Managing panic attacks in the market is not just important for your financial portfolio but also for your physical and mental health. There are lot of ways you can do this (some really funny) like forgetting your demat account password :)
This article is for brave-hearts
However in this blog I will cover how to handle market panic for brave-hearts who want to confront the situation head-on instead of escaping from it by forgetting their demat account password.
Whats wrong with forgetting login password till market stabilizes?
Besides the fact that some of the best investment and trading opportunities come up during highly volatile times, the bigger loss is the loss of experience of dealing with market falls. There is no other way to learn it but to stay with the market when it is falling and such opportunities don't come based on our convenience, so we have to take it when the market gives it to us.
play with equity:cash ratio
If you are convinced that the market trend has changed decisively and the fall is going to continue for sometime and you are sitting on decent profits, you can consider liquidating part (not all) of your portfolio. This is best handled using a simple ratio, equity:cash ratio. Say in a positively biased market you generally have a 85:15 equity:cash ratio, you can bring it down to 70:30 or even a 60:40 ratio when markets turn volatile and the sense of risk is alarming depending on the severity of the situation. If it is a major catastrophe, then the equity:cash ratio should be inverse favoring more and more to cash than equity. For advanced players there are other options like switching between equity and debt or forex, etc
play with portfolio composition
If you feel that market can recover quickly anytime, and by moving to cash you will lose the recovery and get kicked out of the equity market at bottom levels, you can instead churn out of high beta high risk stocks and move into defensive, low beta stocks and sectors like pharma, FMCG, diversified. That way you minimize your risk exposure and still benefit to some extent just in case the trend reverses and market recovers
play with your SIPs
If you have SIP, you can SIP the oversold levels hence improving your weighted average acquisition price. Plain SIP is not exactly a great idea and tends to provide inferior averaged out returns. Weighted SIP is a decent mid-way between trading and long term investing, providing more superior returns as you tend more long term.
accumulate your gems
If you are a seasoned player, you will always have favorite stocks, portfolio gems that you are greedy about and would like to accumulate at any cost since you have very high conviction on these stocks and believe these gems will make you filthy rich over long term holding period but these stocks are hard to get at a reasonable price .. well take advantage of the market fall and pick up some, this is the right time to be greedy about such stocks
hedge with put options
if you are comfortable with derivatives you can consider hedging 10-30% of your portfolio using put options in index or specific contracts where you have large exposure
switch sides
something will always be on the other side rising while rest of the market is falling. It was oil in 2008. It could be gold in 2015-2016-2017. If you can see the other side clearly take the opportunity to make a switch. Stock market is about making money not about loyalty and sacrifice. Nothing wrong in making a switch to the winning side and ditching your long term holdings.
Contra bets
If you think the market has already gone below justified levels of correction, you can take contra bets and play with some high beta, high quality, trading favorites for trend reversal, bounce backs or just plain volatility
margin trades
If you are a skilled trader, you can try intraday margin trades leveraging your cash upto 10X times and playing aligned to the market on the down side, hence hedging or minimizing your portfolio losses. Be warned, if you are not skilled at it, you will make losses on both trades and lose much more money.
just watch the stock prices falling
If you think above is too advanced or stress play for you, just logon and observe the market behavior. If not money, you will gain priceless insights on market behavior patterns. You will understand a great deal about stocks and sectors and macro environment impact. The experience will be worth more than money lost or gained and will harden you for the next scary phase. It's worth the time. If you are a seasoned player, it should actually be fun for you.
Don't play big money in one day or one trade. You have cash capital in a volatile market, that is a blessing, don't give it away easily, play with it
Play both sides, don't play just one side, all buy or all sell. You would otherwise be exposed to very high trend reversal risks
Don't take tension. Decision taken under stress will almost certainly be wrong. Be cold and mechanical, not emotional, that is if you find it difficult to have fun during such times
If you don't understand something, don't do it
Don't just shut down and log off. Be in the market. Always. Be a soldier, never leave the borderline of your portfolio. Gaining insights and experience is far more valuable than money.
This article is for brave-hearts
However in this blog I will cover how to handle market panic for brave-hearts who want to confront the situation head-on instead of escaping from it by forgetting their demat account password.
Whats wrong with forgetting login password till market stabilizes?
Besides the fact that some of the best investment and trading opportunities come up during highly volatile times, the bigger loss is the loss of experience of dealing with market falls. There is no other way to learn it but to stay with the market when it is falling and such opportunities don't come based on our convenience, so we have to take it when the market gives it to us.
So what can we do when the market falls?
Actually lot of interesting things, listed below are just few of them .. read on ..
If you are convinced that the market trend has changed decisively and the fall is going to continue for sometime and you are sitting on decent profits, you can consider liquidating part (not all) of your portfolio. This is best handled using a simple ratio, equity:cash ratio. Say in a positively biased market you generally have a 85:15 equity:cash ratio, you can bring it down to 70:30 or even a 60:40 ratio when markets turn volatile and the sense of risk is alarming depending on the severity of the situation. If it is a major catastrophe, then the equity:cash ratio should be inverse favoring more and more to cash than equity. For advanced players there are other options like switching between equity and debt or forex, etc
play with portfolio composition
If you feel that market can recover quickly anytime, and by moving to cash you will lose the recovery and get kicked out of the equity market at bottom levels, you can instead churn out of high beta high risk stocks and move into defensive, low beta stocks and sectors like pharma, FMCG, diversified. That way you minimize your risk exposure and still benefit to some extent just in case the trend reverses and market recovers
play with your SIPs
If you have SIP, you can SIP the oversold levels hence improving your weighted average acquisition price. Plain SIP is not exactly a great idea and tends to provide inferior averaged out returns. Weighted SIP is a decent mid-way between trading and long term investing, providing more superior returns as you tend more long term.
accumulate your gems
If you are a seasoned player, you will always have favorite stocks, portfolio gems that you are greedy about and would like to accumulate at any cost since you have very high conviction on these stocks and believe these gems will make you filthy rich over long term holding period but these stocks are hard to get at a reasonable price .. well take advantage of the market fall and pick up some, this is the right time to be greedy about such stocks
hedge with put options
if you are comfortable with derivatives you can consider hedging 10-30% of your portfolio using put options in index or specific contracts where you have large exposure
switch sides
something will always be on the other side rising while rest of the market is falling. It was oil in 2008. It could be gold in 2015-2016-2017. If you can see the other side clearly take the opportunity to make a switch. Stock market is about making money not about loyalty and sacrifice. Nothing wrong in making a switch to the winning side and ditching your long term holdings.
Contra bets
If you think the market has already gone below justified levels of correction, you can take contra bets and play with some high beta, high quality, trading favorites for trend reversal, bounce backs or just plain volatility
margin trades
If you are a skilled trader, you can try intraday margin trades leveraging your cash upto 10X times and playing aligned to the market on the down side, hence hedging or minimizing your portfolio losses. Be warned, if you are not skilled at it, you will make losses on both trades and lose much more money.
just watch the stock prices falling
If you think above is too advanced or stress play for you, just logon and observe the market behavior. If not money, you will gain priceless insights on market behavior patterns. You will understand a great deal about stocks and sectors and macro environment impact. The experience will be worth more than money lost or gained and will harden you for the next scary phase. It's worth the time. If you are a seasoned player, it should actually be fun for you.
what you should definitely not do?
Don't buy stocks just for averaging your cost price lower, because you are making huge losses in some counterDon't play big money in one day or one trade. You have cash capital in a volatile market, that is a blessing, don't give it away easily, play with it
Play both sides, don't play just one side, all buy or all sell. You would otherwise be exposed to very high trend reversal risks
Don't take tension. Decision taken under stress will almost certainly be wrong. Be cold and mechanical, not emotional, that is if you find it difficult to have fun during such times
If you don't understand something, don't do it
Don't just shut down and log off. Be in the market. Always. Be a soldier, never leave the borderline of your portfolio. Gaining insights and experience is far more valuable than money.
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