Equities are an excellent investment tool for both beginners and experienced investors alike. You may consider a long-term investment in equities market to yield higher returns. Through the power of compounding and rupee cost averaging, you may solidify your earnings.
There may be times when the equity markets fall or collapse. The general notion is that you may incur losses due to the falling market. However, the same is not always true. You may build on the various opportunities that present themselves in a falling market.
Following are three opportunities that may work to your advantage to avoid losses in a falling stock market.
- Buy more shares
The golden rule of investing is ‘Buy low and sell high.’ However, due to volatility in the market, doing this may sometimes become a difficult task. You may, therefore, take advantage the falling market and to purchase additional shares. By doing so, you may be able to buy a greater number of units as compared to when the market is well-performing.
It is, however, advised to do your due diligence before buying a higher number of equity shares. You may conduct a fundamental check on the company—its financials, balance-sheet strength, core proposition, and its valuation, among numerous other factors.
- Short sell the company’s shares
Another possible opportunity during a falling market is to ‘short sell’ the company’s shares. Short selling refers to the sale of the security that the seller has borrowed. It is important to note that the asset in question is not owned by the seller.
According to this concept, the belief is that the asset’s price will decline, allowing the seller to buy it back at a lower price. The seller takes advantage of the price difference, thus allowing him to earn a profit. Since the risk involved in short selling is high, this strategy should be used by experienced investors who are familiar with the associated risks.
- Stay put
Some investors make a grave mistake of exiting the market during a market crash. By doing so, you may incur huge losses. This will lead to emotional and financial stress. Instead of exiting during the crash, you may wait patiently for the market to pick up and show a positive trend. If you are a long-term investor, continue keeping a long-term perspective. Changing your views due to the market crash may compel you to pull your stocks, mutual funds, and similar investments, and you may lose a great deal of money.
Do not let uncertainties in the stock market have a negative impact on you. You may use the above-mentioned opportunities in your favor, thereby avoiding losses and building a strong financial future.