“Corrections & Crashes create investment opportunities”; Future Strategy during NEPSE Correction

Dipendra Agrawal is Board of Director of Mega Bank Nepal Limited. as well as Executive member of Nepal Investors Forum. He has been closely involved in the share market for more than a decade. ShareSansar team had long conversation with him and here are his approach and suggestion to the investors that what they should do during this correction phase? NEPSE is facing a correction phase. It is not surprising at all. There is always a correction around the corner. It would be a new world if the stock market doesn’t have a tendency to correct. This is the time when bonus and right share of the listed companies are due and the interesting fact is that one who invests for a year will be able to grab double dividend i.e. of 2 fiscal year dividend. During a stock market correction, the best time to invest in stocks is also the hardest time to invest in stocks. If investors let fear dictate their decisions, they’ll look back in the future and might regret as well.  It would be better if investors approach the task calmly and rationally, the benefit would be handsome. One of the biggest mistakes long-term investors commit is ditching the stock market at the wrong time. We've all heard the saying "buy low, sell high," but new investors have a tendency to panic when market dwindles and sell when stock prices are low. So what should an investor do? Do Not Panic The key to corrections is not to panic. Panic is what costs you money. It is very seldom for market to go in correction mode. So at this point of time, the only thing investors can do is a simple judgement i.e., Buy or Sell or hold. Buying at Dipping market The key to buy in correction mode is to take it slow. I recall ‘Bazar Guru’ at that time when it called markets a depressed bull and the bull will be over now and then.  They also came up with wave theory to justify their logics. There was actually panic in the market.During the correction investors better opt for long term investment. It’s a pretty basic idea when you think about it, but hard to follow if you are a short term investor. Set Targets in Advance Keep looking for companies which are crashing and are still good to buy. Have the names and the price targets. One thing to keep in mind is “Bigger the correction, greater the profits from buying aftermath.” Look for Big Opportunity Keep an eye out for mad opportunities in a slump and especially when correction situations arise. Investors should not be over ambitious but they have to keep their eye open for boring stocks suddenly falling insanely. Corrections and crashes create these investment opportunities. It’s a good idea to buy stocks in small amounts when you see them and leave it to the recovery to sort out. We all hate the prospect of a slump or a crash, but in fact they are little gifts to long-term investors. Identifying quality stocks Quality stocks are easy to identify. These are big, stable, and generally older companies with well-known and durable competitive advantages. This is why size matters. Size can also reflect on a company's age, which is another factor that investors should consider when picking stocks during a stock market correction. Older companies by definition have survived more corrections and recessions than younger companies. It is much better if you invest in large, well-established companies founded decades ago. Averaging into positions The tactic, known as averaging down, allows you to not only take advantage of a downturn, but you do so in a rational and responsible manner. This is why even the greatest investors use this approach, including Warren Buffett, who has gone on record saying that he likes it when the stocks he buys go down soon thereafter. Short-term pain for long-term gain Even if you are down as average, your portfolio will show losses in the short term. But you don't have to regret these losses. The trick is to ignore them until they evolve into gains. And ideally you want to give the positions years, if not decades, to season, as that will allow the law of compounding returns to work its magic. Get a grip on your emotions. You may not be able to avoid an emotional response, but you can manage it. "Science is showing that the practice of mindfulness helps us reduce stress, changes brain regions associated with fear and therefore improves our internal control over emotions.” It helps us be more aware of both opportunities and dangers when we are in challenging situations such as declining stock markets. It is one mental skill I suggest all investors should learn.