Saturday, August 22, 2015

6 Strategies to Steer You Through a Market Correction

Courtesy :http://money.usnews.com

  
One of the biggest mistakes long-term investors make is getting out of the stock market at the wrong time. We've all heard the saying "buy low, sell high," but mom-and-pop investors have a tendency to panic during market declines and sell when stock prices are down, locking in losses.
U.S. stocks have ridden a rising trend for six years as of March, a long stretch by historical standards. While that doesn't guarantee the stock market will crash anytime soon, it's always wise to review strategies to handle a declining market. If you are prepared, you can avoid emotional decision-making, which can be detrimental to your financial health, experts say.Declining stock markets often bring out strong emotions such as fear, anxiety and depression, says Dr. Gary Dayton, a psychologist and founder of Glastonbury, Connecticut-based TradingPsychologyEdge.com, a trading psychology coaching firm. "Making investment decisions based on emotions is always the worst way to invest,” he says.
While institutional investors look at market downturns as buying opportunities, individual investors often sell their investments. "This striking tendency has been documented for over 100 years. At some point in a falling market, individual investors’ fear will be at its highest. Frightened at the prospect of losing even more money, many investors panic and sell their holdings," Dayton says.
For individuals investing for retirement, with a time horizon of 10, 20 or 30 years, short-term bear cycles may not matter. The problem for long-term investors who sell in market declines is getting back into the market without missing the upturn."Numerous studies have shown that investors tend to panic during declines and at bottoms. It hurts because once markets recover, they tend to go up quite rapidly before investors realize that things are going back to normal,” says David L. Blain, chief executive officer of BlueSky Wealth Advisors LLC, a New Bern, North Carolina-headquartered wealth advisory firm. “By then, they have missed out on a large portion of the upside."The herd mentality also can play a part in stock market selling pressures. "Herding is the tendency of a group of market participants to behave like a school of fish or a flock of birds. When market conditions deteriorate, there is an initial rush to the exits," says Dr. Kenneth Reid, a trading coach and founder of Santa Fe, New Mexico-based DayTradingPsychology.com.




 1. Turn off the news. Listening to the news and reading about the dire economic predictions can heighten your nervousness. "Don’t look at your portfolio all the time. Turn off the TV and stop listening to your neighbor and the doom-and-gloom prognosticators. Focus on what you can control, which is your spending and saving. Make a new goal to save an extra X dollars a month while things are declining, and then invest it," Blain says.


2. Re-evaluate your portfolio. Do the stocks you hold continue to meet your investment criteria? "Winnow out the weak stocks by selling them. Stocks that no longer meet strong investment criteria are likely to decline the most in a market fall. You will be increasing your cash position, which can be used for the purchase of new stocks at attractive prices once the decline is over," Dayton says.

3. Make a list of stocks or funds you want to buy. A declining market can offer the opportunity to add to your long-term investment portfolio at a lower price point. "Long-term investors should welcome the occasional bear market if they have a good investment strategy and the discipline to see it through. The historical stock market trend is upward, and occasional bull markets are an opportunity to buy stocks while they are 'on sale.’ As Warren Buffett observed, it is profitable to be greedy when others are fearful," says Derek C. Hamilton, a certified financial planner at Indianapolis-based Elser Financial Planning Inc.


4. Stay diversified. A portfolio allocation with 60 percent stocks and 40 percent bonds is an old benchmark and starting point for portfolio diversification. Check out stock-and-bond mixes in a target-date fund based on your age to get an idea of appropriate allocations for your time horizon. Rebalancing your allocations is an important task you can do on a quarterly or annual basis so your portfolio will be ready if the market heads south. "If you have different asset classes, something will be going up. In the global financial crisis, it was U.S. Treasuries. The point is to determine ahead of time what sort of decline you can tolerate, and don’t invest in such a large percentage of stock that you will panic in a decline," Blain says.

5. Work with a financial advisor. Develop a comprehensive, written plan that sets out your important financial goals and how you will achieve them. This will be your map when the going gets tough. "We are all human beings, and fear can get the better of us. The best inoculation against a fear-driven investment mistake is professional guidance and a good plan," Hamilton says.
A fee-only financial adviser can help navigate you through a declining market. "He or she can help you avoid hasty, emotionally driven moves and see to it that any course corrections are well-considered and keep you on track to meet your goals," Hamilton adds.

6. Get a grip on your emotions. You may not be able to avoid an emotional response, but you can manage it. "Science is showing that the practice of mindfulness helps us reduce stress, changes brain regions associated with fear and therefore improves our internal control over emotions, and helps us be more aware of both opportunities and dangers when we are in challenging situations such as declining stock markets," Dayton says. "Mindfulness helps investors maintain an even emotional keel and make better investment decisions. It is the one mental skill I suggest all investors learn."
He adds: "Following an investment process and being prepared for the inevitable market declines helps you act prudently, keep truly great companies in your portfolio for the long term, protect them during market slumps and be in a position to buy other great companies at attractive prices when others are selling them in panic.”


42 comments :

  1. what's your view on financial technologies India Ltd?

    ReplyDelete
  2. VP Sir, is this is a sign of Market correction period?

    ReplyDelete
    Replies
    1. Correction is part of market .Need not worry too much about corrections if you have conviction in the invested company . As always , avoid investing in stocks with borrowed funds or funds kept for some other purpose .

      Delete
  3. Hello Sir,

    I bought Opto circuits at 22.3 per share. Now it is going down. It is tempting me to buy another 100 shares of Opto circuits. Can I buy Opto Circuits now ?

    ReplyDelete
    Replies
    1. It is not a stock for an average risk taker

      Delete
  4. Too good Sir. At right time. Thanks a tonnnnn.

    ReplyDelete
  5. Dear VP,
    Can you provide your view on GAIL? I am holding 200 shares@490. The share prise is continuously falling. Any specific reason. Is there any chance to recover price?

    ReplyDelete
  6. Sir, your view on Coal India, you appear not tracking PSU companies! Is it established names are never multi bagger that does not find your attention

    ReplyDelete
    Replies
    1. Not tracking it and not sure how long Coal India can remain as a monopoly

      Delete
  7. Dear VP Sir, What is wrong with United Drilling Tools company these days ? knowing the fact the slump in oil business across globe but the scrip is playing in LC in an uniform manner. Do you know who is offloading the shares ?

    ReplyDelete
    Replies
    1. All companies servicing oil drilling industry may negatively affected if the present trend in oil price continue.

      Delete
  8. Sir, your view on Deccan gold mines for medium term

    ReplyDelete
    Replies
    1. Not tracking it .Any idea why its promoters selling in every rise. ?

      Delete
    2. Vp sir,

      The promoter company Rama Mines has a shareholding base of many individual investors who came together and sourced money to form the company...many of them who are not pare of the core group have continuously been exiting the promoter company rama mines which in turn sells deccan gold shares to pay out the existing investor...the core group of shareholders include mark creasy and charles devenish who are very well known personalities in gold mining circle...deccan gold has finally got approval of ministry of mines of its first gold mining license for ganajur in karnataka...so the story befins now...

      Regards

      Krunal

      Delete
    3. Dear VP

      You are insane, inhuman. How can you keep track of so many things?

      You are a demi god for me. and you know vwhat? you keep coming in my dreams
      But I Love you. Oops We Love You

      You are amazing...

      Delete
  9. Excellent Thoughts sir. All the points are very well put

    ReplyDelete
  10. Sir your views on Vidhi Dyestuff...?

    ReplyDelete
  11. do you think think labour problems will affect samkrg pistons & rings' September Q results sir, cause i think the labour problems happened during this current Q , not during the previous Q.. Thank you

    ReplyDelete
  12. Super article sir..Thank you very much for guiding us through these crisis periods..

    ReplyDelete
  13. I've invested some amount in some good quality stocks, I do have some cash to invest and looking at putting some money in staggered way. Pantaloons Retail + Kitex + Mayur Uni + Tv Today + Wonderla Hol + Geometric + Aries Agro + Atul Auto + Granules are on my radar. Is it possible for you to put a list of stocks in your radar or worth looking at investing in a staggered way.

    ReplyDelete
    Replies
    1. If you are confident about the companies in which you are already invested , why need to look other options If they corrected .

      Delete
  14. Sir whats happening in the markets? is it the coming of 2008? Need your valuable insights and words to sooth and tide over such deep market corrections for small retail investors.

    ReplyDelete
  15. Sir, this article was published at the right time, when Sensex fell 1500 points. Upon reading, it sounds re-assuring. Holding Stocks with conviction. Hope Bulls soon to take over. Great day VP Sir.

    ReplyDelete
    Replies
    1. It is part of market and every stock will come down in a market like this and need not panic on that , but the stocks you are holding should be strong enough for a come back when situation of market back to normal.

      Delete
  16. Hi VPji, please let me know your views on
    MIC electronics
    NCL industries
    Nitin fire
    SKM egg products export ltd.
    Please let me know
    ...

    ReplyDelete
    Replies
    1. Not tracking Nitin Fire

      No change in previous view on others

      Delete
  17. Sir, i want to buy more of SKM. Is it good time to buy?

    ReplyDelete
  18. Dear Sir,

    You article has been very helpful in dealing with today's carnage and maintaining a cool head.

    ReplyDelete
    Replies
    1. We have no control over market and need not bother too much about it . Stay invested in quality companies .Irrespective of market ,such stocks will outperform in long term.

      Delete
  19. I really appreciate your efforts to keep retail investors calm and to emphasize on the importance of long term perspective with quality companies. Thank you for that as well, besides for regularly evaluating potentially good companies for us. Cheers!

    ReplyDelete
  20. Thank you sir for the timely article. I am looking forward to adding more with the fall in prices. It looks like a great opportunity to buy. Thanks so much for giving the confidence, education,guidance and support. You are giving us a lifetime opportunity to suceed,can't say enough of thank you sir. God bless.

    ReplyDelete
    Replies
    1. Practically no one catch the bottom .So while buying in these type volatile market use only the amount you can forget for long term and not any borrowed fund .Initiate purchase in a staggered manner

      Delete
  21. I HAD BOUGHT 5000 SHARES OF MIC @28.00 SHOULD I HOLD OR EXIT

    ReplyDelete
  22. Sir, what is your view on NMDC? It's price reduced to half from last year. Is it a good time to buy?

    ReplyDelete
  23. Nice Article for who want to stay im mkt. at time of correction.

    pls five ur view on AB NUVO & BEL & PSU BANK
    IS THIS TIME TO BY THEM

    PLS SHARE UR VALUABLE VIEW

    ReplyDelete

Followers

Tweet TopOfBlogs