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Tuesday, March 6, 2018

Don't play it like the punters on street, you may lose money

When the stock market hits an all-time high, volatility, too, sees an unprecedented rise. Volatile sessions, with market swings both ways in intra-day trade, are now a routine.

India VIX, a gauge of market volatility often used by investors and traders to base their investment and trading strategy, has risen almost 40% in a year. The index shows magnitude of market fluctuation expected in the near term. It touched a 12-month high of 36 and a low of 12 - a three-time movement - in less than a year. And it is not a secret that individual investors abhor huge daily swings in market.

"These wild swings have become the norm since 2008. And it must be bothering some investors who base their 'buy or sell' decisions on the basis of market levels," says Suresh Sadagopan, principal planner, Ladder7 Financial Advisories, a wealth management firm.

"But regular investors are dismayed more by paltry returns they got in the last five years than daily volatility. Many are disappointed with the 3-4% annualised returns in the last five years," he adds.

Experts point out that most people erroneously place 'buy or sell' decisions on prevailing market conditions. Many believe it's a good time to book profits when the market is at an all-time high. Similarly, they wouldn't get into the market (despite experts highlighting the attractive valuations) now, because it is at a historical peak.

That is what makes experts like Sadagopan say that you should have a valid reason for your 'buy or sell' decisions rather than just the Sensex level or market volatility. "If you ask me whether there is a compelling reason to buy stocks now, the answer is no. But is there a reason to buy shares on a continuous basis, the answer is yes," says Sadgaopan.

Many investment consultants ask individual investors to stop tracking market benchmark on a daily basis. "When you track market every day, and trade short-term or play intra-day, good stocks get out of your hands. Retail investors are sure to lose money if they play the punters way. They must invest long term and not try to time the market," says Rajeev Thakkar, chief investment officer and director, PPFAS Mutual Fund.

"Retail investors must avoid taking daily stock tips from 'experts' as making money so fast is too good an idea to be true. It's because of people like punters that brokers make money and the market becomes volatile and hence, interesting," says Rajeev Thakkar. The strategy of investing today and exiting tomorrow only enriches brokers, feel experts. Rather, the buyand-hold strategy may reap dividends in the long run for investors.

Many wealth managers say investors shouldn't obsess themselves with daily movements as one can't do much about it. That is why they suggest regular monthly investment in equity. "We really don't know whether the market is going to stabilise any time soon. Or whether it will scale new high or low, for that matter.
All we know is that if you invest regularly through SIP, you will be able to accumulate more number of units at a lower cost. This will enhance your returns," says Suresh Sadagopan. Many experts say this is the only time-tested strategy available to individual investors to tame volatility over a longer period of time.

For selling investments or booking profits, financial planners say it is okay only if you have a compelling reason to do it. For example, if you need some money for travelling or paying insurance premium, you can book profits.

"Volatility is absolutely very high in the stock market. When to book profit depends on one's risk appetite. Investing in stocks is all about surplus money - money that you would not need, say in the next five years or may be, never. When the economy is growing by around 5%, deposits are giving returns of 10%, it's unrealistic to expect 100% returns in the stock market," says Gul Tekchandani, investment consultant.

"Whether to book profit early and exit depends on one's investment target: If one wants to hold, say for one's child, one ought to invest in predictable businesses and hold it for 20 years or so. But if some stock, bought on some 'tip' or hunch, is giving decent returns in, say, a month, one has to be stupid to not pull out," adds Gul Tekchandani.

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