In Volatile Market, can you still save your penny?
There is a growing skepticism among investor against investment in market. There is a growing trend of ‘distress selling’ of stocks after resurfacing of scams and global epidemic like Sub-prime Crisis, Greek Crisis. Such event has been on a rampant and the sanctity of investment is lost. Such has been the scar that a normal investor now either wants to book profit at the earliest or completely takes a self-exile from investing in Stock Market, but all and all they still have appetite for investment. Out of all this, can investor still make space for investing in volatile market?
The answer is Yes. Several investor think that they are not equipped enough to respond to such market volatility. May be this is coincidentally a good thing and perhaps there was no need to respond to such asymmetric information. Well this is technically a way to create that space.
This can be further expressed that had the investor invested more strategically he would have less to worry. Had he diversified his holding and investment he would have less risk of return. Diversification can be on several fronts – investing in ‘A’ category stocks and holding it for long period of time, stretching it to ‘B’ as well and as low investment in ‘C’ category stocks. (These categories symbolize the liquidity, market capitalization, capital appreciation and financial health of Companies). Investor further should have reach for Small-cap, Mid-cap and Large-cap stocks. Investment in Real Estate, Gold, and Silver makes the overall investment more cushion against market deviation. Investment in Fixed Income securities make your investment balanced.
Exiting any stocks or instruments on account of recent past often leads to distress selling and erosion of principal invested. Churning your investment for short term gain can further be a recipe for disaster because for this active management is required and often a complicated strategies which might be risky at times.
Diversification itself is a hedge and staying invested for long term in value stocks is always advisable.
This is a guest post by Mr. Mitesh Agarwal, BBA & MBA (Finance). Currently working as Financial Analyst with a leading firm in Mumbai.