ENTERING THE STOCK MARKET
We enter the market every time it scales a milestone, and it goes without saying, we would invariably lose our hard-earned money.
Then, we curse the market and aver that equity is indeed an extremely risky option and promise never to return. Surely, they are exaggerating it. But isnâ€™t it a fact that we almost always miss the bus? When the market is in the dumps we donâ€™t want to go anywhere near it. Who knows when will start going up? Once it trail blazes its way too the peak, we are tempted, right?
Though this time the inflow from individual investors is not so crazy, it is true that a lot of people are tempted to enter the market at higher levels. If could prove a costly mistake as most stocks may be trading at an all-time high and chances of them coming down are greater.
Here are a few instances where individuals faltered in the past. The past let us hope would help us stay clear of the mistakes.
Thanks, first timers. You often serve as a bad omen to veterans in the market. â€œWhen I see lot of applications from small towns in the interiors of the country, I know the market is going to tank,â€? says mutual fund manager. â€œI ask my research people to be extra careful. â€œCut the sarcasm, the fact is that the first timers often reach late for the party. This is because first timers are often driven by emotions rather than fundamentals.
Investment advisors love to narrate these episodes of simple souls walking into their office asking for investment tips. Their sole reason for investing is quite straight forward: a neighborhood made 100% returns last year. â€œNever mind the fact that the neighbor put in the money three years ago when the market was down and out and waited all this while to make it,â€? says an investment consultant.
We are not speaking about traders here. It is about people who are already invested in the market they fear the market may come down a bit they may lose a part of their profit. So, they decide to sell. It is a bad strategy. If at all you are selling at higher levels it must be to rebalance your portfolio as per your original asset allocation plan.
Many people actually pay for bad advice. If an agent is acting as an advisor, he is equally flummoxed when the market hits an all time high. For example, such people often ask their clients to sell blue-chips and get into mid-caps or sit on cash, which may not be the best strategy.
The market hits all-time high and our individual investor liquidates all his investment and head towards his agentâ€™s office. When the market is at a peak, the downside risk is very high. Putting your entire money at one go at those levels could be suicidal. One should go for staggered deployment or systematic investment plan to benefit from the fluctuations in the market.