Podcast 5th February 2016
Risk aversion is driving markets globally and that is hurting your investments. Sensex and Nifty are down over 20% from peaks seen in 2015, ten year benchmark government bond yield is up and the INR is close to its all time lows against the USD. Your investments in both stocks and bonds or bond funds are seeing fall in value and that is understandably making you nervous.
Topping it all, all market experts are screaming about gloom and doom with multiple issues such as China slowdown, oil price fall, geo political tensions and government budget affecting markets. Such gloom and doom scenarios are increasing your nervousness.
Your natural reaction in such a market is to think of selling your investments to prevent further losses. Should you sell your investments following your nervousness?
The answer is both yes and no. You should sell your investments if you have leveraged or if you have bought speculative stocks for short term gains. Borrowing and investing leads to losses that you may not be able to bear and it is always advisable to cut your losses before losses go deeper. Speculative stock are speculative stocks, they rise when markets are good but fall and may never recover when markets go bad as speculators lose interest in such stocks. Strong, long term investors do not invest in speculative stocks and hence there will be no buyers for speculative stocks in a falling market.
No, you should not sell your investments if you have bought them with a solid, long term focus. Even though the value of your investment may fall, more often than not, if there is no change in the fundamentals of your investments despite the market fall, the value of your investments will rise consistently over a period of time. However, if there is a marked change in fundamentals for the worse, then you should look to sell your investments.
It does make good practise to articulate to yourself why you are making an investment. If you are investing in a stock, then list out a few reasons why you are investing in that particular stock given there are thousands of other stocks you can invest in. In times of market stress, this practise of listing out the reasons for investment will do you good as you can then go back to the drawing board and check out whether the reasons you listed out while making an investment still holds.
You should look to invest more if fundamentals have not changed but prices of securities have come off due to negative market sentiments. Needless to say, if you have taken your investment decisions with knowledge you are more likely to come out on top during market volatility.
Learn to invest with knowledge. Subscribe to Investors are Idiots.com. Please call Neelima at +919819770641 or log in to investorsareidiots.com to register. Thank you for listening in.