Investing during bull market - 2 : Plan to invest
This is the second part of the series Investing during bull market, which I wrote 2 months ago, hope you have made the best use of it by reducing your Great Expectations.
Now coming to the current situation, we have seen the worst of crisis piling upon economies across the world. Though there are signs of recovery, the global geopolitical scenarios have made things difficult for all of us.
I believe “this too shall pass” but the effect it leaves on economic and policy changes can be detrimental to the overall direction of the stock market. Don’t get tricked by last week's recovery of the stock market that all is well. This is still an unfolding situation, we need to be aware.
Nevertheless, the outcome of these circumstances is not in our hands, if the effect of war is contained, all will be well, otherwise, it can induce cycle of inflation, poor demand, and recession. Yes, you read it right, a probable recession.
But what after the recession, the job losses, dwindling supplies, lower base, higher demand, and voila! we shall be back to the bull market. This is the endless cycle we have seen umpteen, all of us know that, but what we don’t know is how long these cycles can survive or thrive?
History shows that the cycle of bulls and bears is increasingly getting shorter, because of the quicker information flow and base effect, so it’s tempting to believe that we shall overcome this blip sooner than later.
The plan!
Now with that information, that market can go haywire the next moment and bounce back ridiculously, what plans we can make? Let’s see…
Before we get into the plan, make sure, you have already implemented the clean portfolio as discussed in part -1 of the series.
I am assuming that you already have an investment in the stock market right now and with a clean portfolio, you might have profit or loss on your stocks.
Nifty today is at 16871 (14th March 2020), let’s take various cases.
Bull case:
Currently, you already have an investment in the market. Do Nothing.
Invest 15% of your portfolio at NIFTY (18400), a new high
Invest 25% of your portfolio at NIFTY (20400)
Hold Remaining till Market falls back at today’s level (16871)
Bear case:
Currently, you already have clean portfolio implemented, Do Nothing.
Invest 15% of your portfolio at NIFTY (15600), new low
Invest 25% of your portfolio at NIFTY (14300)
Hold Remaining till Market rises back at today’s level (16871)
Sideways case:
This is the toughest of the lot, the market can remain between bear and bull for longer than we expect. This is when it is neither making new lows nor new highs.
In this scenario, it’s better to wait out and keep your money to yourself. Until the NIFTY is clear in direction, there is no pointing in putting more money for grinding. Remember, you already have an investment in the market, so more won’t make it better.
Missed the bus?
For those, who have not implemented the clean portfolio yet, this bounce back is the best time to do it, do it now, you will have less to worry about and more peace.
Some of you pointed out the difficulties in finding stocks for fresh investment these days, indeed it is a difficult time, but sticking to a Market leader pays off in this scenario, it’s good to start building a fresh position in them but try limiting your investment to 25%-40% of what you have planned and increase it in tranches based on the overall scenario.
And a great point to highlight is that do not invest your money in a stock just because it has fallen 50% or so from its all-time high, it has because of reason, find that reason. Waiting for clarity before jumping in may cost you 10-20% of gain but it gives you immense peace.
Remember,
Take nothing on its looks;
take everything on evidence.
There is no better rule.