It’s an old age dilemma faced by many whether to book profits or delay the investment decision, in order to time the market. But majority have failed even by delaying their decision to invest or by booking out considering markets at new highs.
What could be the best resolve in encountering such a dilemma when fear of losing out doesn’t allow you to take a step forward.
History has taught us that no body knows that when markets have made a top or will start correcting, here is a 3 step guide which will help you to pave your way to encounter such situations:
Longer the time horizon , chances of loss minimises - Stop thinking of making a fortune in short term, not more than seasoned 1% traders make money by doing the short term trading. The good thing happened is that retail investors have understood this phenomena.
Keep your horizon for 5-10 years that automatically minimise the losses, at the same time don’t take single stock bets mutual funds diversifies risk and possibility of losses sharply falls for holdings 7 years or more.
Tortoise wins always - We all have listen to this story from our grandparents, so do not be in in a hurry of making a quick buck. Investors who have tried making fast money have made huge losses and they have never returned to market, and blame game is what they play about markets being not the right place.
So the right strategy at high markets levels is investing in small quantities in a disciplined way and waiting for opportunities of fall in market to go aggressive. But only those investors cross the winning line who have long horizons.
Follow your risk profile - Knowing your own appetite of digesting risk before entering markets at high is must, and second important thing is to follow it. If you invest all your money without understanding the risk nature may lead to unwanted results.
Also rebalancing the portfolio at regular intervals with opinion of a prudent advisor is warranted for.
Imagine the plight of an investor who took out money from equities when sensex was hitting all time high, whereas if he kept his money invested he would have grown his wealth by 5 times just by virtue of growth in index.
Summary: yes we need to book profits when money needed. But sensex hitting high is no standard to book out. Following discipline is must when investing in any market scenario, only that is key to success.
Investing is long drawn process, in this investors see both good and bad times but only prudent investors comes out victorious who stick to basics.
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Happy Investing !!!
Written by: Anvesh Pandey, SEBI Registered Investment Advisor
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