Why Investors Should Not Panic During Lockdown

During pandemic volatility could become the new normal, however, investors must focus on their long-term goals instead of reacting to every event

By
Opinions expressed by Entrepreneur contributors are their own.
You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

A 1,700-point fall in BSE Sensex on Monday rattled investors who have braced nerve-wracking events in recent times. The mutation of the virus and its rapid spread has resulted in lockdowns and this has brought the past year's memories to life thereby spooking investors.

Unsplash

The markets are spooked too. This is evident from the return of volatility in an otherwise calm uptrend. While investors have been reaping benefits of the sharp up-move that began after last year's severe fall, it cannot be denied that the 37 per cent fall witnessed last year was enough to unnerve even the most seasoned investor. The second wave of coronavirus has hit the country, but the situation is different this time. Experts believe that the damage done by the second wave of the coronavirus pandemic could be limited due to vaccine development. However, the jittery investors cannot shake the feeling of impending doom which is resulting in anxiety across the board.

However, going by history, there is no reason to panic. The occurrence of the mutant variant is a normal phenomenon during a pandemic, and at this point, there is no reason to panic since the scientific community is doing everything it can to mitigate the impact of the virus on the economy.

Investing is all about remaining calm especially during volatile times. During pandemic volatility could become the new normal, however, investors must focus on their long-term goals instead of reacting to every event. Such events have very little impact in the long term. Good companies are well-capitalized and they are the first to recover when the dust settles down. Any fall in price is bound to recover soon. Remember, if your investments are made in stable growth companies then you should be investing more during volatility and not vice versa.

Instead of panicking, an investor should think this way: if he has invested in a large-cap fund then despite the price fall he does not lose anything. He still has an indirect share in the basket of companies. The stock of good companies is not meant for short-term holding. The selling decision must be influenced by your need for money and not on the factors that one cannot control. The temptation to throw the towel and cash out will be irresistible, but it could prove to be the worst decision as you would be locking in your losses.

Many investors are also concerned by the fact that the markets have run up too fast and are ahead of valuations. The GDP growth was in tatters last year and is struggling to bounce back. However, investors must be aware of the forward-looking nature of the markets. The earnings will eventually catch up with the valuations. Hence, those who want to cash out citing the valuations must do so only if they need money or are going in for asset reallocation. Many assume that by booking profits now they will be able to re-enter the markets when they correct. Trying to time the market is always a bad idea.

The lockdown can cripple the economy, but it is only a short-term phenomenon. The lockdowns will eventually become a thing of the past. The vigorous reaction of the market should be seen as a temporary blip in the long-term uptrend. Even in the present pandemic, the world economies have found a way to co-exist with the virus. The economic activities are gradually resuming with the help of the government. The central banks have flooded the market with liquidity thus boosting the sentiment. All this would have a positive impact on the economy and markets.

The pandemic is nearly one year old and people have learned to live with it. It does not make sense to press the panic button and sell investments. It is difficult to take a call on exiting the market and re-enter at a later stage. This is a gambler's mindset that can throw a spanner in one's financial goals. There are plenty of undervalued opportunities in the market at a given time. If one is confused one can seek advice from a professional financial planner to get his portfolio reassessed and make it efficient.

Remember, even if the panic sets in, it is not going to last forever. During volatility good companies are undervalued, and as a savvy investor one must invest while others are selling in panic.