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Can you take advantage in a falling market?

Team Veye | 02 May 2022

Can you take advantage in a falling market?

Currently, global markets are tumbling. Beyond geopolitical tensions, America is also facing inflationary pressures with US Fed possibly taking some recourse in its monetary policy in the coming week.

When the value of the portfolio decreases significantly, it is understandable for investors to get tempted to take their money out of the stock market. But most likely it is not the best course of action.

There’s an old saying on Wall Street: If you don’t sell it, you haven’t lost it. It is implied that the value of your investments doesn’t really matter until the day you need to cash out.

Market crashes are inevitable. No matter how hard you are prepared, there is never any fool proof solution. While a crash in stock markets or a market correction is impossible to predict, there are various strategies that investors can utilize to minimize its impact on their investment portfolio. 

Historical data shows that the best and worst-performing days of the stock market are often not too far from one another. This is the key reason why the strategy of timing the market does not work well for most regular investors.

The first and foremost thing to do if you are a long-term investor is do nothing. Resist the urge to sell in a panic. The key thing to remember is that fear leads to panic, especially among amateur investors. This panic often makes investor sell their investments at low prices during a stock market crash. 

It is a proven fact that though stock market returns can be quite volatile in the short term, stocks outperform almost every other asset class over the long term.

As such, it is advisable to view the stock market from a market of stocks angle. Instead of minding their own business, investors should mind their owned business. The advice of billionaire Warren Buffett, the world’s greatest investor couldn’t be more apt “Be fearful when others are greedy, and be greedy when others are fearful”.

When the market crashes, it provides an open window to buy more stocks for long-term investment as the prices are on the downward threshold and is seen as a perfect opportunity.

But, should you buy the stocks blindly just because they are at a low price? That would be a mistake. The stock market crash also lures investors who want to buy more and cheaper, but that does not mean investors can buy stock blindly. As a stock marketer, one needs to have patience and solid research of the company. Therefore, resist the urge to make panic buys also.

With the macro picture still evaluating, there is a need to let the markets settle down lower. Longer-term markets always do well; longer-term, good companies always do well. And if investors get them cheaper, that is only better.

Disclaimer

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