The Bullying Market

Bhartiya Janta Paryt (BJP) + NDA had an electrifying win this Lok Sabha Election. This win, much predicted and expected had been looked forward by the financial market as it provided the much needed push to the Equity Markets in India. It is a general inclination for investors to invest more during a bull market. On the contrary, the investors must realize the difference between fresh investments and rebalancing one’s portfolio. At this point of time fresh investments into the market must be made very cautiously. Often a trend is seen that because the markets are going up investments shoot up in expectations of higher returns. This is where one needs to be reminded of the 2008 when the market by as high as 60%. Another point is that during these periods all the so called investment pundits and brokers will speculate that the market would reach a historic high, the mother of all the bull markets have just started or this time it will last for 10 years atleast. Experts like these will appear in different media and speak such bullishly that it will create such hype that the common investor will fall in trap and always invest at the highest point of the market.

This time I have read, some have predicted the Sensex will hit 50,000 – 60,000 in next three years and so on. This always results in enthusiasm among retail and not so well informed investors to make fresh investments.

On the contrary, I think, this is the time one should try rebalancing the portfolio with the help of an investment expert. Rebalancing ones portfolio essentially deals with reviewing the performance of current investments in light of the present market scenario. One should look whether the existing funds are doing as good as the market, which are the best performers which are the worst. And this is the time when should get rid of the funds not doing well with the one that’s doing well. Actually, this should be the top priority rather than making fresh investments. This is also actually the time you should look and review your financial plan, if you have one. All of this has to be done by keeping in mind the most important aspect of investments ‘achieving ones financial goals’. If the markets are shooting up, it is only natural that one will be inclined to invest in equities. But while making such investment decisions, please also remember to continue your investments in traditional investment vehicles - like the PPF schemes, Systematic Investment Plans (SIPs), debt funds and other funds which provide capital protection. Protecting the capital at this point in time is the most important thing as any sharp correction can be fatal.

The time period when the markets are hitting all time highs or lows is also an acid test for your financial advisor. An advisor who has an in depth understanding of the markets shall never advice to make fresh investments of a large amount. Rather, rebalancing of portfolio is one advice he might give you. Or maybe rebalancing of portfolios along with a small sum of fresh investment because a few can resist the temptation of making quick bucks in a bullish markets. The advice given to you at this point must be ‘balanced’, neither too meek nor too aggressive. Also, one very important aspect often escapes our attention is that if the markets are shooting upwards and an investment in equities has already been made in the past, chances are that you will achieve your investment goals much sooner than you actually planned.

Conclusion: During such moments of excitement and temptation the tool of objectivity should always be employed. Objectivity essentially aims at viewing a scenario as it should be rather than what a viewer wishes to see in the same. So objectively speaking, you are bound to make huge losses even in a bullish market because what you essentially choose to see is the multiplication of money and ignoring the possibility of losses. This entire phenomenon can be summed by a quote by investment baron Warren Buffet, "Be Fearful When Others Are Greedy and Greedy When Others Are Fearful"!