Are you in the club that sees the stock market soar every day, but are still wondering why your portfolio is not making enough money? A Sensex at all time high ought to be a time for celebration. But most portfolios are not in the green. Because investors are simply not following a strategy that could be said to be right moves in this market. Instead, most are blindly chasing the momentum. For a blind chase of temporary momentum to work, you have to be lucky.
We all know that a rising tide lifts all boats, and this is what is happening now in an over-enthusiastic market. Many stocks are tearing skywards. You may have seen some stocks return big in recent times. Stocks like VIP Industries, Reliance Industries, Nestle, etc, etc have run up considerably on the back of strong earnings, and some have even surged 20 percent in a mere span of a few weeks. Sure, the markets were on the run lately, but not all stocks did well, only the ones that had this factor.
In the last past three weeks, stability has been returning to the markets. But how are you executing your investing game?
PAY MORE OR PAY LESS?
While the stock market rises, investors should scout the markets for inexpensive entry levels. Now that most stocks are trading north, you have to understand that some of the best trades are behind us, and that you have to have a proper entry strategy in the markets. Needless to say, the markets have run up too high, and too quickly, and so this is not a time for quick profits.
People often tend to chase stocks and buy when stocks are at their highs, and sell when it is at its low. This is how so many people end up losing large sums of money. Do not do this. If you are investing now, make sure you are in good stocks. Stocks that are at high PEs should have higher growth rates. Or don’t invest in them.
LOOK FOR THE UNWIND TRADE
Now, fund managers and institutions tend to take bigger positions and in an often shallow market, there is a huge impact on the stock price. If you are buying you have to get in much before the institutional investor, or if you are a selling you have to get out of the institutional investor.
So this is a time to scout for stocks that have corrected in the past two months and where there has not been much of a recovery. The markets have entered a phase where they are hitting new highs. But your trades might not be in the profit. Unless you are able to hold on for the very long haul such as three years, and more.
Keep an eye out for a correction in some of the stocks you have identified as having a great growth potential over a 3-year time frame. Accumulate good stocks in this correction. Average your buying cost further for which you have to exercise patience and calm. Strike a purchase every time a stock is down 5-10 percent. And avoid chasing if it rising 5-10 percent. Let others buy during these times, you sit on the fence.
Your job as an investor is to protect your downside, and ride the upside. There’s no two ways about it.
