What should an investor do when Every Investment in the Stock market looks expensive?

Nutan Gupta

14 Oct 2016

Stock market goes through its own ups and downs. Sometimes, valuations in the market are at its peak, while sometimes the market crashes to an extent where investors start panicking. Usually, in both the scenarios, investors are confused on how they should react - Whether they should accumulate more stocks or they should sell off their stocks?

A stock market is said to be expensive when valuations are sky-high and stock prices shoot up without any specific reason or event. Similarly, the market is said to be cheap when valuations come down and stocks are available at very low prices. There are a few golden rules one should follow when market looks expensive:

Keep Cash handy

Cash component is something one should keep handy when valuations in the market are high. If the market valuation is high, correction is bound to happen in some time. The cash component will help you tap the opportunity faster when correction happens, as you will be able to buy stocks at cheaper valuations.

Invest in SIP

When you are not sure about the reason behind markets being expensive, it is always better to invest in systematic investment plan (SIP). SIP helps in reducing market volatility as you stay invested in the market irrespective of the highs and lows. SIP works on ‘Dollar cost averaging’. An investor gets more units when the NAV is low, and less when the NAV is high, and eventually, the cost will average out. So, one should continue investing in SIP when the market valuations are high.

Invest in high-quality stocks

An investor should study about the markets and invest in high-quality stocks which have a low debt-equity ratio. It is better to avoid stocks which are not sound fundamentally as these stocks have the highest probability of being affected by market volatility. The debt-equity ratio indicates how much debt a company is using to finance its assets as compared to the total equity. Lower debt-equity ratio implies that the business is financially sound.

Buy defensive stocks

Defensive stocks are likely to survive the market volatility more than stocks in any other sector. So, it is a good bet to invest in defensive stocks when the market looks expensive.

The bottom line is that investors should not panic when the market becomes volatile. Instead, they should look out for opportunities to make more profit out of it.

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What should an investor do when Every Investment in the Stock market looks expensive?

by User Not Found | Oct 14, 2016

Stock market goes through its own ups and downs. Sometimes, valuations in the market are at its peak, while sometimes the market crashes to an extent where investors start panicking. Usually, in both the scenarios, investors are confused on how they should react - Whether they should accumulate more stocks or they should sell off their stocks?

A stock market is said to be expensive when valuations are sky-high and stock prices shoot up without any specific reason or event. Similarly, the market is said to be cheap when valuations come down and stocks are available at very low prices. There are a few golden rules one should follow when market looks expensive:

Keep Cash handy

Cash component is something one should keep handy when valuations in the market are high. If the market valuation is high, correction is bound to happen in some time. The cash component will help you tap the opportunity faster when correction happens, as you will be able to buy stocks at cheaper valuations.

Invest in SIP

When you are not sure about the reason behind markets being expensive, it is always better to invest in systematic investment plan (SIP). SIP helps in reducing market volatility as you stay invested in the market irrespective of the highs and lows. SIP works on ‘Dollar cost averaging’. An investor gets more units when the NAV is low, and less when the NAV is high, and eventually, the cost will average out. So, one should continue investing in SIP when the market valuations are high.

Invest in high-quality stocks

An investor should study about the markets and invest in high-quality stocks which have a low debt-equity ratio. It is better to avoid stocks which are not sound fundamentally as these stocks have the highest probability of being affected by market volatility. The debt-equity ratio indicates how much debt a company is using to finance its assets as compared to the total equity. Lower debt-equity ratio implies that the business is financially sound.

Buy defensive stocks

Defensive stocks are likely to survive the market volatility more than stocks in any other sector. So, it is a good bet to invest in defensive stocks when the market looks expensive.

The bottom line is that investors should not panic when the market becomes volatile. Instead, they should look out for opportunities to make more profit out of it.

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