Most of the investors I talk are bullish and confident after making money in last one year. They are quite confident that every fall now is a buying opportunity
Also read : Invest in Stock market IF
We can broadly classify investors today in four kinds
- Who have entered market in March 2020 in or after lockdown and seen everything they touch turning to gold and in last one month, they lost some part of money by taking aggressive calls or to multiply it faster by trading in options and losing it faster henceforth
- 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 recently
- Who have adapted themselves fast and riding the trend till now
- Those who have have rode the trend and partially exited in March-April and hold around 25% cash
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 four 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 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
Case 4- Sell Partially
This strategy is for people
- Who are ready to leave last 10-20% gains on table
- Who are ready to have patience for their cash deployment
- They do not feel zealous when other people make money and they themselves stay in cash
- Under this the simple course of action is
- Sell partially up to 10-25% and sit on cash, may or may not get a chance to deploy cash soon and wait can get longer
- Rest 75% to 90% should remain invested, so if markets runs up, they are still in the market
What i am doing in this market? My answer is Case 4.
- I have booked out of most positional stocks apart from few holding with my closed group of people
- 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 waiting for correction to add more
- I am not averaging any stock as of now
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 waiting for small correction in market to add more
I am not 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 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.
Will correction happen–We don’t know but fact is every rise is being sold into. The situation on ground is bad for COVID-19. Correction if happens, can take Nifty to 13100, 12400 levels where we can average on our positions. Bounce back should be sharper until and unless Covid 19 gets out of control and needed stringent undesired lockdowns, In such scenario 10k on nifty cant be ruled out
Are things all bad –No, not all is bad , There is good ray of hope for Q4FY21 results and Q1 FY22 results. There is hope for different vaccines being rolled out. Nifty new high cant be ruled out as of now
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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