why buy and hold does not make sense now!

Well we all have heard of the old adage of stock market, "buy and hold" and you would end up making lots of money, but does it really work? and does it work in all sorts of market conditions?

I think the answer to that is perhaps no. . .

Why? Here is a small analysis of why. . .If one had invested ones money in a software co in 2000 then it would perhaps take another 10 years just to get the return back. Nasdaq is still half of where it was in 2000! If one had invested in the year 2008, then one and half year later perhaps the value would be just half. . .now if someone even had invested at the time when the markets were at the way down, at 19000, 18000, 17000, 16000, 15000 even then one would still be having negative returns. Then also it is not that the stock that one had invested would have come back to the same levels. Some companies have performed very badly, the market conditions are very different. E.g. financial sector that was hot fav until a year back is not in favour anymore. Brokerages that were commanding 25+ multiples are not being owned even in single multiples anymore, and not to mention if one had invested in companies that have gone bust, then it is a completely different story. . .

So whats the learning. . . .The story is that the financial world has changed. . .with real time information the response times have changed. Now a news can impact a stock price in seconds. Now it does not take years for markets to fall, it happens in one month (what we saw in October) similarly when markets have to go up they can be on circuit and that's enough to increase the wealth of the shareholders in a day. . .

Hence it becomes important to set goals, keep strict stop losses, and if a trade becomes profitable then sustaining it till the time it starts to retrace ( I think a 20% kind of trailing stop loss should be kept). The age old adage of buy and hold is not completely baseless however it is important to review ones investments, cause things can change and as we have seen things change very very fast!!!

Time to Relook into your portfolio !

Well i have come across lots of my friends who have liquidated their portfolios so that they can be in cash, cause this crash has shaken the confidence of everyone from equity markets. . .Well I am also in the same camp who have sold off their equity well but my reason is little different. I am not in the camp that believes the markets would go down, but I am in the camp of those who feel that risk reward is perhaps not so favourable anymore. . . and well its nice to take some profits off once in a while :)

I am just taking some time to rejig my portfolio, wait for the opportune time to enter and then try to make some smart returns . . .

Coming back to the NIFTY, the signs are still positive, the MACD is still positive indicating that Nifty is trading with a positive bias. . .the range for Nifty has moved up to 4100 - 4500. Hence Nifty is doing alright. . .but really cant say whether Nifty will move ahead of its fair valuation or retrace back some of its gains, however as they say you dont lose your shirt by taking some profits of the table !!!