Why sell now, buy later may not be the right strategy in this market

Why sell now, buy later may not be the right strategy in this market – Mail Bonus


The correction in domestic stock markets has remained a key issue for investors. The BSE Sensex and Nifty benchmark indices have fallen by more than 10 percent in the first half of 2022.

The pain is more severe for a broader market, where the mid-price index has fallen by more than 13 per cent, while the small-cap index has fallen by 17 per cent. Both indices have fallen by 20 percent from a 52-week high, indicating that they are in control of bears.

For context, NASDAQ is already in the bear market after falling more than 20 percent in the last six months which has scared investors, especially amid the impending recession.

Investors wondering whether markets have bottomed out need to keep in mind that this is difficult to predict. That said, markets are likely to fall further before recovering.

Indian stock markets are still expensive overall despite India’s higher growth compared to other emerging markets. Countries around the world are now targeting inflation by raising interest rates to stem inflationary pressures.

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Take, for example, the United States.

Until about six months ago, the world was debating whether inflation in the United States was “temporary” or “organized.” Then we witnessed what no one imagined – the war between Russia and Ukraine, which has changed energy prices. This was against a very large increase in global metal prices in one year at a time.

It is now clear that the inflation monster is here to haunt the world for good, which would cause the global central bank to raise interest rates. The US Federal Reserve is expected to do the same, and the dollar is now at a 20-year high, with more money being pumped into the central bank ahead of this.

Brazil and Australia have both raised interest rates and the Norwegian central bank has said it intends to raise interest rates next month.

So when markets crash with rising interest rates, should investors sell now and buy again later?

Not at all! That would be a very bad decision for your personal investment. The decision to sell now and buy later stems from a deception that many investors have about being able to time the market exactly.

In all the big crashes we witnessed in the past, many investors took this call to sell the dip and buy back when the market reaches the bottom, only to regret later not being able to time their earnings.

This is comparable to a decline in stock markets after a sharp rise. Markets tend to stretch too much on both sides. Until about a year ago, everyone was celebrating in the stock markets and everything that touched investors turned to gold.

As a result, more investors came in and markets rose further. This became a virtuous cycle that entered the marketing campaign. This process just needed a turning point to correct itself. The market expanded too much in the rally last year and this correction is just taking the foam away.

Where, then, should investors put their money?
Long-term investors should continue on the same path and follow an asset allocation approach to invest in multiple assets such as equities, debt, gold, REIT, and so on. In fact, the current correction is good news for real long-term investors.

The biggest single obstacle to investing in good companies is that they are never available at a fair valuation under normal market conditions.

Such macroeconomic or macroeconomic reasons that lead to cross-border index-linked sales make the returns on your portfolio ugly. That’s when weaker investors disappear from the game.

As a long-term investor, I am extremely looking for opportunities like this to add more cash / debt to a company as much as possible without worrying about how the indices will perform in the next six months to one year.

Remember that good companies offer their customers a certain value at the same time as they grow their incremental cash higher than the risk-free rate of return (for simplicity, consider this as an FD ratio) steadily, year after year.

As risk-free returns rise (as they do now), they need to work harder to maintain their growth rate. Larger, organized, professionally run companies can overcome such time much better than the smaller, unorganized ones.

(Vishal Vij is the founder and CEO of Nestegg Wealth. Opinions expressed are personal.)

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