Friday, March 7, 2008

Seven Ways To Survive a Stock Market Correction!

Global markets all have corrected lately. Irrespective of which market you are investing in, you would have been affected by the recent volatility. You could be an investor in America, India, China, Korea or anywhere else in the world- your situation would be pretty much the same. Many of you who are new investors might have entered panic mode, where you are unable to relax and have lots of stress and depression. I understand how it must be for somebody who just started investing in either stocks or mutual funds two months ago to see a notional loss of 30% or more now.

I remember the first time several years ago when I witnessed a stock market correction, my portfolio was down by over 50% and I too had entered panic mode. But thankfully after reading books on investing and listening to more experienced investors, I decided not to panic and hold my quality stocks. I am a much happier person today thanks to that decision.

Here are seven simple ways to survive a stock market correction as an investor:

1. Stop Listening To Analysts

Most analysts in the media instead of providing you with a solution will just confuse you. Somebody will say everything is doomed while others will say things are great in the long term. Forget listening to analysts- most of them won’t be of any help. The reason people listen to analysts is because they are looking for peace and hope. Trust me you will get none of that by listening to somebody else. Peace and hope are all within you.

2. Stop Staring At Your Portfolio Every Thirty Minutes

Another mistake people make is that they get up every morning and wait for the markets to open. Once markets open they start staring at their stock prices. A fall makes you feel worse and small rise makes you feel a little better. This won’t help either. Instead keep track of the fundamentals of your company every time the results are out. If your company is profitable and growing - be happy. If it isn’t, find out if you need to exit. The stock price will catch up in the near future if business is growing. Do you stare at your money kept in a bank FD everyday? Most probably not. Use the same principle when you invest in stocks or mutual funds.

3. Be Patient

Many of you might not have a lot of cash to buy cheap now; however please be patient with whatever you have bought. Even the youngest billionaire on Earth today is 23 years old. It took him 23 years to be a billionaire and he didn’t do it in few days or weeks. The youngest billionaire probably in history is 23-year-old Mark Zuckerberg - the founder of the social networking site-Facebook.

4. Speak To Actual Investors With Experience

Instead of interacting with analysts or your broker, speak with people who are actual investors and who have been in the market for longer periods of time than you. They will tell you how they have survived various stock market corrections and what has made them richer. Read and learn more about people who have actually created wealth and sustained it over a long period of time.

5. Stop Following Crazy Tips

Please for heaven’s sake stop following ‘hot’ tips which promise to make you a millionaire in a matter of months. Maybe the ‘hot’ tip is only meant for billionaires who would end up as millionaires in case they do follow the tip. If it seems to good to be true, it is probably just a scam, which hopes to take money away from retail investors and put them in the hands of greedy manipulators. Similarly stop following rumours about how fundamentally strong companies are going to be shut down and go bankrupt in the next few months. Use your own head and trust yourself.

6. Understand Market Cycles

Every asset class has a cycle. Stock markets, mutual funds, real estate all move in cycles. Please realize that nothing can keep going up forever in a single direction. There will be phases when prices will come down and again move up. If you go back into history you will see several instances when stock prices came down, however over a period of time quality companies always reward investors. Understand market cycles, and don’t become a slave to them.

7. Follow The Guru

Today the richest man on earth, Warren Buffett, is an investor who has created wealth because he has stayed away from what everybody else is doing and has simply invested in quality companies for the long term. He invested in Gillette, for the simple reason that he believed that men won’t stop shaving. It makes sense to follow, as I call him, “The Guru” and think long term and remember people who create wealth do things that others don’t.

I’m sure if you follow the simple techniques above you will be a much happier and a calmer investor. Investing is about controlling your emotions and being disciplined about what you do.

Happy Wealth Creation!

Yogesh Chabria
© Happionaire

Find out what others had to say about Is An American Recession Really A Global Recession? and what comapnies could be The Future Giants. Feel free to share your ideas !

The above article has also appeared on Moneycontrol.com.

26 comments:

rajiv mehra said...

I can't thank you enough for one of the most enlightining articles written in the history of modern stock markets. I have been investing for over 3 years now and am based in Dubai, and your thoughts and ideas always have stood out from the rest. I am a big fan of yours and can't wait to read your book, because what you write is so simple but still so powerful.

You are my guru Yogesh.

ramandeep said...

I agree with you comopletely Rajiv. I am much newer and started investing in mutual funds jsut six months ago, but Yogesh's advice I think is for each and every investor irrespective of aage or experience.

One request, I have read and know you don't belive in giving 'tips'
but please share some strategies which will help us invest. I am a sure buyer of your book, really waiting for it depseartely!

amrita said...

Your article is truly peaceful and relaxing. All those hours of deperately looking for answers had me worried. Now i will just follow what you said.

kunal said...

Mr. Yogesh Chabria- your thoughts need to spread more and should be shared with every Indian investor. I am looking forward to your book and I hope you educate more and more people. I hope you become the next Warren Buffet! Thank you once again for sharing your thoughts so honestly.

sandeep upadhyay said...

Dear Yogesh,
I have been investing since the last two years and i could find a lot of resonance on my state of mind while reading your article.
I do check my portfolio every 30 minutes or so,experience emotional swings according to %appreciation/%depreciation of my portfolio.
Needless to say, i've been a wreck since the last 2-3 weeks.
All there is on my mind is to average out the base cost of my shares and the more money i'm putting in, the more notional losses i'm making by the day.
Your post is brilliant and simple. It did bring a smile to my face and content in my heart.
Thank You,
Sandeep

AP Singh said...

Hi Yogesh,

I just saw your article on Moneycontrol, and the quality of your thoughts dragged me to your blog. Just read this one article, and surely going to read others too.

I am an investor, started just few years ago after getting inspired by Warren Buffet's Way. And that's the only book on investing I have ever read. But I'd like to read yours, coz I share the same opinion, word-to-word. I advice all my friends the same, whenever someone asks me for a tip.

Recently, I started blogging on investment (http://ap-singh.blogspot.com/), just an amateur effort. I'd appreciate your comments on my blogs, and would like to you in your effort to make people rich.

Happy Investing !!!

AP Singh

jaiz said...

Yogi Bear/Bull ,

Thanks for your street-smart advice to bust the stock market stress. "Stop listening to the analysts" thats the thing to do now.. Analysts are just like a bunch of cricket commentators , they just make the trading day like an one-day match thats it.
Good keep posting.

reha said...

I'm sure it is "Bull"! Yes we should call him The Yogi Bull Of Indian Stock Markets!

Good one Jaiz and it is nice to see you Yogesh being such a sport!

naresh said...

Mr. Chabria had given a lecture to our MBA class and we were all so impressed with his ideas. Sir, I am so desperately waiting for your book to hit bookstores!! I would just rush out to buy my copy!

Jagadeesh said...

Your Article is Very Useful and Very very Interesting.

These points helps all the investors. I started my Investments One month back, I saw 12% up and Nearly 15% down today.

Now I simply decided to "Follow The Guru" and Invest in quality companies for the long term.

Jagadeesh said...

Your Article is Very Useful and Very very Interesting.

These points helps all the investors. I started my Investments One month back, I saw 12% up and Nearly 15% down today.

Now I simply decided to "Follow The Guru" and Invest in quality companies for the long term.

g. said...

Yogesh says what we already know, what the little voice in our head keeps telling us but we are hesitant to believe.His writings are very reassuring and one can never emphasise too much on patience, using common sense and being optimistic, especially at times like these...

I had the privilege of getting a sneak peek at his book and if this is the kind of impact his article can have, rest assured his book will change your outlook, if not your life!!

Eagerly awaiting the launch of your book Yogesh.All the best!!

The Happionaire™ Blog said...

I'm glad that all of you found what I wrote somewhat helpful. All of us as human beings at times get carried away. I have made mistakes too, but thankfully those mistakes have taught me a lot. Sandeep, I know several people who are in the same state you are in, I hope you’ll feel better and stay calm. A simple smile would surely help, and once you realize life is much more about just stock markets and money you will feel so much happier. If you do things with the power of knowledge, discipline and ethics, wealth and shall surely come in. It is great to see you sharing your ideas with others Mr. AP Singh.

I think the more ideas we share the more opportunities we create for everybody.

Great to see somebody with a sense of humour here Jaiz- I think it always pays to be an optimist. Rajiv, Ramandeep, Amrita, Kunal, Reha, Naresh, Jagadeesh and all the others it is great to have you here as Happionaires!

Thanks g. for the lovely feedback and warm wishes. The book should be inshallah out by next month.

God bless and Happy Wealth Creation!

Yogesh Chabria

sameera said...

I am sure it will g. - you lucky girl! But how come my messages never end up here.. lol must be my luck....

sameera said...

Oh this is my lucky day..my messages are showing. I must say Yogesh that I have already told my bookstore to keep a copy of Invest The Happionaire Way for me! Don't want to miss out being amongst the first people to buy it and also any idea if the author is going to be doing book signings..and appearences... :-D

Powerhorse said...

Yogesh,
your article in moneycontrol.com is the most sensible article i have ever found in any of the Indian financial sites. Another thing i wanted to add was that there is a book by Phil Town called Rule #1 investing which harps on the same line as yours.He follows the same "Guru" too..Finally the article was precise and hope many more get to follow those lines.

g. said...

Hey Sameera, good to see you back :) And may I put in a special request for book signings and personal appearences to the author too :P And dear author, if you do decide on any of those things, please don't give other cities a skip!Make sure you have Delhi on the map!

Thankav said...

Dear Yogesh,

My name Thankav has no meaning just like several words in internet jargon. I am Thankachan V. Joseph and the name Thankav will testify it. Glad 2 see that u noticed my posting. Thanx a lot.

Thankachan V. Joseph

Anonymous said...

Your article "Seven Ways to survive a stock markt correction" is the best article that I've read recently. I agree with each and everything you have said. In fact till now I was confused if I was taking the right path as these were the steps that I had been following. Your article has reassured my own belief.....Divya

Anonymous said...

Your article "Seven Ways to survive a stock markt correction" is the best article that I've read recently. I agree with each and everything you have said. In fact till now I was confused if I was taking the right path as these were the steps that I had been following. Your article has reassured my own belief.....Divya

The Happionaire™ Blog said...

Thankachan, I love noticing things. I wish I could have replied to all the e-mails that come in my in-box. I think the best way to learn is observe things all around us. Thanks Powerhorse for the book suggestion, will surely try to catch it.

Sameera and G. all efforts shall be made to try and do what has been requested, and Divya best of luck with your finances!

Yogesh Chabria

Debashis Mukherjee said...

Yogesh, I fully agree with others who have commented on your "7 Ways .." in that it is like a soothing balm for investors whose net worths have eroded by 30-40% in recent months. However, is holding on to one's equity investments in today's scenario, when both local and global negatives far exceed positives, sensible? Can it be ruled out that Sensex will go below 10K and then take years to recover? Is it not better to recover whatever cash one can recover and obviate further erosion of net worth?
I have been a long term investor for the last 15 years and never trade. Probably that is the reason why I have never been good at cutting losses through 'stop loss'. I have been very fortunate to see my net worth multiplying many times over the last few years. But should I continue to stay passive, ostrich like, as you advise? I find myself on the horns of a dilemma. Please advise.

The Happionaire™ Blog said...

Hi DM,

I am glad that you have been a long term investor and are benefiting from it. It is the best way to invest. Now about the future, you need to take a call on what company you have invested in. Also think for yourself if you need the money now. You can also take a small part of your investment of the table. For instance if you money has grown over 200% in the past few years, you can take off half of it to minimize risk. However never sell just because everybody around you is in panic mode.

Do share your ideas.
Thanks
Yogesh

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