‘Buy low, sell high’ is a favourite one-liner pronounced by many media news tellers, D-street tycoons in movies and brokers. Life would be so easy if one only knew that when we buy a stock it is low in price, and definitely will be high when we sell it. In this way, everyone would be making a killer returns! Unfortunately, that knowledge is almost impossible to come by. So how would you know when it’s time to buy, sell or hold a stock? Is there any traffic-signal to guide you in this journey that can help you take the right call? Actually, the answer is YES!
In this story, we will help you to solve the dilemma of when to buy, sell or hold – especially considering the ongoing volatility in the stock market.
To start with, let’s look at the green signals that indicates its time to buy.
It’s Time To Zoom – Reasons To Buy
- You Have A Fetish For Growth Stocks: Valuations of even good quality businesses delivering growth consistently have corrected sharply due to ongoing market corrections. Markets are currently trading in the range of 35,000-35,500, which provides an amazing opportunity for “Growth” investors to focus their research and analysis on a company’s growth potential and future cash flows value to create wealth in the long run.
- You Love To Shop When There Is A Sale: Obviously, who wouldn’t zoom the speed of their car so they can reach the mall first and lay their hands on the best quality goods? In fact, this market fall is nothing but a sale in the stock market. Let’s look at this way: A 10% fall in the price of a stock with 10% growth in earnings, means that the stock has become cheaper by 20%. As Warren Buffett rightly says, “Be fearful when others are greedy and greedy when others are fearful.” Markets have moved from greed zone to fear zone, with a sale on that only a few investors can see. So, if you have your shopping bags with you, you can shop till you drop!
- You Wish To Participate In India’s Growth Story: Irrespective of the turmoil in the stock market, there are no challenges in the growth of the Indian economy, and we have reiterated this in our previous emails as well. We are well-positioned to emerge as one of the fastest growing economies in the world, with all the micro and macroeconomic indicators tilting favourable on our side. Talking about the headwinds such as depreciating rupee and rising oil prices, these are the short-term hiccup that will wane out soon. So, if you’re an investor who wants to look at the bigger picture, you’ll understand that this is the best time to ride on the wave of India’s growth story.
- You Have A Long Term View: Generally, many investors invest in equities because they get higher returns relative to other investments such as bonds, fixed deposits, etc. So, if you have an investible surplus and wish to invest for a long-haul, then equities can undoubtedly help you to amass significant wealth. Once you have decided to invest in equities, the next question is how much per cent of your investible surplus you go into it? The simple thumb rule one can follow is 100 – Age. So, if you’re 40 years, you can safely invest 60% in equities.
Hold Your Horses – Reasons To Hold A Stock
- You Know What You Own And Why You Own: Have you observed this? If the companion in the car is interesting or you’re listening to your favourite songs, traffic signals never look infuriating! Similarly, if you have quality stocks with you and you know why you own them, you’ll never need to worry about the bumps in the journey. And if you’re an investor who is worried about whether you should hold or not, look out for the change in fundamentals of the company. If they are intact, there is no reason to sell them! Sometimes not doing anything can be the best thing for your investments.
- You Have A Long-Term View: Investing is a marathon, not a sprint. If you’re ready to take a calculated risk and wish to remain invested for a long-term, congratulations, you’re qualified to become a successful long-term investor. In such case, you’ll think about the markets not just 3-6 months down the line, but probably 3-5 years from now. In short, you will look at tomorrow’s gains through the lens of today’s growth indicators. Not many investors are able to have a vision, and hence, are often stuck at the red signal!
- You Don’t Have An Investible Surplus: This point needs no explanation. Obviously, you can’t move ahead if there is no fuel in your car. Similarly, if you don’t have any extra cash in your kitty, all you can do is wait for the signal to turn to green to speed up your wealth creation journey! So even if the market conditions are amiable and it is a good opportunity to create wealth, we won’t recommend you to invest further by taking leveraged positions in the stock market.
Finally, It’s A Red Flag – Reasons To Sell A Stock
- You Don’t Know What You Own And Why You Own: It’s easy to accumulate stocks based on media news, free research reports, rumours, etc. However, if you don’t know what to do with them, you’re in a complete soup. There are instances where the stocks are not showing any signs of growth, you’re unsure about the reason behind your buy call in the first place, or the fundamentals of the company are not robust enough to sustain the storm. In such cases, it is advisable to part with your investments.
- Leveraged Position In The Stock Market: As mentioned earlier, it is not recommended to take leveraged positions in the stock market. In such case, you can sell the stocks to release the capital to pay for the debt.
And Finally, Few Words Of Wisdom Are Still Left…
To avoid taking irrational calls, normally followed by a dramatic change in stock price, investor need to maintain their sanity and go by the facts as indicated by corporate earnings reports, GDP growth, management vision, etc. Controlling emotions and analysing technical data can be difficult. So the easy way to remain calm about your investments is to have a candid chat with a credible advisor / professional to get various options and design the solution that suits your risk appetite and end goals. A true financial advisor will be your traffic signal of the stock market, to guide you when to buy, sell or hold.