Skip to main content

Strategy for loss making stock holding

Some tips for investors who are holding stocks that have eroded value in the recent corrections


After a dream bull run over the last four years, the domestic markets are in the grip of a slowdown from the last six months. There have been a couple of pull back rallies but every rally is followed by a correction and the markets are falling to new lows in each correction phase. There is a lot of negative news flowing in from all ends and as a result the markets hit their lowest levels in 2008 recently.


Currently, the market sentiments look quite bearish. Rallies in the markets are quite short lasting and most of them end in intraday or at the most in a couple of days. There are selling pressures at every level in the market. Many stocks have come down 40 to 60 percent from their peak levels. Stocks and sectors that led the market rally last year are the worst hit in this correction. For example, stocks in banking, financial services, power, energy and infrastructure have seen much deeper cuts than key indices.


Many investors are stuck with these stocks bought at higher levels. Investors are not sure whether they should sell at these levels or buy more to average out their purchase prices.


Here are some points that will help you decide between investing further and exiting after cutting losses:


Stay invested


Long-term investors who are holding blue chip or fundamentally-good large and mid-cap stocks, bought at higher levels, can remain invested. They can also invest more to average out the buying prices. Valuations of many blue chip stocks look quite attractive at this point. Many blue chip stocks are trading in single digit PE multiples and some of them are trading near their book value. The chances of significant decline from current levels are quite remote as most of the negative news has already been factored in current valuations.


Usually, these stocks outperform the index and recover their losses when the market direction reverses. Investors holding unknown stocks should look at exiting cautiously and cut down their losses.


Average out


Investors with high risk appetite can look at accumulating more stocks at lower price levels and hence average out their entry price in stocks. However, investors should only invest their risk capital in the markets. Investors should never take loans to buy shares in the markets. You should try to accumulate more stocks and average out your buying price systematically by buying in small quantities.


Take fresh positions


Many blue chip companies are trading at very attractive valuations in the market. The market is already flooded with a lot of negative news, and hence, there is a limited chance of a further downside from current levels, unless something drastic happens. This can be an opportunity for long-term investors to start picking fundamentally - strong stocks. Investors should avoid taking any positions in penny stocks and always look at investing in blue chip and quality mid-cap stocks only.


Switching from under-performers


Usually, in every market rally or correction there are some sectors that out-perform or under-perform the market. The same trend was seen in the recent correction as well. The stocks that performed quite well last year are under-performing the markets. Many stocks have come down more than 50 percent off their highs.


Investors with a large percentage of under-performing stocks in their portfolio should look at switching their funds to better quality and performing stocks. There has been some pullback in the market recently. Investors looking at cutting losses should carefully watch the price movements and cut their losses if they see a rally in their stocks.

Popular posts from this blog

Term insurance

Term insurance may not be the most-marketed product by life cos, but it’s a must-have in today’s risk-prone lifestyle WHEN was the last time your insurance agent sold a term plan to you? It’s not a very popular policy among agents, as their commission in absolute terms is low because of the low-premium. Just as agents have their self interests in mind while selling, you need to make your own decision about your insurance needs, which are unique to your family. COST ADVANTAGE A term plan is pure protection. It is the cheapest type of life insurance policy. But what you see might not be what you get, most insurers have a range of health parameters for standard rates. If any of your health parameters — weight, blood pressure for instance fall outside this range, you will pay more. For some companies, the standard range is very narrow. EARLY BIRD GAINS A 30-year-old will pay 15% more premium than a 25-year-old. At 40, the premium is double of what is applicable for a 25-year old, points...

ICICI Prudential Balanced Fund

 ICICI Prudential Balanced Fund scheme seeks to generate long-term capital appreciation and current income by investing in a portfolio that is investing in equities and related securities as well as fixed income and money market securities. The approximate allocation to equity would be in the range of 60-80 per cent with a minimum of 51 per cent, and the approximate debt allocation is 40-49 per cent, with a minimum of 20 per cent. An impressive show in the last couple of years has propelled this fund from a three-star to a four-star rating. The fund has traditionally featured a high equity allocation, hovering at well over 70 per cent, which is higher than the allocations of the peers. But in the last one year, the allocation has been moderated from 78-79 per cent levels to 66-67 per cent of the portfolio. ICICI Prudential Balanced Fund appears to practise some degree of tactical allocation based on market valuations. Within equities, well over two-thirds of the allocation is parked i...

Reliance Life Insurance company introduces 17 ULIPs

Reliance Life Insurance company has announced the launch 17 unit linked insurance plans (Ulip). The new range of Ulips encompasses several categories including child plans, pension, protection, savings and investment, which are available in two versions — basic plan with tenure of over 15 years and another with a 10-year-term. According to an official release, these Ulips are primarily targeted at customers paying a premium of over Rs 10,000. All these schemes come with features such as capital guarantee, loyalty additions, higher internal rate of return and several fund options. The plans also offer riders, including payment of lump sum on diagnosis of specified critical illnesses, surgeries and additional life cover. Policyholders have the option of choosing between automatic asset allocation, systematic transfer plan and return shield options. Recently, the company launched two traditional insurance plans — Reliance Jan Samriddhi plan (RJSP) and Reliance Traditional Super InvestAssu...

TDS Rate and Personal Account Number(PAN)

    The TDS rate doubles to 20% from 10% if you fail to mention your Personal Account Number   IF you run a glance through your pay slip, you will come across something called TDS, which is tax deduction at source. In most cases, the employer deducts this amount at the time of payment of salary itself and pays the total tax amount to the government on behalf of all the employees. If you are a self- employed or practicing professional s, you have to pay this amount yourself.    Tax deducted at source is one of the modes of income tax collection by the government. Under the income-tax laws, income tax at specified rates is required to be deducted while making certain payments.    The rate of deduction of tax at source on interest and rent payment is 10%. For salary payments, the employers deduct income tax at source on a monthly basis after computing income tax liability on estimated annual taxable income of the employee. Tax benefits on housing loan, investments, etc are consid...

L&T Tax Advantage

Best SIP Funds to Invest Online   The fund follows a growth approach to investing in quality stocks that have a large-cap tilt This large-cap tilted ELSS has fared consistently and fared better than its benchmark by posting a higher margin of outperformance. The fund follows a growth approach to investing in quality stocks that have a large-cap tilt, which is evident in its portfolio. The portfolio is further well diversified across market capitalisation and sectors with over 60 stocks finding a place in it. The upside with this fund is the fact that it has witnessed both down and up cycles of the market to come across as a winner in the long run. Do not doubt the fund based on its size and a few mediocre years of performance, because when analysing its rolling three year returns, the fund's performance stands out to qualify as a must have ELSS in one's portfolio. Stay invested through the lock-in and there are chances of benefiting from returns as well as tax savings will prov...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now