The Chinese stock market has been very volatile recently due to the regulatory concerns clouding the fundamental business of the company.
While personally I think the worst is now behind us, the continued regulatory concerns surrounding some policy changes have increased the volatility nature of many Chinese tech related stocks.
Like most investors, I am watching the markets fluctuate up and down on a daily basis, but has little concern for now as we wait for the bad sentiments to subside and for investor’s confidence to return back. It will pass, at some point when we have other more pressing matters to attend to. The regulatory concerns will not steal the headline forever so we just have to be patient with how things are at the moment.
This occurrence will not just happen to the Chinese tech stocks, it will some day happen to all the different markets at a particular point in time.
It can be difficult for many investors who have not experienced volatility to continue to invest with confidence when the markets are volatile. At one moment, they are reeling the excitement of the upswing and then the next thing they let fear dominate them on the downswing.
That’s why it’s important to keep market volatility in perspective—don’t let short-term market swings cloud your thinking, or cause you to make changes that affect your overall investment objectives. Staying focused on the longer term of the business, being methodical in your execution, steering away from emotional decision and sticking to your investment discipline can help you come out ahead in the long run.
Volatility – is always going to be part of the markets, and the amount of emotions you will have in the volatility of the market as an investor can be controlled by the experience you have gone through. The more you have tried to understand your emotions the better it is at dealing with future volatilities.
If you scroll your chart wide over the very long term, most good fundamental companies trend upward over time but there will still be periods of volatility in the intermediaries that can make for a bumpy ride along the way. Doubt can creep in and question your original thesis and cause you to make short-term changes that can hinder your long-term goals. But it is important to keep things in perspective, and often times you are better off improving on your execution strategy to pull it off.
Here are a few ways that you can understudy to deal with a volatile market.
- Review your overall broad asset allocation, particularly with respect to the amount allocation for cash and equities. If you are worried about volatility, simply keep in a larger amount of cash in the sideline to help you overcome these turbulent periods.
- Understand your risk tolerance and risk appetite and regularly stress-test them. I wrote about this concept back in 2017 in this article here which is so important in order not to over-stress and lose sleep.
- Take advantage of volatility in the market. Understand that volatility is not equal to risk and it is an investor’s best allies if you can tap into them effectively. I highlighted how products such as options and DLCs thrive on volatility in the market.
- Own high quality companies and understand their business moat over their competitors. These are the opportunities you want to take advantage of when there are volatilities that hit these companies. One example is JD.com which I’ve written their model and valuation here.
- Tune out the noise you read from your social media and news. Journalists love to take advantage of such situation by reporting the highest amount of interests generated during that particular period to create fear (or excitement). If there is anything I’ve learnt from the recent SEO class I took, it is that most people fight for attention when it comes to key words and media journalist is the best example to showcase that.
The truth is there is no real secret to avoiding market volatility if you are here to stay as an investor over the long term.
Sure, there might be some little tweak in your strategy if you are a shorter term hybrid of investor and trader but you will still face the grudge of volatility, perhaps even more, in your years of trading.
Ultimately, it’s time in the market that generally leads to success.
Maintaining perspective, and focusing on the suggestions given above will help you weather the storms that you will inevitably encounter as an investor.
We believe, and history has proven, that the best way to navigate a choppy market is to have a solid investment strategy and well executed process. In the longer run, this discipline approach will help us reach our long-term goals better and faster.