Investors must not panic and take hasty actions

In the year 2008, events in the world have overtaken people at such a speed that they are only able to see the streaks of red and orange light and nothing else. It is certainly unnerving to know that revered institutions like AIG can almost fold up like Lehman Brothers did. The deep correction in the markets due to the unfolding fiasco, the economic trauma due to job losses and also the vaporization of investment values, have given the investors a hair raising experience. Now investors want to throw in the towel and take whatever is left.

When all the investors collectively throw in the towel can lead otherwise perfectly functioning institutions into a chaos. It will be a situation where the investors collectively lynch institutions to their closure.

This is the problem which ICICI Bank faced. Rumors were floated that it was going to close. This translated to serpentine queues before the ATMs, which ensured that the money ran out after sometime. More rumors were fuelled that it did not have sufficient money to pay its depositors, whereby people went into a frenzy to reclaim their money.

The Reserve Bank of India (RBI), Finance Minister and ICICI Bank officials had to intervene and assure the customers that the bank was in fact in fine fettle and there was nothing to worry.

A smaller bank would have collapsed. This is now being played out in debt schemes of mutual funds.

Investors would be doing themselves a dis-service by withdrawing money at a loss now. This will also ensure that they won’t enter the market for several years. Later, when the market is booming, these investors will again enter, settle down and start investing. But soon there is a crash which often happens.

They would miss out an excellent investment opportunity as they are blinded by fear at this juncture. When panic sets in, all the logic goes out of the window. Panic is fanned by people around, media and experts who keep predicting new lows. Also investors’ pessimistic outlook does little to help.

The up shot is that instead of investing at this point, they are busy booking losses. After they exit and get the remnants into their banks, they breathe a sigh of relief, little realizing that they are missing the opportunity of a life time.

There are many articles in the media counseling investors about the excellent opportunity that a downturn presents. But most investors have turned a blind eye and continue to panic. However, investors don’t have to feel miserable and confused now.

Every investor can seek an expert advice and take a decision him/her self and proceed in further investing at this juncture.

An expert will ensure that they do not panic and land in a situation that will be worse than the previous one. A good advisor would bring a wealth of knowledge and experience and offer dispassionate advice during such tough times.

The expert would be able to guide the investors on questions like: what they need to do with their investments? Whether they need to realign some investments in view of the changed global situation where they need to invest now, and also understand the problems and opportunities and thus act in a manner that will benefit them.

Many investors at this juncture are not willing to take advice, as fear has engulfed them. They just want to get out of the market. The systematic investment plans (SIPs) too are stopped despite the advice that it’s an excellent way of investing money, irrespective of the market conditions. A SIP obviates the need for timing and brings in the benefit of rupee cost averaging.