Stock market crash: What to do when your large-cap stocks plunge? Panic can play a role, but its crucial to remember the inherent strength and momentum of these companies. Dont let short-term fluctuations, especially during panic selling, cloud your judgement about a companys long-term potential
Dhirendra Kumar
CEO, Value Research
A few days ago, the HDFC Bank stock had a bit of meltdown, losing over 8% in a day, and then some more over the next few days. While such crashes are common for stocks of smaller companies, these are rarer in large-cap companies. The bigger stocks are typically stable. There are various reasons for this, but large, listed companies usually have good information flow and are well understood by investors.
However, this does not mean that there can’t be shocks and surprises. Sudden, panicked declines might be unusual, but still occur with some regularity. A sudden panic in a stock, hitherto known as a quality stock, can be unnerving for small equity investors. It could just be panic or something real, a oneway reversal of the company’s fortunes. It can be hard to tell.
The biggest such event occurred a couple of years ago with Facebook. In January and February 2022, the company’s stock lost more than a quarter of its value in just a few days, amounting to a humongous $200 billion. At that time, the reason was the sudden realisation by investors that the new version of Apple’s iPhone operating system had privacy features, which could sharply curtail the advertising revenues for the Facebook app on the platform.
Were the fears justified? Amazingly, it’s hard to tell, even though the stock fell very low for a while. So many other things went wrong, and then right, with the Facebook stock, that the impact of one particular factor cannot be teased out. However, two years later, the stock is higher than it has ever been. Looking back with the advantage of hindsight, all one can conclude is that the deep trough that the Facebook stock fell into was a great buying opportunity for investors who believed in the company. .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:10px;font-weight:500;line-height:18px;} #sr_widget .sr_desc{margin:0 auto 0;} #sr_widget .sr_desc{color: #024d99;}
Investors looking for twin engines of quality and growth.
One basic factor that investors forget when they panic is that large companies have a lot of business momentum. They are not accidentally big. There are always deep strengths to every aspect of such companies, which take a long time to ebb away and reverse. One isolated event, a few data points, or perhaps a year’s earnings should make investors a little watchful. However, by no means can anyone flippantly declare a giant venture to be over suddenly. A quarter, or even a year, is just one chapter in a long story. Unless you are a day trader or a short-term punter, it cannot be something that can be a signal for a final exit from the stock.
The important thing is to keep an open mind, and the way to keep an open mind is to always argue against the trend. Just ask yourself, what if the panic is mistaken, and force yourself to argue against your instincts, and then examine both sides of the story.
I’m not offering specific advice on what the future holds for HDFC Bank, Facebook, or any other stock. These are general principles that apply to any large business. The key takeaway is that large-cap stocks seem stable, but are not immune to sudden dips. Panic can play a role, as seen with many of these sharp drops, but it’s crucial to remember the inherent strength and momentum of these companies. Don’t let short-term fluctuations, especially during panic selling, cloud your judgement about a company’s long-term potential. Remember, it’s far more common for companies to stick to the long-term trend and keep growing. A seemingly disastrous event is not a trend. While we can’t predict the future, these principles offer a valuable perspective for navigating market volatility and avoiding rash decisions based on temporary shocks.
The Author is CEO, VALUE RESEARCH(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
This story originally appeared on: India Times - Author:Faqs of Insurances
