A popular reference from the movie Sultan quotes “Koi tumhe tab tak nahi hara sakta … jab tak tum khud se na haar jao”. It means that No one can defeat you until you lose to yourself.
The same is applicable to stock markets. If you get fearful in market with the news, sell, avoiding the strategy, then it is when you accepted the defeat. Here is an excerpt of conversation of our team member with Harsh Goela himself about the Stock Market Crash.
Chaithanya: I’m really scared of the things which are going on in the market. I would sell all my stocks, today.
Harsh: Wait! Tell me one thing Chaithanya- Did you buy with a news that stocks are on shopping sale?
Chaithanya: No. I bought using an investment strategy and I bought it for my child’s higher education, which is more than 10 years for now.
Harsh: Then have you achieved your goal?
Chaithanya: Kya baat kar rahe sir? I started investing some months ago. Last time when you told markets are undervalued, I bought them then and there.
Harsh: Perfect! So, tell me, when you bought the shares at discount and held them happily till now, why are you getting scared with news?
Chaithanya: But the stock market will fall sir. Why should I not sell?
Harsh: See baba! News will come and go. If you think that with news you can be in profits, then you can see the situation of retail who watch news daily. Sticking to your strategy is the key and as per your goal you must accumulate.
Chaithanya: On point sir! I’ll hold my portfolio and I’ll buy more when market goes up after correcting.
There are several people like our team member Chaithanya who are worried about a stock market crash. Some of them are so much in fear that as soon as they hear that Feds have increased the Interest Rates more, they hastily open their portfolio to sell if the index shows weakness.
Hence, today we’ll be discussing everything about a stock market crash that most of the Online Stock Market Institutes in India fail to discuss. You will get answers to your questions like:
“Why I should not get worried?”
“What should I do during a market crash?”
So, without any delay, let’s discuss 5 Things to do in a stock market crash:
1- Sell only if your strategy and average buy price tells you to
You must first think what your reason for investing is if you haven’t till now. If the answer comes as booking profits, then you’re not investing for long term as you’re more into trading. If you associate it with a financial goal in future (more than 5 years), then investigate the price at which you have bought stocks into your portfolio.
If the buying price is like that of last correction of 2021, then you must hold and accumulate more for your future goal, just like Chaithanya. If the price doesn’t support you, then you can think of rebuilding your portfolio, but wait for right time and not just sell blindly after any news.
2- Right Diversification is the key
Referring to a popular quotation “Never put all your eggs in one single basket”, one should also not put all their money in one stock or sector, or cap. They should ensure to diversify their capital across large caps, mid-caps, and small caps. This diversification is dependent on the age and risk appetite, therefore if one has not got it done, be prepared for it with your fundamental research in a correction to make some new investments.
It is crucial to understand that with time, the probability of getting high returns is more. The reason behind more returns is the power of compounding. With time the interest compounds and thus it is crucial to accumulate and hold, with dividends, bonuses and splits becoming the additional sources of income.
Besides stocks, it is important to diversify your capital across other assets like real estate, bonds, mutual funds, and gold. This way your portfolio is hedged during a stock market fall. If one must rebuild their portfolio, they can invest their capital into a short-term debt fund. Now, to build conviction in your portfolio, you got to read further 👇
3- Quality Investments are in your portfolio
After a fall not all stocks will be bouncing back. Only the strongest investments bounce back with time, while the bad ones will perish. Only the healthy companies will be able to make healthy comebacks. A healthy company is fundamentally sound, has competitive advantage and market share, etc. The health can be known by conducting fundamental analysis of stocks. Stock fundamental analysis empowers investors with the conviction to remain invested in volatility.
Stock research is like an investing road map. It provides the reasons why not to sell a perfectly good long-term gem from your investment portfolio. On the flip side, it also gives you clear reasons on why and when to part ways with a stock.
4- Buy The Dip
“Stock Market Sale Live!”. Every stock market crash is a sale in disguise.
Experienced long-term investors consider a dip as a golden opportunity to buy quality stocks. During a dip one might probably fail to grab the stocks at their extreme low. But even if bought slightly above, the power of compounding will work in a long run. A market dip is the best time for new investors to start their market journey.
Just like one allocates money for an emergency fund, retirement fund, everyday expenses, and international trips, it is best allocating some cash for a “Stock Market Sale”. This will make sure that one is ready for a stock flash sale when disaster strikes.
5- Market Will Obviously Bounce Back
Stock market has an impeccable history of bouncing back even from the worst downturns. It has not only rebounded after every crash but has also given subsequent multifold returns in the long run. Investing is a long-term strategy and how the market performs over years, and decades matters the most.
Since 1999, Nifty has generated a massive return of 1926%.
Proof of Stock Market Recovery:
In every stock market correction, market has bounced back from its crisis strongly. Let us take an example of the recent Covid-19 pandemic correction.
When Covid started spreading in India in Feb 2020, Nifty50 sank to almost 8000 levels from 12,100. From there it took a V-shaped recovery and then rose to the level of 18,400 in October 2021. If one would have invested during Feb 2020, they could have made a whopping return of 127.6% in October 2021in a span of mere 18 months.
Be mindful when you’re buying a dip. You should be averaging up and never down. If you’re an absolute beginner consider registering for a good online stock market course in India to cash on the dip.
• One must understand that a loss is never made unless it is booked, so if you have invested in a good company, then its best to wait if your goal is long term.
• Believe in the long-term game. Majority of the successful traders also invest which acts as cushion for bad month.
Half-knowledge is extremely dangerous in any field. Investing in times of volatility requires knowledge, and conviction which is not easy to build. Hence, to make things easier and more organized in the stock market, register into the leading online stock market institute in India. This way one can choose the right investments and helps you to hold them for the long term.
Man ke hare haar hai, man ke jeete jeet!