Let’s flashback to the year 2014 which the stock market investors consider as a golden period for stock market investments in India. This was the year when the investors were optimistic as the trend was highly positive and upward for a lot of stocks. Yet the year 2018 has seen the most bizarre scale of trends in the stock markets. As much as the market has gone to an all-time high, there is no way one can predict in which direction the market move will next. Whether it is an upward lurch or a downward fall is uncertain. This has led to a lot of confusion among the investors as to where to invest in the equity market and how.
Many high-quality stocks have seen an upward journey from 2008 to 2018, a whole decade. For example:
The stock prices for L&T back in 2009 were somewhere around Rs. 260. In 2018, the stock prices for L&T stood at Rs. 1,400. The investors who must have invested in this stock a decade ago have certainly earned profits by patiently waiting through the volatility of the markets.
How did these investors tackle the volatility of the market? What kind of strategy did they follow to wait for a whole decade and finally see the tides turn in their favor?
The simple and logical explanation is that these investors had a good knowledge of how the market works. Because of this understanding, they knew that panicking is not the solution. They instead stood resolutely with their stocks and waited for the tides to turn in their favor. The smartly came up with strategies to tackle the volatility.
Market volatility is when there is either a sharp fall or a rise. In such conditions majority of the investors trading in equity markets do not have clarity about the gains. It gets difficult to predict whether there will be good returns in the short term or mid-term. During this time, there will be a faction of investors who will panic and start predicting the downfall and advice against investing in equity markets. The other faction of the optimists will predict the best possible scenarios and might suggest investing in bulk.
Such confusion makes investing in the equity market a no-go for a lot of investors. Here we suggest a few tips to help you come out of such a situation in the future.
1. Hold Tight for Your Long-term Stocks
Long-term stocks are generally preferred by investors who need to generate wealth over a period of time. The time period can be from 5 years to 15 years. If you are an investor who has a few high-quality long-term stocks in the portfolio, then the daily movements of the market should not affect you. The key is to hold tight and to show conviction. Every investor chooses a stock after thorough research and guidance by an expert trader. Hence, you should not fall for the temptation to sell the stocks if there is a price fall.
2. Gather Stocks Slowly
In times of volatile market situations, the prices of many quality stocks fall. You might think of buying them at a low price. You should avoid buying a large number of stocks a one go. You can use the Systematic investment planning or SIP approach. Keep buying stocks in small sets at regular intervals. This will help you to keep your purchase prime at a nominal rate against the market price.
3. Do Not Greed for More Profits for Short Term Investments
If you are an investor who has bought short-term equity with a target price in mind, then you should ideally sell off the equity even if there is 10-15% profit. Waiting longer in hopes of getting more profit can prove to be a mistake as the markets are highly volatile.
4. Book a Part of Your Profits
There is no way to ascertain until how long a market will remain volatile. Instead of losing all your profits to the market’s volatility, you can book partial profits from the stocks that you feel are profitable. For e.g., if you are holding 100 shares of Tata company and it is giving you profits currently, then you can book a few of the shares. These very even if the prices you have earned at least some profit rather than nothing at all. This strategy will also help you to get some cash to buy stocks at the lower levels.
In investments such as fixed deposits, PPF or National Savings Certificate, there is a lock-in period. You can only check your earnings at the end. You can treat your long-term equity investment in the same way and not get affected by the daily difficulties of the equity market. The above tips can help you make effective strategies in times of volatility. The key is to remain calm and execute the strategies.