HOW TO SUSTAIN IN VOLATILE MARKET?
“Don’t fear crisis: Use them as opportunities to make money!”
It’s difficult to stay calm when the markets are highly volatile, most of the investors get nervous, create panic and start to sell their holdings but smart investors are the ones who stand out, survive and thrive in such volatile times. Always remember, if you are patient to stand such volatility and can survive for long term, then compound interest, the eighth wonder of the world, will always work in your favour.
Invest for long term
One of the main concerns for any type of investing is market volatility. It is a proven fact that stock market rises over the long term despite short term or medium term interruptions. However, it is important to note that short-term volatility is not always an indication of a long-term trend. A security can be highly volatile in short term but in long term it may be still stable and indicating growth.
Buying stocks for the long term allows you to take advantage of compounding, or the ability to reinvest your profits over time to generate even greater profit potential. Time is your greatest friend as an investor.
From the below table we can understand that if we stay invested in the market during downturn for long term, we can earn higher return. Long term investing will help in wealth creation.
| Year | NIFTY 50 | Return from Low | CAGR |
|---|---|---|---|
| High in January 2008 | 6375.1 | – | – |
| Low in October 2008 | 2252.75 | – | – |
| High in 2011 | 6181.05 | 174.38% | 40.00% |
| High in 2013 | 6415.25 | 184.77% | 23.28% |
| High in 2018 | 11760.2 | 422.04% | 17.97% |
| Year | Nifty Mid Cap 100 | Return from Low | CAGR |
|---|---|---|---|
| High in January 2008 | 9781.7 | – | – |
| Low in October 2008 | 3080.15 | – | – |
| High in 2011 | 8978.45 | 191.49% | 42.85% |
| High in 2013 | 8859.4 | 187.63% | 23.53% |
| High in 2018 | 21840.85 | 609.08% | 21.64% |
| Year | Nifty Small 100 | Return Since Inception |
|---|---|---|
| High in January 2008 | – | – |
| Low in October 2008 | – | – |
| High in 2011 | 3301.3 | – |
| High in 2013 | 3925.35 | 18.90% |
| High in 2018 | 9656.55 | 192.51% |
Nifty Small 100 was incorporated on 3rd October 2011
As they say, “Staying invested in the market has historically paid off”
Avoid Debt in your portfolio as well as in personal life
Buy nearly debt free companies in your portfolio, many companies get destroyed under the burden of debt than due to any other reason. Excessive debt is a sure shot barrier for long term growth. A classic case in point is CCD – despite a market leader in coffee segment and continuous sales, VG Siddhartha went in deep trouble because of piling debt year on year.
At personal level also one should avoid debt, as without the burden of rising EMIs, we can breathe easy and sleep in peace.
Build a diversified portfolio
Adopting portfolio diversification strategy is one of the most effective ways of generating optimum risk-adjusted returns, given that it allows you to spread your investments within/across various asset class, fund house and investment style. Diversification is aimed to reduce the overall risk by investing in different asset classes or fund houses.
For example, the latest NBFC crisis has taken a toll on all NBFC companies, whether established or small – hence a portfolio skewed towards NBFCs would witness a phenomenal downside in sectoral specific issues. Keep in mind that your asset allocation and selection of funds should be based on your risk appetite, investment horizon and financial goals.
Adhere to value investing
Knowing what an asset is worth and what determines that value is a pre-requisite for intelligent decision making – in choosing investments for a portfolio. To achieve higher returns, investors ignore higher P/E valuations and enter at highest P/E level, which they pay for in a bear phase when the stocks tumble. An average P/E of 40 plus was not justified for NBFC sector that crashed post the liquidity crunch.
Right time for Investment
Present market is like a sale in stock market, right time to buy quality stocks in your portfolio. A bear market can be an opportunity to buy good quality stocks at cheaper prices.
Hence build a sound portfolio take guidance of a trusted Financial Advisor. At Arihant, our financial advisors will guide you to do right investment, will do timely reviews and help in adding further investments in staggered manner. Be patient and trust with our conviction & ready to digest large, temporary, but notional losses in your portfolio would certainly help in big way to sail through current market volatility and generate long term wealth.
