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economictimes.indiatimes.com /wealth/invest/8-big-mistakes-to-avoid-in-a-falling-stock-
market/articleshow/60891377.cms
Sanket Dhanorkar
The stock market has seen a sharp correction over the few days, making investors anxious and jittery. It is often
during a sliding market when investors make ill-advised moves. And end up paying a heavy price. Here are a
few common mistakes that investors should avoid in this situation.
The share price may have dropped due to any reason but investors hold on because it is below the value to
which they have anchored the investment. They cling on to hope that the price will revert to that level without
assessing the fundamentals of the stock.
If the price has dropped, find out the reasons for the decline. If there are justifiable reasons for the dropsuch
as lack of earnings visibility, deteriorating balance sheet, corporate governance issues it is better to cut your
losses and exit. Alok Churiwala, MD, Churiwala Securities, says, Investors must realise that the price at which
they bought the stock is not what the market has discerned as its fair value.
There is merit in averaging down the price provided the stocks fundamentals are strong and the current drop is
external to the company or owing to a temporary event. If your bet is right, the upside on the investment will be
much higher.
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However, if the fundamentals have deteriorated, then averaging is like catching a falling knife; your losses will
only worsen as you buy more of the same junk. Kunj Bansal, ED & CIO, Centrum Wealth, argues there is no
point throwing good money after bad. Averaging down is a good idea only if the underlying stock is of good
quality. Even then, fix a limit to the extent to which you want to increase exposure, he says.
Averaging is a good idea if the stock is of good quality. Even then, fix limits.
Kunj Bansal, ED & CIO, Centrum Wealth
For instance, you may come across some post by an investor that vindicates your stand on the stocks. A
research report may have looked at a stock in detail, but the confirmation bias will make the investor focus only
on the optimistic portions. He will draw inferences on the basis of the statements that confirm his own thoughts.
To avoid falling prey, dont close your mind to negative information about the stocks you hold. Dont let emotions
cloud your judgement.
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4. Buy scrips at 52-week low prices
A SLIDING market turns some investors into value pickers. They actively look for stocks trading near their 52-
week low. These are perceived as good bargains since much of the downside is thought to be already captured
in the price. However, some of these opportunities may actually turn out to be value traps. First, it is very difficult
to pinpoint when a stock has bottomed out. As they say, the market can remain irrational for much longer than
you can remain solvent.
Even if it is a high conviction bet, one must be prepared to digest losses in the near term. The market may take
time to recognise the value in the stock. Vikas Gupta, CEO, OmniScience Capital, says, The 52-week low may
provide a starting point but would be a mistake if used in isolation.
Dont base your investment decisions or position the portfolio on prevailing market mood. The future course of
the market may work out completely different. At such times investors tend to forget asset allocation and lose
patience. This can hamper wealth creation in the long term, asserts Tarun Birani, Founder & CEO, TBNG
Capital Advisors.
Instead of making knee-jerk changes in the strategy, it makes sense to focus on the long-term objectives and
stick diligently to a well-defined financial roadmap.
Dont lose sight of your asset allocation or lose patience at such times.
Tarun Birani, founder & CEO, TBNG Capital
You will be buying more units at lower prices and reap benefits when the
markets eventually rebound. Stopping the SIP will not only interrupt the compounding benefit of equities but also
leave you with a shortfall in your target corpus.
For those who have just started their SIP journey, it is even more critical that they remain invested for the long
term and not get swayed by market sentiments. Anil Chopra, Group CEO and Director, Bajaj Capital, says those
waiting for better entry point are likely to miss the bus. Timing the market is a futile exercise. Staying out of the
market is a greater risk than being invested in the market.
Timing the market is futile. Staying out of the market is a greater risk. Anil
Chopra Group Director, Bajaj Capital
Sure, this will help you temporarily limit the downside and cushion your
overall portfolio. But it will also prevent you from gaining meaningfully when the market recovers. Diversification
is essential but beyond a point, it will not lessen the risk any further. Also, you will find it difficult to monitor a large
number of stocks.
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