Stock Market Down Trend - How to keep your losses low and profits high?

Stock Market…

Presently, Stock Market is facing severe ebb and flow in its index. Caution is not the only way out; investors have to know what to do to safeguard their invested money, study the trends to know the risk of incurring possible loses and learn how to face and withstand them.

Returns from investments in high security schemes will naturally be less. High risk coupled with high return schemes doesn’t guarantee security. Therefore, investors, who are prepared to accept losses, can expect to get more than normal profits. For example, there will be security to the investment and the income from it in fixed deposits. Income from it will be just around 9%. If it is invested in the Stock Market, there is the possibility to get higher amount of income from it and at the same time, the risk of losing a part or whole of the investment cannot be ruled out. However, it is not that difficult for investors, who keenly observe and understand the share market movements and effectively face the odd ones, to get good returns on their investments.

Along with the market…

Market trend is the prime factor for getting profits or incur losses on the investments in shares. Suppose, when market is in upward trend, prices of all the shares may not go up, but when market is in the reverse direction, prices of many shares will fall down faster than the market trend. Before investing in shares, don’t be influenced by the market status, but satisfy how attractive the share price is. It seems to be simple, but in practice, many Stock Market investors get jerks and bumps. Psychological factors influence many investors; they don’t foresee the possible loses. When market is rallying, they concentrate on the rise in share prices, ignoring the likely chances of incurring loses. When market is falling, for many people, focus will be on the downward trend in the share prices; they don’t even think about the idea that when a share price is coming down, what possibility is there for it to go up in future.

No doubt that long term investment in stock market will give better returns than investment in any savings schemes; but many people get scared even when there is a nominal downward trend in the prices and offload their shares as fast as possible, incurring losses. It would become clear how market undergoes up and down trends when its course during the last 2 months is followed.

Then what to do? To skip over the losses in the near and not so far future, the only protective cover is in long term investments. When the stock market is at its high, transact carefully; when the market is in the down trend, don’t leave the chance to purchase smart shares. It is always good to select shares, which retain its stability irrespective of the market trends.

Influence of financial sector…

When financial sector is in unexpected confusion and panic, fear of loss of returns from the Stock market will be high. Presently, inflation is high and interest rates and prices of goods and services are swelling, which definitely adversely affect the financial sector functioning in the near future.

Then what to do? To combat the losses in such state of the Stock market, identify the companies, which can withstand and achieve good results. Involve in the share market transactions taking into account the probability of long term growth of Indian economy; don’t reply on short term deviations.Continue investments at different opportunistic points, while assessing the long term gains.

Investment in only in one area…

Some people show lot of interest in one segment for investment. They like to invest and continue in the same segment. To such people, when that segment is in disarray, possibility to incur loses will be heavy. For example, during the year 2000, when IT boom was there, many people invested heavy amounts in IT shares in stock market. Those companies have done well then, but suddenly after the economic meltdown, they were smashed to a new low. Real estate and Telecom shares also are not that attractive during the last 2 years.

What to do? Shred the fondness to invest only in one segment; examine for diversification of investments. When investing in prime areas, assess the risk of loss and invest only a fraction of the total investments. Then only can withstand the risk of loss.

Before picking up the companies…

Before picking up the shares of a company in a share market, a numbers of points are to be studied – its real price, the least price at which it is available, chances of its growth and such similar points. Go in for shares with strong fundamentals and at attractive prices. Going for low priced shares will push into losses. Shares presently showing good results, but when their sales are low for the last 2 to 3 months and they do not meet the expectations of the investors, possibility of getting such shares at lower prices is more. Intense competition, mismanagement and financial bankruptcy drastically pull down to a point of collapse of a company. Experience in the Stock market for the last 2 months tells us that the prices of shares of mismanaged companies have collapsed to a point of no return.

What to do to get out of it? To reduce the risk of loss to the minimum, ensure that there are shares of 8 to 12 companies in the portfolio.

Level of acceptance of risk differs from individual to individual. Some people do not mind for a loss, which some other people feel severe. Individual environment plays a role here. Age, income, investment timing, responsibilities, investment target, volume of portfolio, investment awareness, reactions to rise and fall of prices – these are the points which influence and decide the level for bearing the risk of loss. Attractive results of the investments in Stock Market can be enjoyed only when long term investments are made with correct assessment of risk of loss and taking appropriate decisions depending on the prevailing conditions.