New to Stock Market? 5 Things You Should Avoid During a Market Crash

Bears tightened their grip over Dalal Street and have wiped out more than Rs 29 lakh crore of investors’ wealth since the beginning of February. The Russian assault on Ukraine seems to be turning severe not only for Moscow but for the global growth as well with a rising possibility that the US and its European allies may ban Russian oil and natural gas without hurting global supply. The news has lifted the crude prices to a 13-year high, which is a major cause for concern for emerging markets like India still imports more than 80 per cent of its oil requirement and sent the Indian markets into a state of panic.

However, for those who have been in the stock market for less than two years, the massive one-way slide in prices over the last seven sessions would have come as a shocker. The unfortunate truth is that investors tend to pour money into stocks during bull markets — after the stocks have been rising for some time and news is hyped, as if nothing could go wrong with the markets. Afraid of missing out, some small individual investors pile on. The same one’s panic and bailout after the slightest hint of a correction.

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Don’t Sell in a Panic

During market corrections, selling off your investments might seem like a good idea. Negative news such as a pandemic, an asset bubble that’s about to burst, scams being revealed, etc., can influence any investor.

However, market experts say that the best and worst-performing days of the stock market are often quite close to one another. This is the key reason why the strategy of timing the market does not work well for most regular investors. The key thing to remember is that fear leads to panic, especially among amateur investors. This panic often makes investor sell their investments at low prices during a stock market crash.

Buying the Dip isn’t Always the Wise Thing to Do

Similar to making panic sales during a market crash, it is also important that you do not make panic buys during a market crash. Panic buying can be described as a state of mind that pushes you to make investments indiscriminately, which can become an obstacle to reaching your current investment goals.

After all, when markets are down, it often seems the best time to invest at reasonable valuations. In such cases, investors often invest in Bluechip stocks or purchase Index Funds.

However, many investors forget one key aspect of Equity investing in such cases – their risk appetite. The buying frenzy when markets tank can lead investors to invest in Equities well beyond their actual risk appetite.

Currently, the market is in bearish territory. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said: ” Investors have to be cautious. There is relative safety in energy due to high energy prices, metals due to high global prices, and export segments due to resilient demand and rupee depreciation.

Calibrated buying in very small quantities may be considered in the above-mentioned segments.”

Don’t Add Any Fresh Stocks

Don’t add any fresh stocks to your portfolio at this point because they appear cheap. Remember, stocks that have fallen 50 per cent from their peaks can still be expensive if their financials are not in good shape.

Don’t Stay Invested in Sector-Specific Stocks

During a stock market crash, portfolio diversification is a must. Yes, some stocks can sink forever at some point, but a careful investor will not have them, or have them in quantities whereby it does not matter. However, since new investors may not have enough experience of ‘what to do’ during a crash they should seek help. Nishit Master, Portfolio Manager, Axis Securities, said: “First-time investors should work with professional advisors and invest in good quality companies available at reasonable valuations in tranches. They should also avoid leverage.

Don’t Turn Your Back on the Equity Market Altogether

Cycles are an integral part of the market. It is when you see both a bull and bear market that you are finally on the path to becoming a wise investor.

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