Invest cautiously despite all the talk about the 'mother of all bull runs'

Invest cautiously despite all the talk about the 'mother of all bull runs'

I haven't written a post in a while, distracted by work load which has reduced my investment update activities and I guess I was 'busy and went away'.  

So the question is, are you missing out on in the markets…

As you know, I always start with my view of how I believe the economy is performing. 

Here are some of the things I've observed-

Work and Mobility Increasing
- People continue to work more
- More Job Openings / Recruiters Calling
- People Accepting New Jobs
- More people moving to new homes/ in-state/ across state lines

Frugal Country
- Pay is increasing slowly upwards
- People are looking to continue to reduce their expenses
- Find affordable housing and living
- Everyone is looking for deals

Controlled Splurges
- More Stay cations (Stay at home vacations - theme parks, bed and breakfasts, etc)
- People waiting for great deals on vacations
- Tech Purchases: Phones/tablets, touch devices - People want exciting devices that make their lives easier and considered cool

Using my best this market is definitely not "Starting from the Bottom".

Do I have some grand plan...Yes and NO.

Here is my quick note

My Investment Plan

Don't do anything grand:

The stock market is often a leading indicator and has been doing VERY well for a year.  This market started at the bottom (hit bottom) in 2009 AND 2013 and now we are here at market highs. This means things have rebounded very well and astonishingly there hasn't been much of a pause.

What this means to portfolio:  I have kept it simple...Starting this quarter whenever bse Sensex enters into the 29500 territory I take the time to SELL some of my big winners at the top. At this point, I don't mind holding a bit of cash, buy something paying a dividend, and or wait until stocks I like drops.

Activate the Activist Investors: When I sell some winners, I'm buying stocks that may rise quickly because they are being bought by other companies or are being pushed to do something by big time investors.

Don't get swayed by bull-run talk: 

An investment decision should be based on investment horizon, goals and portfolio makeup and not purely on market movements. Though you must tweak your portfolio to take advantage of the possible bull run in the coming years, you should not go overboard.

"You should consider time horizon. If you are a long term investor, you must remain invested irrespective of the market conditions. You have to decide whether you want to play a Test, an ODI or a T20 match,"

If you have been investing for the last few years when equity markets were not doing well, you may already be sitting on good gains without doing much. That's the power of equity. Years of below par performance can be made good in just a few months.

Should you book profit if you have made decent gains?

"You can book profit partially if you need the money or for adjusting your asset allocation. But do not stop SIPs as we feel the equity market cycle is yet to pick up".

You must watch valuations of stocks they are holding. Besides, it is important to keep track of policies that may impact sectors the stocks belong to. If you are a new to Equity, it is certainly the time to have some exposure to equities, but do not go overboard. Invest in a staggered manner as equities will witness a lot of volatility in the next 12-18 months. Any fall will be an opportunity to enter the market.

Keep an eye on earnings: 

If you are investing directly, look at earnings of companies whose stocks you are holding. The financial results of companies will decide if they deserve the valuations at which they are trading. Even in a bull run, ultimately it is earnings that drive stocks. We have already seen few disappointing results with its last quarter results. Others have also posted mixed results.

Do these indicate a shift in outlook for the sector?

However, analysts see an improvement in earnings going forward. "Corporate profitability is expected to grow faster than nominal GDP with companies becoming more efficient in the last down cycle, operating leverage playing out and some pricing power coming back. The deleveraging of corporate balance sheets has also begun, supported by an improvement in market sentiment and cash flow," 

Avoid overexposure to mid- and small-caps: 

Typically, mid- and small-cap stocks or funds should not account for more than 20-30% of the portfolio. When equity markets are doing well, investors lap up these stocks in search of high returns. These move faster and in bull markets give much higher returns than the large caps. However, investors forget that sharp price changes both ways, and when markets tank, these crash much more than the large-caps.

Bull markets, ironically, can be a distraction. You should be consistent and have realistic expectations to maintain discipline so that you can take the maximum advantage of the bull run, if at all there is one in the near future.

Stick to asset allocation: 

Diversify portfolio with a judicious mix of equity, cash and debt. Stick to the ideal asset allocation. Review your portfolio once a quarter and adjust it to achieve the desired level of debt and equities.

The horizon of an equity investment should be at least three years. For short-term needs, keep money in liquid funds. For two-three years, invest in medium-term debt funds. A lot of discipline goes into creating a big long-term corpus. 

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