As I write this piece, Nifty is near all time high. Almost all sectoral indices too are hitting their highs.
All of this is causing investors to panic & think what do they have to do next?
Will the market fall now? Will it rise further before it falls? It has to fall right?
Mother of all mistaken conclusions: “We have to do something”
The dilemma is very clear:
1) We cannot say when or at what levels the correction will begin.
2) We cannot say when or at what levels the correction will end.
What we do know, is that, however deep or shallow the correction be, it will be temporary & when its over, the market will resume its upward journey.
Let us try a scenario: Today, the nifty is at 21000 levels. Assume you get out of the market right now. The market moves to 22000 & from there it corrects all the way to 20000. This is a 9% correction from ATH but only a meagre 5% from where you exited.
Now the catch here is, you only get this 5% extra if you are able to get back in exactly at the bottom.
If you don’t time this entry right, all the effort is completely wasted. Even if you do, the upside is in single digits.
On the contrary, what if the market continues its upward trend & reaches to 25000 & then corrects 10%?
You will end up chasing that low point (22500) which is still higher than your original point of exit (21000)
I remember a little saying by Peter Lynch: “You have to be right twice, And you won’t be”
First you have to get out near enough to the top & the correction has to be deep enough to make the effort worthwhile. And then you have to get back in right. But this wont be possible as by then, you will be waiting for further lows. “Its Human Nature”
So what is the right course of action?
A goal-focused, planning-driven investor must not try to do anything about this. A longterm investor would carefully refrain from changing the plan that was carefully created keeping in mind the goals & investment horizon.
Oh, and don’t worry about the business news channel analysts. They will keep on changing their story based on what they can attract more viewers with. They are unaware about your financial goals. They don’t care about it.
Are you looking to build a Goal-focused, planning-driven longterm portfolio?
Let’s get in touch over WhatsApp for further discussion.
Its a bull market and the most important thing in the bull market is a position. Once you let it go...its very difficult to come back in. (derived from Jesse Livermore)