Markets have been volatile since October 2021. The falls have been low, moderate, and steep enough to erode investor wealth in crores. Every time the indices fall, newspapers and channels are full of sensational headlines. Here are some you may have come across recently.
“Rupee opens 3 paise lower vs dollar; surge in US inflation stokes Fed rate hike worry.”
“Sensex sheds 300 points, Nifty below 16,550; Tata motors drops 2%.”
“Yellow metal tops Rs. 53000, silver edges lower.”
“Stocks dive on surging inflation, Ukraine risks; China markets sell-off.”
We are sure these headlines caught your attention. How did you feel after reading those articles? Were you worried about your investments? Did you feel the need to sell your stock to mitigate potential losses? Did you feel it’s time to average your existing holdings?
Well, you are not the first investor to feel like that. Most investors would panic and make decisions they may regret later. A well-known investor once said that when the markets are shaky; and money is not flowing in, the good, bad, and ugly get exposed. What matters; is the stocks in your portfolio and not the indices.
The last two years have seen more retail investors participating than ever before. After a stellar positive run for two years, most now face challenging times. Many may have heard about downs in the market before. But hearing about them and experiencing them are two different things.
New investors learned many lessons, one of them being “how irrelevant stock indices are to their portfolios”.
Not sure what we mean? Let us give you an example.
Investor A started investing in 2020. He religiously pored over the news headlines and surfed channels to understand the market before investing. He believed that the Nifty and Sensex were vital numbers, and any investor can have a good or dreadful day depending on whether the indices were up or down.
The investor invested money in the markets based on these beliefs and discovered the situation was completely different. The fall and rise affected only those investors who invested in passive funds based on indices. For others, it was more about the stocks in their portfolio than Nifty or Sensex levels on that day.
Know how stocks matter more than the indices
February 14th, the Sensex crashed 1748 points. However, it bounced back to the same level it had fallen from a day before, on February 15th. The headlines said it all. “Sensex fell 1748 points on the 14th and rose 1747 points on the 15th.”
Does this mean everything in the stock market was hunky-dory? Not really. The Sensex may have recovered to its previous levels, but individual stocks did not bounce back.
Look at the top 200 stocks in India. It will tell you that nearly 140 stocks did not bounce back to their previous levels. Almost 50% of stocks were down one percent from their assumed levels after the crash. Over 25% of the large 200 stocks were 3% down even after the indices recovered on the 15th.
We believe this scenario will help you understand the stock markets better. Whether the indices go up or down, you must pay more attention to the stocks in your portfolio.
How can you get the returns you seek?
The best thing is to invest in fundamentally sound stocks. Study the company, the management, its core values, its moats, EBIDTA, and more thoroughly.
Do not invest based on news headlines. They sensationalize and draw attention to the market situation but do not tell you how to create wealth.
“A good portfolio is more than an extensive list of good stocks and bonds.
It is a balanced whole, providing the investor with protections and opportunities for a wide range of contingencies.”
Harry Markovitz
So, will you be the informed investor or give more credence to news headlines before you invest.
In the meanwhile, let us help you create wealth through our 5 in 5 Wealth Creation Strategy.
Read more: How Long-term investing helps create life-changing wealth – TOI.
I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.