Have you ever observed the ECG diagram? There you will see up and down swings all through the line. This up and down movement is called volatility. Similarly, in share share market cannot stop being rhythmic as it is their core nature. In simple words, volatility means the price of share or stock will increase or decrease. Suppose, share price of a company is Rs. 10/-when the market is volatile it may go up to Rs. 20 or more or it may go down to Rs. 8 or less. So, this increase or decrease in share price indicates that the market is in the volatile stage. In this column, we will discuss about what to do in a volatile stock market and some measures to tackle this uncertainty or volatility in the market.
There may be many reasons behind the volatility in share market like spurt in crude oil, the war-like situation between nations, election result, announcements from RBI, natural calamity etc. Volatility in share market creates fear among investors. Let’s discuss.
First of all, you should not invest your money in one stock. You should diversify the stock portfolio. Share prices of all companies will not fall together. When the share price of a company is increasing rapidly, do not get tempted and buy more shares of that company. It is because in volatile market price may come down any moment. Again, at the sudden fall of share price do not worry. Generally, in this situation, investors panic and lose their nerves. You should invest regularly in those stocks which are decreasing checking the fundamentals of those companies.
Let’s take an example. You have added shares of two companies in your portfolio i.e., Titan company and HPCL. Now, the price of crude oil is at high, so the price of HPCL is decreasing and due to consumer demand, the price of Titan company is increasing. It is a good idea to buy more shares of HPCL than Titan company. Just try to accumulate more shares of HPCL. When Titan company goes into correction, then you can buy the shares of Titan company.
Don’t ignore your long-term goal
Many persons stop investing as the market turns into volatile. If you have invested in stocks either direct equity or via mutual fund you need not stop SIP, just because the market is volatile. You need not worry about your long-term goals which are 10 years away for a certain period of the volatility of 6 months or one year.
Reassess your investment portfolio
Think hundred times before doing, but don’t think after doing. So, friends, thinking well choose those stocks or companies which have strong fundamental i.e., debt ratio, compounded sales growth, compounded profit growth, return on equity etc. You should also check the qualitative and the technical analysis of stocks before investing. Now, in a volatile market or when the market witnessed a sharp correction, you should buy more shares, because you can get these stocks at an attractive valuation. Actually, volatility or sharp correction in the stock market is a buying opportunity for long-term investors.
Keep Patience because it takes time to yield better returns
Have you ever come across that a baby has been born in a quarter or within a half year? The answer is quite clear no. Like this, stock market is quite volatile in a short term period, to say one year or two years, but not for ever. You should focus on investment for a long term horizon of 10 years or more. According to its nature, share market corrects itself shortly time to time. But don’t worry this short term correction will be recovered very soon. A smart investor utilizes the volatile condition of market as an opportunity to invest more and more. This will in future yield better returns over a long time perspective.
Avoid Herd Mentality
Stock market inches towards higher level as the time passes. Don’t panic when the market experiences a sharp correction. Hold your hand tight with petty cash. When the market corrects considerably, then you should start infusing money in the falling market. You need to check out the company’s quarterly or annual results during the volatile market. If they are satisfactory then you need to continue the infusion of money in these stocks. In the volatile market, many analysts recommend the selling of the shares. They are in search of such stocks which are available in the best valuation. If you sell the stocks they will buy. This is their tactics. And when the market inches towards higher, then they recommend buying option to book their profit.
Let’s illustrate this with an example. After watching out the products you want to shop have come down by 30% within one week, you rush to buy these products. This theory is you should apply in the stock market also. When the stocks are available at attractive valuation then you should buy more shares unlikely the people who sell their shares or stocks at the time of correction.