Yes, that’s the talk of the town. Stock markets and the individual stocks which constitute the markets are all hitting the highest highs.
D-Mart, the offline retailer just made a spectacular debut post its IPO, throwing out all excel based valuations out of the window.
Another 50+ companies are planning to tap the market. The Government is not behind too. It is using the CPSE ETF route to run its divestment programme and raising money for itself.
The over subscriptions are mind boggling. There are takers for everything. Literally, everything.
Given the scenario, some investors are deeply worried (the bears), some are cautious (the investors) and the rest feel this is the biggest bull market of all time (who else but the bulls).
Are the markets running up too fast? Are they overheated already?
Difficult to comment.
A simple heuristic that can be used if markets are overheated is – when a whole new set of investors star to jump in. It is when your paan walla, your maid, your driver, even your friend wants to know the *tip* about the next best stock.
Another thing to look at is the mutual fund managers and their activities. Some of the mutual funds don’t get too excited with markets running too high. They hold cash in the absence of the right opportunities available at the right price. A large increase in the cash reserves of a fund may point to the fact that very few opportunities to invest may be available in the market.
However, none of them is a fool proof method. As mentioned, they are just heuristics.
In any case, at any point as companies grow, their stock prices grow, as a result the markets grow and hit a high. Touching a high is a natural event and leads to the growth once expects from such investments.
So, what should you, the investor, do or not do now?
Well, several things.
Here are 9 for your quick reference:
#1 Don’t let FOMO take over your mind
FOMO stands for fear of missing out. It is that little nagging, uncomfortable feeling that if you don’t do something now, you will never get another chance. FOMO is used very smartly by a lot of marketers to get you to buy stuff which you might otherwise not need or may not need now. Beware of FOMO. You missed D-mart and now FOMO will get you to subscribe to every IPO in the hope that you can make it big too. Or, you may invest in that highest return small cap mutual fund, which is past its best performance. Beware!
#2 Look critically at your asset allocation
If your asset allocation is structured to hold 60% equity then don’t push it to 80%. If you never had equities in your portfolio, may be you can start to add now and gradually take it up to the level permitted for your risk tolerance and your time horizon. Don’t jump in at once. Similarly, if your asset allocation has gone way beyond 60% already (or any other number that you have decided), it is time to rebalance. Sell a part of your equity investments and shift to other assets, thus maintaining your asset allocation.
#3 Don’t invest if you don’t need to invest
Equity is not the answer to every investment need. If you can fulfil your goals without taking the roller coaster ride of equity investing, then so be it. This can be true for High Net worth Individuals (HNIs) or those in their retirement phase.
#4 Capital preservation over growth
If you have a goal coming up in the next 3 years and the amount you need is already accumulated, courtesy the rising markets, then simply take the money out and invest it in the safest investment. For short term goals, capital preservation has a higher priority than capital growth.
#5 Don’t fall for ‘past returns’ only
If you are investing in mutual funds, don’t decide only on the basis of past returns. It is no guarantee of future returns. “A rising tide lifts all boats” is a famous saying. When markets run high, everything starts to appear gold. That’s not the case. Do your independent assessment and figure out the funds that deserve your money. Here’s a quick guide on how to build your own mutual fund portfolio.
#6 Ask why did you invest
This is a good time to revisit all your investments and ask why did you invest in them? Was it just the lure of past returns or a recommendation from a friend? Either is not a good reason. If you cannot find a compelling reason as to why a particular investment deserves your money, it is time to reconsider.
#7 Know your mutual funds
Know more about the mutual funds you have invested in. Use smart.unovest.co and at the top search box type in your fund name to view a crystallised fact sheet. You can see quick facts along with key ratios, portfolio breakup, asset allocation, comparison with similar funds and a very important one – the worst and best performance of the fund in any given year. Do you have to stomach to digest the negative?
#8 Do some media fasting
Yes, it is an auspicious time with the lunar year setting in. Consider some fasting. No, not fasting on food. But fasting on your media consumption. Take a break. Stop watching all the business news channels, pink newspapers or reading intra day tips and newsletters. Let your spiritual side take over and prepare yourself for the rest of the year.
#9 Prepare for the new financial year
The new financial year is starting too in a few days. Build your budget and know your cash flows. Take stock of your investments, specially the tax saving ones. Make a list of key things (a checklist) that you need to accomplish in this year. If you haven’t done a financial plan, do it now. It will give direction to how your money and savings are used in achievement of your goals. Finally, spend time learning.
We just launched a free course – Investing 101 – for you. Over 220 investors have joined it and are benefiting from it. Your chance now.
You see stock markets high or low will come and go. The knowledge will help you ride it, not just now but for the next 30, 40 or 50 years.
Get ready to roll!
Quick question: How often do you look at stock markets?