Yes, that’s the talk of the town. Stock markets and the individual stocks which constitute the markets are all hitting the highest highs.
The popular view is that Nifty is going to hit 20,000 mark soon.
Given the scenario, some investors are deeply worried (the bears), some are cautious (the investors) and the rest feel that the biggest bull market of all time has just started (who else but the bulls).
Are the markets running up too fast? Are they overheated already?
Difficult to comment.
A simple heuristic that can be used if markets are overheated is – when a whole new set of investors star to jump in. It is when your paan walla, your maid, your driver, even your friend wants to know the *tip* about the next best stock.
Another thing to look at is the mutual fund managers and their activities. Some of the mutual funds don’t get too excited with markets running too high. They hold cash in the absence of the right opportunities available at the right price. A large increase in the cash reserves of a fund may point to the fact that very few opportunities to invest may be available in the market.
However, none of them is a fool proof method. As mentioned, they are just heuristics.
We also use our own market sensor via the asset allocation indicator.
In any case, at any point as companies grow, their stock prices grow, as a result the markets grow and hit a high. Touching a high is a natural event and leads to the growth once expects from such investments.
Nifty reaching 20000 has to happen at some point.
Read more: Nifty 50 - The next 10000
So, what should you, the investor, do or not do now?
Well, several things.
Here are 9 for your quick reference:
#1 Don't let FOMO take over your mind
FOMO stands for fear of missing out. It is that little nagging, uncomfortable feeling that if you don't do something now, you will never get another chance. FOMO is used very smartly by a lot of marketers to get you to buy stuff which you might otherwise not need or may not need now. Beware of FOMO. You missed investing a few months ago and now FOMO will get you to invest in top performing funds in the hope that you can make it big too. Or, you may invest in that highest return small cap mutual fund, which is past its best performance. Beware!
#2 Look critically at your asset allocation
If your asset allocation is structured to hold 60% equity then don't push it to 80%. If you never had equities in your portfolio, may be you can start to add now and gradually take it up to the level permitted for your risk tolerance and your time horizon. Don't jump in at once. Similarly, if your asset allocation has gone way beyond 60% already (or any other number that you have decided), it is time to rebalance. Sell a part of your equity investments and shift to other assets, thus maintaining your asset allocation.
#3 Don't invest if you don't need to invest
Equity is not the answer to every investment need. If you can fulfil your goals without taking the roller coaster ride of equity investing, then so be it. This can be true for High Net worth Individuals (HNIs) or those in their retirement phase.
#4 Capital preservation over growth
If you have a goal coming up in the next 3 years and the amount you need is already accumulated, courtesy the rising markets, then simply take the money out and invest it in the safest investment. For short term goals, capital preservation has a higher priority than capital growth.
#5 Don't fall for 'past returns' only
If you are investing in mutual funds, don't decide only on the basis of past returns. It is no guarantee of future returns. "A rising tide lifts all boats" is a famous saying. When markets run high, everything starts to appear gold. That's not the case. Do your independent assessment and figure out the funds that deserve your money.
If you can't do that, work with an advisor.
#6 Ask why did you invest
This is a good time to revisit all your investments and ask why did you invest in them? Was it just the lure of past returns or a recommendation from a friend? Either is not a good reason. If you cannot find a compelling reason as to why a particular investment deserves your money, it is time to reconsider.
#7 Get rid of the junk
If you don't have a solid reason for an investment in your portfolio - it's time to get rid of it.
If you had an original thesis about including an investment but it has not worked out, this it the time to get rid of it.
If you don't understand the risk of your investment, get rid of it. You should take risks that you can measure and not measure risks you take.
And don't be afraid to book losses if you have to. Losses can be set off against gains and also carried forward to future years for set off with gains then.
#8 Do some media fasting
This a season of fasting. Consider doing some. No, not fasting on food. But fasting on your media consumption. Take a break. Stop watching all the business news channels, pink newspapers or reading intra day tips and newsletters. Let your spiritual side take over and prepare yourself for the rest of the year.
#9 Build / Review your financial plan
The new financial year started about a little over 100 days ago. Check your budget and reassess your cash flows. Take stock of your investments. Make a list of key things (a checklist) that you need to accomplish in this year. If you haven't done a financial plan, do it now. It will give direction to how your money and savings are used in achievement of your goals. Finally, spend time learning.
You see stock markets high or low will come and go. The knowledge will help you ride it, not just now but for the next 30, 40 or 50 years.
Get ready to roll!
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