Why not start with my own experience?
Tata Chemicals. One of my First day stock. After I bought it, It went low as 15%. Yes that was painful for me. But I was ignoring it. After some days I sold it for some reason. Profitability? 30%.
Suven Life sciences. So much hyped Stock once, yes I was also trap in that. Bought it around wrong price. Outcome? One of the biggest loss in my portfolio.
It all happen because of volatility or up and Down in stock market. And my wrong understanding about it. But it is not issue. many people understand it wrong.
The reason is volatility.
First of all, we need to understand that there is no up and down in Deposit for individual. It is all like characteristics of Equity investment.
When many people start investing, they start with so many expectations. Most of the time expectations are sky-high. Like 30% per annum. Impossible to get. Maybe some Startups will give you that type of return but not always. For achieving high Return, you need to take bigger Risk.
On the other hand, the Asset classes in which you are investing also playing key role in volatility.
Let’s Say you invest in large Cap stocks. Low volatility. yes there is volatility but Low. Low return. The reason is Most of the large Cap stocks are widely tracked. Many institutions also holding them in Their portfolio.
When you choose another Asset classes like Small or medium Cap Equity. The variation of price is high. It’s not impossible see that one day the stock is Best performing among the Peer and next Day, having Lower circuit. But the attraction for them is that the company here is Having great potential and so may make big wealth for investor. But most of the time hurdle is not many Brokerage Houses are tracking one Stock. Some don’t even Have any coverage. Also there was a time when small and midcap stocks are assumed to be Gambling. That also make it volatile.
One more reason for volatility is that even though there is a company behind every Stock, many times ignorance of investors Make it attractive. All because of it many Investor run for buying it. In some cases, stock will perform so good that it will go out of its earning performance. That attract some other traders for selling or going short on it.
If it’s your early time in market, you are confused with it.
So how to handle all ups and downs?
First lesson, Be the BOOKISH INVESTOR. Study the Asset class and the company totally before investing. There is always possibility that 10% downside risk is open with some stocks. If it’s impossible for you to study then give that work to professional. Invest through Mutual funds.
There are some stocks which are cyclical. They are good wealth creators But only if you understand Them.
Second thing in Equity market is, it is not the place for you if you don’t have income source other than this.
Most important way is either invest in portfolio way or invest and Switch off all the news channel, News papers.
Finally going to end with some statements of Warren Buffett
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