Bull markets can be exhilarating, presenting opportunities for your investments to grow. Nevertheless, it’s astonishing how frequently people fail to capitalize on them due to three prevalent blunders.
This article will delve into these missteps and offer guidance on how to bypass them for a more prosperous investment journey during bullish market phases.
Error in behavior 1: Succumbing to panic and selling at record highs When the stock market reaches an all-time peak, it’s natural to experience unease. The fear of a market downturn might prompt you to offload your investments with the intention of repurchasing at a later date. This inclination is often driven by the mantra “Buy Low, Sell High.”
Nonetheless, here’s why this approach may not be optimal:
All-time highs are an inherent part of long-term stock investing. They are essential for the stock market’s growth and return generation. For instance, if you anticipate an average annual growth of 12% in Indian stocks, the stock index must surpass numerous all-time highs to achieve that growth. Over the last 23 years, investing in Nifty 50 TRI during an all-time high has yielded an average one-year return of around 14%.
So, what should you do when the market hits a record high?
Solution: Adhere to your pre-established investment plan and adjust your portfolio if it deviates by more than 5% from your initial allocation.
Error in behavior 2: Delaying new investments Picture this: You have funds to invest, but the market has already risen. You might contemplate waiting for a market correction before deploying your capital. While this may sound straightforward, it’s more intricate than it appears.
The more you contemplate this strategy, the more apparent it becomes that it necessitates additional effort. For example, if you have ₹20 lakhs to invest, but as you wait, let’s assume the market surges by 10%, you might miss out on over ₹2 lakhs. However, when you project this over 20 years, it can accumulate significantly.
Solution: Establish a rule-based framework for deploying new funds. Consider a combination of lump-sum and staggered investments over 3-6 months, contingent on market conditions.
Error in behavior 3: Succumbing to the fear of missing out In a bull market, many investors attempt to time the market, awaiting corrections or signs of a market decline. However, more often than not, the market surprises them by climbing even higher. Even during market downturns, investors frequently delay their purchases, anticipating further declines.
When you miss out on potential gains, you may attempt to compensate by assuming greater risks. This can result in an overabundance of stock holdings, chasing recent top-performing assets, making speculative sector bets, and engaging in frequent trading.
Solution: During market upswings, resist the temptation to assume excessive risks. Stick to your original investment plan and remain vigilant for indications of a market bubble.
In conclusion, to adeptly navigate a bull market, steer clear of these typical investment blunders. Maintain discipline and adopt a long-term perspective, as this often proves to be the key to success during bullish market conditions.
