Why so many investors find it hard to handle the market volatility?

Market volatility, like the one we have been experiencing for past three months now, usually results in triggering a feeling of anxiety, uncertainty and discomfort in the minds of even the most seasoned investors. Perhaps this feeling of anxiety and discomfort is the main reason why investors don’t make good money from investing in the stock market. But why does this happen?

 

To begin with, let’s understand some plain and proven facts. At any point in time, if you decide to start investing in the stock markets, it doesn’t mean that you automatically become a risk-taker.

 

The real risk is accepting the consequences of your actions and that too without the discomfort of fear. But why do we experience this discomfort and end up making investment mistakes?

When a situation doesn’t go as per our expectations and we are not prepared for the resultant unpleasant outcome, it causes discomfort and pain. Up or down, volatility is and always will be an integral part of the stock market. Every investor knows it but very few really understand it and prepare for it. When an investor starts investing in the stock market, he knows these facts but he always expects the market to go in his favor, which is practically impossible to say the least.

 

The reason why we always expect the market to go as per our own expectations is because we don’t understand real market behavior and play for fulfillment of our unilateral and unrealistic expectations. Well the market has its own behavior; our expectations have no impact on the market.

One of the common reasons for investors’ discomfort is the lack of investment goal setting. Many investors start investing for the long term but get panicked in a very short time because they are not sure about their actual requirement from that investment. Realizing our requirements and setting a goal for the investment is very important.

 

Stock Markets plunge from novel COVID-19 virus fear, world investment price fall down or collapse from outbreak of Coronavirus, stock market graph and chart equity price fall down from Virus pathogen impact.

The market is uncertain, every investor knows it, but do they really understand it? If we talk about the current scenario, the impact of Covid-19 on the stock market is very uncertain and investors are tempted to believe that this particular recession is going to be the greatest and most long-lasting of them all. But history has witnessed an even worse situation during the 1918 Spanish flu, that too just after the world war-1. Imagine the death of 3% of the world population in the war, followed by the death of one-third of the world’s population due to the pandemic. But after that we saw one of the biggest market expansions of the century, which continued for the next 10 years. Similar situation can be dated back to mid-13th century Europe when “The Black Death” wiped off nearly half the population of the entire European region. Still the European countries went on to establish successful colonies and rule the world for the next many centuries to come.

 

These kinds of risks are always present in the market and we have to prepare for this before thinking of investing. Proper investment goal setting and self-risk assessment also is the key. If we don’t discount these risk factors before investing, it will create discomfort and pain. High Volatility and risk are integral parts of the market and we have to be ready for it because big gains always come after a deep pain.

 

 

 

Author – Prashant Dhama

Director & Board Member, iVentures Capital

 

 

 

 

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