Is it time to sell?

The market is at an all-time high, and many people are considering selling their investments due to the recent profits. What will you do with this money?

Markets are at an all time high. Is it time to sell?
The state of the market should not govern your buying or selling decisions. Markets are highly unpredictable. They can rise dramatically when least expected and fall as a surprise. There is no pattern to markets going up or down, and anyone claiming to have a foolproof method is likely to be wrong. The best approach is to have a well-thought-out plan, considering the volatile and erratic nature of the market in recent years (last decade or so), which has been influenced by global interconnectedness and rapid information dissemination that quickly reflects in the stock prices. Therefore, selling based on market movements is not advisable, as you never know when the market will continue going up or start declining.

Let's look at an example from the past to illustrate this point. In 2003, the market hit an all-time low after several decades, reaching close to 4,000 points. It seemed like the markets only went down and would never go up again. However, during that time, bond funds were generating substantial returns. Suddenly, the market started going up, and in the following years, it continued rising steadily from 2,800 to 5,000 points. Some investors who sold early, doubling their money in two years, thought it was enough and missed out on the market's further gains. Eventually, the market reached a high of 20,000 points before the global financial crisis in 2007. These significant market movements were unexpected and couldn't have been predicted. By selling and missing out on potential gains, it becomes challenging to reenter the market.

If not sell, is it a good time to buy or continue investing?
Timing the market is difficult, and it's always a good time to buy if you're investing for the long-run and you are investing regularly through SIPs. Many investors waste time and lose money by waiting for a significant correction to occur before investing or investing heavily. This approach is incorrect because you can never predict when the correction will happen. Even if the market corrects by 35 per cent after crossing the 60,000 mark on Sensex, it requires courage to invest at that point. Once the market starts falling, you'll keep waiting for it to go further down. Most big market movements involve a steady rise followed by a sharp decline. It's challenging to identify the bottom of the market until after it has already gone up.

Can anything be done?
It's quite understandable. Most investors are tempted to sell simply because they will have regret if markets come down sharply. Selling based on regret or fear of a sharp market decline is not a wise strategy. Instead, consider selling a portion of your investment and developing a plan. If you have been regularly investing over the years and have accumulated a sizable amount, it's time to work on an asset allocation. For example, allocate 25 per cent of your money into fixed income gradually over the next five months. The net result of this will be that in five months time you will have 25 per cent into fixed income. If the market keeps going up, you will not have any big regrets. If the market comes down, you will feel a little happy that you have initiated a plan that you will be able to protect a part of your capital, which will give you an opportunity to invest in equity if it comes down dramatically. And once you have done this initially, then you can stick to it that if your 25 per cent ever becomes 35 per cent, you will act again. So it will bring in the kind of discipline in your investment. And it will also give you a little pleasure and also enhance your return. Because this will translate into buying more when the market goes down and selling when they go up.

When should you sell?
Determining when to sell your investment depends on your situation and context. There are numerous reasons to consider selling, such as a change in your context. If you invested for a specific goal like retirement, down payment for a house, or your child's education, and that goal is nearing, it's time to plan your exit methodically. Waiting until the last day to realise gains is risky due to market unpredictability. If you anticipate needing the invested money within the next year, consider selling gradually over the next 12 months.

Another reason to consider selling your investment is when there is consistent evidence that the fund is performing poorly. If the fund you invested in initially showed promise but has now consistently been performing poorly compared to its peers or the market index, it may be time to reevaluate your investment decision. If it is a relatively new fund, even one year of underperformance could be sufficient reason to sell. However, if the fund has a long track record of strong performance, it may be wise to give it up to three years before deciding to sell, as every fund can experience temporary downturns. Ultimately, if you have reasonable evidence indicating that the fund is not meeting your expectations or is no longer a suitable investment choice, it is a valid reason to sell that fund.

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