Friday 5 August 2011

Gyrating Markets - And what to do

Gyrating Markets - And what to do

Hi friends!

On January 23, 2011, I'd posted this entry on these very pages:

On January 24, Nifty closed at around 5740, Sensex closed at around 19,150.

On February 11, 2011, Nifty was around 5250 and Sensex around 17460. This was hardly a couple of weeks later.

And I had posted another entry on February 11, 2011:

Even though I was recommending "Buying", I clearly mentioned in the above post that the reasons mentioned in my January 23 post still remain quite valid. Just the fact that the prices have come down for those very reasons prompted me to recommend buying. And use the volatility to your advantage.

As luck would have it, the indices indeed moved right back up - all the way to around 5900 on the Nifty in April, later to 5350 in May, 5700 in June and 5200 in August 2011.

Each upward move and each downward move amounted to nothing less than 10% on an average - For the indices.

Along with that, the individual share prices zoomed up and crashed down like crazy. Often, the individual moves even among index heavyweights were much more than 10%.

Perhaps, the hard-core traders, professional technical analysts and perfect liars would be in a position to claim having moved in and out of stocks by timing the market perfectly.

The traditional "Long-term" investors who are supposed to "Buy & Hold" would have gone nowhere.

What are "relaxed investors" like you and me supposed to do in such wild times when the market does a perfect yo-yo???

Here are a few simple suggestions:

  • Identify the "Asset Allocation" for investing in equity shares
  • Identify a subset of the above as a "self-imposed limit" for active trading in shares (Nothing intra-day about it. Strictly delivery-based trading)
  • Identify a few individual stocks - Not more than a maximum of 7-10 companies
  • Identify "desired" buy levels and "desired" sell levels 
  • Whenever your preferred stock reaches your "desired" buy levels, buy that share right away, without bothering about whether it will go down further or not. After all, you want to accumulate that stock and you're willing to pay the current price.
  • Likewise, when your preferred stock reaches your "desired" sell levels, sell that share right away (to the extent of your original purchase value), without bothering about whether it will go up further or not. This would result in "Free Shares" being accumulated in your demat account. (For more details on accumulating "Free Shares", refer to my earlier post on the subject (Don't you like to have free shares? Read on to find out how you can accumulate the same!)
Execute the ideas given above, and relax in these crazy times.

Regards,

N


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