Also read : Invest in Stock market IF
We can broadly classify investors today in three kinds only
- Who have made lot of money in last 1 year or so and kept on riding and still want to ride further
- Who are sitting on sidelines and thinking to jump or have jumped in last few months
- Those who wanted to exit now looking at various indicators
Most of the investors I talk are fearful of immediate correction in market, though they have not exited the market yet to cash positions. Some of them are confident after making money in last one year. Even the so called new breed of investors are also 1 year old in markets and calling themselves experienced now who have seen volatilities, and buying every dip. Time will tell who will be the Last Standing Man
So as you are reading this article, did you notice where do you belong? If you feel you are outside the purview of these three kinds, you have two choices. 1. Align to one of the view 2. Send me with your classification!
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
This 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)
You are able to foresee with your experience drastic correction coming. It may be due to Evergrande default or US debt or may be some other reason
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
This strategy although seems good but it can be painful as markets may remain irrational longer than you remaining rational and you might keep on getting the itch to enter again.
So be careful of this approach and you have to be sure when 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 40-50 stocks on 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
- Keep buying same quality stocks 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 have long term views on equity
- Who have money available to invest right now
- Who do not need to sell out as no immediate money requirement
- Who understand their stocks and sitting on good cushion of profit in last one year and can handle 30% downside
- Who will not panic when market falls down and quality watchlist is ready to buy in such an event
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
- Moving some part to cash from positional stocks. May be keeping cash close to 30-40%
- Buy stocks from upcoming niche sectors
- 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 3 ( changed from Case 4 earlier this year)
- I have booked out of most positional stocks apart from few holding with my closed group of people. Last few months, i have moved to already 35-40% cash but at same time reshuffled that cash to strengthen my existing positions or build new positions aligning to next few months
- I am holding stocks which have good story building up and adding more on each quarterly result. I do expect strong quarterly results of my investment holdings
- Any new stock which looks promising to me, I am adding as positional and converting to investment as my conviction increases
- I am not averaging down any stock as of now
So that effectively means
I am putting money into the market from so many booked positions in last few months and adding new positions
I am selling my existing less convincing or loss making positions
I am not waiting for correction in market as i have sufficient liquidity available
I am re-organizing my portfolio for next cycle of market
I am happy to ride with my invested convincing positions
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–Few events like US Debt, Tapering of interest rates, China India talks failure, China Power crisis, India Power crisis can dampen the spirit much faster than anticipated. So yes, quite a few things are bad, China power crisis is biggest of them. Any correction will be fast and furious. Be ready to see 30-40% erosion of capital seen on Screen today.
Are things all bad — On other hand there is good results anticipated for Q2FY22 both QoQ and YoY in many companies. Bigger population has been been vaccinated either partially or fully so effectively third wave is ruled out for few more weeks. Currently many things looking positive. Be it exports, be it festive demand in many sectors. Nifty has made new highs and can go further up. In short term upside seems limited though if everything falls in place, 21K on Nifty cant be ruled out within 7-9 Months (Jun-Jul2022)
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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