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Monday, April 15, 2024

The Stock Market’s Stomach for Risk

<p>Renowned investment guru Peter Lynch famously said that not everyone has a stomach for risk and that those who are prone to panic buying ought not to have ever invested in stocks or mutual funds.</p>
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<p><img decoding=”async” class=”alignnone wp-image-522957″ src=”https://www.theindiaprint.com/wp-content/uploads/2024/03/theindiaprint.com-the-stock-markets-stomach-for-risk-newindianexpress-2024-03-ec70e79f-d97f-40bd-878-750×422.jpg” alt=”theindiaprint.com the stock markets stomach for risk newindianexpress 2024 03 ec70e79f d97f 40bd 878″ width=”1065″ height=”599″ title=”The Stock Market's Stomach for Risk 24″ srcset=”https://www.theindiaprint.com/wp-content/uploads/2024/03/theindiaprint.com-the-stock-markets-stomach-for-risk-newindianexpress-2024-03-ec70e79f-d97f-40bd-878-750×422.jpg 750w, https://www.theindiaprint.com/wp-content/uploads/2024/03/theindiaprint.com-the-stock-markets-stomach-for-risk-newindianexpress-2024-03-ec70e79f-d97f-40bd-878-1024×576.jpg 1024w, https://www.theindiaprint.com/wp-content/uploads/2024/03/theindiaprint.com-the-stock-markets-stomach-for-risk-newindianexpress-2024-03-ec70e79f-d97f-40bd-878-768×432.jpg 768w, https://www.theindiaprint.com/wp-content/uploads/2024/03/theindiaprint.com-the-stock-markets-stomach-for-risk-newindianexpress-2024-03-ec70e79f-d97f-40bd-878-390×220.jpg 390w, https://www.theindiaprint.com/wp-content/uploads/2024/03/theindiaprint.com-the-stock-markets-stomach-for-risk-newindianexpress-2024-03-ec70e79f-d97f-40bd-878.jpg 1200w” sizes=”(max-width: 1065px) 100vw, 1065px” /></p>
<p>Many of us predicted volatility in 2024 at the beginning of the year due to the massive surge in inflows into mutual funds and mid- and small-cap equities. That’s why I find it surprising that several market players were alarmed by the sell-off of many mid- and small-cap equities last week. It was unexpected and put the Indian equities markets under a cloud of uncertainty.</p>
<p>The Foreign Institutional Investors (FIIs) who are booking gains, anticipating a cooling down in the market, and accounting for the worst-case scenarios that may transpire in India seem to be the main causes of the index decrease. What then happens if the inevitable harm is less than expected and that scenario does not come to pass?</p>
<p>Will the FIIs go back on a purchasing binge as soon as the dust settles, and will it lead to a significant spike in the Indian indices? Only time will tell, but if I were a bettor, my money would be on that. The more difficult issue to answer is when that will occur, assuming it happens.</p>
<p>I have been discussing with students for a time now the distinction between lateral and linear thinking while investing in bourses during my guest talks at B-Schools. Back at my workplace, we engage with a good number of highly educated High Net Worth Investors (HNIs) clients from cities all over the world. They have naturally spoken to my team about the market’s current status and the path forward. The majority of them have even chosen to increase their assets via the SIP / STP method, which is, in my opinion, the best linear choice.</p>
<p>Some of our HNI clients are from rural parts of India; what they lack in formal education, they more than make up for with their ability to see opportunities for profit when they arise. Sometimes, they just want to invest pretty substantial quantities using the lump-sum method without asking any questions about the status or future prospects of the equities market, which always surprises us.</p>
<p>In an effort to exercise extreme care and adhere to professional standards, my team did discuss the advantages and disadvantages of making lump sum investments, particularly in a market that seems to be highly valued in the short term.</p>
<p>Their way of thinking was, well, straightforward. With a decade ahead of them, they were certain that the investments they were making would provide substantial returns for their future generation. With that level of mental clarity, there wasn’t much left to argue.</p>
<p>In each equities market, what differentiates the “few winners” from the “many also rans” is the capacity to ride risks and exhibit extreme patience, regardless of whether one employs linear or lateral thinking.</p>

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