Here are some generic tips for buying / investing in a falling or a bear market:
1. Take a deep breath: when it looks like the heavens are falling, and everybody is selling, having a calm mind is important.
2. Remember Mutual Funds have no choice of what to sell and when to sell. They sell to meet redemptions.
3. Large cap shares fall, but mid cap and small cap crash. Do remember that mid cap and small caps can also get decimated if they have single sources of income – see MCX and Financial Technologies. Whether to buy these shares at beaten down prices is not an easy decision to make. The risk and returns both could be very high.
4. Look at big Mid cap companies with a good track record of long years, but have gone down BECAUSE the market is down – not because the earnings are bad.
5. In the large cap space look at Tata Steel and Tata Power – both have very poor earnings – making buying risky. However Tata Motors is doing well in its JLR – and is down because the sentiment is poor. This makes Tata Motors LESS RISKY. However, the risk in Tata Motors and Hdfc is they have not fallen in a falling market – hence opening you to greater risk. Understand all this before you decide to buy any of these shares.
6. Commodity companies are good buys when the PE is HIGH and a good sell when the PE is low. This flies in the face -but remember commodities are cyclical and market moves in advance anticipation. So when a commodity price is at its peak, it is a great time to be SELLING the share, and REPLACE it when the commodity price is at its lowest.
7. For those who understand FnO buying puts is a good alternative – but if you do not understand how it works, and do not like leverage, you can do a Futures transaction – again you get some little leverage, if you want.
8. Sell covered calls: again if you do not understand, stay away.
9. Once you have identified some scrips for buying remember you have a right to be greedy. After identifying Liberty Phosphate, I am being greedy and hoping to buy it at about Rs. 70. We had spotted it at 240 and knew it would fall from a cliff when the open offer ended.
10. Once the scrip and the price is identified, put a buy order regularly without being in a hurry – remember the market is not going up in a hurry. Patience will be rewarded.
11. If it is a company with a long track record see its performance over the previous bear market. If it is Tata Steel remember Steel cycles can last 8-10 years so even if you buy after 4 bad years you maybe holding for the next 6 years and lose patience, so be careful.
12. You do not buy a share because the downward journey is over, but because the upward journey is starting.
more tips later on…:-)
Post Footer automatically generated by Add Post Footer Plugin for wordpress.