How to enter the market when it is high ?
How to “enter” the market when it is “high” ?
New Investors who are entering the market always have this question in their mind.
Seasoned investors who have been investing for some time using regular SIP (Systematic Investment Plans) may not worry too much. But for newbies it is not easy question.
First they are worried about taking a large position at “wrong time” and lose big.
Second, if the market goes down, they don’t have much cash left to average down the cost price.
Let us take this further down and analyze it.
It is difficult to identify the peak. Stock Market has upward bias and it is meant to go up and not down. When it goes up too much in too little time, it takes correction (marginal slide in the stock prices /market is called correction ). Correction helps the market to take firm footing. It helps to form the floor price and then helps the market to go up with more strength. It is very difficult to catch the market at the bottom. All of us know this but our emotions get better of us and stop us from making the “plunge”.
How do we handle such situation ? What can we tell the newbie investor ? How can we help the investor overcome this fear ?
At RRK Advisory, we always recommend NOT to put all money in one go in equity funds. Size does not matter. For each investor, what ever they have is “big enough” for them.
We always split the equity investment into several installments and invest over a period of time. We recommend our own time tested technique in choosing the investment period and amount per installment. It could be exponential, linear , step up or step down, value averaging etc., Check our blog on SIP method or VTP method for equity investments. Money that is set aside for fixed income part gets invested immediately.
By using this method, we take emotions out of investing, and let the client wet his feet, stay in the water some time, before going knee deep. Left in the water for some time, any fear for water is gone, and then time is right, he starts enjoying the swim. There is no looking back for any of them, after that.
I also understand some of the newbies may not be convinced still, like to wait. If they have no proper plans to quell their emotions, their wait will never be over. This is what you should do, if you are caught in this dilemma.
(1) First, don’t tell any one that you are thinking the market is at top. Some does not want to accept their wrong forecast and end up not investing in the market due to their ego. Don’t hurt your investment eggs.
You should understand your goal should be to get RICH and be wrong, if required and not being RIGHT and become poor !
(2) Next decide answer for these two questions and send send an email to you today. If required send this email to your spouse and ask him/her to ask you if it is time ?
(A) If you “think” market is at top and expect a correction, What is your expected Sensex/Nifty range to enter the market?
– Say for example, 18,000 or 17,000 etc.,
(B) Get ready with answer for this question. What if you are wrong, and market does not touch this level and keep on going up? At what time frame you will accept that you are wrong and catch the train?It is not easy question. But since you are going to level with only yourself, you must try to be honest with yourself and answer it.
– Say for example, Choose a higher figure like 22,000 or 23,000 or choose a time frame to wait like 3 months.
In my experience I have seen few investors stayed in sidelines for ever and never come back to the market, due to their false ego to accept they were wrong Or they are still waiting for Sensex to get back to 8,000 levels.
The downside is they have to postpone their retirement year by 3-4 years and they have to settle down to live within smaller budget at retirement. No early retirement for them! That is the REAL RISK !