What to do when market falls

I can feel the nervousness in the air, everyone is unsure about the future. The glorious story about India’s economic growth, and India being the next economic super power is suddenly into question now. It seems as if everything that could go wrong, is going wrong, all at once. The rupee is at an all-time low, important financial institutions such as IL&FS, DHFL and Yes bank are facing problems of their own. Both the debt market and the equity market are feeling the jitters. The small cap index is at a multi-year low and the much hyped mid-cap and small cap funds are facing the heat.

Now that seems like a lot of bad news, arriving all at once. So, what should you do? Should you sell your mutual funds and Stocks? Should you save your hard-earned money from further capital erosion?

Let’s find out….

Let’s begin with the mistakes that investors committed –

Mistake #1 - Investing when the market was extremely expensive.

Here is a video that we made on this Topic

Watch this video Here

Mistake #2 - Investing in small cap funds

We have been repeatedly requesting the investors to stay away from small cap funds because of a deficiency that’s found in each of the small cap funds. Here is a video that talks more about it .

Watch this video Here

Mistake #3 - Not keeping cash for investment

It’s never a good idea to be fully invested in an expensive market. It’s much better to hold a certain percentage of your funds in the form of cash to average out in case of a market fall.

Now let’s turn our attention to what can be done today, how can we make sure that the wealth erosion is minimal? Here are a few tips –

Suggestion #1 - Don’t indulge in panic selling.

We see an XYZ stock falling day after day, and suddenly our defensive mechanism kicks in, we can’t see our hard-earned money getting lost in thin air. So, we do what everyone else does - we sell the stock not because the company has become fundamentally bad, we sell because everyone else is selling and the price is eroding. If you are a victim to such behavior, you can be sure that you will regret your behavior sooner rather than later. That’s because even good stocks can fall in panic, but as soon as the negative sentiment is over, these stocks reclaim their old valuation in a matter of days and the investor is left with the regret that he sold and the bottom and then when the stock price has recovered, he again buys it at the top. Don’t buy near the top and sell near the bottom, intentionally, or unintentionally.

Suggestion #2 - Your confidence should not swing with the swing in stock prices.

When we buy a stock, we are very confident about its future, but if the same stock falls 20%, we start doubting the future of that stock or the fund. Just because a stock is falling, doesn’t mean that the company is suddenly a bad company. Fundamentals of the company are not affected by the price of the stock and therefore, your confidence should not be affected by the price of the stock.

Suggestion #3 - Time to buy fundamentally strong companies at cheap prices

“Be fearful when others are greedy. Be greedy when others are fearful.”

- WARREN BUFFETT

Strong companies usually trade at a premium, an investor rarely gets a chance to invest in them at a reasonable price. That rare opportunity might be here. A lot of quality sticks have been excessively punished by the markets. Its time you took advantage of that punishment.

Suggestion #4 - Don’t doubt your knowledge

Even experienced investors start doubting their stock picking when the market is down. We often forget the fact that when the market falls, no one is left unharmed. To experience such ups and downs is an avoidable aspect of participating in the equity market. We feel as if we have done some mistake, if over analyze our research methodology. The reality is even the biggest of investors, the best of the mutual fund schemes, and most save of analysts are all suffering the mass fate. The only difference between a successful and an ordinary investor is that legends don’t panic, and they don’t induce in self-doubt.

Hopefully, I was able to soothe your nerves a bit. Take a deep breath and indulge in value investing.

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