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Monday, January 18, 2016

Panic Selling in Small & Mid Caps - What to Do?

Dear Reader,

If you have invested in small & mid caps in 2015 or early this year, you might be worried by looking at your portfolio in red with significant losses by now. Worst hit so far is the small cap index which has lost almost 15% in last 15 days and carnage may continue going forward as per most of the analysts.

Why not? We have seen many of the micro, small and mid cap companies giving returns in the range of 100% to 500% or more in last 1 to 2 years. If stock prices goes down by 20% or 30%, we must accept it as a normal correction. Yes, intensity of falling prices can hurt our sentiments, stock prices during such severe correction fall like a knife and make us fearful giving rise to emotional selling. 

We continue to suggest our members to have patience and start accumulating small and mid cap companies with strong fundamentals in your portfolio during ongoing market correction. Following the crowd in the stock market can lead to disaster if you're not careful. Panic buying or selling can push stock prices beyond reason.

The crowd-following problem seems worse when the markets are down and the mood is pessimistic, people tend to sell even if there is no specific reason to let go of an individual stock. Avoid doing so and hold on your nerves, buying high and selling low will convert your notional losses into actual losses.
This common trading mistake costs investors dearly. When the talking heads on television and the wags in print and online begin talk of doom, many investors dump their stocks in favor of cash or other "safe" investments.

Rushing In

As soon as the same crowd gets excited about the market again, the cash investors rush back to the market and buy stocks.

The problem with this approach is that the investor is frightened out of the market when prices are depressed and lured back in when prices have rebounded. In other words, sell low, buy high.

Your best defense against a market that slumps dramatically is to have a well-diversified portfolio that contains an appropriate amount of risk for your financial condition. This alone won't protect you when the whole market dives, however it will position you to ride out the slump and be in good position for when the market rebounds.

The thoughtful investor always asks why the price of a stock is moving before making a decision.

• Has something changed in the company?

• Has something changed in the company's primary market?

• Has there been a negative or positive regulatory or legal change?

• Is there an underlying change in the economy?

These are not all the questions you should ask, some will be specific to the industry or sector, but you get the idea. When you can find nothing in the answers to questions specific to the company, you look to the market.

Is this stock dropping (or rising) because the overall market is moving dramatically in that direction? It can work both ways, although a down market seems to depress overall prices more than an up market raises overall prices.

Shopping at Discounted Price

If you are looking to add to your portfolio, consider a down market a great shopping opportunity. A thoughtful investor is going to buy on the potential of a company and if he or she can pick the stock up at a discount so much the better.

This investing approach takes some courage and confidence in your ability to distinguish between a stock price depressed by a down market and a stock that is fundamentally flawed. You also must be prepared for further declines if the market continues to slide and consider it to add more of our favourite stock picks backed by strong fundamentals and reasonable valuations.

If you have at least two to three years before you will need to begin cashing in your holdings (at or near retirement), you may be able to ride out an extended economic downturn. However, if you do your homework, you'll find bargains in down markets that may reward you handsomely in the future.

Don't be frightened off a stock just because the overall market is sour. If the fundamentals of a company are solid, a down market may be a great time to do some discount shopping. A fundamentally sound company will likely be on the leading edge out of an economic downturn.

Saral Gyan Hidden Gems (Unexplored Multibagger Small / Micro Cap Stocks) continue to outperform Small Cap Index by wide margins. Hidden Gems 2015 recommendations (from Jan 15 to Dec 15) is giving as on date average returns of 16.4% compared to negative average returns of -8.1% of Small Cap Index.
We would like to highlight that Hidden Gems stocks released in first half of 2015 have given positive returns in the range of 20% to 70%, however Hidden Gems stocks released during 2nd half of 2015 have mostly given the negative returns in the range of -10% to -35%. Is this means Hidden Gems stocks released in 2nd half of 2015 are not the good companies? Not at all. You should understand that the returns while investing in companies majorly depends on their individual performance in terms of growth, future outlook and valuations and not on market sentiments in long term. Hence, if company continue to deliver strong earnings & valuations are reasonable, company is expected to outperform major indices giving better returns in medium to long term. 

And that's the simple reason, why Hidden Gems holding period is 1 to 2 years. Investing in equities with medium to long term not only help investors to ride over market volatility but also gives them opportunity to add great businesses at discounted prices. 

News are floating on leading business TV channels and newspapers that stock market may repeat history of 2008 going through severe downfall in major indices. However, we do not agree with such views simply because valuations are not at all expensive like that of 2008 (based on PE multiple) and markets are not at peak like that of Jan 2008. Moreover, we expect overall economy to do well in 2nd half of next financial year with better corporate earnings. We continue to suggest our members to avoid timing the markets and start accumulating good companies during ongoing market correction,   

We suggest our paid subscribers to start adding Hidden Gems stocks as suggested in Hidden Gems Flash Back Report - Dec'15 update during ongoing market correction. Its an opportunity to start accumulating these multibagger stocks as fundamentals are intact and these companies are becoming available at discounted price with ongoing correction.  These companies have posted good Q1 and Q2 results and are expected to perform better and have the ability to make strong northward move when stock market find stability going forward.

If you have patience and want to add extra power in your portfolio, start investing some portion of your savings in fundamentally strong small and mid cap companies - Hidden Gems & Value Picks. 

The stocks we reveal through Hidden Gems & Value Picks are companies that either under-researched or not covered by other stock brokers and research firms. We keep on updating our members on our past recommendation suggesting them whether to hold / buy or sell stocks on the basis of company's performance and future outlook.


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Do contact us in case of any queries, we will be delighted to assist you. 


Wish you happy & safe Investing. 


Regards, 
Team - Saral Gyan