As you may be aware, we have been conducting webinars for our members over the last few months. The response has been tremendous and we thank you. However, due to this overwhelming response, we have been unable to answer some of your queries, owing to time constraints.
Therefore, in order to answer as many questions as possible, we decided to write a blog-post after the webinars which would try to answer common questions that could not be covered in the webinar.
In this post, we answer queries from our webinar on ‘Current Market Scenario and Future Outlook’ that we conducted some days back. In case you missed attending the webinar, you can view the recording here.
Question: After our chasing at the discounted price if stock falls further, more than 10% should I buy more or I should exit the stock.
Answer: One of the best practices that you should always follow when investing in stocks is to maintain a stop-loss. Due to the inherent volatile nature of the stock market, a stock’s price can fall well below the discount price; this may be due to speculation over some news, event etc. So, in case you bought a stock at or below discount price, you should have a stop loss percentage determined and should exit the stock if it is hit. This way you ensure that your losses are minimised. You can then try to understand the reason for the fall in the stock price. If it is purely an over-reaction and your analysis about the company’s performance has not changed you can consider buying the stock at lower levels.
Question: Do we need to focus more on interest rate sensitive and high beta or conservative stocks and balance portfolio
Answer: It is very important to have a balanced portfolio and have a mix of both interest rate sensitive and conservative or defensive stocks. This will give you the benefits of diversification i.e. better risk adjusted returns. Having said this, you can change this balance based on the macroeconomic scenario. For e.g. If in the next few months, you see the interest rates coming down, this would be a positive sign for interest-rate sensitive sectors and stocks. In this case, you can increase your exposure to stocks from these sectors. Whereas, if the interest rates have started increasing, you could increase your exposure to defensive sectors like FMCG and Pharma. However, always ensure that you invest in fundamentally sound companies at the Right Price.
Question: Is inflation good for stock market?
Answer: Inflation is the rise in the general level of prices of goods and services in an economy over a period of time. A moderate level of inflation (around 4%-6%) is the preferred solution for a developing economy like ours. It signifies healthy demand in the economy and also avoids RBI intervention which affects consumer and investment spending.
Inflation higher than this leads to higher input and borrowing costs for companies. Borrowing costs increase because of RBI intervention which increases interest rates to bring down inflation. On the other hand, lower inflation can lead to increased unemployment and lower net inflows. You can read more about inflation and how it affects stock prices here.
Question: Government decides to change any policy at any point of time for any sector and sector stocks become half like recently is the case with gas sector? How do we overcome with this situation?
Answer: Change in Government policy is something you cannot completely insulate yourself from. It is one of the most critical factors governing stock prices; it especially affects sectors where Government regulation is more like Oil & Gas, Fertilizers, Sugar etc. Some of the things investors can do in order to overcome these situations are
a) Have a limited exposure to stocks belonging to sectors which are affected considerably due to Government policy and where history has shown that the policy is governed more by political considerations
b) Even if you invest in these stocks, make sure you incorporate the risk of change in Government policy in your Margin of Safety figure. Though such a risk can never be fully insured against, you can minimize your risk by adding it to the MOS. At MoneyWorks4me.com we do this to reflect this risk.
c) Maintain a tighter stop-loss for such companies where any news or announcement could lead to a sharp fall in the stock price.
Question: How can a new investor decide which company to choose for investing?
Answer: There are few things which you should always look for when you choose a company for investing. These are:
1) Strong financial track record
2) A competitive advantage to ensure growth in the future
3) A trustworthy management
Read more about this here.
Once you find a good company, you also need to buy it at the Right Price.
MoneyWorks4me helps you find such investment-worthy companies at the click of a mouse through 2 very useful features – MoneyWorks4me Filter and Decision Maker.
These were a few unanswered questions asked by our users during the webinar on ‘Current Market Scenario and Future Outlook’. We will be conducting such webinars regularly for our users. So, do join us for the future webinars!
To register for our next webinar on ‘Simple Rules, Outstanding Returns’ click here.