By Anil Rego

The year 2022 has not been easy for investors, with volatility and uncertainty clouding confidence in the markets. The Russia-Ukraine war with its effect on global supply chains; high inflation which has led to rising interest rates world over, this year has been a roller coaster for investors, globally. The portfolios of most HNIs would be adversely impacted. In such a scenario, how can HNIs manage their portfolios better?

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Do not be influenced by rumoursUncertain times also bring in a lot of rumour from all sides! Speculation seems to be at its high during such times. Investors and HNIs should not heed to such rumours and take hasty decisions on the portfolio. Market operators get pretty active at such times and give tips to help unwind their own portfolios or vice versa.

What to do?

Keep a constant watch on Portfolio & ValuationsHistorically, market falls are larger when the P/E ratios are heated up. HNIs should keep a watch on heated P/E levels in the markets to adjust their portfolio accordingly. One can observe from the below chart that falls tend to be large at higher P/E:

For example, if an investor had derisked one’s portfolio in late 2019 based on high valuations, their portfolio would have seen lower impacts during the Covid fall. Data also suggests that the falls from lower P/E valuations are much lower.

The 3-Year performance of the Nifty:

Proactive + Disciplined Investing does the trickA disciplined HNI investor would not get carried away by market cycles, tracks one’s portfolios, and assesses the pockets of risk based on market developments. Asset allocation as per one’s risk-return expectation profile remains to be the core of investment management. Once one decides on a target asset-allocation strategy, depending on the variation in asset performances history has shown that regular rebalancing of the portfolio to return to the target asset-allocation strategy tends to deliver relatively higher returns in the long run apart from being comfortable to the Investor too! This is a proactive measure that an investor should always undertake, more so during volatile times because of variations in asset returns during such periods.

Search for ValueIt is in volatile markets when you get the best value. So, if you are a disciplined investor and hold cash at such times, you get great opportunities to invest into provided that you don’t get swayed by emotions. Good investors like Warren Buffet are known to invest more aggressively in challenging market conditions.

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Sell the rise and buy the dips – a short-term strategy for HNIsWhile it is good to maintain an overall long-term perspective, volatility presents frequent opportunities to sell Equities at reasonable highs and buy the same at lows, for investors who are able to track short-term market cycles. If one believes that the markets are likely to be volatile, HNIs should keep a watch on the price bands within which they feel comfortable to buy and sell stocks/ETFs. This should be strictly restricted to relatively higher volatile times and by move evolved HNI investors.

Market volatility can be an opportunity for HNI investors to squeeze some extra returns out of markets.  Be disciplined in your investing approach and maintain a long-term perspective.  Build your research capabilities that help you make informed decisions.  This is likely to benefit you in the long term. However, if one gets carried away by emotion or by rumours, one could end up creating a lot of damage for your portfolio. 

(Anil Rego, Founder and Fund Manager, Right Horizons PMS. The views expressed in the article are of the author and do not reflect the official position or policy of FinancialExpress.com.)