In the words of the great investment guru Benjamin Graham, investing is more about emotional discipline and less about intelligence. Good investing is all about identifying the good stocks by knowing and locating their strong fundamentals. A good stock will be good in a bull and a bear market as its fundamentals are strong. When a company’s fundamentals are not strong, it points to the company losing money and not doing well overall.
However, the reasons for the entire stock market to go up or down can be many and are usually not related to the performance of a company. People usually start selling their stocks when the prices fall in order to cut their losses and buy when it starts gaining value in order to make a profit. However, a good investor will always focus on the fundamentals and buy a stock considering that. This is why restructuring your portfolio matters during times of great market swings.
Your financial advisor may have set a certain target for acquiring certain stocks at certain prices, but please note that you must make decisions on the strength of the performance of the company and its underlying principles. Thus, the right price to buy may change every year, quarter, month or even on any given day due to a certain event.
The fundamentals of a company depend a lot on many internal factors such as technology, management, human resources, products, etc., but they also depend largely on external factors like climate conditions, availability of raw materials, political conditions, war etc. These external factors can change at any time and at any moment and these will impact the fundamentals of a company very very easily.
Every time the market fluctuates, you need to take note of which stock has become too expensive or too cheap. Assess accordingly and you may pick up stocks at a cheaper rate and see their value zoom up. Ideally, bull and bear runs are all about emotions and enthusiasm of investors. When they feel that the market is sliding, they start exiting in the hope of making quick money and that is when an intelligent investor must enter and pick up these cheap stocks.
By having fluidity in your portfolio and buying stocks when the markets are down, you are ensuring the best return on investment on your money. This is a good strategy that is possible only when you are in touch with the equity markets on a daily basis. You need to study the markets, industries and companies on a daily basis in order to understand the nitty gritty and the fundamentals.
BSE Institute Ltd (BIL) offers a short term course on managing portfolios and day trading for businesses, company executives, housewives and students.
Other important aspects to keep in mind is the general health of the economy, global scenarios, international trade, climatic conditions, other investment options that may give better returns, etc. As a thumb rule, one should have a few indicators that they track on a daily basis in order to be sure of the returns that they will get. Despite doing all this, investors still go wrong and you may make losses. However, your focus should always be on developing a system that gives you a sustinable and a respectable rate of return.