Markets are very volatile in 2022 and it is expected to remain the same. How to handle such a high level of stock market volatility of 2022?
Are you worried about the stock market volatility and unsure how to handle it?
Let me share how a long term investor can use the current market volatility to his advantage, further, how I am dealing with it right now.
So without much ado, let’s begin.
Why is Stock Market So Volatile?
Do you wonder why stock markets are so volatile?
One country decides to attack its neighbour, and the Indian stock market is down by 5%. The next day, still the attack is on, but we are up by 3%.
Can anyone explain what is going on?
Similarly, Corona Virus made the Indian stock market correct by 40%. Nifty from the levels of 12k came down to 7.5k in a matter of 4 to 5 weeks.
Nothing changed to the virus, yet the Indian stock market was back from where it started falling.
We may know the answer is liquidity, but the question is, why stock markets are so volatile?
The question is, WHY?
The way I see it is, stock markets are future-looking. So they try to discount the future.
So anything unknown in the market makes it jittery.
- What is the effect of the virus – market falls
- How will the war impact the world – market falls
How to Handle Market Volatility in 2022?
Nifty has been in a range of 2000 points for the past seven months. Below we see the chart of Nifty 50 for the past six months.
There is no direction.
Further, there is a gap down one day and up the other. So it is killing traders on both sides.
The good news is investors have the upper hand. There are three ways to handle this volatility.
- Do Nothing – Don’t look at your stocks. They should be of high-quality stocks for anyone to do nothing.
- Buy the Dips – Add more for every 5% correction in any of your stocks.
- Sell on rising – For days when the market is higher, sell stocks you don’t want to own for the next decade and raise the cash levels.
I am doing all three.
For stocks like Divi’s Labs and Pidilite, I am doing nothing.
For stocks like Clean Science Fine Organics, I am buying the dips.
I am offloading to raise cash levels for stocks like TTK Prestige that I don’t want to own for 10+ years.
Some Questions Regarding Volatility of 2022?
Some blog readers have asked me questions related to the volatility of 2022. So let me answer them here.
Should I Sell my Stocks When Markets Are Volatile?
It depends on your view of the market, and can you remain invested for the time frame where you think the market will remain volatile.
So if you think the market will remain volatile for the next year or so but you can’t remain invested for the next couple of years, you should book out of the positions.
However, if you can remain invested for 1+ years more than you think the market will remain choppy, you shouldn’t consider selling the stocks. So yes, you can look to book out of low-quality stock and invest in better stocks.
Should I Buy Stocks when Prices Fall?
Yes, if you have the cash, you should consider buying either high-quality stocks or starting a SIP in some of the best mutual funds for 2022.
The volatility is not here to stay, and at some point, it has to fade away as well. So if you can ignore the volatility, you should consider buying great companies available at a discount.
Remember, after your purchase, the stock price can fall. So you should be prepared for the same.
How Can I Limit Losses to my Portfolio in a Volatile Market?
The best way to limit the losses in a portfolio is to invest only in great companies. But, unfortunately, good is not enough and only the great companies.
The question is how one can identify great companies.
I do it with fundamental analysis, business checklist and investment checklist. Then I use technical analysis to try to invest at a better price.
Final Thoughts
The market has always been volatile and will always remain volatile. Therefore, the investor must handle the stock market volatility and make it an advantage.
Many books and articles online say that you don’t have to pay attention to the volatility. The problem is when you have your hard-earned money invested, you can’t ignore it. It’s practically not possible.
Not watching your portfolio take a 50% hit when you have to also remain at home doing nothing isn’t practically possible.
One can remain calm if one has invested in top quality companies because I can say for sure that only being a long-term investor is not enough.
I needed this very much. Very timely advise. Will definitely work on reducing my position in stocks that I don’t plan to keep holding.
You should. This is the time to get into great stocks at reasonable price.