The Covid-19 pandemic has played a major spoilsport in our lives in many ways.
The associated risks have brought in sharp focus the need for insurance and saving, as well as our exposure in the stock market, aided by plenty of free time and the fear of attrition in jobs and services in some sectors of the economy.
As a result, the stock market, either directly or through the mutual fund route has seen millions of demat accounts being opened along with investments through systematic investment plans. The reason behind this is that the stock market is a proven way of wealth creation, which doesn’t involve much formalities and funds, to start with.
The success in the stock market depends on lot many factors, of which the smart buying and selling strategies form a crucial aspect.
SMART VALUE BUYING OF A STOCK
Watch And Wait Before Buying: Always remember that there is no dearth of opportunities in the stock market, and opportunity lost is not lost for ever, but calls for a wait and watch, rather than rushing in for shopping on the basis of news, rumours, expert tips, or recommendations.
Hence, one must judge, weigh out an option, and then go for shopping with conviction, based on the available information and facts.
Buy Stocks From Promising And Sunrise Sectors: There are cyclical, and there are evergreen sectors. So, as a beginner, it is preferable to buy from the evergreen sectors, such as Information Technology (IT), pharma, banking and financials, selected public sector undertakings, and the upcoming sector of renewable energy, such as ethanol, electric vehicles, and so on.
Keep in mind that it always pays to buy stocks in the field of your interest and experience.
Suitable Price: Set a realistic target price for buying a stock, based on your conviction and judgement by gauging the market trend.
Buy In SIP Mode: Buy in smaller lots at a time through SIP. Disciplined and long-term SIP often pays. Also keep your portfolio diversified and expanded to a manageable extent. Putting all your eggs in a basket may prove harmful.
Buy A Stock With Intrinsic Value: An intrinsic value stock is one which has sound fundamentals and seems promising, but is available at a discount, because of market conditions.
Averaging Price Of Holding: Sometimes, owing to an error of judgement or market volatility, one might have bought a stock at its peak price. However, if you believe in the potential and value of the stock, buy more in one or two lots on every dip. That said, avoid averaging for a fundamentally weak
stock. Do note that the lower the price of the holding becomes, the safer and secure the stock becomes in the long run.
Dividend Yield: Give due importance to high dividend yield stocks. Also, to build and expand your portfolio advantageously, try to plough back the dividend, partly or in full, to buy more shares, if you don’t need the money urgently.
Ignore Rumours And Unauthorised News: Don’t rush in to buy instantly on the basis of a rumour or a tip; rather wait for the price to settle down reasonably. That is the time to buy.
Also, understand whether it is a recommendation for trading or for positional buy. This is a common observation that mostly a stock price shoots up on a tip or a news during trading hour, but gradually, it often loses steam towards the end of the closing hour or the next day. Then, buying the targeted stock may prove favourable.
Smart Tips For Selling A Stock
Set A Realistic Price Target For Sale: Set a tentatively realistic price target of your stock, for sale, and sell it as soon as it meets your expectation, devoid of greed.
Since the markets are highly volatile, by undue wait in the hope of catching the peak price, you may actually end up missing the bus.
On the other hand, quite possibly, the price of the equity may decline mildly or sharply, after you have sold the stock. Don’t panic! Rather, watch its price movement for a few days, and depending upon your conviction and judgement on the value and promise of the stock, you may re-enter, especially during its consolidation phase. You could get doubly benefitted this way. One, you will pocket some profit, and second, you will still own the share at a lower price of holding.
Do Not Sell A Value Stock In Full: For a promising stock where you have developed conviction and are holding it for several months, and plan to sell it on getting an expected profitable price, do sell it, but only partially. Keep an eye on its price movement for a few days, and then plan either to sell more or buy more.
Don’t Wed A Stock: Don’t buy a stock and sleep over it, i.e., hold it and forget it. Sometimes, this may prove very damaging. Therefore, occasional review of holding, selling appropriately, and undertaking need-based churning is necessary. The sad fate of stocks like Yes Bank, DHFL, Reliance Power and many more, for example, which at one point of time were blue chips, is self-explanatory.
Keep in mind that occasional review of the portfolio and profit booking should be a must.
Risk Management: Try to keep the price of a long-term holding of a stock to the barest minimum, to be on the safer side. Nobody knows when a bull market will turn bearish and vice versa. Therefore, holding a stock at a reasonably low price, for a long term, will give you certain immunity towards market risks. Judicious averaging of price of a holding might prove helpful.
Keep Stop Loss: To safeguard value erosion of a stock during intense volatility, especially for short term-investment, keep stop loss, and exit as soon as the stop loss price is reached.
Avoid Panic Selling: As a rule of thumb, during turbulent times, follow a contrarian approach, i.e., buy when everybody is rushing to sell, and sell when most others are crazy to buy. This often proves beneficial. Nevertheless, avoid panic selling during such a situation.
The author is a former employee of the Government of India and has worked in the agriculture sector.
Disclaimer: Views expressed are the authors’ own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.