How to deal with market volatility

The next short-term movement of stock market is unpredictable but many investors spend lot of
their time in predicting the market. The problem with prediction is it, we cannot predict the exact
future consistently. One of the key main problem with prediction is that, if we predict the future
market movement exactly for 2-3 times in row, then it becomes very dangerous because we may
feel that, we have got a superior ability to predict the future and the self-confidence increases and it
becomes overconfidence, which in turn may ruin our financial journey. Now the question arises,
even if we know that, short term prediction is difficult then why do most of the investors predict the
short-term price movement in market. The answer lies in illusion of control.

Illusion of control

Investors tends to feel that; they have got control over short term price movement in market but in
reality, they don’t. This illusion makes us to predict the future price movement in stock prices. For
example, every investor wants the shares of the company they have bought to go only upside, form
the day they bought them. This irrational expectation leads to taking irrational decisions. Investors
must clearly understand that, if our expectation are rational and realistic then we tend to take
rational decision in market. Our illusion of control towards markets tends us to take irrational
expectation. The key secret to eliminate illusion of control is to have rational expectation in stock
market. for example, expecting the company to grow for 40% every year for next 10-15 years is quite
unrealistic expectation but expecting the company to grow at 8-10% for 10 years is quite realistic
expectation. The key mindset is simple and straight forward, having realistic expectation of the
company you are buying and just because we have bought it, we should not expect it to grow at high
rates for long time. This is unrealistic expectation.

Investor both in life and in market feels superior when most of the things are in their control. Tring
to control the things which are highly uncontrollable is stupid behaviour. Investor must accept the
fact that, short term price movement is highly unpredictable. The only thing that the investor can
control is their behaviour towards the market.

Having the right mindset is the key

Equity as an asset class is highly volatile in short period. But financial history has shown that, equity
assets class have delivered the best in class return over a long period of time. One of the things why
most people get fearful about investing in stock market is because of its volatility in short term. But
investors should understand that, volatility is the key character of stock market and expecting the
market to be non-volatile is an irrational expectation. Navigating through market volatility is an art.
If we can navigate through day to day volatility, then our financial success is secured. In order to
navigate, investors must cultivate the right mindset to deal with volatility in market.

Having healthy financial mindset helps investor to have a peace of mind during volatile times in
market. investors

Market is always volatile in short term

Weather in stock market is not always in right condition. Financial weather in stock market changes
on day to day basis. Investors seek perfect climate in stock market for their entry. But that’s not at
all possible because we cannot predict the exact future financial weather. If investors keep on
looking for predicting the climate to enter the market, then one would never ever make the entry.
Investors job is not to predict the next season in market but rather prepare for any type season that
may come in future. Investors should be able to tackle and prepare for any financial climatic shock in
stock market which also means that, the risk they take during different climate should be different.
For example, during euphoric time in stock market, when all the stock has gone up significantly
without any improvement in fundamental of the company then, investors should be able to sell their
shares and during depressed climate in market, investors must go all in, to buy the shares.

Investors don’t realise the fact that, depressed times create opportunities for buying but it is
mentally difficult to implement it and that is the precise reason we must develop right mental habit
to tackle any kind of weather in stock market.

Most of the investors tends to think that, Warren buffet is a great investor because of his vast
knowledge about business and huge amount of experience in market but that’s not correct

Buffet is master of his own emotions. Buffet’s superpower lies in his ability to buy stocks when
everyone are selling and sell everyone are buying. This seems simple at first sight but a normal
human mind won’t buy when everyone are selling and wont sell when everyone are buying and
that’s the precise reason why he is one of the best investors in the world.