Funda of investing in volatile markets

The Indian stock markets are currently trading in a volatile manner and are groping in the dark not knowing which direction to head for due to lack of any positive or negative triggers. As a result, the stock market investors and traders are perplexed as they are clueless about the direction of the markets. So, what should the retail investors do in such a situation? The simple answer is: remain invested in quality stocks, adopt a disciplined approach to investing and exit dud stocks. Let’s elaborate on these points.

It always pays to remain invested in companies with a commendable track record of sustained growth in revenues and profits, robust business model, well-diversified portfolio of products and high level of corporate governance standards. These are winners that are not likely to let you down, irrespective of market trend. So, it is always prudent to accumulate more of these stocks when their prices dip in a bearish market.

That takes us to the discipline part of investment approach. While buying in a volatile market, it is advisable to keep buying in tranches every time the prices of stocks take a dip. Such an approach provides the advantage of averaging down the cost of buying the stock, so that when the market gets into a bullish mode, the average cost would ensure good potential for profit.

However, it must be remembered that only the quality stocks should be considered for averaging and one should never ever indulge in averaging the cost of dud stocks. Trying to average the cost of a dud stock is like betting on a loser multiple times on the false hope of the loser someday turning into a winner. A dud stock is a dud investment and should be exited at the earliest possible opportunity.