Indian markets have crashed and crashed badly in line with other global markets. Investors tend to panic when there is a sudden collapse in share prices. Here are 5 things to avoid doing when share prices are crashing.
1) Distress selling
Let's assume that you have bought shares of Reliance 2 months back at Rs 990. Check Sensex gainers and losers
You now see the price has crashed almost 8 per cent, as was the case on Monday. Now, if you tried protecting your capital from further erosion and share prices recover you would be caught on the wrong foot. So, never do a distress sale. If you are convinced that a share has value just stick to it.
2) Averaging
Another mistake that investors do, when share prices fall, is tend to average. Let's assume you look at a scrip like Tata Motors. The share price has fallen from Rs 606 to Rs 330. If you kept averaging at every fall, it would have been solid losses by now. The problem is that you do not know when the bottom would come.
Also read blue chip stocks that corrected 50% during the market carnage
3) Stay away from the futures and options segment
When prices are crashing, the one thing that investors, especially individual investors should do is stay away from the futures and options market. This is a highly risky trade during times of turbulence. You can lose significant amounts by playing the F&O segment when markets are volatile.
4) Short selling
Again, there is no point in short selling the market on hopes that there would be a further downside. Should the markets take a complete U turn, you could end-up with huge losses.
5) Wait for the dust to settle
All of the above points suggest that you do not buy, sell or short sell. What do you actually do then? The only thing one should do is: "not do anything".
Markets give you ample scope for investing and investing for the long term. So small investors should wait for calm to be restored and then invest.
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