Investment in stock market is a perpetual battle between reason and panic. Panic and reason have an inverse relationship. Panic leads to unwanted behavior at the time of its ascent. Toward its demise, it brings guilt and remorse who succumb to it.
In times of distress (and delight) when chaos rules, headlines scream out of the idiot box and experts magnify everything, reason is usually happy to sit back and relax. It does come back only after many are left scorched.
At the heart of panic is myopia or short-sightedness. A myopic approach innovates unwanted thoughts, inability to think clearly, unparalleled pessimism/ optimism, and leads to a high magnitude impulse to act. Long-term objectives and plans usually get blurred. Myopia originates more from a lack of conviction than a lack of knowledge. Fear plays a dominant role in pessimism and greed in optimism.
Imagine you are flying in the best airplane in the world on and it hits an air pocket. There is unbelievable turbulence. What will happen if you forget that you are in the sturdiest airplane with the most competent pilots at the helm and jump from the plane? The result will be indeed catastrophic.
Succumbing to panic appears to be natural consequence of events and a lot of investors (and a majority of speculators) fall prey to it every time. They cash out, stop their periodic investments and blame equities for distress.
Acceptance of the nature of equity markets is the key. There will be regular headwinds and air pockets along the way but barring an exception you will happily reach your destination. Equity markets are genetically designed with turbulence. Unfortunately selling equity assets at the peak of this turbulence and madness has only one outcome.
If there is growth in the companies in which you have invested then the stock price will definitely rise over a period of time despite any amount of turbulence in between. Markets are slaves to earnings and it manifests in the stock price.
BSE Sensex came into existence in 1979. In last 43 years of its journey, it has seen multiple wars, famines, assassinations, destruction, innovation and revolution multiple times and yet grown at a whopping 15% (approximate) CAGR (Compounded Annual Growth Rate)!! In this time period, there have been 14 years when Sensex has given negative returns and double the number of years when it has given positive returns. (Source: Trading Economics)
