Making less money is far better than having sleepless nights !

4 min read

As an investor, one of the biggest challenges we face is navigating the volatile nature of the stock market. Price movements can be erratic and sudden, leaving investors feeling overwhelmed and unsure of how to proceed. In this article, we will explore strategies to help navigate through these volatile times and make informed investment decisions.

Let’s take the example of Zensar Technologies, a company whose stock prices have shown significant volatility over the years. From 2004 to 2012, the stock price fluctuated between Rs6 and Rs25, indicating a relatively stable period. However, this stability was followed by a massive bull rally, during which the stock price rose from 17 to 200 within a couple of years. Such extreme price movements can be intimidating for investors who are not accustomed to such volatility.

So, how can we navigate through this volatility without getting overwhelmed? One strategy is to focus on capturing smaller portions of the stock’s upward momentum. By doing so, we can benefit from potential gains while also protecting our capital and reducing exposure to downside risks.

Let’s examine this approach using the example of Zensar Technologies. During its latest run, the stock price has already doubled or tripled. However, instead of trying to capture the entire run, we can aim to capture a smaller portion of it. Even if we are able to capture just half or 40% of the upward movement, it can still generate substantial returns and provide a reprieve for our capital.

For instance, if we bought the stock at Rs70 and sold it at Rs181, we would have doubled our investment within a year and a half. This would also free up our capital for other investment opportunities. When the stock price reentered our watchlist at Rs180, we could decide to buy again. If the stock price then increased to Rs320 and we sold it at Rs 222-230, we would have only gained 20-30%. However, our capital would remain free for the next couple of years, enabling us to explore other potential investments.

By adopting this strategy, we can compound our gains over time while also mitigating the negative impact of volatile price movements. This approach allows us to take advantage of market trends without subjecting ourselves to significant drawdowns and the emotional stress associated with them.

It’s important to remember that trying to capture every possible market movement and gain is virtually impossible. The stock market is characterised by violent price swings that can disrupt our sleep and create a sense of unease. Instead, by focusing on capturing smaller parts of the upward movement, we can reduce stress, maintain a positive mindset, and increase confidence in our investing abilities.

Practising this strategy requires discipline and a well-defined investment plan. It involves setting specific entry and exit points for each investment and sticking to them. By doing so, we avoid the trap of indecision and prevent getting stuck in a cycle of negativity and lower self-confidence.

Navigating volatility also involves continuous learning and building knowledge about the companies we invest in. Conducting thorough research and understanding the fundamentals of the business can help us make informed decisions, even in uncertain times. Additionally, staying updated with industry news and market trends allows us to identify potential opportunities and adjust our investment strategy accordingly.

In conclusion, navigating volatility in the stock market requires adopting a strategic approach based on capturing smaller portions of upward movements. By doing so, investors can benefit from potential gains while mitigating downside risks and protecting their capital. It is crucial to remain disciplined, stick to predefined entry and exit points, and continuously educate oneself about the companies and industries in which we invest. By practicing these techniques, investors can have a more positive and rewarding investing experience, even in times of extreme volatility.

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February 7, 2024 by Weekend Investing

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    Making less money is far better than having sleepless nights !