Just like in life, there is always a surprise element in markets as well. Something happens that makes us pause and rethink the way we live our lives which includes the way we save and invest. The coronavirus that is currently plaguing the world is having a deep impact on our health and economic stability. It is causing panic among investors due to which markets have become extremely volatile, correcting by 5 to 6 per cent every other day.
Below are three things that investors usually consider in a stock market correction and along with them are the suggestions that will help the investors.
When markets are correcting and your equity portfolio is bathed in red, most people think that the only way they can stop the bloodbath in their portfolio is by selling. However, having a knee jerk reaction to market volatility is definitely not the right way to go. Instead, you need to calmly assess your portfolio or consult your advisor to determine the best way forward. You might need to exit some investments in part or in whole while you might need to hold some investments for the long-term.
There are also many investors who look at steep corrections as an opportunity to buy companies at lower levels. This may be true. However, it is important to correctly distinguish between price and value. While all companies might be available at a cheaper price, the question you need to ask is whether you are paying the correct price for the value that the stock delivers. Alongside, you also need to understand that if the correction is due to some fundamental shifts in the market then it becomes imperative that you assess the future prospects of the company in the backdrop of the changing environment.
Succumb to fad-based or specialised investments
When markets are correcting due to certain macro-economic developments or outlier events, risk and panic are usually at its peak. In such an environment, many people succumb to specialised investment strategies that promise to capitalise upon existing trends or reduce volatility. New investment products are developed that are meant to act as a hedge in volatile markets. Unfortunately, these products are often difficult to understand while their efficacy is a suspect. It is best to avoid such strategies, especially when volatility has already seeped in.
Investing in equity markets is never an easy task. In times of heightened volatility, it becomes even more challenging. The right thing to do would be to stay tethered to your overall portfolio strategy and think before making any portfolio decisions.