RUMOURS/NEWS versus EVENT.
We have had the expectations/rumours of a retaliatory action from Israel from the time Iran released some missiles. In expectations of that we have faced correction in our markets since past few days. Today morning there was actual event where Israel responded. ( We don’t know what damage they did bcos both sides will have their own versions and we do not know who to trust and how much to trust. )
The sequent of events that usually happen is
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There is uncertainty related to a situation. ( Here it is Iran-Israel situation. Earlier it was Ukraine war)
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In days of these uncertainty rumours, newsflow are rampant and investors and even institutions are scared. Markets undergo correction of varying degree depending upon the impact the event will have on stocks and markets.
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Actual event happens. If it happens when markets are closed, then during pre opening, there will be lots of Whatsapp forwards, and some perennial half baked experts ( whose job it is to opine on anything and everything under the sun including the sun) will try to advise to do this or that… Usually advice is to sell/stay away etc… That sort of thing. And markets open weak in a knee jerk reaction… And start showing signs of recovery quickly within an hour or two. In between there are a lot of gyrations in index of ups and downs within that correction. Volatility in that phase is high.
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Importance for us… What to do and how to react… Best thing is to observe the kind of stocks that have not corrected too much during the preceding weakness in overall markets. How do they behave during this knee jerk reaction. If they do not breach the previous lows convincingly and recover quickly they merit special attention. Keep observing price action in these kind of stocks. If these start recovering and rallying , then they are worth studying and maybe buying if there is conviction. ( for this kind of thing homework has to be done beforehand. Our mind will not function rationally in the face of sea of red )
If we are fully invested, we have no option but to sit on the sidelines and watch the show unfold. If we have partial cash, it can be handy to deploy in above kind of strong stocks. If in a lot of cash, there will be problem of plenty and it requires discipline in deploying the funds.
I have penned this down because this is fresh from memory and might be useful for future reference in a similar kind of situation. This whole logic can be used in an inverted form too for some extremely positive expected event.
PS. There is always an alternative path the markets and stocks might follow in contrast to what is alluded to above. Because markets do not follow any rules. But we should have atleast a set of rules/SOPs to face such situations. Whether it works out well or not is something that time will tell, but we should atleast have a process in place.
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