Press "Enter" to skip to content

This market is designed to shift money to those who are patient


NEW DELHI: Domestic equity indices may have seen a solid bounce on Friday after Thursday’s merciless correction, but the worries have not really gone away overnight.

Overseas portfolio investors continue their selling spree as they chase better and safer yields in developed markets, crude prices continue volatile swings, rupee remains shaky and domestic macro concerns are real and not going away in a hurry.

The weakness in the domestic equity market in recent weeks has hit investors really hard. The Indian market has been the worst performer in an area that spans China, down 3 per cent, Australia, down near 5 per cent, Indonesia and Singapore, less than 2 per cent. Bangladesh has lost only 1.82 per cent of market value in a month, while the Thai market has actually gained 1 per cent.

Efforts to control the damage and dispel the prevailing pessimism have at best provided temporary relief, but failed to instil confidence.

The stock corrections have mostly been sharp and sudden, giving investors no time to take guard. Thursday’s selloff wiped off Rs 4 lakh crore of investor wealth within the first five minutes of opening trade in response to an overnight crash in the US market.

Analysts say this correction has some more distance to cover. “We have corrected meaningfully, but I think Nifty and Sensex are still overvalued. The market bottom is at least 10 per cent, perhaps 15 per cent, away,” Saurabh Mukherjea, founder of Marcellus Investment Managers, said on Thursday right after Sensex slipped some 800 points.

Market veterans say equities, by nature, require one to live with volatility, but there surely exist ways of prudence that can help one mitigate sudden losses. Minimise losses, they say, should be as important an objective for an investor as is making profit.

But how! Seasoned investors offer five basic thumb rules to avoid major losses, protect profit and try and make money in such market conditions.

Don’t get carried away
The most important thing for an investor is to avoid getting carried away by such swings in market sentiment. Market movement may be important, but one should pay more attention to underlying value of an asset. Know your stock before making a move. You must have a clear idea about what the company produces, how it operates and what are its assets and liabilities.

Don’t speculate, but calculate
Most investors fall prey to speculation. After observing a trend in a particular sector, they start speculating the prospects of a business and let their speculation dominate rational calculation. It should be clear that despite all the unpredictability, the art of investing is not gambling. Instead of trying to predict the future, rely on facts, available data, calculations and charts.

Patience does pay
Like in other walks of life, patience is among the most crucial factors for success in stock investing. In the word of the Oracle of Omaha, Warren Buffett: “The stock market is designed to transfer money from the active to the patient.” You are always most likely to get rewarded because of your patience. People who believe in always chasing the buzz are at risk of losing more than what gain. Observe things keenly, remain active and buy at a discounted price. Remember it takes time to master the art of investing.

Diversify your portfolio
Don’t keep all the eggs in one basket. Your portfolio should be diverse, a mix of largecap, midcap and smallcap stocks. Your basket may have commodities as well. But be careful to not make a choice and don’t follow the herd mentality.

Don’t book profit in haste
Hitting the panic button the moment you get a negative news is one of the worst decisions. Most investors who have made money in the stock market have worked on the ‘buy-and-hold’ strategy. Any negative news may infuse volatility in a stock. Recent example is Infibeam Avenues, which plunged 70 per cent in a single day after a WhatsApp message raised concerns about its accounting methods.

Unpredictability is the nature of the stock market. It is possible that despite all the alertness and calculations, you may suffer a loss. View that as a learning and move ahead. Like the wise man says, “Pain is inevitable, but suffering is always optional.”

Don’t suffer. Learn and move ahead.

Source: Economic Times