Stock markets keep going up or down, depending on how the participants in the market collectively think.
Fear and greed drive investors.
Some people are driven by logic, while others are driven by emotions. Some do detailed research, while others just follow the advice of trusted investors.
However, I know one thing – investors who can control their financial behavior, always win in the market.
You might be investing in stocks directly, or investing through mutual funds. You might have your own investment style.
It is investor psychology to get fazzled when the markets go down. In this state, they often get confused and end up committing some fatal mistakes.
In this article
- 11 mistakes investors make when the market falls
- 1. Panicking
- 2. Stopping your investment
- 3. Timing the markets
- 4. Stopping your SIP
- 5. Anchoring on the price
- 6. Selling everything
- 7. Investing a large amount
- 8. Don’t leverage
- 9. Watching too much news
- 10. Deciding in a hurry
- 11. Forgetting the basics
- In conclusion
11 mistakes investors make when the market falls
I read a story when I was in school. It was about a boy who revolted against a bully.
The bully had established his fear in the community and everybody was scared of him. But when this boy revolted, everyone united behind him and threw away the bully.
I don’t remember the story very well, but one thing stayed in my mind – “Fear and Bravery are very contagious”.
They spread, just like flu does. Same things happen in the markets. In bear markets, fear is widespread and most investors start panicking. It is almost impossible to control emotions.
The biggest mistake that investors make is panicking. And taking decisions that hurt them in the long term. (The reverse also happens in the Bull markets when investors start buying impulsively)
2. Stopping your investment
Okay, this is probably the worst decision you could make.
Imagine you are in school and one of your subjects is extremely hard. Will you study extra hard to do well in that subject, or will you drop that subject?
If you are smart, you will study extra hard. Same goes for investing.
You must remain invested during the market lows, only then can you reap good returns
3. Timing the markets
Alright, this is another blunder.
Financial analysts themselves say it is futile. In the words of Warren Buffet, ” Market predictions can distract investors from making good stock purchases”
It’s a waste because not only do you miss out on very good investment opportunities, you also miss out on buying the units at a lower price.
If you ask me or any other expert for that matter, they will tell you that investing when the market is low is probably the best, because, this is when you can apply the concept of ‘buy low, sell high’.
4. Stopping your SIP
An SIP is a regular investment practice and it must be continued irrespective of market fluctuations. Period.
Stopping your SIP means that you’re stopping a cycle.
During the market fall of 2008, many people withdrew their SIPs, but many continued. The ones who continued ended up getting phenomenal returns when the market recovered.
5. Anchoring on the price
Let’s say you have bought a stock for Rs. 300. Because of the market correction, suppose the stock falls to Rs. 250, or even further. Now, it is wrong to assume that the right price of the stock is Rs. 300 and it will remain 300. The stock will fluctuate.
You, as an investor, should not think that the stock will always come back to Rs. 300. The stock will fluctuate and therefore, you must never anchor on the price.
6. Selling everything
Again, big mistake.
Suppose you buy a piece of land for Rs. 10,00,000 and all of a sudden the land devalues. Will you sell the land for Rs. 5,00,000? No. You will wait for the land to appreciate and then take a decision.
Same goes for investing. You must refrain from selling off your investments when the market tends to decline.
7. Investing a large amount
A lot of you must know that it is a good time to invest when the market is down. But that doesn’t mean you invest an unbelievable amount.
Okay, let’s assume there is a sale at the grocery store. Will you buy all the vegetable and fruits from the store, just because it is cheap? No. Because they might get stale.
Now, let’s apply this theory to investing.
Just because the units are priced lower, it doesn’t mean you should invest a large amount, because recovery of the market is uncertain. In this case, if it does not recover for a substantial amount of time, you might end up at a loss
8. Don’t leverage
Yes, we know you get to buy low. But is borrowing money the right option?
We don’t think so.
Leveraging money to invest is a very foolish move and as an investor, you must refrain from it.
9. Watching too much news
Media has opened the eyes of the public.
But I’m quite sure a lot of you know that not everything that is shown/portrayed in newspapers/radio/internet and televison is 100% true.
Do not blindly believe what you read/see in the media. Do your own research.
Media is that guy in college who says “The exam this time has been designed to fail everyone. The professor himself has told me.” While some part of this story is true, it is a highly exaggerated version.
10. Deciding in a hurry
You must not and SHOULD NOT take investment decisions in a hurry.
Think your move through. Look at the long-term. Always tread on a goal-oriented approach. You might think that redeeming your money is a good option, but it may not be.
Always analyze your decisions or take advice from experts. We, at Groww, are always ready to help! You can simply drop us an email to email@example.com or you can call us on our customer support number. Our team will get in touch with you.
11. Forgetting the basics
Never-ever forget your basics.
When someone learns a classical dance form, he/she is trained to learn the basics for a substantial amount of time, before they actually start to learn the choreography.
They believe that the basics will mould the dancers to not commit mistakes.
When it comes to investing, you probably know all of them, but you might get influenced to redeem/withdraw your money or invest an abnormally large amount.
Don’t get carried away. Stick to the fundamentals.
Now that you know the 11 primary mistakes every investor makes, when the market falls, you can step up your investment game and NOT make the mistake everyone else is making.
And we’re always happy to help you, whenever you need us!
Disclaimer: The views expressed in this post are that of the author and not those of Groww