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A Time To Buy or Sell?

A Time To Buy or Sell?

When the Sensex hit a low today (at least its lowest since June 2006), we were reminded of the famous and much quoted dictum issued by Baron Nathan Rothschild: The time to buy is when blood is running in the streets. And right now, that aptly sums up the market situation. After all, the risk of losing money at 10,000 is much less than when the Sensex was at 20,000.

Not for one moment are we making light of the current scenario. Deep stresses remain in the global financial sector, more banks/financial institutions may collapse and a slowdown in the global economy is a given. Yet, the aggressive action taken by monetary authorities is heartening.  And so are the bargains in the market. So once again, we would like to tell our readers not to lose their cool and panic.

Here are 5 tips to get you through.

  • Keep your goals in mind. Don’t invest in the stock market with money you are going to need in the next year or two. Think like a long-term investor, not like a stock trader.
  • Don’t assume that it’s alright to alter your basic asset allocation with sole reference to the market situation and with no regard to a change in your personal situation. If you had decided on keeping 60% of your assets in equity, stick with it. Don’t just rush into fixed deposits because interest rates seem seductive.
  • Don’t overdo it by getting over enthusiastic about your stock allocation. Don’t pull out all your current investments in debt and deploy it in equity funds or stocks. 
  • Don’t attempt to time the market by waiting for stocks to get whiplashed one more time to buy. On the other hand, don’t expect the market to oblige you and bounce back immediately. No one knows for sure if has bottomed out or worse is still to come. But it’s probably safe to say that we are far near the bottom than the top.
  • Where your current investments are concerned, stick to your Systematic Investment Plan (SIP). For future investments, opt for a SIP. In this way, you benefit even if the market is going to tank some more. Even if it does not, chances of a rally happening in the immediate future are dim.

Financial markets tend to have short memories. Five years from now, that’s exactly what this current market scenario will be – a memory. Make sure you remember it well.