The Index has reached 60,000 (Sensex). Is it a good time to sell some shares and sit on the sidelines? Should I stop my SIP and start after some time? Should I reduce my SIP in large-cap funds and invest in Mid-cap funds?
I have been asked these questions at 25,000, at 35,000, and of course at 50,000 and now at 60,000. The truth is, I have no idea. This looks like a simple question, but it has the following questions hidden in it: Will the market fall from here? If it falls, for how long will it be down? When should I start buying again? When should I start doing the SIP again? Will Mid-cap perform better than Large-cap? Till what level will it fall? Should I start buying in 2/3 months or wait longer?
Honestly, let us say I tell the reader “I do think the market is too high, you should sell your Large-cap shares (Sensex represents the large-cap shares, right?) and wait” - and the reader does that. Then let us assume that the market goes to 62,000 in a week - and then falls to 55,000, do you think the reader will be happy?
No. He may have panicked and bought again at 61,000 and felt good at 62,000. Or he might be cursing me for the WRONG advice - or wrong reading of the market. Later on he is likely to tell me “You could have asked me to sell at 62,000 instead of 60,000”.
People anchor around round numbers like 50,000 or 60,000 - maybe because it is easy. Actually, this is just a number and has absolutely no significance in the life of an index. Most of us know that saying “now the market will do this or that” makes no sense - however, it does attract a lot of readers who think that there is a simple answer. In the long run for a person to make money, there is no great need to be able to predict how the market will move in the next month or next quarter.
If they are optimistic about the prospects of the world or any one country in particular, they should just invest in the index of that country. Still in doubt about which country will do well? Then the best fund to invest in is a World Index. It is as simple as that. There are enough people who will tell you that people have lost money waiting for the market to change - and the opportunity lost while waiting is really huge.
If you are really a long-term investor, please do not wait for the ‘Market to correct’ - it is difficult. Just start a SIP and keep investing Regularly. If you see the markets coming down, just put a lumpsum Into the same fund from time to time. This will ensure that you accumulate a decent time over the next few decades - and you will have enough money to meet your goals.
PV subramanyam writes at www.subramoney.com and has authored the best seller ‘Retire Rich - Invest C 40 a day’