Dear readers, stock markets have been really volatile these days on the back of inflation and interest rates developments, geo-political tensions in Ukraine, Covid-19 development, amidst others.
Some pointed out that what investors are experiencing is the tip of the iceberg of a larger stock markets corrections. Others are sanguine, with the view that current stock market volatilities will pass.
Be it sanguine or not, investors are basically doing three things right now:
1) Sell and cut loss
2) Buy more to average now
3) Do nothing to their stock portfolio
Warren Buffet has famously said that “The stock market is a device for transferring money from the impatient to the patient.” Hence if you are selling your investment right now to cut loss, it may be time to re-examine your justification for buying the stock in the first place.
But on the other hand, you are buying some other stocks more at discounted prices, be prepared to hold them for the long term since there is no telling whether the stock markets are going even lower and your investment may be akin to “catching a falling knife”.
Many investors do not have the correct approach when it comes to diversification as they are still buying mainly stocks or bonds not knowing that when a financial correction comes, stocks and bonds will normally move in the same way, south. It is time to consider real diversification across more and different asset class that move in different directions with the movement of the stock markets.