If you have invested in small & mid caps in 2015 or early this year, you might be worried by looking at your portfolio in red with significant losses by now. Worst hit so far is the small cap index which has lost almost 15% in last 15 days and carnage may continue going forward as per most of the analysts.
Why not? We have seen many of the micro, small and mid cap companies giving returns in the range of 100% to 500% or more in last 1 to 2 years. If stock prices goes down by 20% or 30%, we must accept it as a normal correction. Yes, intensity of falling prices can hurt our sentiments, stock prices during such severe correction fall like a knife and make us fearful giving rise to emotional selling.
We continue to suggest our members to have patience and start accumulating small and mid cap companies with strong fundamentals in your portfolio during ongoing market correction. Following the crowd in the stock market can lead to disaster if you're not careful. Panic buying or selling can push stock prices beyond reason.
The
crowd-following problem seems worse when the markets are down and the mood is
pessimistic, people tend to sell even if there is no specific reason to let go
of an individual stock. Avoid doing so and hold on your nerves, buying high and
selling low will convert your notional losses into actual losses.
This
common trading mistake costs investors dearly. When the talking heads on
television and the wags in print and online begin talk of doom, many investors
dump their stocks in favor of cash or other "safe" investments.
Rushing
In
As
soon as the same crowd gets excited about the market again, the cash investors
rush back to the market and buy stocks.
The
problem with this approach is that the investor is frightened out of the market
when prices are depressed and lured back in when prices have rebounded. In
other words, sell low, buy high.
Your
best defense against a market that slumps dramatically is to have a
well-diversified portfolio that contains an appropriate amount of risk for your
financial condition. This alone won't protect you when the whole market dives,
however it will position you to ride out the slump and be in good position for
when the market rebounds.
The
thoughtful investor always asks why the price of a stock is moving before
making a decision.
•
Has something changed in the company?
•
Has something changed in the company's primary market?
•
Has there been a negative or positive regulatory or legal change?
•
Is there an underlying change in the economy?
These
are not all the questions you should ask, some will be specific to the industry
or sector, but you get the idea. When you can find nothing in the answers to
questions specific to the company, you look to the market.
Is
this stock dropping (or rising) because the overall market is moving
dramatically in that direction? It can work both ways, although a down market
seems to depress overall prices more than an up market raises overall prices.
Shopping
at Discounted Price
If
you are looking to add to your portfolio, consider a down market a great
shopping opportunity. A thoughtful investor is going to buy on the potential of
a company and if he or she can pick the stock up at a discount so much the
better.
This
investing approach takes some courage and confidence in your ability to
distinguish between a stock price depressed by a down market and a stock that
is fundamentally flawed. You also must be prepared for further declines if the
market continues to slide and consider it to add more of our favourite stock
picks backed by strong fundamentals and reasonable valuations.
If you have at least two to three years before you will need to begin cashing in your holdings (at or near retirement), you may be able to ride out an extended economic downturn. However, if you do your homework, you'll find bargains in down markets that may reward you handsomely in the future.
If you have at least two to three years before you will need to begin cashing in your holdings (at or near retirement), you may be able to ride out an extended economic downturn. However, if you do your homework, you'll find bargains in down markets that may reward you handsomely in the future.
Don't
be frightened off a stock just because the overall market is sour. If the
fundamentals of a company are solid, a down market may be a great time to do
some discount shopping. A fundamentally sound company will likely be on the
leading edge out of an economic downturn.
Happy Investing
Source:Saralgyan.com
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