For the investor who knows what he is doing, volatility creates an opportunity, said John Train, an American investment advisor and author of many books on investing.
Alas, this is not the case with most investors. Notional losses have got investors concerned about their investments. In my interactive sessions, I have been meeting investors, who have partially exited equity investments, stopped SIPs and have doomsday predictions about the markets. Some investors have moved back to traditional investments such as fixed deposits, gold and endowment policies. This is probably why they say that Investors’ worst enemy is not the stock market but their emotions.
Fear of losing money makes people take terrible financial decisions. First, they don’t invest in equities and, even when they do, they exit at the slightest hint of volatility and re-enter once markets have rebounded, thus losing out on the market rally. This really means that they seldom make money in equities and are always bad mouthing equity linked investments such as mutual funds.
Here are a few steps to follow when the markets are on a roller coaster ride.
Assess why you chose a particular instrument