Sensex @60,000: How to tackle the dilemma to sell or not to sell?

0
123
polygonal bull and bear shape writing by lines and dots over the Stock market chart with information over particle of earth and wave background, trading and finance investment concept
With Sensex at 60,000 mark and stock valuations excessive, many investors are raising a relevant question: Is this the time to sell? This question is pertinent since Nifty is up more than130 per cent from the March 2020 lows and investors are sitting on handsome profits. Those who invested after the March crash are sitting on bumper profits. Taking some money off the table is always a good idea. However, whether an investor should sell, hold or buy would depend on many factors, most importantly, on the financial goals of the investor. Let me explain. Sell to realise your goals Suppose you have been investing in the market with some specific goals like raising part of the money to buy a house or buy a car. If your investment has grown to meet your goal, it is perfectly fine to sell. If the goal is buying a house, sell your investment to raise the money for down payment and go for a home loan now available at a historical low of around 6.6 per cent to realise your goal. The same logic applies to an investment made to buy a car or a similar financial goal. Sell and realise your goal. After all, money is a means to an end, not the end in itself! Selling for conspicuous consumption? Think twice. It is important to make a difference between realisation of a financial goal and fulfillment of a desire. An investor might say that he made a particular investment to buy an expensive car or studded jewellery and that he is selling now for the fulfillment of that desire. This is perfectly fine from the investor’s perspective. But it may not be good investment strategy. Many investors have regretted premature selling to fulfil a desire, particularly conspicuous consumption. Let’s take another example. Suppose you are an investor who has been planning for retirement through SIPs in equity mutual funds. If your retirement is, say, five years away, you need not rush in to sell now. We will have many corrections in the market, going forward, but the market would be much higher after five years than where it is now. So, the right strategy would be to remain invested and continue to invest systematically. Remain invested for wealth creation Now, let’s come to perhaps the most important financial goal. If your goal is to participate in the wealth creation through the stock market, the strategy should be to remain invested and even buy systematically. It is important to understand that the biggest wealth creation is happening through the stock market and that fortunes are being made by holding good quality stocks for long periods, during which time, they become multibaggers. Reduce portfolio risk Since valuations are rich and markets are vulnerable to sharp corrections, investors can reduce portfolio risks by selling stocks that have rallied without much fundamental support, particularly in midcap and small-cap spaces. Now, safety is in high quality largecaps. Also, move some money to fixed income. In India, the Sensex (1979=100) has multiplied 600 times during the last 42 years giving a CAGR of more than 15 per cent, beating all other asset classes by a wide margin. This outperformance will continue in future too. Therefore, to participate in this wealth creation, it is important to remain invested and to invest systematically, irrespective of whether the Sensex is at 58,000 or 60,000 or 62,000. Disciplined systematic investment is the key to wealth creation. First published in The Economic Times With Sensex at 60,000 mark and stock valuations excessive, many investors are raising a relevant question: Is this the time to sell? This question is pertinent since Nifty is up more than130 per cent from the March 2020 lows and investors are sitting on handsome profits. Those who invested after the March crash are sitting on bumper profits. Taking some money off the table is always a good idea. However, whether an investor should sell, hold or buy would depend on many factors, most im .. With Sensex at 60,000 mark and stock valuations excessive, many investors are raising a relevant question: Is this the time to sell? This question is pertinent since Nifty is up more than130 per cent from the March 2020 lows and investors are sitting on handsome profits. Those who invested after the March crash are sitting on bumper profits. Taking some money off the table is always a good idea. However, whether an investor should sell, hold or buy would depend on many factors, most importantly, on the financial goals of the investor. Let me explain. Sell to realise your goals Suppose you have been investing in the market with some specific goals like raising part of the money to buy a house or buy a car. If your investment has grown to meet your goal, it is perfectly fine to sell. If the goal is buying a house, sell your investment to raise the money for down payment and go for a home loan now available at a historical low of around 6.6 per cent to realise your goal. The same logic applies to an investment made to buy a car or a similar financial goal. Sell and realise your goal. After all, money is a means to an end, not the end in itself! Selling for conspicuous consumption? Think twice. It is important to make a difference between realisation of a financial goal and fulfillment of a desire. An investor might say that he made a particular investment to buy an expensive car or studded jewellery and that he is selling now for the fulfillment of that desire. This is perfectly fine from the investor’s perspective. But it may not be good investment strategy. Many investors have regretted premature selling to fulfil a desire, particularly conspicuous consumption. Let’s take another example. Suppose you are an investor who has been planning for retirement through SIPs in equity mutual funds. If your retirement is, say, five years away, you need not rush in to sell now. We will have many corrections in the market, going forward, but the market would be much higher after five years than where it is now. So, the right strategy would be to remain invested and continue to invest systematically. Remain invested for wealth creation Now, let’s come to perhaps the most important financial goal. If your goal is to participate in the wealth creation through the stock market, the strategy should be to remain invested and even buy systematically. It is important to understand that the biggest wealth creation is happening through the stock market and that fortunes are being made by holding good quality stocks for long periods, during which time, they become multibaggers. Reduce portfolio risk Since valuations are rich and markets are vulnerable to sharp corrections, investors can reduce portfolio risks by selling stocks that have rallied without much fundamental support, particularly in midcap and small-cap spaces. Now, safety is in high quality largecaps. Also, move some money to fixed income. In India, the Sensex (1979=100) has multiplied 600 times during the last 42 years giving a CAGR of more than 15 per cent, beating all other asset classes by a wide margin. This outperformance will continue in future too. Therefore, to participate in this wealth creation, it is important to remain invested and to invest systematically, irrespective of whether the Sensex is at 58,000 or 60,000 or 62,000. Disciplined systematic investment is the key to wealth creation.

LEAVE A REPLY

Please enter your comment!
Please enter your name here