Everyone knows, through years of experience and exposure, that the stock market is a volatile place. As dynamic a place as it is, upswings and downturns are a significant part of the stock market. While the stock market is bullish, everyone is happy and optimistic. It’s when a downturn occurs that people panic. Although this is an almost natural reaction of investors, it’s the one thing investors should never do. There is such a thing as “panic selling”, but in the long run, this may do more harm than good. Nowadays, with easy access to any share trading app, offloading stocks during a downturn has become easier, and somewhat more impulsive, than it was ever before!
There are a million instances in which investors experience downsides in the share markets, but decisions taken in a hurry can lead to downfalls. Long-term and seasoned investors should know, by now, that eventually, the markets and the economy will go through recovery. When such a rebound occurs, it’s a great time for your stocks to increase in value. If you have your fundamental cash flow systems in place, and substantial knowledge of the markets, you will be equipped to face downturns and make fruitful decisions. There are some crucial reasons why you shouldn’t sell your assets during any downturn.
Understanding a Downturn
Most of us investors trade with super apps these days. Trading and investment has become so easy and portable with apps like the MO Investor app. After you open a demat account online, you only have to click a few buttons to trade and start your investment journey. However versatile this may seem for an investor, it also leads to hasty decisions, especially in times of a market or economic downturn. Before you understand why you shouldn’t simply offload your assets, especially equity, or part of them, during a downturn, you should know what a downturn is and implies.
An economic or market downturn is a general slowdown that takes place in economic activity. This happens over a sustained period. It can occur in a particular region (eg. the financial crisis in Asia during the late 90s). It can also happen on a global scale, like the financial downfall during the latter part of 2000. The key highlights of any economic downturn include decreasing share and home prices, increasing unemployment, low levels of consumer confidence, and a decline in investments. In such circumstances the first thing you think you should do is “sell” and get your cash free before its value decreases further. However, in such situations, you should ask yourself what you should NOT do and move on from there.
Don’t Sell! There is an Upturn Coming!
Whether you are using a share trading app or an online portal for your investment activity, it's very convenient to make spur-of-the-moment decisions. However, you may regret them later. This is true while you make investment decisions like subscribing to any upcoming IPO, or planning to disinvest as well. Anyway, back to downturns. The world, including individual countries, has been through many downturns. The Indian stock market has faced and recovered from downturn phases. That is exactly what downturns are - phases. If you examine past data, you will discover that it is a trend for any downturn to be followed by an upturn.
For instance, if you think of the financial crisis that occurred in India in 2008, the Indian economy and the Indian markets were adversely affected. The BSE SENSEX witnessed a decline from a whopping 20325 points at the opening bell to 9647 points at closing. In the very next year, 2009, a rebounding effect was gradually seen. Similar events took place in 2015, 2016 and 2020. Sitting tight is the best advice in such circumstances, rather than going the “panic selling” way.
It is Not Easy to Time Markets
Through an app like the MO Investor app, trading and investing is done at the drop of a hat. You can also get some sound advice about investing on a reputed trading and investing app. Having said this, if you wish to sell your securities to keep safe from declining portfolio prices in a downturn, you have to know that timing markets don't aid in mitigating losses.
Typically, when investors are compelled to sell, they will most likely experience losses. They sell by “timing the market” only to make more losses than usual. When you have equity as your investment, you have to look at the long view rather than the short one. Afterall, you have done a thorough job while researching company stocks you have invested in. With such solid equity, you have to know that once markets bounce back, your stocks will give you gains.
Think of Long-Term Financial Goals (and Returns)
Your share trading app can be your best pal where your investments are concerned. You can make the most of opportunities and buy good stocks for your portfolio when you are sure you want to invest. It can also turn into an enemy when you take hurried decisions to sell off your assets without a second thought.
Up or down, while you invest in the markets, it is best to stay true to your investments and the goals you have set. Sticking out a downturn, which is a temporary setback, stands you i9n good stead to help you achieve your financial goals by getting great returns in the long run. Whether you are investing small amounts at a time or have made a lump sum fund allocation, you should stick with a plan for the long haul.
Grin and Bear It
One thing that all investors know (but fail to accept at times) is that market downturns are an intrinsic part of the stock markets. You may have been quick to open a demat account and invest in stocks, but you shouldn’t be as hasty to get rid of your investment. Seasoned investors are patient investors who know that they have put in a lot of research and analysis before investing in any upcoming IPO or direct equity in the markets. They don’t just sell off investments in bad times.
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