Steps to survive a Stock Market Correction

Seven ways to survive the Stock Market Correction

Global markets have corrected lately. Irrespective of which market you are investing in, you would have been affected by the recent volatility. You could be an investor in America, India, China, Korea or anywhere else in the world- your situation would be pretty much the same. Many of you who are new investors might have entered panic mode, where you are unable to relax and have lots of stress and depression. I understand how it must be for somebody who just started investing in either stocks or mutual funds two months ago to see a notional loss of 30% or more now.
I remember the first time several years ago when I witnessed a stock market correction, my portfolio was down by over 50% and I too had entered panic mode. But thankfully after reading books on investing and listening to more experienced investors, I decided not to panic and hold my quality stocks. I am a much happier person today thanks to that decision.
Here are seven simple ways to survive a stock market correction as an investor:

1. Stop Listening To Analysts
Most analysts in the media instead of providing you with a solution will just confuse you. Somebody will say everything is doomed while others will say things are great in the long term. Forget listening to analysts- most of them won't be of any help. The reason people listen to analysts is because they are looking for peace and hope. Trust me you will get none of that by listening to somebody else. Peace and hope are all within you.

2. Stop Looking at Your Portfolio Every Thirty Minutes
Another mistake people make is that they get up every morning and wait for the markets to open. Once markets open they start staring at their stock prices. A fall makes you feel worse and small rise makes you feel a little better. This won't help either. Instead keep track of the fundamentals of your company every time the results are out. If your company is profitable and growing - be happy. If it isn't, find out if you need to exit. The stock price will catch up in the near future if business is growing. Do you stare at your money kept in a bank FD everyday? Most probably not. Use the same principle when you invest in stocks or mutual funds.

3. Be Patient
Many of you might not have a lot of cash to buy cheap now; however please be patient with whatever you have bought. Even the youngest billionaire on Earth today is 23 years old. It took him 23 years to be a billionaire and he didn't do it in few days or weeks. The youngest billionaire probably in history is 23-year-old Mark Zuckerberg - the founder of the social networking site-Facebook.

4. Speak To Actual Investors With Experience
Instead of interacting with analysts or your broker, speak with people who are actual investors and who have been in the market for longer periods of time than you. They will tell you how they have survived various stock market corrections and what has made them richer. Read and learn more about people who have actually created wealth and sustained it over a long period of time.

5. Stop Following Crazy Tips
Please for heaven's sake stop following 'hot' tips which promise to make you a millionaire in a matter of months. Maybe the 'hot' tip is only meant for billionaires who would end up as millionaires in case they do follow the tip. If it seems to good to be true, it is probably just a scam, which hopes to take money away from retail investors and put them in the hands of greedy manipulators. Similarly stop following rumours about how fundamentally strong companies are going to be shut down and go bankrupt in the next few months. Use your own head and trust yourself.

6. Understand Market Cycles
Every asset class has a cycle. Stock markets, mutual funds, real estate all move in cycles. Please realize that nothing can keep going up forever in a single direction. There will be phases when prices will come down and again move up. If you go back into history you will see several instances when stock prices came down, however over a period of time quality companies always reward investors. Understand market cycles, and don't become a slave to them.

7. Follow The Guru
Today the richest man on earth, Warren Buffett, is an investor who has created wealth because he has stayed away from what everybody else is doing and has simply invested in quality companies for the long term. He invested in Gillette, for the simple reason that he believed that men won't stop shaving. It makes sense to follow, as I call him, "The Guru" and think long term and remember people who create wealth do things that others don't.

I'm sure if you follow the simple techniques above you will be a much happier and a calmer investor. Investing is about controlling your emotions and being disciplined about what you do.

Stocks of BSE Sensex

Which stocks comprise of the BSE Sensex?

The SENSEX Index is composed of 30 major Indian stocks and regarded as the country's premier stock market index. Theses stocks are:

ACC
Ambuja Cements
Bajaj Auto
BHEL
Bharti Airtel
Cipla
DLF
Grasim Industries
HDFC
HDFC Bank
Hindalco
Hindustan Lever
ICICI Bank
Infosys
ITC
Larsen & Toubro
Mahindra & Mahindra
Maruti Udyog
NTPC
ONGC
Ranbaxy Laboratories
Reliance Communications
Reliance
Reliance Industries
Satyam Computer Services
State Bank of India
Tata Consultancy
Tata Motors
Tata Steel
Wipro

Recession in US and its effect in India

What's a recession? How will US slowdown hit India
The fear of a recession looms over the United States. And as the cliche goes, whenever the US sneezes, the world catches a cold. This is evident from the way the Indian markets crashed taking a cue from a probable recession in the US and a global economic slowdown.

Weakening of the American economy is bad news, not just for India, but for the rest of the world too.

So what is a recession?
A recession is a decline in a country's gross domestic product (GDP) growth for two or more consecutive quarters of a year. A recession is also preceded by several quarters of slowing down.

What causes it?
An economy which grows over a period of time tends to slow down the growth as a part of the normal economic cycle. An economy typically expands for 6-10 years and tends to go into a recession for about six months to 2 years. A recession normally takes place when consumers lose confidence in the growth of the economy and spend less. This leads to a decreased demand for goods and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment. Investors spend less as they fear stocks values will fall and thus stockmarkets fall on negative sentiment.

Stock markets & recession
The economy and the stock market are closely related. The stock markets reflect the buoyancy of the economy. In the US, a recession is yet to be declared by the Bureau of Economic Analysis, but investors are a worried lot. The Indian stock markets also crashed due to a slowdown in the US economy. The Sensex crashed by nearly 13 per cent in just two trading sessions in January. The markets bounced back after the US Fed cut interest rates. However, stock prices are now at a low ebb in India with little cheer coming to investors.

Current crisis in the US
The defaults on sub-prime mortgages (homeloan defaults) have led to a major crisis in the US. Sub-prime is a high risk debt offered to people with poor credit worthiness or unstable incomes. Major banks have landed in trouble after people could not pay back loans.

The housing market soared on the back of easy availability of loans. The realty sector boomed but could not sustain the momentum for long, and it collapsed under the gargantuan weight of crippling loan defaults. Foreclosures spread like wildfire putting the US economy on shaky ground. This, coupled with rising oil prices at $100 a barrel, slowed down the growth of the economy.

How to fight recession
Tax cuts are the first step that a government fighting recessionary trends or a full-fledged recession proposes to do. In the current case, the Bush government has proposed a $150-billion bailout package in tax cuts. The government also hikes its spending to create more jobs and boost the manufacturing and services sectors and to prop up the economy. The government also takes steps to help the private sector come out of thecrisis.

Past recessions
The US economy has suffered 10 recessions since the end of World War II.

The Great Depression in the United was an economic slowdown, from 1930 to 1939. It was a decade of high unemployment, low profits, low prices of goods, and high poverty.

The trade market was brought to a standstill, which consequently affected the world markets in the 1930s. Industries that suffered the most included agriculture, mining, and logging.

In 1937, the American economy unexpectedly fell, lasting through most of 1938.

Production declined sharply, as did profits and employment. Unemployment jumped from 14.3 per cent in 1937 to 19.0 per cent in 1938. The US saw a recession during 1982-83 due to a tight monetary policy to control inflation and sharp correction to overproduction of the previous decade.

This was followed by Black Monday in October 1987, when a stockmarket collapse saw the Dow Jones Industrial Average plunge by 22.6 per cent affecting the lives of millions of Americans.
The early 1990s saw a collapse of junk bonds and a financial crisis.

The US saw one of its biggest recessions in 2001, ending ten years of growth, the longest expansion on record.

From March to November 2001, employment dropped by almost 1.7 million. In the 1990-91 recession, the GDP fell 1.5 per cent from its peak in the second quarter of 1990.

The 2001 recession saw a 0.6 per cent decline from the peak in the fourth quarter of 2000.
The dot-com burst hit the US economy and many developing countries as well.

The economy also suffered after the 9/11 attacks. In 2001, investors' wealth dwindled as technology stock prices crashed.

Impact of a US recession on India
A slowdown in the US economy is bad news for India.

Indian companies have major outsourcing deals from the US. India's exports to the US have also grown substantially over the years. The India economy is likely to lose between 1 to 2 percentage points in GDP growth in the next fiscal year. Indian companies with big tickets deals in the US would see their profit margins shrinking.

The worries for exporters will grow as rupee strengthens further against the dollar. But experts note that the long-term prospects for India are stable. A weak dollar could bring more foreign money to Indian markets. Oil may get cheaper bringing down inflation. A recession could bring down oil prices to $70.

Between January 2001 and December 2002, the Dow Jones Industrial Average went down by 22.7 per cent, while the Sensex fell by 14.6 per cent. If the fall from the record highs reached is taken, the DJIA was down 30 per cent in December 2002 from the highs it hit in January 2000. In contrast, the Sensex was down 45 per cent. The whole of Asia would be hit by a recession as it depends on the US economy. Asia is yet to totally decouple itself (or be independent) from the rest of the world, say experts.

Source: Rediff

Rally in the Stock Market

What is a Rally in the Stock Market?
A rally can be described as a sudden rise in stock prices, especially after a period of falling ones. [For example, if the stock market drops in the morning and investors rush in to buy companies at the cheaper prices, the stock market has rallied.]
If the increase in stock prices holds up, journalists and financial professionals refer to it as a sustained rally. If it continues for several weeks or months, it is referred to as a bull market.

Bull market and Bear Market

Difference between Bull and Bear Market.

A bull market is typified by generally rising stock prices, high economic growth, and strong investor confidence in the economy whereas bear market is typified by falling stock prices, bad economic news, and low investor confidence in the economy.
A bull market is slang for when stock prices have increased for an extended period of time. If an investor is "bullish" they are referred to as a "bull" because they believe a particular company, industry, sector, or market in general is going to go up. Simply put, bull markets are movements in the stock market in which prices are rising and the consensus is that prices will continue moving upward. During this time, economic production is high, jobs are plentiful and inflation is low.
A bear market is slang for when stock prices have decreased for an extended period of time. If an investor is "bearish" they are referred to as a bear because they believe a particular company, industry, sector, or market in general is going to go down. Bear markets are are movements in the stock market in which prices are falling, and the view is that they will continue falling. The economy will slow down, coupled with a rise in unemployment and inflation.

How and where can I buy shares?

There are two ways to buy shares.
1.) Primary market :- When a company makes a new issue of shares and offers directly to the public is known as primary market. It is also called an initial public offering (IPO). The investors either apply on the basis of the issue price or need to bid by the book building process. Once the IPO is over, this stock gets listed in the secondary market and traders can start trading it.
2.) Secondary market :- Buying shares of a company which is already listed in the stock exchange is called secondary market. The shares in secondary market are bought through brokers. The market where securities are traded after they are initially offered in the primary market. Most trading is done in the secondary market. It can also be called as a market on which an investor purchases an asset from another investor rather than an issuing corporation. In the BSE as well as NSE, all stock exchanges are part of the secondary market, as investors buy securities from other investors instead of an issuing company.

How to succeed in Stock Market?

Follow theses two steps to achieve success in the stock market.
1.) How not to lose :- If you have learned what to do and what not to do in order to lose nothing means you have won the half battle. Only then you can learn how to gain or what to do in order to win. A new investor should do paper trading in order to get the market knowledge before actually entering into the market.
2.) How to gain :- How to gain requires deep understanding about the market trends and fluctuations . A new investor can safeguard himself by taking the route of mutual fund.