When America sneezes, the rest of the world catches the cold. This famous phrase originated back in 1929 in the aftermath of the Wall Street crash. This sneezing has always shaken the money markets across the globe. And, yet again, on August 5, 2011, America sneezed again when Standard & Poor’s struck off the ‘AAA’ rating (considered the Gold standard in the world of finance) of the US. This loss of reputation subjected the stock markets world over to scramble.
This stock market crash hit headlines as the market crash has left many investors exhausted and shaken up. In fact, our stock market is under pressure ever since Reserve Bank of India (RBI) has become aggressive in increasing the interest rate to anchor inflation as also due to Europe problems. There was already catastrophic selling in our market when last week Dow fell over 500 points in a day.
For the past one week, I have been receiving emails from various local market players seeking details of the impact of America’s current sneezing. What is the ideal solution in the present circumstances when some of the economic and market pundits forecast recession -2011? Is it time to buy, sell or hold the stocks? These are a few questions which have been haunting them. Most of them want a crystal-ball synopsis about where the stock market is headed in the present scenario. Some have even asked about “great stock tips I know that can help them to make money even when market crashes.”
Even as I do have plenty of informed opinions, at the end of the day they are just opinions. And is no surety to get stellar results. The reasons are simple. Firstly, investing in the financial markets involves buying and selling and to make a profit one has to get both decisions precisely right. Secondly, to buy and sell the stock successfully one must be able to monitor and interpret countless pieces of information that can change in a heartbeat. And, thirdly, when the market has its ups and downs, emotions can easily cloud one’s judgment.
In the present circumstances, decision to buy, sell or hold the stocks should not be driven by where the market will go. It should be driven by asset allocation. I mean, the investor should have a diversified investment portfolio. So the asset allocation should be like investing in equities of various companies in different sectors, real estate, commodities etc.
It’s important to know yourself as a trader or an investor. What we have observed is that most of the traders call themselves as investors. But these are two different things. An investor holds the stock for long term predicting strong growth of his investment in the future. An investor measures the company's future success by looking at its financial strength.
A trader holds stocks for short term to make quick profit and looks at past price history in an attempt to predict future price movements. A trader keeps close watch on his trades intraday to see where money is moving and why (supply and demand). And, of course, traders look into the market emotion. The traders play on the fears of investors where they will bet against the crowd after a large move takes place. However, the day trading is most risky business and that too for a person who lacks thorough knowledge about the financial markets. Speaking in local context, most of the people in the stock market try to become expert day traders right away. While as it takes considerable time, practice and effort to learn the ropes. This unhealthy attitude of these local traders resulted in their huge losses.
Succinctly, as an investor you should continue your investment in the market for long term goals through systematic investment planning of mutual funds. Whether you have spent time in the market or you are a new investor, you should avoid direct buying of stocks. In the times of crash, have a close look at your portfolio and use this stock market crash to clean it.
If you are an investor, you need not really have to worry about stock market crash. It is the length of time that you stay invested in the stock market that matters. The longer you are in, the better for you. So, invest for the long term and be a wise investor. And if you are a trader, then America’s sneeze is due to infect you.

Lastupdate on : Mon, 15 Aug 2011 21:30:00 Makkah time
Lastupdate on : Mon, 15 Aug 2011 18:30:00 GMT
Lastupdate on : Tue, 16 Aug 2011 00:00:00 IST