It’s tough times in the market. Every day, we see the Dow Jones, S&P 500, and many major indices around the world fluctuate up and down like a roller coaster. And everyone seems to be bearish about the future. Some people are getting out of the market altogether, while others are investing more money in an attempt to capitalize on these fluctuations. So what should you do? Sell everything and hide under a rock?

Should you get out of the market when it’s blood in the streets or invest more?

What happens during a crisis?

The emotions of fear and greed are what drive most investors during a crisis. When the market is crashing, everyone is focused on the potential losses they could incur. This causes them to sell their investments in order to avoid these losses. It is noteworthy that the selling can cause the market to drag even further. Why would someone go against the market sentiment?

The answer is simple: to make money.

When everyone else is selling, prices are low and there are deals to be had. By buying during a crisis, you can get more for your money. Of course, there is always the potential to lose money when investing, but contrarian investors believe that the potential rewards outweigh the risks. There are a few things to consider before taking a contrarian view on investments. The most important one is that you need to have a strong stomach!

The greatest investors have done it many times

Warren Buffet made a fortune when he bought while the markets made historical corrections, not once; but multiple times. in 1987, he bought big time when the market crashed. In 2008, he again bought shares when the financial crisis hit. His actions show that it is possible to make money by going against the herd.

Peter lynch one of the greatest stock pickers of all time also did it when he bought stocks during market corrections in 1973–74 and again in 1987. In the early 1990s, when the US was in recession, Peter Lynch bought shares in companies that he believed were undervalued. He made a fortune when the US economy recovered.

The market always recovers!

Stock markets have a history of bouncing back from crises. After every market crash or correction, there have been recoveries. It might take a few months or even years, but it does every time!

What if the blood is yours?

How would you feel when your portfolio is already at a loss? Can you make up your mind to invest more at that point? It’s not easy to lose money. When you see your portfolio at a loss, it can be really tough to make the decision to invest more. But if you believe in market recoveries and see undervalued stocks as uncut gems, then it might be worth it to put more money into the market. Remember, the market always recovers! So there is no need of giving up. Just hang in there and keep investing! Investors who’ve gone through it knows that it’s easier said than done. Emotional maturity is essential in getting through these times.

The market always has had a history of recovering. For example, after the market crash in 1929, it took a decade and more to finally hit its pre-crash highs. it recovered much faster during the 1987 and 2008 crashes and people who held on to their investments regained everything they lost and multiplied their wealth thanks to the buying near the bottom.

How can buy at the dip?

The best way to buy at the dip is by dollar-cost averaging. By buying a fixed sum of shares or investing a fixed sum of money into mutual funds or ETFs at regular intervals, you can smooth out the effects that sporadic buying has on your portfolio.

For example, let’s say you want to invest $100 into XY, instead of buying it at once, you divide it into four $25 investments made at one-month intervals where the negative trend is likely to continue.

It is effective in two ways:

• It takes the emotion out of buying, so you’re not as likely to make rash decisions.
• By buying more when the prices are low and fewer when they’re high, you lower your average cost per

What are the things to watch out for?

Every strategy has its own limits. Here is what you need to watch out for:

• Think about the investment time horizon. This strategy goes well with your long-term portfolio (typically 10–15 years or more). Only invest cash that you’ll not need in the near future. You don’t want to be forced to sell when the markets are down!
• Pick fundamentally strong, stocks with a track record (market leaders if possible) instead of speculative stocks. Speculative stocks lose value faster and recover slower during a crisis while fundamentally strong stocks tend to bounce back fast.
• Monitor the economic background that impacts the businesses, and apply breaks or accelerate when required. Actions of central banks, political influence, and foreign affairs can change things drastically.

A bet on the shares of Colombo Stock Exchange, Sri Lanka?

Most government responses to the pandemic are proven to produce disastrous results all around the world. Businesses and markets have accumulated a lot of stress and it’s about to explode.

Let’s take the Colombo stock market for example. After spontaneous protests demanding the resignation of the president of Sri Lanka, in Colombo — the capital of Sri Lanka, anticipation was mounting about how this movement in the crisis-ravaged country would develop. Sri Lankans literally saw the blood on the streets, deaths, and panic in no time. Shortages in fuel, medicines, and food have hit the people hard and experts suggest that IMF and Worldbank intervention will be key to maintaining balance and ultimate recovery.

Colombo Stock Exchange — country’s stock market all share price index plunged from an all-time high of 13,500 to 6,700 which is a 50% drop in the index during this turmoil.

Solutions to Sri Lanka’s trade balance issue and the foreign exchange crisis will depend on the level of political stability and how people in dire need react when the IMF proposals are executed. Under these conditions, it’s needless to say that the listed companies of Sri Lanka will go through a tough time. This sentiment is clearly visible in the historical PE graphs where it has sunk to 8 which is at a 10-year low!

There is no doubt that there is blood on the streets in Sri Lanka. The question is whether the investors are interested in buying the opportunities that the market will present in the time to come. Foreign investing has begun in relatively low quantities during the dip and it’s likely to continue. Time will tell us about the gains that the investors are to make from the volatile times in Sri Lanka. What would you do?

What are your thoughts? Let me know in the comments below! If you enjoyed this article, please share it and follow for more content like this. Thank you for reading!

Written by Lilan Priyashantha