Finally, after almost two years, we are back where we were!
The Sensex closed the day at 9,975, down 606 points from yesterday. When you consider the fact that it scaled 21,207 on 10-Jan-08, it has dropped 53% in a matter of 10 months. In fact, during the session, it even crashed to 9,911, a level last seen in mid-2006. Almost all major scrips declined and the only glimmer of hope was seen in some counters in the Pharma and FMCG space.
With the Sensex now in four digits, what does a smart investor do?
– Well, first and foremost, decide if the market is where you want to be. There are some very good stocks available now at prices last seen 3-4 years ago. However, do your homework and only then invest.
– Simply buying more of a falling stock because it is “cheap” or because you want to average your holdings is not a wise option. Do so only if convinced about the company’s fundamentals. Do not expect windfall gains in the next 3-6 months. Remember: Do not try to catch a falling knife!
– Be prepared to wait a year or more to see some really decent returns on your investment. If you do not have the patience to wait, invest elsewhere rather than getting your fingers burned.
– Do not time the market. Time and again, I’ve seen people investing when the markets are down, and then tearing their hair in frustration when the markets tank further the very next day. You are better off investing via the SIP route in a mutual fund if you get worried with daily fluctuations in stock prices.
– Take a hard look at your portfolio’s asset allocation. Re-balance if needed. Some options besides direct equity and mutual funds being;
- Gold – ideally via an ETF, can be purchased / sold from your demat account
- PPF – assured returns, capital protection, tax breaks
- Fixed Deposits – assured returns, capital protection, tax breaks (5 yr deposit)
- FMP (Fixed Maturity Plans) – check maturity level, exit load and quality of paper being invested in
- Art and Real Estate – I’m not much of an expert on this, so can’t comment
** Keep inflation in mind when investing in the above, so you can track real returns.
– Stay cool and remain focused on your primary objective. Do not get hassled, keep a stop loss target and stick to it. Likewise, keep a profit margin and sell when you achieve the target rather than be greedy. Do not get emotional or sentimental about your stock holdings. I’ve seen people rue lost opportunities due to this.
– Ensure you have adequate funds parked in your savings / emergency fund. This should have at least 5-6 months of living expenses. These are uncertain times, and the last thing you want is a job loss with no savings in hand to tide you over till you get a new one. Never invest all your income into any one avenue, and certainly not all of it in the stock market.
– Cut out all frivolous and unnecessary spending, especially on your credit card. Use credit sparingly and never roll over your card dues. This could lead you in to a debt trap.
– Resist the temptation to take loans / top-up existing ones, and especially do NOT take loans to invest in the stock market. Remember: you could lose much more than your invested amount and end up with a staggering amount of debt on your hands.
The above is just my personal opinion and which has served me well over the years. It is quite likely that a different approach works for you. If so, do share it in the comments below.