I am a subscriber to Value Research Stock Advisor. I wish to invest Rs.10 lakh in the stocks recommended by it. Can you prescribe a strategy for entering the market at different levels of Nifty 50?
I don't have any formula for Nifty 50. But if you have 10 lakh rupees to invest, I think you should devise a method for yourself - limit your investment and be well diversified. A good starting point will be the Best Buy list of Stock Advisor
What I suggest is to devise and write a rule for yourself. Something like, of your 10 lakh rupees, you will invest 2 lakh every month in some proportion in these fifteen stocks for the next five months, this is one set of rules. You can have another rule that you will invest 50 per cent of your money, i.e. Rs 50 lakh, the day Nifty is down 10 per cent from current levels. Nifty will be down another 10 per cent and you will put another 50 per cent of the remaining money and you can continue in a similar fashion. By following this strategy, you will not be deprived of the opportunity because what happens is our thinking is malleable. When the market goes down, we get scared and then, we think that it will go down further. Because if you keep waiting for the market to come down, you don't know it just may go up and it can run away from there and it can happen.
I'm just suggesting these rules, but you can tweak them. But before you start investing, write down these rules, put the write-up on the clipboard in front of the computer so that it's a constant reminder. If you don't follow a set of rules, then one fine morning the market will actually start going up and it will run away from there. Then, you will have regret for being out of the market and will not benefit from what equity can do for you.
So, I am suggesting you two sets of rules. One is a SIP rule i.e. your 10 lakh rupees to be invested over the next five or ten months, irrespective of the level of the Nifty. The other is according to change in the level of the Nifty, earmark a certain part of your money and invest in there. This way, even though you may not be able to catch the bottom, it is the next best thing. You will be buying low and you will not have deep regret and a small part of your money will catch the bottom. And I would say it is not only difficult but it is impossible to catch the bottom of the market.
And your holding period will actually make sure that you benefit, as this is a nice time to invest in good stocks. You can build a great portfolio but if you don't really do it at the right time, it will not happen akin to seeding your crop in an offseason and then trying to harvest. It will not work. So, I think here we are somewhere close but I don't know exactly how close or how bad it can get and for how long. And during such times, our emotion is very likely to be against us to invest. So, formulate such rules and follow them.