Markets: What to do?
by Equitymaster.com
The markets continue their northbound journey, resulting in the indices breaching their earlier highs. Like every time, even at these levels, the same questions daunts investors. What should I do at the current levels? Where should I park my funds?
In our view, at the current juncture, investors have three choices:
Invest in tips that he has heard from someone and make a quick 5% or so gain in 2 to 3 days.
Invest in fundamentally strong stocks, which will yield meaningful returns over the next two to three years.
Stay in cash (Cash is king).
If one takes the pain to go back in history, making money on a consistent basis requires patience and the longer the time horizon, the better the results i.e. higher the yields. Unlike a short-term trader, the risk involved in long-term investing is relatively lower i.e. monitoring day-to-day movement of prices is not a necessity. However, some may opt for a short-term investment strategy at the current market levels, hoping to ride on the wave. But in our view, this exercise can be futile. We also suggest investors to increase the cash component in their investment portfolio, given the sharp rise in prices.
This is because stock markets can go down as fast as it rose in the first place (if not faster). Even a small hint of fear taking over can end up in a contagion, hurting the sentiment of those for who believe that there's no stopping markets from going up, up, and higher!
To conclude, we would like to advise investors that there is no foolproof method to make money in the markets, but the risk return ratio is favourable for the investor in the long run. Disciplined investment approach is the ultimate key to success in investing. After all, you don't want to get caught on the wrong foot. Do you?
