Mastering mkt dynamics with 5 proven strategies

For investors, there’s a constant companion named ‘volatility.’ Like it or not, you have to accept this friendship. From the Covid-19 pandemic to the IsraelIran conflict, from a low-interestrate environment to a period of monetary tightening, volatility in the stock market has never been absent. The severity of an event decides the magnitude of volatility the markets are bound to suffer from. Let’s discuss some tactical strategies that investors can use to their advantage for navigating modern investment challenges and mastering market dynamics.

Foreseeing the Future: The Volatility Index (VIX)

Simply put, the Volatility Index (VIX) is a statistical measure of the dispersion of returns for a stock market index for the next 12 months. A higher index number means a riskier security and depicts extreme fear among stock market participants. For context, the VIX number during March 2020 (when the pandemic struck) was around 85 levels, indicating extreme pessimism. As a thumb rule, a VIX level below 15 indicates that volatility is negligible, and stable to positive returns can be earned. Whereas a VIX Level above 15 indicates increasing volatility and fear among the investor community.

Debt/Gold as an Asset Class

The majority of young investors are determined to stay put in equities with all their investments in this single asset class. This is appropriate as they are young enough, have a high risk tolerance. However, introducing debt as an asset class in one’s investment portfolio to take advantage of short-term opportunities is not a bad idea.

Sailing through impact of technological advancements

The advancement of various technologies has made this world ever-changing. As a result, investors in various industries need to be mindful of the impact of these technologies on the companies they have invested in. Otherwise, the company/industry in question would become obsolete, resulting in a failed investment idea and a capital loss as well!

Factor Investing

The investment world has become so granular that investors have plenty of investment options to choose from. Investors can segregate their investments based on the factor exposure they want. There are various factors such as size, value, momentum, and quality that investors can target. Many mutual fund houses are coming up with passive factor investing styles, thus providing an investor boatloads of options to choose from!

Navigating the ever-changing market dynamics has become more complex than ever. In such a scenario, investors can adapt to tactical strategies to take advantage of near-term market opportunities. These strategies include having exposure to debt and gold as an asset class, targeting specific sectors or geographies that are in favour, staying ahead of the technological advancement curve, and making the best use of factor investing strategies. By implementing these, an investor can master market dynamics in a much better way!

Teji Mandi (TM Investment Technologies Pvt Ltd) is a SEBI registered Research Analyst (RA). Information in this article should not be construed as investment advice. Please visit www.tejimandi.com to know more.