Navigating Uncertainty in Equity Investing
Equity investing is inherently accompanied by uncertainty, as shareholders face both systematic and unsystematic risks. From geopolitical events like the Russia-Ukraine war to economic crises and health emergencies like COVID-19, investors must navigate numerous short-term events that impact market movements and portfolio returns.
In times of volatility, investor temperament and discipline become crucial, according to Sidhavelayutham, Founder and CEO of Alice Blue. “As an investor, it becomes quintessential to be well-informed and adjust the portfolio accordingly,” he emphasizes.
A well-thought-out diversification strategy plays a pivotal role in safeguarding portfolios during uncertain times. By not putting all eggs in one basket, the risk of significant loss in one stock can be balanced by other sectoral stocks in the portfolio, leveraging negative correlation between stocks.
Sidhavelayutham cites the example of a portfolio holding Tata Steel, a commodity-driven stock, and ITC, a relatively stable FMCG company. Between 2011 and 2021, ITC’s stability helped balance Tata Steel’s downturns, illustrating diversification’s benefits.
Diversification extends beyond stocks to mutual funds, where investors can hold large-cap, mid-cap, and small-cap funds, each with over 35 stocks, diversifying across market capitalization segments. Risk-averse investors can further diversify into risk-free assets like bank FDs or highly rated liquid funds and bonds.
“The whole idea is to learn the art of diversification, which helps in dealing with short-term uncertainties and protects one’s portfolio returns over the long-term,” Sidhavelayutham advises.
For more information on investments or trading, visit www.aliceblueonline.com.