If you have not read my earlier post , please go through What to do in stock market in early 2020. It’s important as you will be able to relate to this post in much better way after that!
Most of the investors I talk nowadays are not willing to invest in this supposedly overheated Indian stock market and its not about only December 2020, i can see the fear of crash looming in their talk from Sep2020. Most of them have cashed out from market in September 2020 due to Indian Chinese troop clashes and fear of US election results. What happened thereafter is more painful for such investors, Markets ran away further leaving them behind.
Also read : Invest in Stock market IF
We can broadly classify investors in Dec2020 in three kinds
- Who have entered market in March 2020 in or after lockdown and seen everything they touch turning to gold
- Who have seen 2000, 2008, 2018 crashes and mostly sat on sidelines in March 2020 crash and still in disbelief that markets made a new life time high in Dec 2020
- Who have adapted themselves fast and riding the trend till now
So as you are reading this article, did you notice where do you belong?
Congratulations, if you are able to see yourself amongst one of the three kinds mentioned above
Question still remains same for everyone : What to do now? Should we buy, sell or keep holding? What’s next : Is it bull market or is crash near?
Let’s read further to understand more about it and see what strategies people can adopt
Case 1. Sell out 100% and wait to re-enter at lower levels
Thsi strategy is for people who
- Are facing Liquidity challenges
- Can’t sleep properly due to fear of crash in markets
- Borrowed money to invest
- Goals are near ( within 1-2 years)
Advantage with these strategy is you may not lose capital if market goes down and may get a chance to re-enter at lower levels. Problem with this strategy is it is impossible for anyone to predict whether market has topped out or not. Will Market go further up and can give you a bigger chance to cash out? Will market come down and give you a chance to enter at lower levels. Nobody knows. Get away from people if they claim to know.
It is always better to leave last 10% on the table and cash out if our goals are near or we have debt to pay because when correction happens, it will not give you a chance to exit at your desired levels
You may need to decide a market point where you should re-enter
Case 2 Go opposite and buy more
I will strongly advised against this. Problem with this strategy is most of us will be invested in 50 + stocks by taking tips from random sources and keeping most of the stocks which are in loss. So if market correction happens, we will not be having enough money to average down all stocks.
In case, you have idle money and have a itch to invest at these levels, in such cases adopt a simple strategy
- Have a watchlist of quality stocks and
- Keep buying from the same watchlist based on quarterly results or in sip mode
- Plan your investment in a staggered manner instead of putting money in single go
- Invest the money which you don’t need for next 5 years
Correct portfolio allocation and conviction in the chosen stocks is a must for investing at these levels
Case 3- Hold and reorganise your portfolio
This strategy is for people
- Who are confused and not sure which strategy one should adopt
- Who have long term views on equity but not sure what to do in such a bullish market scenario
- Who have money available to invest right now but not sure in which stocks
- Who do not need to sell out as no immediate money requirement
Under this strategy, adopt the simple course of action
- Reduce number of stocks to a level which you can track easily. (20 stocks in a portfolio is considered reasonable for an average investor to track)
- Reduce the stocks positions partially or completely which you have bought on tips and not working or in loss. Getting out with a small loss is good at these levels to rearrange your portfolio
- Buy more of convincing stocks with long term horizon of 3-5 yrs.
- Increase the positions in stocks which are showing a promising future and management is walking the talk
What i am doing in this market? My answer is Case 3.
- I have a watchlist which i keep updating based on consistent reading about different stocks and their potential
- I have a process where i keep updating my trailing stop loss for the trading positions on weekly basis
- I am selling the stocks which have run ahead of their fundamentals.
- I am selling the stocks which have hit stop loss levels ( both long term and short term stocks have stop loss levels)
- I am holding stocks which have good story building up and adding more on each quarterly result. In case they looking pricier at this point, i am not adding and just trying to hold and wait for next quarterly results for further action towards buying/selling
- Any new stock which looks promising to me, i am initiating a 50-60% position at this time and waiting for small correction to add more
- I am keeping my cash holding levels consistently between 10%-20%. That forces me to evaluate a new position against my existing positions
So that effectively means
I am not putting new money into the market
I am selling my existing less convincing or loss making positions
I am adding more of existing convincing positions
I am adding new stocks position partially and waiting for small correction in market to add more
I am re-organizing my portfolio for next cycle of market
I am keeping Cash levels close to 20% to handle market correction and adding more.
I am happy to ride with my 80% invested convincing positions
I would not recommend to sell out and sit if you have not borrowed money and are not facing immediate liquidity issues. But for sure remove dud stocks and put that money into other quality stocks as always
Overall, what I learnt from markets in my journey is very simple and easy to follow :
You can’t be 100% invested in market
You can’t be 100% sold out from market.
Whenever I tried to cash out in fear, I lost major gains in next cycle. Whenever I invested fully 100% in greed, I lost good amount of capital and recovery becomes difficult.
Holding and adding to convincing positions seems simple but definitely a task which is not easy
So is this a bullish market — i dont know and neither i want to know as i am working on stock specific action
Will correction happen–The more we go away from March 2020 lockdowns, greater will be the chances of economic recovery and lesser are the chances of crash. Healthy Market correction (upto 15-20%) can still happen and can give a nice entry point. Not sure of whether it will happen next week, next month or next year or not at all!!
Whatever strategy finally you adopt. don’t be a blind follower
Read more on Blind follower here
Wishing you all the best and lots of luck
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