When is the right time to buy stocks?

Wed, 21 Aug Pre-Open

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Stock markets are under a bear grip. The BSE-Sensex has lost in excess of 1,000 points in the last three trading sessions itself. The Indian currency is making new lows every day. India's GDP growth has fallen to well under 6% now. Current account deficit is in a discomforting zone too. In short, the broader macro-economic picture is in complete disarray. And this is reflected in the performance of stock markets. However, the recent quantum (1,000 odd points in 3 days) and speed of the fall in markets is something that has been worrying investors the most. Most retail investors are witnessing losses in their portfolios.

While many might think of exiting at current levels fearing a further fall, instead there cannot be a more opportune time for buying than now. One should remember that every great investment opportunity is found in a crisis. This is because stocks trade at dirt cheap levels during such times. And this is precisely the case now. However, this does not mean that investors should go all out and buy equities now. The problem with bottom fishing is that one may encounter many value traps in the process. Thus, the key lies in overlooking the traps and focusing on value buys.

Also, it must be noted that for any investing style to prosper, time is the key. Hence, investors should invest in these markets with a long term horizon. Further, since it is very difficult to time the markets investors should opt for staggered buying in the form of systematic investment plans (SIP). Speculation in these markets can lead to a downfall. In fact, speculation can lead to a downfall in stagnant markets as well. Thus, investors should stick to long term investing philosophy despite the current market volatility and not get bogged down by near term underperformance.

Further, while investing in these uncertain times, safety of capital should be the top priority. Hence, asset allocation should remain the key focus for investors. In a nut shell, it appears that the current crisis presents an excellent opportunity to build a long term portfolio at bargain prices. While deteriorating fundamentals are equally responsible for the current fall in prices, poor market sentiments is another reason which cannot be ignored. And this presents excellent buying opportunity for the long term. However, investors should be careful while investing in such markets. They should not forget that only self discipline and patience can yield results in the long term.