Yes it is a bear Market: what to do?
The term Bear Market is not easy to define. A loose consensus is when the market falls 20%, it is officially called a bear market. Let us say the market has fallen from 21000 to 17000, then it is a bear market. However, just hold on, life is not so simple!
Too many pundits and journalists jump to declare ‘The market is now in a bear phase’. My left foot. None of us know whether the market is in a bear phase or in a bull phase. The day I finish saying the market is in a bear phase, it can go up 5% and make my prediction look stupid. Even if it was a bear market which pundit knows whether it will remain there or will it go up?
The whole market argument (or rather pundits argument) about bear market and bull market is completely futile and absolutely useless. Markets always have good shares to buy and bad shares to sell. Check your portfolio – see what is worth selling off even today because the management is not good or the products are not selling. Shares like Gillette, ITC, P&G and Colgate also loose sheen when the markets are doing badly. However these companies are NEVER available at a price earning multiple of 10 – if that is what a bear market is supposed to mean. Does it really matter that the index is at 18000, 17500 or 15500 – but the shares that YOU want to buy are still quoting at a price earning ratio of 28 – albeit lower than 31? If you were a buyer at 31, you can buy more at 28!
Strategy for bear markets:
Let us assume that we are in a bear market. Should you rejoice or feel sad? Well depends on whether you are in an investing mode or you are in a withdrawing mode! Most people I know (from age 23 to age 84!) are still in investing mode..so a bear market (or a market are depressed at the current stage) is a blessing. I have no clue which share is a good buy and which is a good sell ..but if you are in such a doubt pick up an ETF of the sensex or the nifty.
Pick a real low cost etf (if you are aggressive pick the Sensex etf and if you are not so aggressive pick a Nifty etf). If you are already an investor in a mutual fund, just pump in some money into the funds that you are already investing in.
A SIP is a good idea, but so is picking up some stocks which you understand…However I do not think markets are at mouthwatering levels for many shares, so please be careful…Remember roses are surrounded by thorns!
Sreekant
Please do not make behavioral finance so irrelevant 🙂
Raja
How about reading the 34 letters from Mr. Buffet on Berkshire’s site for a start and see if they make sense to our understanding of the world of business.
anon
for once, subrabhai, a point by point prescriptive post, “Do this”, “Do that”.
thank you.
vick
If you don’t mind, Sir, would you be willing to set the RSS settings such that the full post is published to the RSS blog readers? Right now, the blog readers like Google reader get only a snapshot and one has to come to the site to view the full article. Of course that might reduce the page view stats but one might be able to use the blog subscriber counters that are easily available to counter that. Thanks!
Sreedhar
Sir, in such uncertain times why not invest in company FDs? Like Shriram Transport is offering 13.6% for 5 years! 13.6 compounded annually is pretty impressive! Also, STC is a well trusted brand as well.
shastry
Sreedhar, when exactly are times “certain”?
mukesh singhal
Sir, I have a question related to sensex PE. The current sensex levels are being shown at PE of 18.5 or so by bse website and Economic Times. But some papers like Business Standard show this at much lower level of 14 or so. Where is the catch?
Dev
I think it is best to avoid focusing to much on markets and indexes.
The best strategy would be to buy stocks of business which you understand at prices which are historically cheap.
For example – RIL was a buy @ 1000. But the very people who bought it then were ready to sell it @ 750. Fundamentals of RIL are still strong as ever and any sane person who is ready to wait for a period of more than 5 years would be rewarded handsomely.
I have done my own analysis of RIL@750, which readers might find helpful –
http://essentialassociate.wordpress.com/2011/10/14/reliance-industries-a-good-long-term-buy/