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Markets are crashing around the globe. The last two weeks all surely be regarded as the worst first fortnight in the history of stock markets. Fear is quickly taking hold. Newspaper headlines ask if 2016 will be the new 2008. The very fact this question is on people's minds, is telling. Retail investors are understandably spooked.
By now, tons of words have been written to explain what is happening. China has been blamed. Commodity prices have crashed. The tensions in the Middle-East have caused unease. The US economy is not doing very well despite being in a 'recovery' for over six and half years. The US Fed's has ended its support in the form of QE and zero interest rates. Add to this, the disappointing pace of economic reforms in India, and it's easy to see why so many people are nervous.
But does this mean retail investors should flee? We don't think so. As the great Warren Buffett loves to remind us, there are only two things you need to know to succeed as a stock market investor. These are:
Now don't get us wrong. This might be simple to understand. But it is not easy to practice. There are many ways to value a business. However, there is only one correct way to think about stock prices that we know of. Buy in times of fear and sell in times of euphoria. Trust us. It works.
So it was with a sense of disappointment that we read an article in the Business Standard. It stated that retail investors are not interested in buying. In fact, they may be getting out. This will not be a rewarding exercise in our view.
Times like these will throw up good investing opportunities. If this correction continues, we could soon see fundamentally strong stocks trading at attractive valuations. When such opportunities come up, don't be afraid to take the plunge.
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