A lot of investors when they venture do not know what to do when the stock market takes a plunge. They run for cover which means that they sell or in a lot of cases most investors just sit and tend to wait for the downward trend to subside. The funny thing is that they in fact start to invest when the stock market is on the upswing.
Yes it is a funny thing because it goes against any conventions that we follow in the real world. We always buy stuff when it is cheaper while in stocks most of the folks start to buy stocks when the market is on an upward trend. This is the heard mentality which suggests that since the market is going up everyone is thinking that it will go up all the more and start buying.
If you are a seasoned investor then you will be not be doing this funny thing that I mentioned above and instead you will be doing something very very different. You will be buying when the market is crashing and that will mean you will go against the market. Yes that is also known as contrarian theory because of the fact that you will work contrary to the market.
The reason being that since you are building your portfolio for the long term you will need to not be concerned with current stock market dips. Every downward movement is an opportunity for you to pick the stock. Another way to look at it is by way of dollar cost averaging. Every time the stock hits a low you will pick some more of the stock as then overall cost of holding will get reduced. This is the benefit of stock market volatility which is generally despised by a lot of people.
While using the stock market volatility for your benefit the main thing that you need to be careful about is that fact that you need to do a good research and analysis before zeroing on a particular stock. You should find a stock that you think is worth holding for at least ten years and will make you money after those ten years. Defensive stocks will generally not fall in this category.
For a long term investor patience plays a key part and you need to have a large amount of it to succeed. Also never be greedy and be ready to shed a stock if it is failing to deliver.
