As per investors psychology, they tend to invest more when the markets are in bull run(Rising Market)whereas they sell-off their investments in bear market(Falling Markets)in anticipation of further losses. This is the natural tendency of the investors in the stock market.
But The Real “Wealth” is created only in bear phase. When we observe the historical data of the Indian Stock Market, investors created wealth only through investing in falling markets.
In Falling Markets, stocks are available at cheap valuations. Legendary investor warren buffet prefer “Value Investing” and thus created wealth. According to him in falling markets- share prices are available at “bargain Prices” where the investors should make use of this choice.
As new retail investors entered the stock market after the resurgence of covid-19, retail investors are not aware of the market crash so far. As the market rebounds from March 2020 lows and are at all-time high valuations, naturally retail investors are investing more and thus the market grows due to retail participation.
But the recent correction in the stock market due to omicron variant trembles the retail investors. As they have never seen such a furious correction so far they are worrying a lot. But they should remind that they are investing for long term and corrections are part of the stock market where they should welcome them instead of frightening on the crash.
To Put in simple. Here’s a list what to do, what not to do in falling markets–
- Investors should check whether the stock price is in attractive valuations or not
- Investors should analyse whether the stock would perform better in the upcoming years
- Investors should check the 52 week high and low price points
- Investors should deploy small, small amounts initially in the falling markets and once he/she gained experience then only invests bulk(Lumpsum)amounts
- Do your own research on the stock price and not deploy entirely on the noise of the media(T.V, Print Media, Business News Papers)
- During Falling Markets investors should avoid the rumours circulating in the media
- Don’t make decisions based on the media noise that the markets would fall further. Do your own research
- Don’t take hasty decisions. Never sell your stock in hurry, you should sell a stock only if there is no future growth potential in the stock
- Don’t chase your friends/colleagues portfolio. Your Portfolio should be in line with your risk appetite
- Getting tensed on the short term movements is injurious to your long term wealth creation. You should not over-react to short term volatility. Instead you should be brave in such circumstances, Then only you can create wealth
By following the above steps, you could create wealth in the stock markket in the long-run. Do remember corrections are part of the market, you should welcome it to compound your wealth