Friday, 23 August 2013

Bear Market - Right Time to Invest in Stocks is NOW!!

Any novice to stock investments will tell you that the basic rule of getting good returns from stocks is to buy low and sell high. Easy?? Well, when it comes to actually implementing this rule, we make the inevitable blunder of staying away from the markets when they are actually low and then trying to enter into the market when the rally has already started and underway. We present this post as a reminder to all that the basic rule (Buy Low, Sell High) is indeed very easy to follow and what we need is a change in our approach to stocks and equity investments.

The Markets are Down!! What to do?

Its true that the markets and the whole economy are facing some very tough times. . Since, the whole economy is going through a difficult phase, even the best of the companies are facing the heat, the investors are unwilling to pay a high price for the same stocks and hence the market price is tumbling down. But, it is not that this will lead to good companies vanishing or something like that. Good companies have proven to be good overtime because of the very reason that they were able to withstand many similar downfalls earlier and then came out with flying colours when the good times returned to the economy.

So, a bear market is actually the time to buy into and accumulate the stocks of your favourite companies. Our post on Timing the Stock Markets also explains the importance of investing when the time is right. Since, you will be buying into the stocks when the prices and valuations are really low, when there is a turnaround, you will have a windfall of returns.

Where is the Lowest Low of Bear Market?

It is not uncommon to keep waiting for the market to bottom-out and the turnaround to start. We feel that by doing so we will buy at really low levels. More often than not, by the time we realise that the turnaround has happened, the stocks have started soaring again.

It is futile to wait for the lowest point because it is just that, “a point”!! And it will only be a matter of luck to enter the market at that level. The solution is to accumulate stocks of your chosen companies at regular intervals during the whole phase of the downfall so that overtime the average buying price will settle somewhere in the lower range. The best way is to start an SIP to invest in the selected stocks during the bear market phase.

Which Companies to Choose?

If you are new to investing in stocks, it is advisable to form a group with like-minded people and start hunting for good stocks. You may take the help of a financial adviser or somebody conversant with stocks and stock markets for professional advice.

We have put up a lot of material in RupyaGyan which will help in choosing good stocks to invest. You can read through our posts on Balance Sheets, which may be a starting point to study and spot good companies. Our post on Performance Indicators too give some pointers which help in comparing companies. Some more posts which will give more insights into valuation of companies a better understanding of comparing various companies in the same sector or industry are :

Browse through our section on Stocks to look at some companies we have listed based on the concepts aforementioned.
So, happy reading and happy investing.