Future is definitely ours, but not ours to predict!
It is known that timing the market for higher returns is next to impossible and daydreaming of it is futile.
The volatile nature of the market itself brings us to a million-dollar question of how what and which stock to hold, or even holding stocks is sensible amid such even complicated and unpredicted scenarios.
Usually, it happens that the day you buy a stock, it might shoot up or it might turn out to be a loss-making investment, and that’s the reason a retained trader/investor needs to think about holding the stock for a long period.
Instead of timing the market if one invests in timing their investments, it pays back multi-fold, thanks to the compounding effect!
No doubt that your investment horizon is directly proportional to your investment strategy and approach and also the market sentiments.
The last bit is important because no matter the stock is driven with its fundamental parameters but it will still stick to the market sentiments and conditions.
Market sentiments tend to stop affecting stock if the stocks are invested for a longer horizon.
Therefore, if you are a person who thins can tackle the volatility (short-term fluctuations) in the market, you are good to go and invest!
But keep your emotional quotient in check!
Generally, if you see a chart of any Index (because it represents the market as a whole) stock in a larger time frame, there is less volatility and smoothly trending upwards.
Therefore, it is evident that becoming rich is a slow process and the key is to stay invested for a longer horizon which leads to wealth appreciation.
Speculating (Buying and selling stocks) would fetch nothing, in fact, it would drain your principal in the name of maintenance charges and the profits out of short-term are unmatched.
Warren Buffet once said: “If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.”
The timing of selling your stocks is as important as buying and holding.
Not selling your stocks at the right time would make one incur heavy losses or might be blinded by greed!
During my initial trading days, there was a time when I felt like “Ashwathama”, the mighty warrior in the Mahabharata who knew to the ‘Brahma Astra’ (weapon for the ultimate destruction of the world) but didn’t know how to take it back!
In the same way, I was sure about entering the trade but had no idea when and under what conditions should I exit the trade.
Now I’m sure this was not just me, there are fellow investors/retail traders facing a similar situation!
During pre-pandemic market conditions, booking profits with gains as much as 20-25% was considered a reward.
You might also think that of exiting your trade if the stock reaches its peak.
But how do we decide on that?
We need to analyse stocks with either fundamental parameters or technical indicators or both. (I use to analyse through both)
In spite of working on all the angles before buying the stock, it might happen that your opinion may change, note that this could be because of various reasons.
Note that most of the time, stock prices fluctuate in the short run; but in the long run, the market has given good returns.
For instance, if an investor purchased, say HDFC Nifty 50 ETF in 2014 for Rs 60, if they continued to hold till now, the returns will be more than 200% HDFC Nifty 50 ETF is now trading around the range of Rs.190-200.
Why long term investments are good
Compounding does all the trick here!
You will experience the compounding effect to its fullest only if you stay invested in value stocks for a longer period.
Buying a stock at lower levels and being able to find the risk-reward ratios favourable is a boon, thereby adding more during dips and averaging out whenever will definitely help reap better returns in the future.
Selling due to the green of multi-bagger stocks hurts your portfolio.
This temptation can be avoided by staying put and investing in quality stocks for a longer period.
Let’s understand this with a real-life scenario!
Let’s talk about Nifty.
During the early COVID-19 days, Indian markets and the Index levels were points of concern.
In March 2020, the market hit the circuit levels for the 2nd time and Nifty hit an all-time low.
However, deep down, every expert, every investor and every retail trader knew that was a turning point.
The wise knew there this was a golden opportunity from an investing perspective and once-in-a-lifetime pandemic struck us and changed some things forever, but the course of the market has been out in every way, to say the least.
The Nifty recently touched the 18,000 mark- that is almost a whopping 250%!
Can you believe it!
In just 1.5 years!
Those who held on to Nifty during the rollercoaster ride of 2020 and those who patiently fixed eyes on the performance made humongous profits.
Now, that we were concerned with the Indices and the top stock, you must be thinking of what if the stock is making losses?
Should you hold a loss-making stock?
Ideally, under such conditions, one should get rid of the loss-making stocks and start rebalancing their portfolio.
But wait, there is more to that!
Getting rid of loss-making stocks doesn’t translate into selling wildly panicking from small corrections.
The market has reacted to staggering highs with small corrections several times.
It’s just a rection, so it is temporary.
Keep in mind the following things while dealing with loss-making stocks in your portfolio:
- Understand your risk-bearing capacity of the stock and if the stock breaches it – sell the stock
- Keep track of your stop losses, resistance and support points
- Beware of holding stock tax-loss harvesting, it simply doesn’t work! This is because thinking of saving against taxes would incur a huge loss in the stock itself!
Now that we got our basics done, you are thing about ‘how long to hold a stock’!
My dear fellow investor, if you are not running short on funds, stay invested!
Stay invested until your goals are realized!
Stay invested until your plans are achieved!
This is the best way, some investors stay invested for years, some even forget about their investment and one fine day when this comes out it’s a gold mine surprise!
Note that investing strategies varies for each individual because each individual’s investing moto, risk profile, goals, plans and strategies are unique.
Do falling into a trap for following someone else’s investing plan, there is a higher chance that it may not work out for you!
Until Next time…