Swinging Stock Markets Are Nothing To Worry About

Stock markets always do what they do best, i.e. swing one way or another depending on how emotions turn in the market. Markets, as we know, prefer predictability. As the last few days turned out to be far from predictable, markets swung down and up depending on how fearful the future looms - or how optimistic its promises.

Over time, however, stock markets recover as long as the economy and companies are expanding and growing their earnings. After all, stock markets are a barometer of the progress of the economy.

Stock markets swung more than 2,300 points in two days. Since there are many participants in the market making instant prognostications and decisions about what is to come, stocks will gyrate heavily on big-event days.

By contrast, since there is no real-time participation in the real-estate market, real-estate prices hardly ever fluctuate. If there were an exchange for real estate, perhaps that market would also fluctuate as wildly.

However, real estate is not easy to standardize. Commodities such as gold command a standard value. So too does a unit of oil, wheat and other agri-commodities. However, land-parcels, condos, apartments, malls and so on differ, there's little chance that a real-estate stock exchange will function effectively. So real-estate investors are hardly affected by such events because there's no real-time market that affects pricing decisions.

Like investors in real estate, it's probably difficult for investors in stock and debt markets to control their emotions because there will always be knee-jerk reactions. When prices tumble, investors automatically gravitate to pressing the stop-loss button, and booking losses.

On the other hand, think about it, there's no stop-loss button in the real-estate market.

Hence, and since it is but natural that stock markets fluctuate - and wildly on big event days - one needs to ignore these bad days - and move on.

Back when the Lehman crisis badly bruised global markets, Indian stock markets tragically hit lower circuit levels. On January 22, 2008, the Indian stock market saw its biggest intra-day fall of 2,273 points. It later recovered and ended with a day's loss of just 875 points. A few years later, though, the stock markets were back to their normal functioning.

One strategy that clearly plays out in favour of investors - and has played true at all times - is that buying the dips, tumbles and nosedives. When stock markets have precipitous falls, make big purchases. When a sudden movement is downward, which happens particularly when popular expectation has been belied, buy the dips.

Stock markets have scaled higher peaks over long periods. It's in the nature of stock markets to grow and expand. On July 25, 1990, the BSE Sensex passed the 1,000 mark for the first time. On October 11, 1999, it crossed 5,000. On March 4, 2015, it exceeded 30,000.

Likewise, in the course of the next few years, stock markets will most certainly clamber up newer peaks. One can't say with certainty when they will do so. But whenever you see markets sliding down, the best thing to do is to make a huge splash in the ruffled waters. In the long run, it will give you the best returns.