What to do when markets are lacklustre

Newton’s third law of motion that states what goes up must come down applies not just to the forces of gravity but describes the behaviour of markets as well.

Investors know all too well the cyclical nature of markets and equities – that stock prices do go up and come down. The general response of investors and traders when markets hit a low is to panic and give in to fear. Contagious fear hits giving way to a stampede of investors rushing out of the markets – a scene reminiscent of The Crash of 1929.

How far are we from achieving financial freedom? How can we shake off the shackles of unending financial commitments that hamper our desired lifestyles?

So, is it all doom and gloom when markets are lacklustre? Market experts don’t think so. Every cloud has a silver lining they say. Leading the way is Warren Buffett who said, “Be fearful when others are greedy and be greedy when others are fearful.”

Here are three things to consider when markets are limping badly:

  • Don’t panic
    A sensible action rather than reaction to the market indicators is what a grounded investor needs. The knee jerk reaction of most would be to pull out of a softening market. But is that the best thing to do? Steven Fernandes of Proficient Financial Planners advises investors to think of their original objectives of holding stocks – was it for long term goals? Evaluate the real reasons of holding stocks before disposing them in a panic. Markets do fall and they do pick themselves up again so a lacklustre market may soon turn around.
  • Market is rife with discounted stocks?
    Before investors become too enamoured of the idea that since the market is down, stocks are going at discounts and therefore it’s time to buy wholesale – take a step back and think before putting in your hard-earned money. Chief investment officer Mark Travis of Intrepid Capital Management says, “It’s like going in a grocery store, you don’t just go in when you’re hungry and buy whatever’s on the shelf. If a particular stock or sector that you have been eyeing was too expensive, a limping market may produce the opportunity to buy. However, this is not the case with every stock in the market. Do not rush headlong into decisions that may be painful in the long run. Do run through the market with a fine toothcomb.
  • Shop for bargains
    Although a lacklustre market is not rife with discounted stocks, there are some gems that can be picked up! Investing legend Warren Buffett has long been lauded for buying when it seems like everyone is selling, as he did in the autumn of 2008 when he made fortuitous investments in General Electric and Goldman Sachs.

In times of uncertainty, do not be affected by the pack mentality of the trading masses. Remember, a sensible action rather than reaction to the market indicators is what a grounded investor needs.

Sources:

http://www.moneycontrol.com/master_your_money/stocks_news_consumption.php?autono=2961041 accessed 22 September 2015

http://www.fool.com/investing/beginning/2015/08/29/why-a-stock-market-crash-can-be-a-wonderful-thing.aspx accessed 22 September 2015

http://www.forbes.com/sites/steveschaefer/2015/08/24/how-to-handle-stock-market-crashes/ accessed 22 September 2015