The current market is falling relentlessly and has breached the 16,000 mark today. This market is not meant for the faint-hearted as further fall is possible and there will be no respite on the volatility front in the short term. Investors especially the ones that have entered during the post covid bull market, have to taper down their expectations and need to work hard to achieve a reasonable reason.
Gone are those days when any stock would rise 10 percent in a week or 30 percent in a month or 5 times in a year!! However, the current dip provides a good opportunity to add stocks and India is currently in a better position in terms of economic strength compared to its peers in the medium to long term. Investors must be cautious during these volatile times and follow these rules to achieve good risk-adjusted return:
Buy for the long term: Control over our emotions especially greed and fear is necessary, having a short-term mentality is dangerous as investors might get stuck in fundamentally poor stocks or at a very high price. Investing for the long term has two advantages, first, you can take advantage of the power of compounding, and second, you can sleep peacefully.
Investors must perform due diligence before investing and invest in those stocks where they have a complete understanding about the underlying fundamentals. One must study the business model, management quality, competitive landscape, financials, and future growth prospects, before investing in any stock. This will help them to separate the wheat from the chaff. This is a basic requirement before investing otherwise mutual fund route is more appropriate.
Understand risks: Good investors never commit money into an investment without total awareness of the risks (and potential rewards) involved. By doing so, they assume full responsibility for the fluctuations that may ensue during the investment life cycle.
Take advantage of the dip to enter into quality names: The current scenario, where the environment is full of uncertainty and negative sentiments is the best time to add stocks that have good fundamentals, growth visibility, competitive advantages, and reasonable valuations.
Smart investors get advice: Smart investors don’t shy away from professional advice. This has to be distinguished from the occasional tips and suggestions from your friends and family. That is not professional advice. Seek help from a qualified market professional in making your portfolio relevant to your goals.
(Santosh Meena is Head of Research, Swastika Investmart Ltd.)