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Tuesday, May 19, 2009

What Should Small Investor Like You & Me Do Now?

Did you see the stock market rally on Monday in BSE and NSE? No one can say No! Everyone has seen it and everyone is wishing if he should have buy stocks before this rally. Albeit it could have been a gamble buying stocks before declaration of election results, it paid off for those who bought. Now that's history. Stock markets are going to be volatile for next few days. Today, i.e. on Tuesday, markets opened in red, went till 3oo points down, then recovered and went up to 500 points up and finally settled for flat closing. So what should a small investor do now? Should he buy stocks or should be selling stocks that he holds?

Buy?
My answer: A big NO!

Why?
If you look at the SENSEX, it has gone of the roof by 50% in last two months alone. This has been primarily based upon projections of company results expected in next quarters but companies have not performed yet. Companies have not shown the profits in their balance sheets yet. And the biggest of SENSEX rise has been on the account of UPA government's win and stability of next government. It has nothing to do with company balance sheets.

So do not get overwhelmed by this rally and start buying stocks in big quantities. Markets might get corrected up to 20% soon. This correction could happen in next 3 to 6 months timeframe. Stock markets might correct even in tunes of 25%. If at all you want to buy stocks, buy with long term investment horizon.

Sell?
My answer:
Again a big NO!

Why?
Unless you need the money for heart surgery in family/marriage of son/daughter or to pay fees of your child, do not sell stocks you have right now!

You should not sell stocks in such a rally unless you really need money badly. Why should you sell stocks and take money out from market when you have a chance to make profits and earn money. Do not forget, equity investments are for long term investment.

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