During sales 19 And 22 November, it is difficult for an investor to remain indifferent to the situation, watching, how portfolio value is steadily declining. Instinct prompts, that you urgently need to sell everything and leave with that, what's left. However, this behavior is often the most ineffective.. The current situation once again confirms this.. Let's summarize, what panic sale days teach.
Lesson 1. Look for inefficiencies
During a panic, imbalances always appear in the market.. Individual stocks can fall very hard, despite, that their fundamental case is not in danger. And sometimes sales, vice versa, only strengthen the positions of individual securities.
For example, during the sales, it was logical to take a closer look at the shares of the Moscow Exchange. Exchange income consists of two parts: commissions for transactions and interest from the placement of free funds. Interest rates are now actively growing, and the increase in trade turnover due to sales has a positive effect on the expected amount of commissions. In spite of this, on Monday, the stock renewed its annual low.
Another example, oil stocks. The fall of the ruble led to, that the price of oil in rubles has renewed its historical maximum. This is a strong positive signal for oil and gas stocks., which sank very much on Monday. The sector now retains an opportunity to buy strong stories with double-digit expected dividend yields.
Lesson 2. Panic rarely lasts long
A market crash is like a bottleneck. A lot of market participants are trying to sell their securities at the same time. As a result, the pressure on quotes is growing., and they quickly fly down, grabbing those, who trades with shoulders and cannot sit out the drawdown.
But this situation cannot last too long. As prices fall, interest in sales decreases, and speculators begin to look closely at possible purchases with interest. Usually, the active phase of reduction lasts no more than two to three days.
Interesting observation, which is very often repeated: if the index closes the trading day at intraday lows after a strong decline, then at the opening of the next day, the market in the first hour may continue to actively decline by inertia against the background of margin calls. And at this point, attractive shopping opportunities may arise.. This is what you could see on Tuesday 23 november.
Another technical observation. If Market Sentiment Remains Alarming, then before the weekend sale, usually, intensify. This is related to, that market participants prefer to reduce risks due to possible negative news on Saturday-Sunday. It could be seen 12 And 19 november.
Lesson 3. There is no such thing as growth correction
Over the past year, the Russian market has grown almost without recoil. Newbie investors can get the wrong impression, what is the norm. But this is not at all true (unless it's about S&P 500:). The market often has ups and downs. There are periods, when the market may gradually decline over several months, how it was at the beginning 2017 G.
To feel comfortable during times like these, it is important to closely monitor the securities in your portfolio. If the investor is confident, that in his portfolio there are papers of high-quality promising companies, then it is much easier for him to stay cool and not only not to sell good papers for cheap, but also find new profitable opportunities.
More useful information for investors you will find on BCS Express.