The market is going up and down and most of us are confused about how to deal with these daily fluctuations. There are a few steps that we all can take to make our portfolio robust over the long-term.
I have had some luck and a few catastrophes buying into corrections and bear markets over the years. Below are a few things that have worked for me. Think hard before making any decisions.
Be humble – We don’t know how long the market correction will last - a week, a month, a year or more. We have to acknowledge that the future in unknown. So don’t jump in with all your money in one go.
Pay attention – Look for opportunities that have much greater upside than potential downside. Avoid hot stocks and companies which can see their business getting adversely affected due to inflation or other economic factors. Buy strong companies with solid balance sheets.
Buy in lots – Remove your fear of markets going down more and start buying in small lots, like a mutual fund SIP. In an uncertain scenario, rupee/dollar cost averaging is the best way to move forward.
Spread buying over time – Resolve to buy every month if your prospective stock remains under a certain price. Let’s suppose you want to buy Tata Steel which is quoting at Rs. 1081 today. Keep buying the stock every month if the stock remains below Rs.1100. (Please note this is just an example and not a recommendation).
Don’t fear lower price levels – A market correction is like a sale. When there is a sale, people buy more. Some people wait for sales to make their regular purchases. Stocks are similar. Buy them when they go down and make sure you are buying good businesses.
Choose your stocks – A lot of people have their favorite companies. Think about the ones that you were not able to buy last time and the price ran up, buy those now for the long term. Whether its HDFC or Titan, follow the same buying strategy of making multiple purchases across different price levels spread over a time.
Don’t borrow to buy stocks – This is not the time to use borrowed money to make short-term market bets. First survive and then thrive.
Be Patient – It takes a lot of courage to buy into a correction or a bear market. It takes patience for the returns to show in the portfolio. Don’t expect your stocks to go up next week or next month. Buy the stocks which give you the conviction to hold them.
Stick to Your Plan – Don’t forget your asset allocation. For example, if you want to have only 50% stocks in your portfolio, keep it that way. If your stock portfolio is only 40% now, you have the headspace to buy another 10% for your portfolio.
It’s going to be a wild ride – If you think you can increase your allocation to 55% and can stomach the volatility, go ahead. Remember that the value of your portfolio will go up and down every day but it should not bother you. But if you are going to have sleepless nights and will keep checking your portfolio multiple times in a day, it’s not for you.
Stay invested - This is not the time to dump your stocks and move into cash or buy something else. Stay invested, stay the course and find opportunities along the way.
Remember that if you don’t want to buy individual stocks, equity mutual funds/index funds are you best bet.
Disclaimer: I write for educational purposes only. The information in this publication is not intended to constitute investment advice. Consult your financial adviser before making any investment decisions. I may or may not have positions in the securities covered in my articles. This is not a recommendation to buy or sell securities.
Very good and informative article...👍
"An investment in knowledge pays the best interest."
Very good and informative article...👍
"An investment in knowledge pays the best interest."