Dear Investor,
Let‘s start today’s blog with a question, if you want to buy a mobile you would buy it when the price is the highest or would wait for it to settle down a bit? The question itself is an answer.
Now think what if you want to invest in mutual funds. You must wait for its price to get down so that you can buy more units, right?
However, most investors seem to be unhappy when the market goes down, here as an investor you need to understand two things. First, as an investor the market is not in your control, you are not the one who decides how the market will behave and when. Second, if you are an investor or deciding to be one, remember that the market will fluctuate, there are times when the market and economy will thrive and there will come the time when the market will barely survive.
So, remember a thumb rule of the investment world, Invest when the market is low, wait until the market grows, and always decide to take your hard-earned money when the market is thriving.
Humans are an emotional being
As humans, we are emotional, and our emotions affect our investment decisions. As the market goes up it gives a sense of excitement and euphoria. And when it is down it creates fear and panic.
Here when the market gets down the investors must take it as an opportunity to invest and buy more units. This will accelerate your progress towards your financial goals.
How to manage emotional upheaval?
Investors stop hating the bear, take it as an opportunity to buy more units of mutual funds. As ups and downs are part of life the same is with bull and bear condition of the market. It’s part of the market. One cannot ignore it. So stop hating bear market and accept it as a part of investment life. Moreover, bears often check-in with a purpose. In 1992, it exposed the securities scam. In the 2000 crash, it pricked the internet bubble and uncovered the fallacy of the dot com valuations. In 2008, it laid bare the dangers of financial leverage. And more importantly, put an end to the herd mentality.
According to Sir Jhon Templeton, “Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria”.
The bears are back on Dalal street with the pandemic Coronavirus. And the whole scenario has brought the market valuation again to the grounds.
Here, acceptance is the key, accept that ups and downs are part of the whole investment process and to gain more you have to ignore few losses.
Keep a check on your emotions
Are you suffering from recency syndrome, yes, this is a syndrome. If you conclude the future returns based on the recent performance of the funds then you are making some wrong decisions in choosing funds. The recent fall has lowered the performance of most equity funds. Remember, in the end, equity returns will revert to its mean.
On the other hand, maybe you were just following what everybody else is doing and made a decision based on your emotions.
Meditate; you have all the time to do
This is not only me who is saying this, but it is proven that the parts of the brain associated with expecting a reward are less active in the minds of those who meditate. In any case, a calm mind will let you think more and have patience in the time of the market crisis.
Remember nothing in the world is permanent, so the bear market condition will also go.
Let the market teach you
The market is a great teacher, let the market teach you. In times of crisis, some learn to allocate the assets. Often decisions on asset allocation are taken when the market is at its low.
Takeaway
The equity market has always rewarded long-term investors while punishing the myopic ones. By staying through the bear phase, you might likely be convinced of the long-term nature of equities.
A bear phase in the market will dent your portfolio, but only temporarily if you learn something and gain something.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).