What should you do if your favourite stock crashes?

Date : 08/03/2023
Read: 3 mins

Whenever there is market volatility, some stocks stumble while some remain unaffected. Given the current Indian stock market scenario, a market crash may occur anytime soon. So, what if your favourite stock crashes? Should you sell off in a hurry or stay invested?

Although it has the potential to provide massive returns, the stock market is one of the riskiest investment avenues. Stock market investments go through several ups and downs as the markets rise and fall.

The Indian stock market, which witnessed constant bull runs during December 2022, is experiencing high market volatility since the start of 2023. Given the current market scenario, we could see a market crash anytime soon.

But what if you have invested heavily in your favourite stock, and it crashes?

Don’t panic and sell even if your favourite stock crashes.

This is a mistake that many rookie investors make. At first, they invest heavily in their favourite stock to make high capital gains. And then, when their favourite stock crashes, they sell their investments in a hurry.

However, history says that the stock markets have always recovered well after a crash. Remember, a few bull rallies can negate the impact of the stock crashes quickly. So, instead of panicking and selling your stocks, wait for the market to recover from the impact of a crash.

Also Read: How To Turn Stock Market volatility Into An Investment Opportunity?

Do nothing and ignore the market volatility

If you have planned to make long-term capital gains from your stock market investments, you will have to learn how to ignore market volatility. Always keep your focus on achieving your long-term financial goals, and that will only happen if you stay invested in the market for a prolonged period.

Remember, if your favourite stock is on its knees today, it will again soar in the sky in the upcoming days. Be it the Indian stock market or any other stock market in the world, it will continue to swing in both directions from time to time.

Increase your stock market investment

Most experienced stock market investors follow the “buy at dips” strategy to maximise their returns. So, if your favourite stock has crashed, this is probably the best time to add more units to your portfolio. This will allow you to buy high-performing equities at a reasonable valuation.

However, make sure you pick your stocks wisely. This strategy generally works well with good quality or blue-chip stocks which are fundamentally strong. You can also add dividend stocks to your portfolio during a stock market crash.

Also Read: How To Invest In Stocks Like A Pro

Encash your capital gain and move ahead

Sometimes, a stock may never recover after a crash. However, this happens only when there is something seriously wrong in a company. For example, maybe it was a fraudulent company, or if the owner of the company goes bankrupt. So, if your research and expert views show that there is something wrong with a company, it’s better to sell your shares and encash capital gain (if any).

Impact of stock crashes on investors

Rookie investors or those with a low-risk appetite may resort to panic selling during a market crash. However, experienced investors know that the stock markets are cyclical in nature, and hence, they stay invested to make long-term capital gains. They even take steps to make profits by using short-term market volatility.

Disclaimer: This article is intended for general information purposes only and should not be construed as insurance or investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.