Why is it important to stay invested in equity?

Why is it important to stay invested in equity?
05/04/2018

It is said that “investments in the stock markets are subject to market risks”. The literal meaning of this statement sounds scary. The market is like an ocean full of big and small waves that constantly move up and down. A smart investor is one who believes in diversification and invests when the wave is down and encashes when it is up.

But is it that simple? A stock purchased at a particular price and which was showing an upward trend suddenly goes down for whatsoever reason after you have bought it. It still shows a negative trend for some time and then panic hits you. You start wondering if you did the right thing by investing in the stock at that particular price. After stressing over this for a few days, you decide to exit to avoid further losses, but still bear some loss.

This is the scenario that almost everyone comes across in the stock markets. However, what you need to know is that there is no need to panic if your stock shows a negative trend. If you want to earn higher returns, it is recommended to stay invested in the equity that you have purchased for the long run.

Market volatility

Market volatility is experienced constantly in the form of small, medium, and big waves in the stock markets. For example, the market suddenly tends to go in the opposite way right when you are expecting a strong economy, thus making us feel lost. You may feel uncomfortable in such a situation, but it is recommended to stay invested in that stock till the wave stabilizes. Remember that the losses you see in the markets during such downfalls are just on paper until and unless the stock that you sold was your own.

It is always recommended to stay invested in diversified equities. The market often experiences ups and downs and equity prices are likely to react in the same way for various reasons. If you remain invested in stocks from different industries or sectors, then market volatilities won't affect you as much. A combination of various stocks can give improved results and a stronger portfolio.

All in all

  1. Volatility is normal

    Ups and downs in the equity market are normal. Historical evidence shows that many people who remained invested during volatilities in the market are the ones who benefitted the most out of it. Many people buy and exit stocks out of fear. The wise decision would be to wait for some time and follow the stock’s trend. Most volatility in the market is just noise that is irrelevant to the economic and fundamental base of the equities.

  2. Do not exit at the lows

    An investor should not concentrate on short-term momentum gains. The market often experiences pullbacks giving false indications to investors. Those who exit the equity market during these rebound pullbacks often bear the losses. An extreme example of the pullback occurred in 1987 on Black Monday, when the stock market lost 20% of its value. However, such extreme scenarios occur just once in a while.

  3. Focus on long-term gains

    Investors should always remain focused on long-term gains. You should not change your decisions with each change in the market. Remaining invested in the stock is important, particularly in situations of volatility. However, your exit plans should be calculated and kept ready if your stock reaches the particular desired value. If the analysis shows an upward trend, it's wise to consider the option and remain invested in it.

  4. Consider diversification in equities
  5. It is not possible to predict the trends of the market. Equity investments require a great deal of patience and if you remain invested without fearing short-term volatilities, you can reap great rewards. Keeping a long-term goal and consulting a financial advisor when in doubt can help you win the battle. 
Next Article

Seven alarming signs you will not retire rich

Seven alarming signs you will not retire rich
05/04/2018

Keeping a nest egg for your retirement woes is the ultimate responsibility of every individual. After years of running around in circles, one aims to cruise around the world or take care of oneself without being responsible or dependent on anyone. However, certain factors can hinder an individual from retiring richer in their old age.

Listed below are some factors that indicate you may not have a peaceful retirement:

Not enough efforts to increase your income

A survey says that 39% of people feel that they did not taken proper actions or attempts to get a salary hike in their line of work. To gain a salary increase, one must put in a conscious effort and adopt ways that are conducive to a salary increase. One should not treat an appraisal as a stroke of luck or a blessing, but it should rather be treated as your right, albeit one that you work towards. As the cost of living is on a constant roll, one should start looking for ways to increase their income in order to both invest and spend; if not, things could become a struggle in your retirement.

Staying afloat through credit cards and loans

If the individual is a heavy user of credit cards or loans to meet his/her lavish or trivial needs, then it is a massive minus as they would be in the deep end of EMIs. There is still a chance to regulate your income if you have a home loan or any other necessary loan taken for emergencies. However, if the individual relies on credit every time he/she is in a bind, then it is a serious signal that should be checked immediately.

No diligent savings in the past

If the individual has never had the habit of saving in the past and keeps putting it off by saying “I will do it next year”,  then it is a clear signal that he will not get nor retire rich. Such an individual should consult a financial advisor to turnabout their savings habit or drastically reduce the budget to accommodate their investment needs. The individual should begin by setting a goal or a direction to start their savings habit.

Late in savings

The saying – “Better Late Than Never”, applies only in a partial sense to wealth conservation. As one ages. he/she would have to set aside more money to invest in wealth creation. Nevertheless, it is good to have something rather than nothing. However, even that something should have some worth in the future or the savings would not turn out to be as useful as you intended.

A constant struggle at month-ends

If the individual feels sheer desperation for funds at the end of each month, with the habit continuing over a few years, then he/she has to take corrective measures. The first and foremost is attaining a pace where month-ends cease to be a  struggle. He/she then needs to look for ways to save a substantial amount each month; If not, this is a flaming signal that you will remain poor and desperate.

No room for job opportunities

If the individual is in a field where the room for opportunities or growth is insufficient, then the goal of wealth creation will be greatly affected. Also, if the person’s skill set is mediocre, then the signal will always be in emergency mode. The only remedy for this signal is to learn new skills and apply them to increase their contribution towards your income.

The traditional mindset when it comes to investing

If the individual has a habit of investing in conventional methods of investment like bank deposits or PPFs, they will only have a corpus fund that earns returns based on the inflation percentage, but does not award purchasing power. In such cases, the investor would have to deposit more substantial amounts to build up their wealth, which is practically impossible given the rising cost of living expenses and their earning capacity to match their expenses. Thus, one should diversify using mutual funds, debt instruments, and equities, among others, over the long-term to utilize the power of compounding and retire rich.

Conclusion

These are a few important habits an individual has to be wary of. If you feel you have one of these, work on them immediately. This would be the only way you would be able to build a substantial amount of wealth in your oldage and fulfill your desires.

Hope this article has flashed a warning sign in your mind and you start taking corrective actions to building your own pot of gold.

Next Article

How much to invest when you first start trading

How much to invest when you first start trading
13/04/2018

A lot of new people who starting trading in equities make the mistake of putting too much of their wealth at the beginning. Before you even think about getting into equity trading, it is vital that you prepare an extra buffer fund to prepare yourself for any unpredicted events.

Even though several specialists may argue over the sum of money required for trading, the agreement is that you must be able to maintain your lifestyle for 3-6 months from your alternative fund.

Since an emergency fund is intended to guard you in case of a disaster, that money has to be readily available in a highly-liquid savings bank account or money market account. Under no conditions should you consider using these funds to trade. These funds must only be located in accounts that are exposed to very little threat.

You don't need much money to be successful at stock trading. However, a little wealth makes it tremendously tough to get a steady start in the stock market.

For a decent start, lookout for accounts at a minimum brokerage. This amount is typically fixed because it is in the broker's top interest to retain trading for as long as possible so that they bring more and more commissions. These minimums are frequently put into place to decrease the risk of you utilizing your funds in a small number of trades.

Risk, too, is unquestionably relevant to trading; where there is no risk, you can't think of making a good return.

It is also significant to think about diversification. The dividend-paying stocks of top-50 companies are rather safe, and financiers can predict to make mid-to-high, single-digit returns throughout several years. Diversification is a significant portion of the risk. Holding a portfolio of funds that all have similar risk can be dangerous.

Bottom line

If you are new to the share market and especially if you are still in the learning stage, it is suggested to begin with small risks. Invest as little as possible and emphasize more on the learning. Anything between Rs1,000-5,000 will be a good amount to start. It's also vital to acquire knowledge on how to value invest for attaining true, life-long wealth.

Next Article

5 Stocks for next week 16th-20th April 2018

5 Stocks for next week 16th-20th April 2018
by Gautam Upadhyaya 13/04/2018
Untitled Document

1) Nilkamal Limited-Buy

Stock

Nilkamal Limited

Recommendation

The stock has witnessed a flag pattern breakout on the daily chart backed by a surge in volumes and has managed to give a close above its 200 day EMA. We expect the uptrend in the stock to continue in the following week.

Buy/Sell

Range

Target

Stop Loss

Buy(Cash)

1752-1764

1874

1686

NSE Code

Market Cap(Rs in Cr)

52-week High /low

200 Day-EMA

NILKAMAL

2624

2274/1491

1719


 

2) Escorts Limited – Buy

Stock

 Escorts Limited

Recommendation

The stock has managed to give a breakout above its resistance levels backed by an uptick in volumes and is currently trading at its all-time high. The stock has also shown positive momentum on the daily MACD Histogram, which affirms our bullish view on the stock.

Buy/Sell

Range

Target

Stop Loss

Buy (Cash)

942-948

1006

907

NSE Code

Market Cap(Rs in Cr)

52-week High /low

200 Day M.A

ESCORTS

11620

948/535

739


 

3) TVS Motor Company Limited-Buy

Stock

TVS Motor Company Limited

Recommendation

The stock has witnessed a flag pattern breakout on the daily chart backed by a surge in volumes. The stock has also taken support near its 200 day EMA and given a positive bounce.

Buy/Sell

Range

Target

Stop Loss

Buy(Cash)

657-662

702

633

NSE Code

Market Cap(Rs in Cr)

52-week High /low

200 M.A

TVSMOTOR

31498

794/461

639


 

4) Bharat Electronics Limited - Sell


Stock

Bharat Electronics Limited

Recommendation

The stock is trading in a lower top lower bottom chart structure and has given a breakdown below its support levels on the daily chart. Derivative data indicates fresh short positions in the stock.

Buy/Sell

Range

Target

Stop Loss

Sell (April Futures)

143-144

135

149.2

NSE Code

Market Cap(Rs in Cr)

52-week High /low

200 M.A

BEL

35048

192-138

160


 

5) Bajaj Finserv - Sell


Stock

Bajaj Finserv

Recommendation

The stock has witnessed a correction after forming a bearish engulfing candlestick pattern on the daily chart. It has also seen a bearish crossover on the daily MACD indicator.

Buy/Sell

Range

Target

Stop Loss

Sell (April Futures)

5335-5360

5060

5534

NSE Code

Market Cap(Rs in Cr)

52-week High /low

200 M.A

BAJAJFINSV

85057

5835/3796

4922


Research Disclaimer

Next Article

The ‘right’ way to exit a losing trade

Exit a losing trade

Every trader has his share of bad trades in his portfolio and you do not need all your stocks to be multi-baggers to be successful in the share market. While gains from a stock have no upper limit, the loss from a stock is limited to the value invested in it. Exiting a losing stock is not only a financial loss for a trader, but also an emotional or psychological loss. It is human tendency not to accept losses readily. We have a few recommendations that will help you exit a declining trade.

Let’s take a look

Use stops to restrict your financial losses

Stops are calculated, pre-determined price levels at which the investor chooses to go short or sell his stocks to limit losses. When the stock price hits the stop loss price, a sell order is executed and the stock is automatically sold at that price. Stop loss orders work well as they define the losses beforehand and the loss amount is in the control of the investor. Have a personalized stop loss strategy and use it effectively to limit your losses while investing in stocks.

Keep a check on the stock even after exiting to find a re-entry point

Once you exit a position, keep an eye on it to identify any bullish indication of reversal, which can be a potential re-entry point. Using stops, you might sometimes exit your position because of price volatility. In no time, you may find the prices rising again. However, using proper stops is proven to be effective as it limits your losses in most cases. Analyze the charts, study the candlestick patterns, and re-enter, only, if it coincides with your research and not in hope or revenge. If there is no valid reason to re-enter the trade after the initial exit, walk away and search for new opportunities.

Do not emotionally connect with your stock picks

You should accept your wrong picks and move on rather than lingering onto the stock in the hope of a rebound. You need to monitor and notice the developments around your shares continuously, and if stocks are taking the wrong direction, you will sometimes need to book losses and accept your wrong stock picks. Don’t fall in love with your shares, sell them if the fundamentals do not appear correct and restrict your losses. Booking losses or hedging them at an early stage can help minimize losses.

Accept responsibility and analyze your mistakes and find out where your investment plan can be improved

This will help reduce the chances of the same happening again. Handling trading losses well is a leading characteristic of successful investors. Treat a failure as an opportunity to learn and improve it in your next move. Many opportunities are waiting out there in the market for you to find and grab hold of.

Next Article

Top Gainers On BSE 500 In First 3 Months of 2018

Top Gainers On BSE 500 In First 3 Months of 2018
by Nikita Bhoota 16/04/2018

Indian equity markets touched a new high in January 2018. Both the benchmark indices Nifty 50 and Sensex touched a closing high of 11,130 (January 29, 2018) and 36,283 (January 29, 2018) levels for the first time respectively. Fading effect of economic reforms like GST and RERA along with gradual pickup in corporate earnings supported the market rally.

However, in the next two months (February-March 2018), market has corrected sharply on account of implementation of LTCG from April 1, 2018 and speculation of trade war emerging between China and United States. Additionally, scams in the Indian banking sector and increase in current account deficit to 2% of GDP for quarter ended December 2017 have hurt the market sentiments.

Amidst this volatility there are some stocks that have outperformed the benchmark in the last 3 months ((January 01, 2018 till March 28, 2018). In the same period, both the benchmark indices, Nifty 50 and Sensex have plummeted ~3% and ~2.5% respectively.

Company Name

Price in Rs as on
1-Jan 2018

Price in Rs as on
28-Mar 2018

Gain %

VenkyS (India) Ltd.

2,800.5

3,872.5

38.3

NIIT Technologies Ltd.

652.0

864.3

32.6

Jubilant FoodWorks Ltd.

1,776.8

2,326.7

30.9

HEG Ltd.

2,437.6

3,181.5

30.5

Firstsource Solutions Ltd.

40.9

53.0

29.7

Mindtree Ltd.

606.0

774.0

27.7

V-Mart Retail Ltd.

1,487.7

1,894.8

27.4

Tech Mahindra Ltd.

502.6

638.3

27.0

GE Power India Ltd.

739.8

928.0

25.4

Ashok Leyland Ltd.

118.9

145.3

22.3

IDBI Bank Ltd.

60.4

72.3

19.7

Cyient Ltd.

577.5

688.8

19.3

Future Lifestyle Fashions Ltd.

343.8

407.5

18.5

KPIT Technologies Ltd.

184.8

216.8

17.3

Lakshmi Machine Works Ltd.

5,865.0

6,872.9

17.2

Larsen & Toubro Infotech Ltd.

1,146.7

1,341.2

17.0

L&T Technology Services Ltd.

1,067.8

1,239.6

16.1

Gruh Finance Ltd.

497.7

577.2

16.0

Bajaj Electricals Ltd.

488.1

561.8

15.1

Source: Ace Equity
*Stocks are taken from BSE 500 list

 

Research Disclaimer