How to Invest in the Current Booming Stock Market?

Sensex Has Soared to 50K! What to do if You are an Investor?

The markets have made a stupendous come back from the pandemic scare!  It is commendable how the investing community & the business community as a whole have held up during this entire course of an uncertainty, which is of historic proportions. Says a lot about human resilience & grit! The recovery parameters are in place and we are looking at a fundamental speeding-up of productivity and therefore earnings, at all levels in the mid to long term.

The Question that Now one has to explore is — Where, When and How much to invest?

The historic peaks that the markets have reached naturally bring one question at the corner of our eyes — is another correction or panic impending?

There is a rather efficient solution to this question — Investing in stacks or stages. I would say that most of us investors, retail or otherwise, are regularly fascinated with the idea of “timing the market”! This is an adventure that most investors pursue with sad endings. But still its popularity persists! Let’s just say that you feel the time of the correction is within next couple of months and you hold on to your cash. The elusive timing match may never happen and markets may scale 75000! You must be thinking I am one of those euphoria freaks by now, but let me tell you the opposite side – You may be sure that markets will hit 75k by September 2021 and bet all your cash on it. And then, the markets “sell in May and Go Away”! You may be left stranded at 25K Sensex, letting go of all the lovely stock bets that you could have taken up! It’s like watching your true love getting married to someone else you don’t know or worse whom You know! (This is not my analogy some friend of mine expressed his agony in this way.)

Enough about the problems – what is the solution?

The time tested rather boring solution to this dilemma is splitting your investment plans into monthly or quarterly stacks. Let me share a sample with you. Considering the current scenario it is highly probable that the next panic, if at all that happens, may be due reasons such as a second wave of you know what or a bad loan pile up scare, or geopolitics  or some black swan event.  Just for assumptions sake we take this below model as this seems to be a plausible scenario. Let’s say I have Rs:100/- to invest in FY22. I divide my investments quarterly. See what happens:

Look closely at the above chart. What I do is simply, divide my 100 Rupees into four equal parts – 25, 25, 25, 25. Then, on first day of each quarter, I invest one part – 25 on 1st April 2021, 25 on 1st July 2021, 25 on 1st October 2021, & 25 on 1st January 2021. I presume a correction in the first quarter FY22 which results in Sensex halving(!!!) in value as on 1st July and then subsequent recovery to reach the current levels on 1st day of next Financial Year (FY23)! This probability looks ominous at some levels but is a scenario that may just happen given the panics that the emotionally “swingy” markets can have sometimes; just like it’s phases of euphoria. I just close my eyes to the emotional tantrums of the market and keep investing every quarter on the first day. The markets behave in their own way and I keep investing with “consistency”. [*Of course in a real scenario we ought to do a lot more in terms of timings taking into account the chart analytics. But my emphasis remains in the word “consistency”]

The first 25 gives nil returns, the second 25 gives 100% returns, the third 25 gives 37.88% returns and the fourth gives 31.25% returns. All in all, an annual value growth of 44% approx. Even if the corrections happen or do not happen, even if the timing of the correction matches with the above or does not match, it does not matter. With “CONSISTENCY” you can achieve above average returns of at least 20% to 25% with literally very minimal risks. Conversely, you CANNOT achieve this without consistency over long periods.

Investor Type 1: “ I am waiting for a crash, Will ONLY invest post that.”

Well, crash timings are difficult to predict. Even when you know the Buffett Indicator and the historical PE ratios for crashes the timing still is really elusive. I did predict the previous crash 6 to eight months in advance with a precision of about 30 days range with certain modern IP but still I cannot yet have certainty unless it works every time. The same IP is saying something about the next crash probability which my insiders know about but the methods that I am suggesting to them is not much different than what I am sharing here with you. Major corrections happen may be once in a decade while minor and semi-major ones happen in 3-5 years. But if instead of strategizing the investments you wait for a crash to happen your returns will not stand out in the long term. The corpus has to be managed in a responsive way – that’s my take on it. Invest in stages. If you see that without fundamental improvement the markets are still moving north then temper down preserving your profits, but always be responsive.

Investor Type 2: “I am not interested in all this Fear Mongering; I am 100% invested in the markets! Yo!”

Irrespective of there being a bubble or an undervaluation it is always money-cost–averaging (dollar-cost-averaging) that gives maximum returns. Loading in large chunks during booms may not be the wisest thing to do. Rather cover your probabilities. And it is simple, but may be less adrenalin stimulating!

Investor Type 3: “ I am a boring investor, if you listen to my plans you may think I am 99 years old. But this strategy works!”

This one is me by the way! Staggered or stage-wise investing will work well for you. Yes there should be clarity of how much cash-in-hand and how much investment. But that is a question of Analytics and Conviction. My insiders will get certain strategy which may be nuanced. But essentially this is a staggered strategy and evenly dividing your corpus into months or quarters is a good simulation of it.

Check out my Programmes. They are unmatched in their value proposition and will serve you well for Life Long Wealth creation. As always I do not believe in one time sales, I would rather have my clients’ blessings for a life time!