There is a simple rule in stock market investing Buy Low – Sell High. As simple as it may sound, it is not so easy to follow. When markets fall, fear is the dominant emotion that prevails, we are afraid that markets will fall further and in extreme cases we end up actually selling. The reverse is also true during market highs when greed is the dominant emotion
The key to overcome such emotions, which make it difficult to follow simple thumb-rules is in the following: –
Usually, markets go to near time highs or lows due to an event. All we have to do is analyze the effects of this event logically. We need to ask ourselves – Does this event impact the economic growth of our country? How does this event impact any of our numerous sectors of the economy? Is it just limited to one or two sectors? Or; Is this event a short term sentiment changer which only impacts short term demand in the market?
We have often witnessed that events happening in a different part of the world, in countries that have negligible direct or indirect link to our economy have a big impact on our markets due to sentiment. This impact is quite short lived as there is no fundamental change in our economic activity
It’s good to have a friend who has seen these ups and downs several times, an expert who can be trusted to give the right perspective and make the simple, easy.