MAY 12, 2020
Stock market investors are worried as businesses have come to a halt because of the lockdown due to the Covid-19 pandemic. Share prices have crashed and investors have lost money. However, investors should not take any knee-jerk decisions in these volatile times.
What not to do
If you are holding a stock in a good company that has shown progress over the years but is down now because of Covid-19 pandemic, you shouldn’t be too eager to sell your stocks. Investors who are patient will reap the rewards later. One of the easiest ways to make money in the markets is to invest in growing companies and ignoring the ups and downs that will occur from time to time. Stock market rewards patient investors. In the global financial crisis of 2008, TCS fell by more than 50% within a span of two years. But once things stabilized, it made a comeback from Rs 125 a share to Rs 2,284 in 12 years with a CAGR of 30%.
Another great example is of Bajaj Finance, whose stock prices fell by over 80% during the span of one year from 2007 to 2008. However, in the current market, it is counted among the largest wealth creators in the country.
Another mistake is that people end up buying stocks in a company simply because the price has fallen. Buying cheap stocks will only lead to profit if the company is good enough to last long term. There are plenty of companies in existence today that will cease to exist within a decade and you would end up losing your money. So make sure that if you are investing, invest long term and in a company that is going to make a comeback.
What should you do
It is like they say, a crisis is also an opportunity. A pandemic of this scale is a one-off occurrence and it will create investment opportunities for people to generate a fortune over the next decade or so. One just has to trust the statistics. Moreover, there are companies that have faced such crises before and they?ve always came back stronger. Such companies can be easily identified by studying their stock trends which are always inching higher and higher.
Even with the shutdown in place, people will be buying groceries and other household stuff and companies such as Hindustan Unilever that manufacture these products will continue to generate wealth as they have in the past.
Every crisis looks smaller in the hindsight. So four to five years from now, we’d all be looking at this time as an excellent buying opportunity. Those who do not invest for the fear of losing their money will come to regret their decision in the future.
Some investors who own stocks in successful companies are selling those stocks now at cheaper prices because business outlook is poor this year. They should, however, not forget the fact that in the long term, these companies are going to bounce back and the drops they are currently suffering would look negligible in a couple of decades. Such is the power of long-term investment. This present crisis has created an opportunity for smart investors to buy stocks in great companies.
A common mistake that investors make during times of crises such as this is that they end up investing in low-priced cheap, cyclical stocks?which hurts them in the long run. Those investors who remain calm and invest in great companies despite the current bleak scenario will reap the benefits n the future.
Courtesy/Source: Financial Express / The writer is founder & CEO, Finway