7 Things To Do Right Now In The Market
Coronavirus has proven to be a black swan event for the World Markets and the impact it will have on Indian Economy is still under “assessment” as per the Govt. From trading at all-time highs in February the Indian Markets have crashed to almost 3-year lows. Nifty and Sensex hit a lower circuit on Friday only to recover sharply from lows and end the day in the green.
With markets giving such wild moves, Investors have found it difficult to come to terms with this new normal of wild volatility every day. So here are 7 things that the investors should do in a market like this.
01 – Don’t Try Bottom Fishing. Yes, it is often advised that if you are an investor, you should go out and buy stocks when market is in panic. This theory is true but it is also true that if you are an investor for longer-term, 10-20% of price difference in your entry in stocks is not a big problem.
As you can see in the above charts, the correction in 2000-2002 era resulted in draw down of 54% from the highs.
The 2008 fall bottomed after more than a 64% correction.
2010-2012 crash was a 28% drawdown event.
2015-2016 crash was a 25% drawdown.
2018 post budget crash was worth 15%.
And the 2020 coronavirus mauling so far has seen almost 31% drawdown.
If you have notice one thing on the above charts, barring the 2018 post budget crash which bottomed out in just 2 months with 15% crash.
All the other crashes have taken atleast one year to bottom out, so just in case the Friday’s low on the NIFTY of 8555 was the bottom and you have missed out it is OKAY.
If you take the average and if this time it is not an exception, the low might not be the bottom.
02 – Make a list Stock market is not a nomadic trip, you must have your itinerary planned out for this trip. To build a healthy portfolio, you must have a plan chalked out. Make a list of stocks you want to buy during the correction. While concentrated portfolios are good to build wealth the risk is also comparatively high, so build a diversified portfolio. Allocate every stock or sector a certain percentage of your total estimated portfolio and do not exceed more than 10% or at best 25% for a core stock.
03 – Avoid Debt-Ridden Companies As an investor and fund manager, off-late I have made the mistake to allocate to few companies with debt. The result has been very bad even for us, So one thing investors must do is avoid companies with a lot of debt on their books. Growth is good but if the company has been over-aggressive in a weak global economic environment the debt ridden companies might bite the dust sooner or later. Also, Read - Anil Ambani Stocks Destroy Wealth
04 – Stick To Prominent Names While making the list of stocks to buy, make sure you stick to companies with significant market share in whatever business they are into. Unless there is a big disruption in the industry, the leaders or companies with a high market share in an industry often survive better than the rest. So if you are getting a good discount in the markets, stick to good quality companies. You can utilize the internet to get market shares of companies, search like “company name + market share” should fetch you research reports where market share data is available.
05 – Phased Buying If you are sitting on cash and want to invest in the stock market right now directly. Do phased buying. For example, if you have 10 lakhs to invest in the markets. Deploy only 20% of the money right now, Put in the maximum money in a phased manner only when the markets are out of the bear grip.
06 – Don’t Sell in Panic If you are an investor and suffering a major draw down right now, You should not panic. Not only you but even the smartest of investors are facing major drawdowns right now globally. However, you must take this opportunity to work on your portfolio. If you have companies that are going bankrupt or have a high debt you can still consider booking loss/profit in them and shifting to better quality stocks. But if you have good quality companies that were purchased at higher prices you should wait for the longer-term unless you need cash or liquidity.
07 – Stay Safe Many people are saying that the novel-Coronavirus spread is just an excuse for the markets to fall. However, the excuse has resulted in almost 6000 deaths already in the World, so both as an investor and as a citizen be vigilant and safe. As you avoid overcrowded stocks, Also avoid over-crowded places like Malls, Multiplexes, Airports, Railway Stations (unless necessary). As you wash your portfolio off debt-ridden stocks and stay away from them, Wash your hands and stay away from people who are showing signs and symptoms such as Fever, Coughing etc. As you avoid rumors in the stock market, Do avoid believing and forwarding rumors about the Coronavirus and pay heed to the news from Governments of the world and The WHO for precise inputs.
With markets giving such wild moves, Investors have found it difficult to come to terms with this new normal of wild volatility every day. So here are 7 things that the investors should do in a market like this.
Also Read:
01 – Don’t Try Bottom Fishing. Yes, it is often advised that if you are an investor, you should go out and buy stocks when market is in panic. This theory is true but it is also true that if you are an investor for longer-term, 10-20% of price difference in your entry in stocks is not a big problem.
As you can see in the above charts, the correction in 2000-2002 era resulted in draw down of 54% from the highs.
The 2008 fall bottomed after more than a 64% correction.
2010-2012 crash was a 28% drawdown event.
2015-2016 crash was a 25% drawdown.
2018 post budget crash was worth 15%.
And the 2020 coronavirus mauling so far has seen almost 31% drawdown.
If you have notice one thing on the above charts, barring the 2018 post budget crash which bottomed out in just 2 months with 15% crash.
All the other crashes have taken atleast one year to bottom out, so just in case the Friday’s low on the NIFTY of 8555 was the bottom and you have missed out it is OKAY.
If you take the average and if this time it is not an exception, the low might not be the bottom.
02 – Make a list Stock market is not a nomadic trip, you must have your itinerary planned out for this trip. To build a healthy portfolio, you must have a plan chalked out. Make a list of stocks you want to buy during the correction. While concentrated portfolios are good to build wealth the risk is also comparatively high, so build a diversified portfolio. Allocate every stock or sector a certain percentage of your total estimated portfolio and do not exceed more than 10% or at best 25% for a core stock.
03 – Avoid Debt-Ridden Companies As an investor and fund manager, off-late I have made the mistake to allocate to few companies with debt. The result has been very bad even for us, So one thing investors must do is avoid companies with a lot of debt on their books. Growth is good but if the company has been over-aggressive in a weak global economic environment the debt ridden companies might bite the dust sooner or later. Also, Read - Anil Ambani Stocks Destroy Wealth
04 – Stick To Prominent Names While making the list of stocks to buy, make sure you stick to companies with significant market share in whatever business they are into. Unless there is a big disruption in the industry, the leaders or companies with a high market share in an industry often survive better than the rest. So if you are getting a good discount in the markets, stick to good quality companies. You can utilize the internet to get market shares of companies, search like “company name + market share” should fetch you research reports where market share data is available.
05 – Phased Buying If you are sitting on cash and want to invest in the stock market right now directly. Do phased buying. For example, if you have 10 lakhs to invest in the markets. Deploy only 20% of the money right now, Put in the maximum money in a phased manner only when the markets are out of the bear grip.
06 – Don’t Sell in Panic If you are an investor and suffering a major draw down right now, You should not panic. Not only you but even the smartest of investors are facing major drawdowns right now globally. However, you must take this opportunity to work on your portfolio. If you have companies that are going bankrupt or have a high debt you can still consider booking loss/profit in them and shifting to better quality stocks. But if you have good quality companies that were purchased at higher prices you should wait for the longer-term unless you need cash or liquidity.
07 – Stay Safe Many people are saying that the novel-Coronavirus spread is just an excuse for the markets to fall. However, the excuse has resulted in almost 6000 deaths already in the World, so both as an investor and as a citizen be vigilant and safe. As you avoid overcrowded stocks, Also avoid over-crowded places like Malls, Multiplexes, Airports, Railway Stations (unless necessary). As you wash your portfolio off debt-ridden stocks and stay away from them, Wash your hands and stay away from people who are showing signs and symptoms such as Fever, Coughing etc. As you avoid rumors in the stock market, Do avoid believing and forwarding rumors about the Coronavirus and pay heed to the news from Governments of the world and The WHO for precise inputs.
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