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In the previous article, I emphasized that it has never happened that the market fell and never recovered. In fact, market not only recovered the losses but also staged a smart recovery from previous high.
To win in this game nothing is to be feared, but only to be understood that Mr. Market behaves like that only. Unfortunately this time such steep correction happened after 2008 a long time of more than 11 years. Those who have the patience to hold good stocks, come what may, will be sure-shot winners. It is only a matter of time.
Often investors quote that they invested good amount of money during the steep stock falls yet they lost heavily. The reason is - often retail investors invest in those stocks which were heroes of yesteryears. They get lured by the steep decline in share prices of such companies. What they forget is Mr. Market rewards only the financial performance of the company. While rewarding the stocks Mr. Market is ruthless and doesn’t look at past stock performance, it looks only and only the financial performance.
So be very selective, if you decide to invest in this juncture. Invest only in good stocks. Stocks whose earnings are expected to rise, preferably in stocks which are Dividend-paying (to ensure good cash position). You will be surprised to know that in as much as 91% of the stocks which crashed more than 80% during last 18 months, the underlying companies have not paid any dividend. On top of it in 100% of these cases retail investors have increased their stakes substantially, in some cases more than 150%.
Don’t throw good money after bad.
Often it happens that investor buys a stock and after some time its share price dives by saying 20%. An investor buys again to bring the average acquisition price down. The second purchase is often not due to the good quality of the stock but due to high price, he paid in first purchase. To overcome this problem, simply ask yourself ‘Will I buy more of this stock, had I not owned already’? If the honest answer is ‘No’ then sell the first lot also. In fact, one can use this technique for each and every stock in his portfolio.
Often it happens that down cycle of a particular sector coincides with that of a market meltdown like Automobiles in the present context. This can prove disastrous. Be careful.
Don’t attempt to sell good stock from your portfolio just because it has not fallen. Time is not ripe to pluck the flowers, let them bloom.
Be rational always. Don’t try to predict how far the market can go down or when the market will bounce back, just concentrate on each and every stock in your portfolio. One day Mr. Market will knock your door and reward you handsomely. In the long term, it is predominantly the company's financial performance which will decide the gains and not the market.
Remember, without facing the fear no one has ever created huge wealth from stocks. It is what you do now will determine your returns when good times return.
Coincidently me (experience 31 years) along with Mr. Dilip Shah (experience 45 years), Editor Smart Investments are hosting a Seminar in Rajkot on Saturday, 07 Sep on the same topic and shall guide you on practical ways not only to protect your portfolio but also to gain handsomely when the market bounces back. Entry with prior registration only. Kindly use the link for seminar registration https://www.smartverc.com/seminar
You make most of your money in a bear market, you just don’t realize it at the time.” - Shelby Cullom Davis
By A K Asnani
Author - Way To Billionaire
(This article was published Smart Investment.)