nifty: 6 common mistakes to avoid in a rising stock market

The stock markets rose after four months of decline. On 18 August 2022, Nifty closed at 17,965 and Sensex at 60,326.

In the last month, the Nifty Midcap 100 has gained about 10 per cent and the Nifty Smallcap 100 has gained about 7 per cent.

FIIs have invested around Rs 16,860 crore (approximately US$ 2.1 billion) between August 1, 2022 and August 18, 2022.

Keep in mind that he had withdrawn Rs 2,89,970 crore (about US$36 billion) during this calendar year between January 2022 and July 2022.

According to our research, 42% of companies reporting their earnings so far in the first quarter of fiscal year 2013 outperformed expectations down the road.

Analysts expect a moderation in the consumer inflation index and a moderation in commodity prices to improve in the second half of the year, which could ease pressure on margins. Moderation in inflation will encourage retail investors to remain optimistic about the economic recovery.

This positive rally does not mean that one should forget everything and let the allure of high returns sabotage their plans which can put the brakes on their wealth creation efforts.

It is important to take control when the market is down. Doing so becomes even more important when the market is booming.

Avoid making these six common mistakes

FOMO. Investing in bulk due to

When the market is rising, investors experience the fear of missing out (FOMO). Such investors believe that this is the right time to earn some more fast. Wholesale investing is not the right way for anyone to follow. Instead, invest in a staggered manner, and diversify across asset classes so that it can help meet financial goals. If wealth creation is the goal then one should consider staying invested for the long term.

quality out of stock

In a rising market, the value of good quality stocks can seem high. Investors sell such shares and invest in stock trading at lower valuations as the market is moving up. Doing so could be a mistake and ultimately hinder wealth creation. Some of the biggest wealth makers in the Indian stock markets have always been highly valued by virtue of being MNCs or highly credible promoters or enjoying an increase in free cash flow year after year. So, if you have invested in fundamentally strong stocks, do not exit unless there is something inherently wrong with the business.

Herd. After

The herd mentality is a common investment bias that becomes more apparent as the market climbs. Instead of investing based on WhatsApp forwards or tips, consider financial goals and study stocks. Don’t be impulsive; Stop, research, understand if it meets the needs, and then make a decision. Consider consulting a financial advisor if needed.

Ignoring your risk appetite and financial goals

Investments are based on risk appetite and financial goals. Investors can ignore risks when the market is rising. Even risk-averse investors may believe in euphoria and disregard their risk profile. Investors should be aware of their risk taking capabilities and should not go overboard while investing. For example, one might be tempted to invest money saved up in their emergency fund or to achieve a specific financial goal. For cautious investors, the slightest sign of volatility can lead to sleepless nights. This can mean making mistakes in investment decisions and unbalanced asset allocation.

being influenced by popular people

Today there is no dearth of popular individuals who share their views on which stock should be bought or sold. They can give stock recommendations on social media and messaging platforms. Some of them may not even have the relevant certificates. Therefore, one should exercise caution while buying shares based on the recommendations provided by such persons.

A renowned fund manager can share his views on stocks or sectors which are bound to perform well in the rising market. However, they may have completely different investment objectives and risk appetite that will not align with retail investors.

focusing on the next big topic or trend

Experienced investors may be adept at changing their strategies and will be able to identify the next topic or trend that may enjoy a bull run. But retail investors would be advised to maintain a diversified profile unless they have a trusted investment advisor guiding them. For example, investors invested in IT and pharma stocks that rose as the markets improved after COVID-19. He believed that the phase of exponential growth would continue. However, when the bullish showed the way for a correction, they lost money. An investor should diversify and invest in companies with potential even when the market is high.

Remember, markets always perform in cycles. A period of volatility is followed by bullish highs that can be hit again by falling markets. To build wealth over the long term, an investor should ideally stay invested in stocks that are fundamentally strong throughout these business cycles. Opportunities can be discovered by doing thorough research in both bull and bear markets.

(The author is Chief Investment Officer (CIO), Research & Ranking)

(Disclaimer: Recommendations, suggestions, views and opinions given by experts are their own. They do not represent the views of The Economic Times)


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