What to do during minor stock market crash?

During minor stock market crash it is more of discipline that can save your portfolio. Followings are the disciplines and required action –

  1. Don’t sell-of your entire equity holdings to re-enter at lower level. Nobody in this world can predict short term market movement correctly. So, it may happen that after your sell-off market takes U-turn and you are not able to invest at lower level. You may end up with selling at lower level and buying at higher level. Further frequent buying and selling increases transaction cost (brokerage,STT,exchange fees etc) and taxes. You need to pay extra 15% capital gain tax if you sell your holdings within 1 year of purchase. However holding your investment for 1+ year won’t attract capital gain tax. So, in short even if luckily you can time the market then also the situation is against you.
  2. Don’t seek answer of questions like “How long the market will correct?” During any kind of market correction if you follow analysts on TV,newspaper or internet you will find most of them expressing bearish view. The same person will express bullish view if the market starts rising from tomorrow onwards.For live example, check out the current situation (May, 2015). Today Sensex crashed by around 700 points and everywhere you will find bearish view. However just 1 month ago (April, 2015) while Sensex climbed UP for 8-10 consecutive days there were bullish viewpoint everywhere! The reality is it is next to impossible to predict short term market movement correctly and consistently. However one can predict long term price movement of any individual stock based on the underlying business. Based on the same one should invest in stocks while they are cheap. So, if you continuously seek the answer of “How long market will correct?” or if you try to figure out short term market movement then you will find all on a sudden market surprise you and takes a U-turn. In this regard, you can check one of our old article.Way back during September,2013 Sensex was corrected and came down below 18,000 level. There was bearish view point all over. In contrary, we mentioned that Sensex will cross 23,000 mark within December,2014. Sensex crossed 23k mark much earlier and our prediction during bearish market proved correct.
  3. Don’t panic. If you can’t tolerate volatility then stop checking stock price daily. Checking price once or twice in a week will be sufficient. For any attractive investment option during stock market crash we notify our paid members. So, it is not necessary for our members to check daily price movement to invest in quality stocks during stock market crash.
  4. Accumulate high quality stocks during market correction. History says you can’t suffer loss if you invest in any stock market crash or any point of time while 90% analysts are in bearish view. For example, you won’t find a single person who lost money investing during August,2013 or during Oct-Dec,2008.Here we assume the person is holding his position for at least next 1 year after investing during stock market crash.
  5. During stock market crash investors may not have enough cash to re-invest in quality scripts. There can be another situation like, you invested a hefty sum in market correction and then again market falls further. One can’t have unlimited amount of cash to average out during every correction. In such situation the best and simple solution is to HOLD on your current position. However don’t wait to find out the bottom and then invest. You can’t buy at bottom and sell at top every time because it is also next to impossible to find out exact top and bottom.
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