For those who have been in the stock market for less than two years, the massive one-way
slide in prices over the last seven sessions would have come as a shocker. That is because till recently, any
fall was short-lived and ‘buy on dips’ seemed to be a sure-shot way of making money. But not any longer.
While
Sensex and Nifty are down less than 15 percent from their peaks, the majority of the stocks have fallen much more.
If you are a recent entrant in the stock market, and wondering what to do next, here are a few things to keep in mind:
Faster the rise, the sharper the fall. That is one of the iron rules of the market. Henceforth, go for fast-rising stocks only if you can stomach the bruising fall that will inevitably follow at some point.
Don’t beat yourself up for your mistakes. Even the best of investors make them.
Don’t sell out in a panic. But don’t mindlessly average your losing positions either.
Take a hard look at your portfolio. Cut your losses where stocks have fallen far more than the peer group by a big margin. The probability of these stocks recovering anytime soon is low.
Don’t add any fresh stocks to your portfolio at this point because they appear cheap. Remember, stocks that have fallen 50 percent from their peaks can still be expensive if their financials are not in good shape.
See if there is merit in averaging some of the stocks in your portfolio by buying some more. Some of the well-managed and profitable companies, too, will suffer in every market meltdown. And that presents opportunities.
Even if you decide to average some of your positions, don’t put in all your money at once.
Continue your mutual fund SIPs in passively managed funds (index funds and ETFs), but closely monitor the performance of the actively managed schemes if the market downturn persists. There are chances that the fund manager may have bought many junk stocks in some schemes. If an actively managed scheme is underperforming the market by a wide margin, check out the portfolio of the scheme, or ask your financial planner what to do next.
Don’t take out your frustration on those around you, especially those who gave you advice. Stock prices will recover. It is not easy mending broken relationships. But it is also a good time to review the list of people from who you should be taking advice.
Don’t turn your back on the equity market altogether. Cycles are an integral part of the market. It is when you see both a bull and bear market that you are finally on the path to becoming a wise investor.
