Where will the market go from here?
Nobody knows. Though there always are many theories, educated guesses and opinions doing the round, the truth remains that no one can say with certainty where the market is headed in the short run. It may go up or it may fall or it may go nowhere - who knows? But one thing is quite likely, over the long term, it should do well. Historically, the Indian market has maintained an upwards bias. So, if you are bullish about the Indian economy and pick good stocks, in the long term, you will stand to profit.
This also means not to speculate on the market in the short to medium term. Though you will find many short-term picks floating around, avoid investing in stocks for the short term. Only commit your long-term money to them - that which you won't need for the next five years. Also, if the stock falls, don't exit in panic. Maintain a long-term outlook. A correction in the stock market or in good stocks is a time to accumulate more, not exit in haste.
I am sitting on heavy gains. How do I protect them?
The rally in the last six-seven months has been especially fruitful to those who invested during the March crash. Also, long-term investors who were shaken by the March crash have also recouped their losses and may be sitting on healthy gains. Having seen the abrupt fall in March, they are anxious about protecting their hard-earned gains.
If you had made an opportunistic bet by investing during the March crash and would like to book your profits now, you can very well do so. However, as suggested above, don't consider this feat to be a feather in your cap. Consider yourself lucky that the market zoomed from the March lows in such a short span of time. Avoid taking short-term bets on stocks as the market can very well sink after you invest and stay at subdued levels for a prolonged period. Most importantly, never invest the money in stocks that you are going to need soon. If the market drops further, you may be left with a diminished corpus. This can compromise the goal for which you needed the money.
If you are a long-term investor who is anxious about protecting his gains, go back to your portfolio and analyse each of your stock holdings. Assess whether they have become overpriced. Remember that the June quarter results of most companies were bad due to the lockdown. Given that the lockdown was a miscellaneous occurrence, do adjust for that. Study the medium- to long-term prospects of the companies in your portfolio. Analyse their fundamentals once again. If you find that some of the stocks can very well be exited, don't be afraid to take that call. And if you are confident of your stocks, do stay invested. Over the long term, you will be rewarded for your patience. Don't let the market dictate you when to buy and sell.
If you had been investing to accumulate a corpus for some goal that is nearing, you can very well start systematically exiting from your holdings. In that case, don't be carried away by the ongoing rally.
Is this the right time to start investing in stocks?
There is no right or wrong time to start investing. However, given the steep rally, it's obvious for one to be hesitant. The solution is not to go the whole hog. Invest in a staggered manner over the next few months. Pick fundamentally sound companies that are reasonably priced. Avoid very expensive stocks. Invest with a long-term horizon and don't panic if the market slides.
Also, assess why you want to start investing in stocks now. If the answer is the recent rally, that's the wrong reason to invest. Invest in stocks because you want to profit from the long-term wealth creation of Indian equity markets. Chasing short-term performance can result in nasty surprises.
My broker is asking me to invest in derivatives for quick gains. What do I do?
In the stock market, the broker should be your service-provider, not your guide. Remember while you may make a gain or a loss when you trade more, your broker always gains through your trading.
Avoid derivatives - futures and options - at all costs. Never, never trade in them. While your broker would like to make you believe that you can make a quick buck through them, derivatives are a double-edged sword; they can also give you a large loss in no time. Derivatives make use of leverage, where you can buy more with a less amount, but your entire capital is at risk. So, don't fall for the broker's sales pitch.
In general, avoid trading in stocks. Invest in them for the long term. This is the simplest way to turn the odds in your favour and profit from their wealth-creating potential.
I want to invest in stocks but I don't know how to study companies. What do I do?
Investing in stocks requires you to study companies and their financials. You also need to keep an eye on the economy and business trends. This is no easy job. It requires years of hard work and perseverance to be successful in this field. So, there are no short cuts.
If you are interested in investing in stocks, first commit to learning about them. Read good books on fundamental investing. Start small and don't quit in case of setbacks. Learn to tolerate market fluctuations. Follow star investors, such as Warren Buffett, Peter Lynch and Charlie Munger, and learn from them.
If you find this too much work and you are not really interested in studying companies but still want to profit from equities, explore equity mutual funds. They provide you ready-made diversified portfolios that you can invest in, a professional fund manager who manages this portfolio and ease of investing in equities. Also, invest in equity funds through SIPs so that you don't catch a market peak. SIPs also help you average your investment cost as you invest across different market levels.
I found some hot stock tips on the internet. Should I follow them?
Absolutely no. You should invest in stocks based on solid research, not based on some tip. You don't know who is circulating those tips and what that person's motives are. You don't know whether these tips are backed by research. Since most of the times, these stock tips are for short-term gains, that's another reason why serious stock investors should ignore them. These stock tips can very well result in a loss, for which you can't even hold anyone accountable but yourself.
Ideally, you should be willing to do your research, so that you can gain conviction in the stock. However, many individual investors don't have the time or the resources to study companies. Such investors can take help of our premium Stock Advisor service. Value Research Stock Advisor provides you stock ideas backed by solid research. Our experienced analysts also track those stocks and regularly update you on the major developments, including when to buy more and if you should exit them. The Stock Advisor also provides you plenty of tools to do your own stock research.
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