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Six tips for small investors when markets fall
Published on Mon, Oct 06, 2008 at 16:19, Updated on Mon, Oct 06, 2008 at 19:28 in Business section
Tags: Stock Markets, Sensex
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Never forget that what goes up, must come down.
This rule, I believe is the cornerstone of a successful and contented life. A sudden rise in the stock indices may have you smiling from ear to ear. It's the slide that tests your real strength.
And if the current slide makes you feel timid, Wealth gives you these six tips:
Hear no evil
Forget about rationalising and explaining (or listening to other people explain) why stocks are falling. It's a pointless exercise.
Remember the bad times
File the experience away as a worthwhile reminder of how risky the stocks are. Draw on that memory during the next market boom when optimistic market seers tell you that stocks are not risky.
Don't wait it out
If you believe, based on your preferred market measure, that stocks have over corrected, don't wait for the correction to end. In my case, I was investing in 1997 through 2008 -- it had nothing to do with the equity markets. It was a conviction that long-term monies should be in equities. So, if I have long-term money, it goes into equity, other wise it goes into a money market mutual fund.
Be contrarian
Recognise that even if you are right about the market overcompensating for past mistakes, there will be months of pain before the gain. Being a contrarian is easy on paper but much tougher in practice.
Change of perspective
Markets will go up and go down – you cannot change that. You can change the way you look at it. When you have money you will invest, when you need money you will sell. There is no call to action based on 'what the market will do'. So that does not matter.
Get real
Console yourself with the recognition that the professional portfolio managers and the market experts you see on television are staring into tele-prompters not crystal balls.
These tips should keep you afloat even if things go from bad to worse. And when they do, here is another rule for you to remember: No Matter How Bad things are, remember they can always get worse! And on that happy note, I shall bid you goodbye.
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