Don’t Let Volatility Scare You

The stock market always pushes you to act irrationally. The key, however, is to not let your emotions get the better of you and force you to turn your paper losses into actual losses

- By LARISSA FERNAND, Behavioural Finance Expert

What a volatile year it has been, and we aren't even halfway through. The tariff war between India and the US, intensified selling by foreign institutional investors (FIIs), the joint US-Israel attack on Iran, a depreciating rupee, rising price of crude oil, layoffs in big companies, such as Oracle, Amazon, UPS, and Volkswagen, the AI supercycle driving a new era of earnings growth, assembly elections in India, and a fragmented global policy landscape, with each central bank reacting based on its own constraints, the news cycle seems endless.

Every time the market hits a low, two things happen: recency bias kicks in and catastrophising comes to the forefront.

Catastrophising is a mindset where people make a catastrophe out of a current situation and predict the worst possible outcome. When you magnify a situation in your mind, you believe that nothing is going to be “normal” again.

Recency bias is the tendency to form an opinion about the future based on the most recently presented information. Simply put, we give more weight to recent events.

Consequently, we estimate what is going to happen, not on the basis of long-term experience, but rather on what is happening right now.

Together, they have a powerful impact on our psyche, and test our investing convictions. The only way you can play the game is by reframing the narrative in your mind. To do that, there are four factual issues you need to understand.

Markets Have Seen It All

The Sensex was launched on January 2, 1986, and for the first time closed at 1,001 points on July 25, 1990. Look at where we are today!