- Date : 19/01/2020
- Read: 4 mins
Have a look at these 5 mistakes you can make when investing in a market scaling new heights
Consistent economic growth and large inflows of foreign investment have driven the Indian stock market to deliver unmatched yields. In fact, over the past 25 years, the Sensex has outperformed major global indices.
The prospect of making it big by investing in stocks lures millions of investors. However, while there are success stories, there are as many stories of people who have burned their fingers. There’s no formula for sure-shot success in the stock market.
Here are some mistakes you should avoid while investing in bull market in order to better your chances:
1. Trying to time the market
Inexperienced investors generally look at maximising profits by trying to buy as cheaply as possible and, of course, selling at a super premium. However, predicting market movement is a futile exercise. Even the best of pundits advise against such a strategy. You might as well play roulette with your hard-earned money.
If you have invested in specific stocks, studying the technical charts and company reports will give you a more robust understanding of how the stock will perform over a period of time, irrespective of market sentiment. Your investment strategy should be goal-oriented, not sentiment-oriented.
2. Experimenting with trading strategies
Trading and investing are two very different strategies. While traders look to generate profits over a short period of time, investors aim to create wealth over the long term. Trading requires a considerable amount of time, expertise, and experience. It is a full-time project, not advisable for the retail investor.
3. Following the herd mentality
In a bull market, hot stock tips get passed around like the flu virus. You hear stories of overnight millionaires. Most of these tips are for mid- and small-cap scrips. The upsurge is usually because of the market rally and is seldom backed by fundamentals.
Information always has a trickle-down effect. If you’re not an investment professional, by the time the advice reaches you, you’ve probably already missed the bus. Further, at the downturn, such stocks could wipe out your earnings. It is best to opt for midcap-based mutual funds, rather than directly taking on the exposure.
4. Compromising on asset allocation
In a rally, everyone feels they have the Midas touch and tend to over-leverage investments towards a particular asset – in this case, equity. It is important to stay true to your asset allocation mix, which is a combination of your long-term investment goals and inherent risk appetite.
Diversify your portfolio across asset classes to optimise your returns while incurring minimal risk. While bank deposits may not look lucrative now, they provide much-needed stability to your investment portfolio.
5. Letting go of your SIPs
Even with the best of bull runs, there are bound to be pockets of volatility. Investors tend to stop their Systematic Investment Plan (SIP) investments in a bull market, thinking they can deploy the funds better elsewhere. Conversely, in a bear market, they tend to withdraw the same on the account of the loss of value.
SIPs function on the principal of ‘rupee cost averaging’, wherein you can buy more units when the prices are low and fewer units when the stock trades at premium. Over the long-term horizon, a SIP will give returns that are comparable with the best-performing stocks.
For long-term success, leave your emotions – especially fear and greed – outside the door. Have patience and follow a disciplined investment approach. Regularly monitor your portfolio and you should see your investments multiply.