My strategy in this extended bull market
The Indian stock market has now been bullish for quite some time -- enough, I guess, for the current situation to be described as an extended bull market. Though there have been some hiccups on the way, stock prices have in general been on the rise for quite some time now. As a result, it is now tough to find fairly priced stocks -- at least, I am now unable to find any fairly priced stock. Now this is quite possibly because I am not looking well enough -- there may be some stock that hasn't yet caught the fancy of Mr. Market, though its fundamentals are good. But frankly, none of the stocks in my shortlist (which has over 500 stocks as of last count) qualify as fairly priced, as per my definition of fairly priced. And I have money with me to invest, money which keeps idly accumulating in my bank account as I look in vain for good stocks. What do I do in this situation? Here is what I have decided to do, and am doing :
- First and foremost, do not put my money in any stock that is not worth the money. Buy a stock only if it is fairly valued. It may be the case that I am not able to find a single stock to buy in the next five years, because the bull run is relentless. Then so be it. There is really no point in buying at an unjustifiable price. Also, as long as the market as a whole continues to be overpriced, don't put money in equity-based mutual funds. Find some other avenue to put my funds in, till I can find reasonably priced stocks to buy. Maybe invest in a flat which I can rent out at a reasonable (here is that word again!) rate.
- Keep looking for opportunities to buy. If I am patient enough, I am likely to find some stock occasionally that is beaten down for some transient reason or the other (nothing to do with its fundamentals), at least occasionally. Be alert so that I can grab these when they come along. Yahoo! India's portfolio trackers are a great tool here -- they help me in quickly assessing whether something has come into the "buyable" range, without spending too much time -- five minutes a day are more than enough.
- Be cautious that my definition of a "reasonable price" does not change, even if I have to wait an indefinite amount of time to find a reasonably priced stock. My objective is not just to do something in the stock market -- it is to identify and accumulate fairly priced stocks. So buying and selling, by themselves, are not the least rewarding to me.
- Give a hard look at each of my supposedly good companies (those that I own) once in a while, to see if they have performed according to my expectations. If they have not, make use of the bull market to dispose of them at a fair profit.
- Don't be tempted to sell off good stocks, even if they become overpriced, unless I find another opportunity -- not necessarily in stocks -- to invest the proceeds of the sale. Most of my value stocks give a fair amount of dividend income, that should be sufficient reason to hold on to them as long as there are no other investment opportunities.