Markets have witnessed high volatility over the last few days amid an unprecedented surge in Covid-19 cases across the country. While many anxious investors are anticipating a repeat of the enormous crash in markets on the lines of what we saw in March 2020, some have already cashed out hoping to enter again at a lower price once the market bottoms out.
It's true that currently, our country is going through a hard time. But then, just like all other crises in the past, it is just another crisis that will most probably become history in the coming months, once most of the population is vaccinated.
Before we proceed to take a look at what investors should do during times of crisis, I wish to share some wonderful lessons from a speech by the CEO of Google, Sundar Pichai.
“While dining at a restaurant with a group of friends, a cockroach suddenly flew from somewhere and landed on a lady. Scared, the lady started screaming and jumping and tried desperately to get rid of the roach. Seeing her reaction, others in the group also panicked. The lady finally managed to push the cockroach away but it landed on another lady who continued the drama. The second lady too managed to get rid of the cockroach which then landed on a waiter who had rushed to help them. The waiter calmly observed the behaviour of the cockroach and grabbed it with his fingers and threw it out of the restaurant.”
From the above story, we can infer that it was not the cockroach, but the inability of the people to handle the situation which led to the chaos. Similarly, it is not the crisis, but the way investors react to a crisis that determines the outcome. Secondly, just like the waiter who remained calm and composed, investors who are serious about wealth creation never panic and remain invested during times of crisis.
Here are 4 valuable commandments for investing during times of crisis:
Ignore stock price, focus on the value associated with a stock and remain invested
Peter Lynch one of the most successful investors of all time says “Behind every stock is a company. If the company does well, over time the stocks do well, and vice versa.”
Instead of judging a share by its price, it is essential to evaluate a share by its fundamental strength.
Stock prices change on a daily basis depending on several external factors. The stock price only depicts the company’s current market value. A stock’s actual value depends on its intrinsic value based on both tangible and intangible factors, and can be determined only after detailed fundamental analysis using the company’s business model and financial statements. So, in case you have invested in fundamentally sound stocks, there is absolutely no reason to panic just because the stocks in your portfolio have corrected too as part of the overall market correction.
Stay away from news
With the non-stop flow of news through hundreds of news channels, mobile apps, and social media, there is no dearth of both positive and negative news. However, too much information overload can cause one to make biased investing decisions.
News headlines change every hour, without making a significant impact on the economy or your investments. So, it is important to stay away from news, especially during times of crisis.
Follow a staggered approach to investing
Instead of missing out by staying on the sidelines or sitting on cash, investors should follow a staggered approach to investing by looking at every correction during a crisis as an opportunity to buy.
If in doubt refer to these golden words by Albert Einstein “In the middle of difficulty, lies opportunity”.
Adopt a stock-specific approach to accumulate quality stocks
India’s growth story is unstoppable. The current crisis may have put a temporary obstacle in its path, but this uncertainty will not last forever. Any market correction during a crisis should be viewed as a buying opportunity to accumulate fundamentally sound stocks at discounted prices. Remember, patience and research can never go wrong even in times of crisis.
If you are not sure about the best way to analyze stocks for investment or lack the time for the same, you can avail expert help of a professional advisory service like Research & Ranking. With an in-house team of research analysts having a combined experience of several decades, Research & Ranking can help you create a portfolio of winning stocks with the potential to deliver multibagger returns over the next 5-6 years.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.