With the bellwether Nifty just about 2 percent away from its all-time highs, you would be tempted to think that one can go all out and invest in this market. But wait. Before you invest, it is advisable to reflect on what are you are doing, and what is driving it, in order to make money in stocks.
Large-cap companies are running away because there is flood of funds flowing into the markets, particularly in large cap funds. In June, mutual fund inflows through systematic investment plans more than doubled in a two year time frame to Rs 7300 crore, from about Rs 3200 in June 2016.
The S&P Nifty hit a high of 11,130 on January 29th, but since then has not been able to cross over into uncharted territory. Now the bulls are making all the attempts to drive stock prices into new territories backed by the strong inflows. Investors have been tempted to risk more in this market.
Before you decide that how much you want to invest in the stock market, take some time to figure out what you want your investments to do for you. Are you looking for a quick buck, or are you willing to wait it out in the market. When your figure this out, you will be able to decide how much you can afford to risk.
So what should you do now?
TAKE PROFITS OFF THE TABLE
Be prepared to cash the chips if you are a new to the markets. Sure, stock markets are going up, and you could be missing out a few more bucks if the market goes up even higher, but that proverbial saying has a ring of truth to it – a bird in the hand is worth two in the bush. So, better take some profits out of the table. You can’t make money in stocks if you don’t book profits.
Sure, stock markets always go up in the long-term as there is a growth bias in markets as stocks in the indices are always replaced with better and faster and larger companies. But since you will be buying individual stocks, unless you are full of conviction of your stock growing in size and scale and profits, tune your portfolio to the current market conditions. You don’t have to get married to your stocks. For example, you don’t have to hold real estate stocks if there’s no reason for them to go up.
KEEP MARGIN POSITIONS LOW
This is more important for traders than investors. Shy away from taking huge margin positions in a bull market where there is a lot of negative international news flow. Margin positions can turn to your disadvantage swiftly if there’s a sudden change in market direction. You may not make money in stocks, but instead you could lose.
KNOW THAT PEOPLE PAY MORE IN BULL MARKETS
Be mindful of the market’s moods, and do not count on the bull market to remain in the bull zone for long. No matter how good the market looks, the future can be certain. Future stock prices are a coming together of a lot of things such as emotions, demand and supply, earnings growth, size and possible scalability of a company. Even average businesses can get a push in a bull market.
So don’t pat yourself on the back for good stock picking, instead evaluate the reasons for stocks to move up. Remember, fools pay more in bull markets. You don’t have to.
