The most important concern, we find in the investor’s mind is the question, “Is this the right time to invest ?”. The current times are media-strong, hence, various experts discuss macroeconomic or geopolitical news in detail. No wonder, novice investor’s mind asks this question, whenever, there are conflicting scenario.
The question is invariably asked, whether the market is making new-all-time-High (is the market over-valued ? need I to wait for some correction?) or the market is falling (will the market fall further ? need I to wait for more time to enter?). There is a popular aphorism, " Do not bother who is saying ? Concentrate on what is said ! ", it infers that the context is more important than the source. But, in the investor’s world, it should have been other-way round. One expert says “buy”, while the other expert advises to “Sell”. If you do not know whether the expert is a “day-trader” or “Swing-trader” or “investor” or “very-long-term-investor”, whether he analyses technical or fundamental, you cannot benefit from his advice. The list grows even bigger, with “momentum-pick”, “Value-pick”, “contrarian-pick” and more and more market-jargons, which confuses the common man. So, the popular aphorism, is re-quoted as " Who says, is more important than, what he says ".
There are many common answers to this important question.
While, all the answers are good and befitting, alas ! the common man does not understand many of them fully, until otherwise explained in detail. Answers create more questions in the minds of the investor. Before, we try to answer the question (in reasonably understandable and simpler way), let us consider the current factors which can affect the Equity market.
Indian equity market has been growing substantially AFTER any big negative scenario, if the investor remains invested for three years or more. Few scenarios are tabled...
Many stocks had out-performed the market by very wide margin (more than 30 % CAGR) during the past 15 year’s period. The question is how many investors have invested in those stocks?
The performance of few of the PMS portfolios are appended.
Having read-through this article so far, we realize the eternal question is still not answered. Our answer to this question is not a simple YES or NO. It is the “HOW” which will offer the clarity to make the right decision.
One of the popular answers to the question is "No one can time the market, Hence anytime is good time" , this appears not convincing, as the common sense says profits are more if the investment is made during the bottom cycles. “HOW” to find the bottom ? is trickier question to answer. The innovative idea followed by few of the Professionals in the PMS answers this convincingly. The mantra is "Do not seek the PRICE, seek the difference between the value and the Price". These professionals do exhaustive research for the “right-Price” and statistically allocate “Weightage” for the current price.
For example, if stock “X” is picked and valued to be at Rs. 100/- (according to the various fundamental calculations) and trading at Rs. 75/- in the market, the PMS Manager allocates, for example, 5 % Weightage to the stock (This means 5% of the capital invested will be used to buy that many number of shares), If the stock trades at Rs. 60/- the Weightage is increased, and if it trades at Rs. 90/- the Weightage is reduced. When the stock out performs and trades at Rs. 130/-, Weightage is further reduced. This strategy is not-only during the initial investment stage, but also used to part-book profits when the stock is over-valued. The only condition is, “allow the Price to catch the Value” – and this takes time. (This is only one of the innovative ideas followed – there are more approaches)
Portfolio Management Services provide investor specific professional services to meet the objectives of various investors . Portfolio manager builds and manages each portfolio with investor's choice of strategy and timing of the investment kept in mind. Our customized services enable us to meet your demands and expectations more efficiently and effectively.
Another popular answer to the question is "that is why we, have systematic-investment-plans, for rupee-cost-average", to assess whether this is true you need to understand the jargon rupee-cost-average.
It is prudent to reduce the quantum of purchase when the price is higher and increase the quantum to benefit more when the price is lower. We follow this principle, in our day-to-day life while buying the vegetables (especially onions). The principle is applied in investment. To make it automatic and simple, systematic-investment-plan, is suggested. For example, if you invest Rs. 1,00,000/- every month (every 10th) in a single stock (to make it simple to understand only one stock is considered) – let us assume the stock X is trading at Rs. 1,000/- to-day, your investment of 1 Lakh buys 100 shares. Next month, on the 10th you invest same one Lakh, but the stock price will vary, assume it is 1,100/- , you will buy 90 shares instead of 100, the second month assume the stock has fallen to 900/- you will buy 111 shares. This is the automatic route to achieve rupee-cost-average.
So, SIP is better way to invest as we achieve rupee cost average, But, what if you do not have monthly income ? Well, the professionals do have a solution. It is called the Systematic Transfer Plan (STP) – The lump-sum investment is initially kept in safer instrument like Liquid Fund, then periodically, a portion of the investment is transferred to buy the equity, thus achieving the Rupee-cost-average.
Is there any PMS offering these kind of SIP/STP and SWP (systematic withdrawal plan) – We have answered this question in our article “Do you know? You can now opt for SIP/STP/SWP/SWITCH/TOPUP? In the Portfolio Management Services (PMS)” ( please, click here to read more ... )
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