Crisis or Opportunity: Navigating Stock Market Peaks and Plummets

Markets hit a peak and the most common question floating around amongst investors- should I sell, hold or buy?

In the unpredictable realm of financial markets, investors often find themselves at a crossroads, faced with this pivotal question: Sell, Hold, or Buy? This dilemma also comes around when the markets take a nosedive.

As the Nifty touched a new high of 21500 on December 19 2023, propelled by a confluence of economic growth, corporate success stories, and global monetary cues, investors are left pondering their next move. In this article, we aim to share some key points that may help people seeking direction on what to do. We present some logic but also aim to cover the emotional aspects that finally influence the decisions most investors make. Welcome to the world where crisis meets opportunity, and the choices you make can shape your financial destiny

Understanding the Current Market Landscape:
On December 19 2023 the Nifty hit a new high, a straight rally from the steep correction it saw in late October 2023 when it retraced back from the historic 20,000 level.

This was a target which many expected to be hit, probably in 2024, however, a few factors accelerated the rally over the past couple of months;

• Better than expected results from corporate India
• Surprising GDP growth numbers
• News from the US FED about more than expected number of interest rate cuts in 2024
• BJP’s big win in the state elections signaling better political stability
• Record inflows from FPI’s ( Foreign Portfolio Investors) who have pumped in Rupees 57,313 crore in
• Indian equities in December 2023, which is the highest monthly investment in 3 years.

Investors are clearly buoyed by a prevailing sense of optimism which is evident by the way mid and small caps hit new highs, record subscriptions to IPOs and almost all IPOs having a bumper listing at times defying valuations.

Investor Sentiment Amid Optimism:
Despite the prevailing optimism, investors find themselves at a crossroads, grappling with nuanced questions arising from the current market exuberance.
The most common question being posed now is if an investor should continue to buy, hold or take some profits now. Many new investors are confused that they should enter the markets now or wait for a fall.

The answer to this is not a simple and straight one and is surely based on each individual. Let’s break this down into possible scenarios and the reader can decide where they stand.

Short-term vs. Long-term Investments:
An important question to pose to yourself – Do you invest for the short term or long term?

Short Term: If it’s a short-term investment, which means you entered with a trading mindset and not an investment mindset then time to check if the returns you expected are met.

If the returns you expected are met with, then does not matter where the stock or the market goes from here, take gains and be done with it. Greed is something that makes us wait for more, which is never advisable.

If the returns are NOT met, then ideally a stop loss( a price below the current price below which you will sell) should be kept in order to protect your gains and not lose what gains you have made.

Long Term: If it’s a long-term investment, what was the goal you had in mind when you invested? Maybe it’s a time frame or maybe it’s again a % gain. If the % gain has been met, then the best thing to do is take your initial investment out and let the profit remain there.

For example- a stock X purchased at 100 Rupees has become Rupees 200 and you feel that is what you expected to get out of it, then take out 100 Rupees worth and let the rest remain there for longer.

However, if the business prospects do not look bright and promising for the company, then surely exiting completely is probably the best approach.

Logic vs. Emotion:
The problem usually happens with us investors is that we rarely apply logic and we usually end up succumbing to the emotions that control us.

The main reason a lot of people succumb to emotions is because they watch the prices every day and consume too much news including recommendations via social media. In the longer run, the day-to-day or even week-to-week movements are immaterial.

A simple question to pose to yourself is this- Does the BUSINESS that I have bought, is this having a great future and will continue to grow? Does the prospect of the company look nice based on what they are doing?

None of the company owners who we invest in are really interested in the market movements, they are busy building and developing to grow the business they operate in and are looking more at the economic factors that would help them move ahead.

When those who are getting our money do not spend time looking at the markets, a pertinent question to ask ourselves is, should we be doing that as often as we do?
The more we expose ourselves to situations that would impact our emotions, the chances of us making a mistake increase.

Market Monitoring and Timing:
Why does it become important to keep looking at prices every day when Constantly seeking the right time to buy or sell based on market movements seldom leads to successful outcomes?

Even when the Nifty hits a 52-week low, many stocks hit a 52-week high and vice versa!

That said, of course, we cannot be blind to all developments, but thinking constantly about making buying or selling decisions at the RIGHT time has never helped anyone achieve much.

Many investors also ask this in order to be able to sell at a high and then again buy back at lows. Well to be able to do that successfully one has to be right – TWICE. Once when you sell, the second time when you buy. This is something even the most expert traders are not able to do consistently so no use trying.

Having had personal experience trying to do this, I can tell you that it’s really not worth it.

Should I buy it now?
If it’s a SIP that someone is doing( systematic investment) it’s never a good idea to stop that.
If the question is about making a bulk purchase then doing adequate research into a stock is needed and never a good idea to buy based on a TIP, which will float aplenty when the markets peak. Buying blindly based on a recommendation is surely a major risk and can land someone in trouble because having no clue of what is the rationale for investing in a stock is a recipe for disaster.

Currently, the overall markets need some cooling off, results have to catch up with expectations. When we look at the P/E of the Nifty, it’s NOT at a crazy value but then Indian markets overall are expensive vs the other emerging markets and to justify that, businesses have to deliver.

There may be pockets of value, but to identify that needs expertise and for the vast majority the simplest way is to continue SIP and not worry about the index being at an all-time high.

The smart investors, who can pick a gem out of the pack, are more assured of what they do anyways and can take calls with more conviction, but they are far few.

Conclusion: In the intricate dance of stock market highs and lows, the answer to “Sell, Hold, or Buy” is not universal. Investors are urged to transcend emotional impulses, embrace logic, and adhere to strategies aligned with individual goals. Decisions rooted in a well-considered, long-term perspective often withstand the test of time.