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Thursday, June 10, 2010

Don't try to time bottom of Stock Market

It’s hard to know what the stock market is going to do in normal times, however it is almost impossible to predict market direction in the midst of chaos.

The Sensex sets record high after record high and some investors see a straight line upward into the future or the Sensex gives up 10 percent of its value in a week and the same investors see a death spiral to the poor house.

How is an investor to know what to expect when the market is moving decisively in one direction?

Stock Market Runs:

Bull markets can run for years and so can bears. Unfortunately, there is no absolute way of knowing when a bull will stop or pause or when a bear market will take charge and begin sucking value out of everything.

Investors in the 2008 – 2009 market know it can happen relatively quickly. The Sensex lost almost 60 percent of its value during this bear market following the subprime crisis and global recession.

Was there a day when the market turned? Was there a time when the switch flipped from bear to bull?

Stock Market Switches:

It doesn’t happen that precisely, but as investor confidence in the economy and the geo-political situation returned, the market sentiment switched to buying equities.

Sensex & Nifty experienced upper circuits when UPA wins, equity investors were surprised by such an upmove. Thanks to letting the hype out of the market, many formerly overpriced stocks now started looking reasonable. That’s one way a bull market starts.

Over the years, market callers have made a living off investors who believed these people had some system that would tell them when the market would turn from bull to bear or bear to bull.

The idea is that if you know in advance you can make profit by trading accordingly.

Most serious investors don’t waste their money on these services, rather they stay invested and adjust portfolios as needed.

Research shows you are better off remaining in the market than trying to time an entry and exit on when the market might turn. When the market does rebound, most gains come quickly. Investors who miss this entry, miss most of the upturn profits.

The lesson is it’s better to stay in the market than trying to time when it will turn.