What To Do in a Falling Market?

Stock Market is a risky instrument as well as a rewarding tool too. If you utilise your skills with patience none other than product gives as much rewarding as stock market.

Generally investors tend to invest more in a rising market(Bull Phase)rather than in a falling market(Bear Phase)! Almost 99% of investors get panic and sell their investments in a hurry! Is this the right thing to do?

Legendary investors Warren Buffet, Charlie Munger does the opposite(Buy shares in Bear and sell shares in Bull Market)That’s why they created wealth through stock market. Though there is no guarantee that “Buy Low, Sell High” strategy works, as per historic data investors created wealth in bear market! So to create wealth investors should not get worried about the market fluctuations and stick to the basics.

Even though it is not as easy to stick to the basics of investing more in a falling market, do remember the “Logic” of-

  • Do you get afraid on drop in petrol prices?
  • Do you frightened on the fall in gold prices?
  • Do you get tensed when the vegetable prices fall?

Almost all the consumers replies to the above Questionnaire is – “No” Then why in fall in stock prices? In fact stocks are available at a bargain in the falling market! The only thing to do is-

  • Don’t get panic in falling markets(Bear Market)
  • Analyse the stock fundamentals and technicals (if you are a trader)and stick to the basics
  • Don’t get tensed on the rumours revolving around the stock fundamentals. Instead do your own research
  • Don’t watch Stock Market news frequently in bear markets. Only analyse the reason for market fall and sit tight
  • Do remember the “Real Wealth will be created in bear phases” as stocks are available at discount at that time. Only thing to do is- Estimate the Future Potential of the Stock and accumulate shares gradually(in small, small tranches- Never invests bulk amount in one-go even though the share valuations are cheap. Invest in 3-4 price points to average out your investments
  • If you are unable to identify “fair share price” due to your busy schedule then there is no wrong in investing through “SIP Mode” in stocks too(Likewise in mutual funds, invest gradually in shares too)

Finally as per historic data investors created wealth in bear market, but due to human emotions only 2-3% investors stay put invested prolonged in bear market and created huge wealth to their family. If you want to be one of them-

  • Control your emotions
  • Ignore the noise in the media during bear phase and divert your mind to your interested works
  • Invests gradually in bear markets, if you are unable to identify “Fair Value” do sip likewise in mutual funds
  • Do remember you are investing for “Long Term” Then ask yourself why are you frightening on short term volatility?- If you find the answe to these you would succeed in stock market investing.

As per historic data even though stock markets experienced many financial crises, still it delivered 15-18% CAGR(Compounded Annual Growth Return), then there is no meaning in frightening on the short term volatility.

Do remember- “This is not the first one and the last one to the stock market to face socio-economic crises” stock market is naturally volatile; The only thing to do is grab the discount price in bear market and enjoy the fruits in bull market

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: