Skip to main content

When is the best time to exit the Stock Market?

 

When is the best time to exit the equity market?

 

 





Nobody can time the market. You need to decide what returns you want, over what period of time and, accordingly, enter and exit the equity market

It would be quite wrong to assume that everyone is investing in equities these days. Those that bought in 2008 and were subsequently disillusioned, are selling. They think they have waited for a long time. Now that there is some sign of profit or even of a break-even, they want to quit. Then there are those who entered the market in recent times. They did not expect such a run-up so soon. They see the frenzy and are worried. They do not want to make the mistake of not booking out in time.


The real question, therefore, is not about buying. It is about selling.

When equity markets turn around and begin to run up, there are at least three things to consider. First, the markets will remain unpredictable. That is their nature, and even if everyone is convinced that the next big bull run is here, the markets may not always oblige the bulls. Second, no one knows the top of a bull market. A market that runs up is not defined by how far it can go, but by how much it can fall. So, there is no point in asking if the number to look for is 30,000 or 50,000. We simply do not know, and it actually does not matter.


Third, what worked in the past, will not work in the future. So trying to quit the market at every turn is like asking if you should get off the train at every station that it happens to stop.

Equity investing does not lend itself to simplistic theories and rules, much as we crave for it. Therefore, rules that ask for `profit-booking' as soon as the money has doubled, or after a target has been achieved, or when a magic number has arrived, may all prove to be wrong.


In the best case scenario, the investor can get lucky . In the worst case scenario, the investor may miss a large part of the bull run that happens after he exits. Imagine an investor coming into the markets in 2003, at a Sensex level of 3,200, after the technology boom and bust, and feeling very wary and cautious. Then, imagine him quitting after a 20% return at 3,800 levels. Or, quitting after the index doubled to 6,400. When the index scaled 20,000 this investor would be quite sorry , even if he did not admit to his tactic having gone horribly wrong. So setting up a strategy to quit based on assumptions about how the market will behave in the future can go very wrong. Then the investors worry about getting greedy . Coming out of a bear market, the predominant thought is caution.


Investors recall how they failed to get out at 20,000 and paid heavily for it. They tell themselves that markets are unpredictable, so the best thing to do is book profits. So, they ask of market experts to not exhort everyone to simply buy , but also indicate when to sell. But such advice is not easily available. Apart from business considerations of market players, whose money depends on the investor staying rather than leaving, there is this inherent unpredictability of the markets that can make such recommendations so completely ridiculous. Which expert would stake his credibility to call the top and watch the markets soar even higher. So, investing by hanging on to someone else's coattail also does not work. Even if that someone is an expert.

So what should one do? An investor, who is booking profits, is actually taking money out of equity and putting it into his bank. This is an asset allocation decision. Each time money is moved in and out of equity markets, the investor is not `booking profits' but rebalancing his money . The moment we convert the problem into one that focuses on the investor, rather than the market, the solutions are actually simple. Investors can deal with how much money they need to have in equity based on what returns they need, what risks they can take, and how long they can wait. Therefore, an investor who plans to fund his child's education coming up in the next 15 years, will need a higher proportion of his money in equities so that he beats the inflation in education costs. Let's assume that this investor holds a portfolio with 60% in equities and 40% in debt. This allocation is called the strategic allocation, and is the most critical decision any investor can make. Irrespective of where the market is, this investor needs 60% of his money to be in equities.

When equity markets appreciate, they take this proportion up. Higher equity allocation means higher return and higher risk. Therefore, the investor can do a `profit-booking' to bring his proportion back to 60%. He need not do it every day, but a half-yearly review or even an annual rejig should be fine. Not only does he know how much to `book', but also does not care where the market is when he does that. This kind of devil may-care rule takes out the noise, emotion and confusion from investing and helps immensely . In a market that moves in cycles and remains largely unpredictable, actions that are based on the wisdom that things will average out eventually, work their zen-like magic.

Those that cannot tear themselves away from `taking a call' should train their eyes on how much the market can fall. That is more important than how much it can rise. This upside potential versus downside risk assessment is the tactical approach to dealing with the question of profit booking. From asking what is the market PE. Seeing if the prices are above or below the 200-day moving average. Asking if there are too many IPOs at high prices. And, seeing whether every one and his uncle is bullish. The tactical approach means looking for signs of crack up. It may not result in liquidating equity positions, but bringing them down significantly . Investors may not always get it right, nor would they manage to quit right at the top, but may get a higher sense of control. We know the top only after the event, so there is no point trying to guess it -unless we bet on getting lucky

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

Leave a missed Call on 94 8300 8300

Leave your comment with mail ID and we will answer them

OR

You can write back to us at

PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Any Fund Application Forms

---------------------------------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Franklin India Bluechip
      4. ICICI Prudential Top 100 Fund

B. Large and Midcap Funds Invest Online

      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
      4. Birla Sun Life Front Line Equity Fund
      5. Franklin India Prima

C. Mid and SmallCap Funds Invest Online

      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
      5. Birla Sun Life Dividend Yield Plus
      6. SBI Emerging Businesses Fund
      7. HDFC Mid-Cap Opportunities Fund
      8. ICICI Prudential Discovery Fund

D. Small and MicroCap Funds Invest Online

      1. DSP BlackRock MicroCap Fund
      2. Franklin India Smaller Companies

E. Sector Funds Invest Online

      1. Reliance Banking Fund
      2. Reliance Banking Fund
      3. ICICI Prudential Banking and Financial Services Fund

F. Tax Saver Mutual Funds Invest Online

1. ICICI Prudential Tax Plan

2. HDFC Taxsaver

      1. DSP BlackRock Tax Saver Fund
      2. Reliance Tax Saver (ELSS) Fund

G. Gold Mutual Funds Invest Online

      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund
      4. Birla Sun Life Gold

H. International funds Invest Online

1. Birla Sun Life International Equity Plan A

2. DSP BlackRock US Flexible Equity

3. FT India Feeder Franklin US Opportunities

4. ICICI Prudential US Bluechip Equity

5. Motilal Oswal MOSt Shares NASDAQ-100 ETF

Popular posts from this blog

ICICI Pru Mutual Fund Dividend

ICICI Prudential Mutual Fund has announced dividend under the following schemes: Scheme Dividend ( Rs /unit) ICICI Pru Capital Protection Oriented Ser V Plan B-D 0.03611325 ICICI Pru Capital Protection Oriented Ser V Plan B Direct-D 0.03611325 ICICI Pru Balanced Advantage Direct-DM 0.06 The record date has been fixed as February 08, 2017. ------------------------------ ------ Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds  Application Forms For further information contact  SaveTaxGetRich on 94 8300 8300 ------------------------------ ------ Leave y...

What is Financial Freedom?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)     There were many things common between our Freedom fighters. All had the Single vision (Free India), common goal (independence) and had a disciplined and focused approach. They were ready to do anything and everything and had made so many sacrifices to see India free . But the road to freedom was not easy .They had faced lot many hardships, went to jail so many times and even confronted physical and mental torture from the British. There was one more thing which proved to be an advantage to our fighters that most of them were professional lawyers. The knowledge of legal issues and its impact on our country at large has helped them counter various bills and proposed new laws by the then government. It is due to their continuous effort that we are able to achieve the goal of Independent Indi...

Hidden Bank Fees

  What Banks Hide From Customers Imagine after a peaceful and exciting holiday you receive your bank statement with steep charges. You then rush to your bank and start confronting staff members and to your dismay, you come to know that the high end debit card was charged very heavily. Wouldn't this cause damage to your finances? So remember, the world outside is full of deceptive and double cheating people. Unethical practices are always used by company sales person in order to meet the target. Credit card companies, mutual funds and bank institutions always play dirty tricks to lure customers and the practices are rampant. So here's how you should be careful while dealing with your banks: High End Debit Card Charges While opening an account with a bank you opt for a debit card with minimal charges. But later on when you upgrade your card and opt for high end debit card the annual charge rise by a good amount. Though such a card has slew of features but it all comes at a high ...

Partial withdrawal from PPF

  Public Provident Fund (PPF) account has a lock in period   If you opened a PPF account to meet your retirement needs,, think twice about withdrawing from this fund before retirement. But provided it's an emergency here are the rules. Public Provident Fund (PPF) account has a lock in period before which you cannot withdraw your money.   The partial withdrawal is allowed after the completion of 6 financial years . This means that you will be allowed a partial withdrawal from 1 April 2017. The maximum partial withdrawal allowed is the least of the following: 50 percent of the account balance at the end of fourth financial year, 31 March 15 50 percent of the account balance of the end of previous financial year, 31 March 17.   There's a loan option available on your PPF account between the fourth and the sixth financial year. You can obtain a loan of up to 25 per cent of the balance in your account. However, this will attract interest of 2 percent more than the prevailing ...

Updating a minor PAN card upon becoming adults

  Updating a minor's PAN card once they become adults A PAN card issued in the name of a minor does not contain the minor's photograph or signature, and therefore, cannot be used as a valid proof of identity. Once a minor PAN card holder turns 18, the relevant changes must be made in the PAN records. A new card is then issued bearing a photograph and signature. Application The applicant is required to fill up the "Request for new PAN card andor changes or correction in PAN data" form. The form can be filled up online by accessing NSDL's Tax Information Network website and clicking on the online PAN application tab. Information The applicant must mention the existing PAN number in the application and check the `photo mismatch' and `signature mismatch' boxes, and submit the online form. The form must also be printed out, signed by the applicant, and submitted along with two photographs. Documents Identity and address proof in the form of a copy of the app...
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