Are Equity Investments Safe During Turbulent Times?

High volatility can seem quite risky, but you can actually make decent profits if you stay invested for longer periods

With major geopolitical shifts happening across the globe, retail investors are not feeling confident about their equity investment decisions. The investors’ reaction is quite normal because the uncertainty in the global economy is leading to volatility in stock markets. Major tech disruptions are another factor that is bearing heavily on the fortunes of various businesses.

While equity investments may not appear to be the right choice during turbulent times, it can actually be a good opportunity. You just need to follow some tips and suggestions, as described below.

Identify undervalued stocks

In times of war and geopolitical turmoil or economic uncertainty, many stocks may lose their market capitalization. One can take a look at the 2008 financial crisis when many stocks had witnessed heavy selling. It had resulted in significant price reduction of various stocks. However, it is also important to note that most of these stocks had bounced back over the long term. The message is that times of uncertainty can be a great opportunity to identify undervalued stocks. When these stocks rise in future, you can book significant profits.

Stocks diversification

In the current times, even profitable businesses can be forced to shut down due to major disruptive technology. A product or service that is relevant today can be replaced with another much better product. That is why it is essential to have a diversified portfolio. The old adage of not keeping all the eggs in the same basket still holds true. Make sure your equity investment portfolio has stocks from multiple industry segments.

Examine company profile and leadership

A business that has strong fundamentals and capable leadership can overcome the biggest storms. There can be volatility in the short term. But businesses that have a healthy balance sheet and strong financials can weather the storm and emerge stronger. You do not have to be an expert to understand a company’s financial background. A quick look at the company’s debt obligations, current ratio, net profit margin and return on assets can provide the necessary info for your investment decisions.

Look at macroeconomic indicators

In times of global turmoil, macroeconomic indicators can help you predict how various economies will perform in the future. Some of the data you can look at include GDP growth, unemployment rates, inflation, interest rates, etc. Macroeconomic indicators will also help you identify industry segments that will probably witness an increase in stock prices. You can also identify stocks that may underperform in the short to medium term.

Wait for it

If you follow news channels and online social media, you are likely to be presented with a world of gloom and doom. Negative news stories can get amplified, which can lead to a stock crash. A recent example is that of the Hindenburg report, which caused a loss of around $30 billion to Adani Group companies. The message is to avoid panic selling and stay focused on your long-term investment goals.