A word long-term investing is so vogue, particularly when the markets are plummeting, any one who invested huge amount of money just few months before the markets started going down will have a tough time looking at the long-term prospects and returns in the market. Every day, when we hear news about china economy slowing down and crude oil price hitting new low, it is extremely difficult to stay calm.
In this context, It is important to distinguish between trader and investor. when a person is buying a stock expecting to sell with in few weeks or months and make a decent profits, he is more of an trader then Investor. On the other hand, if you are buying stock, expecting to hold on for few years(anywhere between 3 to 5 years), you can be safely considered investor. While it is extremely difficult to stay calm for a trader, a long-term investor should not have a same mindset, as long as he picks up good companies with healthy balance sheets and top management with strong growth records. Indian Markets corrected close to 20% from all time high of 9119(NSE), set on early 2015. It is easier said than done, but a good thing to do is not take any action or even better buy good stocks which were expensive few months back.
For example, if you are holding companies like Suzlon energy and GMR infra, even if you are a long-term investor, you cannot stay calm, on the other hand if you are holding companies like Asian paints or Pidilite industries, there is very less reason to worry, not because stocks only corrected 5 to 10% in this mayhem, but because they are proven stocks with excellent track record both in sales and profit growth over a decade and also oil price fall will give a significant boost to companies which has oil as one of the raw material.
Enduring pain during the turbulent times is what separates a successful investor from the herd. Most of us start investing in stocks, thinking that we can digest the risk and afford the losses that comes with risks, but these are the testing times when only resilient folks stand out. For example investors who did not sell during the market crisis in 2008, got rewarded amply next year when most of the equity mutual funds went up substantially(50 to 100%) in 2009.
These are the times that prove that investing is not only doing balance sheet analysis and spotting opportunities, but also not panicking during the tough times and ignoring all the noise that you hear about the ‘big bear market coming‘ and ‘stocks will not recover this time’. If you are confidant about the growth prospects of the companies that you own, just stay put.
Two famous quotes from Warren Buffet pretty much sums up what a long-term investor can do during these times. ‘simply attempt to be fearful when others are greedy and to be greedy only when others are fearful‘. This is a simple recipe for the successful contrarian investor. In terms of what to buy during these times, another quote says it all ‘Only buy some thing that you’d be perfectly happy to hold if the market shuts down for 10 years‘.