The Bears Are Ruling May 2018. What Should An Investor Do?

Small- and mid-cap stocks are seeing a steep decline. Most analysts agree that this trend will continue for the foreseeable future. However, not all analysts and experts advise the same action based on their reading of market situations. This can come across as confusing for different investors. Let’s help you out with this.

Here’s a look at some of the different recommendations you may come across and who it applies for:

1. ‘Stay away from Mid-, Small-caps’

Who does it apply to? This quite simply translates to don’t buy mid- or small-cap stocks. Naturally, this could apply to investors who may be entering the mid- or small-cap space freshly. It may not apply to investors who are already invested, and thus, considering selling their stocks.

2. ‘Sell Small-, Mid-caps’

Who does it apply to? You can sell if you are an existing investor to begin with. However, the decision to sell depends on multiple factors. For starters, if you are a short-term investor or trader, you would want to move with the market trend. So, you may consider selling as it would be risky to bet against the market. Your targets could possibly not be met in the short-term. Cutting your losses and exiting can be an option.

3. ‘Don’t dump your Small-, Mid-caps’

Who does it apply to? If you are a long-term investor, you may want to wait and see how the markets turn out. A knee-jerk reaction seeing the sharp decline in the index could cause more harm than benefit. At such times, experts recommend focusing on the fundamentals of the company and the future profit-making ability.

4. ‘Continue your Mid-cap, Small-cap SIPs’

Who does it apply to? Investors with long-term horizon tend to look for investment opportunities when markets fall. Many investors believe that the best time to invest is when the market is falling. This can be done by identifying stocks that are undervalued in a bear market and hold on till the market realizes its folly.

The bottom line

An investor who is already heavily invested in small- and mid-cap stocks will react very differently to one who has only invested in large-cap stocks.

Therefore, the differing recommendations suit the needs of varied investors. The correct actions for an investor depends on his/her investment strategy, the overall investment portfolio s/he holds and the horizon they are looking at i.e. how long they can stay invested. There is no one-size-fits-all recommendation.