’t have faith in the company. Since the market has crashed, shares of good companies would also have taken a hit. You just got a discount on these shares, which were trading at comparatively high prices earlier.
The major problem in the investors is that they understand what the sectors are but pay no heed to the business models of the companies in it. So, you might think that the X company is in the IT sector, but you have no clue about its business model. If you know what the company does, and how it does it, the ‘fear’ we talked about earlier could never surface. But in cases where we know nothing about the company, that is when we fear our worst fears.
Isn’t this the right time to break up with companies you don’t trust and move to those which you do?
Buy the dip!
I am positive that you must have heard “buy the dip” a hundred times by now if you are a true patron of the Finology family. Our discussion so far might have convinced you to buy the dip, but what if you don’t have enough liquid assets to buy it? Again, the shares you don’t trust, are the ones going to finance it.
Well, you might question that if the whole market is plunging then the shares of that company would drop as well. Yes, they will and you might suffer losses in those too. But isn’t it better to sell those off so that you could buy the ones you are sure about? You genuinely will have a feeling of peace in your mind and wouldn’t have to worry about “what if it goes down to 0?”.
Create a watchlist,in Ticker of the companies you trust and understand properly. When any major corporate action will happen in those companies, you will automatically get notification about those. Then, find out their intrinsic value. Set a target price that when this stock reaches this value, I’ll buy it and then, simply buy it!
This helps in cutting down the noise and presents you with a clear view of the type and sector of companies you want to be invested in.
Until the next crash…
As of now, the market has already jumped back ~2.6%. There are literally crowds of people coming up in every stock market crash, with different advice on what to do and what not to do during a crash. And I know, till today, every stock market crash gave you a mini heart attack followed by you following their expert tippani.
The question I leave you with today is, would you continue following the pattern or would you break it?
Till we meet again (in the next market crash)!
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