Review Your Portfolio Before Investment Decisions In A Bear Market

Vinay’s portfolio has taken quite a beating. He had purchased YES Bank at a price of around Rs. 450 per share about 8-9 months back. Today the share is hovering around Rs. 168. Sintex Plastics, which he had purchased in December 2017, has lost about 60% of its value. His portfolios largely comprised of midcap stocks, have lost 40-60% value from their peak. His stock portfolio was doing very well at one point, based on which he significantly increased his investments into stocks. Now, he is unsure as to what to do. Should he buy more of the stocks that he has so that his costs can be averaged?

The stock market has seen quite a few crashes this year. It is highly volatile these days and in a bear phase. The mid and small cap indices lost between 25-35% in a short period. In a bear market, confidence is low and stock prices are not rangebound. They can swing wildly.

In case you are in such a dilemma, here are some action points to bear in mind before making a random or emotional decision:

  • Review and Adjust Your Portfolio

Its ideal to book profits on your portfolio and hold some cash for deployment on market falls.  You may still want to review the stocks and equity mutual funds in your portfolio so as to remove the duds. You might want to let go of the duds in your portfolio by taking advantage of bear market rallies.

If you have stocks that were bought because of tips, recommendations or just to make quick profits, review them and sell off those that do not seem to have the potential for giving good returns in the long run.  Look to buy good stocks that can gain strongly on a market recovery.

  • Avoid Panic Selling

Some of us panic and sell off stocks the moment we see that they are losing value. That may not be the best course of action for all stocks. It is not a good idea to exit quality stocks with a good long-term record and good cash flow, , especially at points when they have fallen sharply and their valuations become attractive again.

  • Don’t Miss Out On Buying Low

Averaging is a smart investment strategy, especially for diversified mutual funds and exchange-traded funds. Systematic Transfer Plans are good to supplement your SIPs when markets have fallen; and you are unable to predict the bottom of markets, but you know it is somewhere around the corner.

Most investors become too fearful on large market falls and miss out the opportunity of buying stocks at their best prices.  Keep in mind that the news flow is likely to very negative at such points.  At the same time, don’t fall into the trap of getting in too early. You can add more of blue chip stocks, high quality funds and ETFs when the prices are down.

  • Be Practical

If you don’t have the time or find it difficult to track individual stock and the market environment, stick to mutual funds. Seek professional advice if required.  Understand your portfolio, risk tolerance and risk capacity, so that you do not make any hasty decisions that you might regret later on. Work on a disciplined investment style that suits you.

It is difficult to time the market. So investors have to be patient and keep the right investment perspective before making decisions.

In the current market scenario, the prices have fallen quite a bit. It may be time to take some positions slowly. For example, one can invest in blue chip equity funds such as Mirae India Equity and Aditya Birla Sunlife Frontline funds in a phased manner, especially on corrections. One can use a combination of lump sum investment and SIPs to average the costs. When the markets move upward, they can sell off some positions and use that money to invest in debt instruments.

Key Takeaways:

  • Understand your risk tolerance; Use an investment style that suits you
  • When markets are volatile, review your portfolio and sell off the bad quality stocks
  • Don’t Panic . Take advantage of market volatility
  • Stay Invested for the long term in fundamentally good stocks, mutual funds and ETFs. Increase allocations on lareger market falls.

To know more, visit – http://www.righthorizons.com.

 

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