If you’re a trader or an investor in the stock market, you would want to know what’s going on and monitor your investments. So what do you do when the market is down and continues to drop?
As of this writing, the Philippine Stock Exchange Index (PSEI) has fallen close to 16% from its all-time high of just over 9000, making us one of the worst performing markets in the world. The reason for the decline can be attributed to higher oil prices, interest rates hike and high inflation.
Asiasec Equities Inc. analyst Manny Cruz said that things could get worse before they get better. According to Cruz, who has over 20 years experience covering the local stock market, first quarter earnings season is the next risk for equities and the loss of over $30 billion in market value so far this year could escalate further.
Investors are definitely at the edge of their seats. When you see that your port is all red, you might be tempted to sell. However, before you do that, you may want to take a few steps back and understand the reasons for the decline.
1) Keep your emotions in check and stick to your investment plan.
It is very common for new investors to get caught up in the emotions of the moment. When the market is going up, we feel like buying. And when the market is down, we are tempted to jump on the bandwagon and sell.
But getting caught up in emotions and abandoning your investment plan because of market movements can get you in trouble. So before clicking on the “sell” button on your trade, stop and think for a minute.
If you want to be successful in the long term, it’s important to keep your emotions in check. Warren Buffet, one of the most successful investors of all time, advises us to “buy when others are fearful and sell when others are greedy.”
“Disregard your emotions. Your emotions will make you panic and force you to either buy or sell rashly”
– Marvin Germo
*Related article: How to start investing in stocks online
2) Look at market fluctuations as your friend.
Instead of panicking when the market goes down, have a different perspective. Brother Bo Sanchez of the Truly Rich Club said that market dips are windows to buy shares at discounted prices.
If you are doing Peso Cost Averaging (PCA) every month, you should be celebrating right now because you will get the chance to accumulate more shares. You may also want to double up your investment for the months that the market is going down as this will give you some zip when the market goes back up.
“The stock market is the only market where things go on sale and all the customers run out of the store.”
– Cullen Roche
The market may continuously experience highs and lows and blows and dips, but these short term pictures are just tiny pixels compared to the general uptrend portrait recognized in the long run.
*Related article: Basic principles of investing for beginners
The stock market is definitely risky because you can never correctly and accurately predict the price of a stock, which means you can never predict the exact value of your investment. If you invest, you’re going to lose money at some point. And that is why the kind of money that you should put in the stock market is money that you won’t be needing tomorrow, next year or even 5 to 10 years from now.
Oh, and you should never let the current status of the stock market deprive you of sleep, peace and joy. The market maybe down today or for the next few weeks or even months, but history tells us that it is sure to bounce back stronger than before.
What do you do when the market is down? Just relax, sit back and stick to your investment plan. One more thing, the stock market is just one of the channels through which God is blessing us. God is our ultimate source and He can open up other channels of blessing for us.