Learn how to look for clues and react with an educated approach when faced with a volatile market.

Investor behaviour—which is largely influenced by emotions—drives markets like Bursa Malaysia. So, how does a sensible, common person invest in the future? Should one just stay away if the markets can make or lose tens of billions of dollars in a single day?

Even when using the most robust econometric models and the broadest definitions possible of what counts as fundamental news, researchers have only been able to account for a small portion of the observed price volatility. In actuality, a lot of the most dramatic market changes take place when there are no fundamental updates.

The fundamental value of a company’s stock is determined by its predicted and actual earnings, and it changes gradually. On the other hand, the stock price of a corporation is simply determined by supply and demand on any particular day.

Like our moods and emotions, there are many factors other than a company’s fundamentals that influence the daily demand for a stock. Let’s look at some of these factors.

Which Sector Does Your Stock Belong To?

Investments in certain sectors may be restricted by some funds. As a result, fund managers employ fund analysis to rule out particular investments. With funds that have an environmental, social, and governance (ESG) focus, this frequently happens.

These funds aim to keep out businesses or sectors that, for a variety of reasons, their investors find undesirable. This could be a sectorial association like tobacco manufacturers in one fund or oil exploration businesses in another fund.

Sector reporting is frequently used in the marketing materials of fund companies. Sector breakdowns show how the assets of the fund are allocated, frequently on a monthly or quarterly basis. Even daily sector breakdowns may be reported by some funds on their website.

Where Is The Stock Going?

The world is in recession, as defined by both technical and historical standards. The market is experiencing a reset right now. If you’ve been idly observing for some time, there now may be an opportunity to start investing in the stock market.

Whatever transpires, analysts anticipate a choppy road moving forward; it is unclear where the market is headed. Remember that over time, investments easily outperform inflation, despite natural market fluctuations.

What Do The Masses Say?

Due to shifts in supply and demand, stock prices are continually fluctuating. The market price of a stock will rise if more individuals desire to purchase it. A stock’s price will decrease if more people are attempting to sell it.

The current news has a significant impact on the relationship between supply and demand. Chasing the news, however, is not a wise stock-picking approach for the individual investor. Professional traders typically react before an event, not after it has been publicized.

Don’t Just Sell

Your stock is depreciating. You want to sell, but you’re unsure whether to do so right away to avoid further losses or sell later when losses might or might not be bigger. You just know that you want to sell your shares, keep your capital, and reinvest the proceeds in a security that will increase in value.

In an ideal scenario, you would always succeed in your goal and sell when it was appropriate. First of all, there is never any assurance that stock would ever rise again. Second, waiting until you reach breakeven—the point where profits and losses are equal—can significantly reduce your returns. Although it can be tempting to “make whole,” minimizing your losses can sometimes be more beneficial for long-term gains.

To recover its original value, a stock must climb by 100% after a 50% loss. Think about it in monetary terms: a stock that drops 50% from RM10 to RM5 (RM5 / RM10 = 50%) must rise by RM5, or 100% (RM5 ÷ RM5 = 100%), just to return to the original RM10 purchase price.

Due to emotional turmoil, many investors overlook basic math and suffer losses that are higher than they realize. The common misconception is that if a stock price loses 20%, it just needs to rise by the same amount to recoup losses.

7 Things to Do When Stocks are Tanking

Here are 7 tips that would ensure that you do not press the panic button prematurely, but instead, approach the situation rationally to avoid making bad decisions.

#1 Keep your cool.

Dips in the stock market are nothing new. It increases and decreases. You were aware that investing involved risk, right? Making rash decisions can be one of the worst things you could do right now.

#2. Avoid making choices based on your emotions.

Take a break from the computer if the market decline has you emotionally charged. In times of market weakness, it is all too easy to give in to the urge to sell your mutual funds and leave the market. Keep in mind that investing is about enduring the ups and downs that come with time. Therefore, hold steady rather than sell your mutual funds.

#3. Remain stable.

Maintain your retirement account investments. Do not decrease any amounts that are deducted from your wages regularly. Everything is discounted, which is the charm of down markets. There might be an opportunity to purchase mutual fund shares at a discount. “Dollar-cost averaging” is a word you may be familiar with. The idea is to consistently buy investments whether the market is up or down to lower your overall risk. Always purchasing during a bull market limits potential gains and increases potential losses.

#4. Possibly increase investment.

Why not buy some more while everything is on sale? Over time, you may find great value in using this counterintuitive reasoning. “Buy low,” (you might have heard this said before). Well, you can now. Think about adding a few extra shares to your mutual fund portfolio.

#5. Review the mutual funds you currently own.

How well did your investments do throughout the last recession? Were they similar to other mutual funds whose holdings were intended to be comparable? Did the performance of your growth fund match that of comparable growth funds? Did the performance of your international fund match that of other international funds? Compare funds even when the market was performing well. It might be time to change your investment if you realize that your fund is performing worse than other, comparable funds.

#6. Avoid always following the herd.

Don’t take it for granted that everyone is competent. A lot of people switched all of their retirement savings from mutual funds to money market accounts during the financial crisis of 2008. A sizable number of them missed one of the biggest markets runs ever seen.

#7. Keep your eyes on the prize.

You were aware of the market’s peaks and troughs. You were aware of the risk. But you still made a purchase. Why? Because you were aware that a savings account or CD wouldn’t be enough to support you in retirement. Recall the objective. Avoid letting the day’s emotions consume you. Maintain your attention!

Conclusion

Making a decision in a time of uncertainty is always difficult, and sometimes, we are not afforded the time necessary to make the best judgement. Therefore, getting prepared early and reviewing your alternatives upfront can help make the decision making much easier. Always keep a level headed approach and if unsure, consult your financial planner for a way forward.

 

What do you think of the current stock market outlook? Let us know in the comments down below.