Should you invest in stocks in times of volatility?
Stockmarkets, both domestic and global, have been on a roller coaster ride over the past few weeks, making even veteran investors worried as to how to go about investing in stocks under such extreme volatility. In India, the past fortnight was eventful with the huge fall in indices triggered by global cues. While experts termed the market crash as a necessary correction that was long overdue, several thousand crores of investors’ wealth was wiped out in a matter of days.
It’s natural for retail investors to panic in times of sell-off even as they struggle to choose between joining the herd and holding on to their investments. How should one handle such situations? Should one choose either of the above two options or go for the kill, snapping up more stocks when prices are low? Experts would advise not to panic as it can never get you anything. If you are a serious investor, you need to learn to handle sudden market movements because the markets will give you good returns if you wait out the temporary setbacks.
Losses, like windfalls, are an inevitable part of the stock market play but those who are in it for the long haul need not panic as the losses are likely to be offset in the next rally, with some gain to boot. For retail investors, formulating a long-term strategy needs a lot of effort as their investment decisions are highly influenced by the actions of their peers who may still be investing for the short-term. Experts term it ‘herd mentality’ and advise investor to avoid falling into this trap. Joining the crowd also means giving up on research and due diligence.
It’s easy to get carried away by the name of a company or the industry it belongs to. Needless to say, that’s not the only criteria one should look at before putting one’s hard earned money on the table. As billionaire investor Warren Buffett says, “Be fearful when others are greedy, and be greedy when others are fearful.” Put simply, this means when others are greedy, prices boil over and one should be cautious not to overpay for an asset.
On the other hand, when others are fearful, it may offer a good value buying opportunity. Does it mean that one should try to time investments in such a way that one can “catch the tops and bottoms”? Many experts are cautious on this front, saying one should not try to ‘time’ the market simply because it’s very difficult to do it successfully and consistently over multiple stockmarket cycles. One of the best ways to tide over fluid periods of time is to adopt a disciplined investment approach so that the strategy works both in times of bull runs and when the market crashes.
The key here is to invest money systematically in the right shares and hold on to them patiently. A combination of systematic investments with a long-term view topped up by the courage to hold on to assets even in times of volatility has a better chance of reaping outstanding returns.
Beating volatility
A combination of systematic investments with a longterm view and holding on to assets has a better chance of triggering outstanding returns