The present affairs of the stock markets hog the memory of me of the debut roller-coaster ride at my school trip to a theme park. The minute I saw the ride, I was longing to get on it. Desperately waiting for the long sequence for my turn along with my mates. Leveraging my excitement, the shouts of others on the roller-coaster with both hands raised in the air.
Finally, as the roller-coaster picked up speed, I started feeling giddy, had butterflies in my stomach, and felt like puking. The joy rides soon turned to horror and I closed my eyes. Others were enjoying it except me because of the roller-coaster which takes unexpected twirls and twists.
Similarly, the stock markets are subject to unforeseen ups and downs. Experiencing years in the markets, we can still witness many investors reacting the same way I did experiencing the three-minute journey on the roller-coaster. When the market shows the initial sign of correction, investors panic and sell off their investments for a loss be it big or small like there is no tomorrow. As a kid back then, it was okay to think illogically of jumping out of the ride. What surprises me the most is that even grown-up investors are acting irrationally when the market corrects despite investing in good performing stocks.
And these are the same investors who come back to invest when the flow reverses or abandons altogether and blame the market for their losses. So, the question here is, should the investor exit or stay if the markets correct more now. The fact that volatility is a market trait, but any investor doesn’t need to worry if it follows below mentioned approaches.
Firstly, invest in fundamentally sound companies as they are not immune to market corrections. Such companies are the first to recover and outperform when the cycle changes.
Secondly, be a retail investor with long-term goals and the reason one invested in equities in the first place. Markets fluctuate wildly during the short term but are generally stable over the long term.
Thirdly, market correction is an unexpected opportunity, quality stocks are available at discounted prices. Think of it as a discount sale at your favorite store when you buy more.
Last but not the least, humans are full of emotions. Every investor who invests in equities must understand, markets do not go up continuously in a straight line. There can be temporary hurdles in the short term.
In the past, the markets have rebounded in a big way after every downturn. So when you invest for the long term, the returns will average out. The secret to become a successful investor is to remain invested during the volatility, just like holding tight while you’re on a roller coaster ride.