Afraid of a market crash? What should you do!

What should your plan be in case the market continues to go down further?

Do you know what your plan is if the stock you are holding starts moving down? There have been millions of new investors in the markets in the recent times and there is a high probability that you are one among them and you entered recently by investing in one of the IPOs or in some most talked about stocks. 

Basically, you have boarded the train without knowing where you should get off and this is pretty common because you just invested because either your friend or someone you know did it and has made some quick money in the markets. 

You also want to taste success and you think it is easy! But, let me remind you that the last one year has been one of the easiest market environments. Even a kid could have pointed at a stock and that stock would have gone up a good 50%.  If you were lucky you could have also made 3x,5x or much more returns. 

So, everything has been rosy till now and it is time to think what if a 2017 like market correction happens where the Nifty is going up but the broader market corrects severely. This is a scenario that can happen anytime – can happen in a week or in a month or in a year from now. Though I am bullish still, I have a plan to react to tough market conditions. 

What should you be doing?

There are different types of investors in markets. 

1. If you are an investor, solely focused on SIPs in quality stocks or mutual funds, then you have nothing to worry about. Continue your SIPs and probably increase your SIP amount and put that extra bonus or money that you have in your mutual funds when the market drops by let’s say 10% or even lower.

2. If you are a direct equity investor investing in stocks, then depending on when you added a stock and how much you allocated, you should know and be aware of what will be your portfolio situation if the stocks were to drop significantly from the current levels. 

• If you have an exit plan for the stocks you are holding, then you should not be afraid to exit them when the exit price comes.
• If you have idle money and your plan is to average down good quality stocks, you should know the price at which you will average your stocks and be ready to add them when you get the opportunity. Remember, you need to know the price well in advance. It is just impossible to add a stock when the market drops, if you don’t have a plan.
• If you don’t have any plan on how to react, then go back to the drawing board and look at the stocks you are holding and devise a plan. Otherwise you might end up holding a few duds for many years to come.

In a nutshell, if you have a plan there is nothing to worry since you will not dance and panic looking at a strong dip in markets. Rather, with a plan you might see such dips as an life-time opportunity and add your favourite quality stocks. 

3. If you are a short term swing/positional trader, then stop trading stocks that are making lower highs and lower lows. It is time to focus on those few stocks that are moving higher and showing strength in weak market conditions. Keep your risk management in place and you will continue to make money in the right market conditions.