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Should You Invest in Stocks When The Market is High?

Should You Invest in Stocks When The Market is High?

Should you invest in stocks when the market is high?

The Indian stock market hit the record high yesterday (15 Jan’18) when NSE Index nifty touched 10741.55 points for the first time in the Indian history.

People who have already invested in the market are enjoying the fun ride. But what about those who haven’t entered the market or are planning to invest?

With stock market indexes at the all-time high, it’s certain that those who are new to stocks or just started to put money are confused what to do next? Here are the two common questions that might be running in their head:

  • Should I wait for a market crash or correction?
  • Or Should I enter the market? I have already missed out the last few months and what if there is no market crash and the bull market continues? I don’t want to miss this opportunity.

Overall, the main question is whether this is the right time to invest in stocks or should you wait for some correction.

Should you invest in stocks when the market is high?

If you think rationally, then it makes more sense to not invest in the market if it is going to crash tomorrow. Why invest in stocks if its price to going to come down tomorrow and then you can buy the stocks cheap. Putting your money in the market at the wrong time is one of the biggest concern for most of the investors.

But how much certain are you that the market is going to crash tomorrow or in near future? 

If you know the fixed date or even the fixed month, please share it with me. I’ll sell my entire portfolio, hold my money and buy the stocks only after the crash.

Here’s a quote from the star fund manager, PETER LYNCH. He is known to deliver 29.2% annual returns for 13 consecutive years while he was managing the magellan fund at Fidelity Investments.

peter lynch quotes on market analysis

The quote is from Peter Lynch’s best selling book ‘ONE UP ON WALL STREET‘, which I’ll highly recommend you to read.

In the book, Peter Lynch argues that those who spend more time analyzing the economy and predicting the market crash, are simply wasting their time. They can get more benefits from the market if they spend the same time researching the stocks.

Honestly speaking, no one ever knows when will be the next big market crash. Even the greatest market experts and economists had failed to do so. Otherwise, whey would have been the richest person in the world, not Warren Buffett, the Oracle of Omaha.

Now, once you are certain that you cannot predict the future and hence, do not know if there will be a market crash tomorrow, let’s take a different approach and rule out the decision of not investing in stocks.

Should You Invest in Stocks When The Market is High?

Let’s recap what we discussed till now. First, you do not know that when will be the next big market crash. And second, you know that market is capable of giving good returns on your investment.

Currently, the bulls are in control of the Indian share market and however, the bull run may or may not continue in the future. The bull market may end next month or might long for the next few years.

With all these uncertainties, the best approach that you can take is to invest intelligently in the market.

Do not look at just the market indexes. Even in the bull market, there are a number of companies which are at 52-week high and 52-week low.

It’s easier if you just look at the stock and ignore the market (for some time). If you find a good stock which is currently trading at a reasonable price and you believe that the company is capable of huge future growth and giving high returns to the investors, then invest in the company. There are over 5,500 listed company and not all of them can be over-priced at once.

The index nifty and Sensex comprises of the  50 and 30 large companies from NSE & BSE. Hence, they are totally capable of ignoring the performance (and valuation) of many of the large/mid/small companies listed on the market. A sample of 50 companies cannot give the exact outlook of all the 5,500 listed companies.

Also read: What is Nifty and Sensex? Stock Market Basics for Beginners

Find some good companies and invest in them, regardless being the market high or low. Even during the bear market of 2015-16, there were many stocks which gave multiple times returns.

There is a common saying in the western world about the stock market investment:

“TIME IN THE MARKET IS MORE IMPORTANT THAN TIMING THE MARKET.”

This means that remaining invested in the share market for the longest time is better than to wait for the perfect time and enter late.

Do not wait too long to get started. You need to remain invested longer in the Indian stock market if you want to create wealth. The Indian stock market is at record high from the last feb’2016. And if you haven’t invested since then thinking that the market is at the all-time high, you have already missed 11 months of the bull run, where may have already created huge wealth for many.

What is the best approach for new investors?

For newbie investors, I will recommend- Rupee cost averaging. Invest a certain amount of money each month.

If you are not certain about the future price movement of a stock but are confident that it is fundamentally strong, then follow the rupee cost averaging approach.

Invest a few amount every month in the stock for the next 5-6 months and average out your buying price.

Moreover, avoid lump sum investment i.e. investing the complete amount at one go.

Also read: How To Select A Stock To Invest In Indian Stock Market For Consistent Returns?

Few other points to know:

1. Even the worst stock market crash couldn’t destroy the wealth of the long-term investors: 

I know most of the investors get panicked when they hear the word ‘CRASH’. No matter how much reasons I give to invest, however after reading this word, you might be re-thinking that I shouldn’t invest now. Maybe the market will crash soon as the market is at the record high. I will invest in the market later.

I wish making decisions to invest was that easy. No one can predict the precise date of the stock market crash. And If we can’t control or forecast something, it’s not that important to discuss.

Nevertheless what we can do, is to read the historical data.

Let’s analyze the worst stock market crash in the Indian history- 2008 Stock market Crash.

The biggest crashes were on two consecutive days- 21 Jan and 22 Jan during the 2008 recession time. On both these days, the BSE Index Sensex fell over 2,000 points. Moreover, there were 7 trading days when the Sensex fell over 1,000 points in 2008.

Source: Sensex’s 1,689-point plunge not even among 5 biggest crashes in BSE history!

I wasn’t involved in the market at that time (too young), however, I can imagine the panic. The stock market experts say that every investor is destined to see at least two big stock market crashes in his/her career. I hope it counts as one 😉

Sensex last 30 years

Source: Trading Economics

The point to note here is that even the worst Indian stock market crash would not have been able to destroy the wealth of the long-term investor.

In the above chart, notice that even if you have invested at the peak of 2008 and had remained invested for 8–10 years time horizon, you would have received decent returns from the market.

Further, as I already stated above, you cannot predict when the next crash will happen. It may be within a year, or maybe after 5 years, or maybe after decades, who knows?

Moreover, what if we are at the stage of 2005 when the stock market was still at an all-time high but at the beginning of the bull run?

Those who didn’t invest in 2004/05 thinking that the market was at high, missed the bull run phase of over 3 years. And just for your information, the NSE benchmark index Nifty gave a return of 36.3% (2005), 39.8%(2006) and 54.8%(2007) in that bull run.

In 2017, nifty gave a return of 28.6% to the investors and people think its huge (The below graph is updated upto July’17).

nifty yearly returns

Source: https://www.nseindia.com/products/content/equities/indices/Nifty_journey_10000.pdf

I cannot say whether there will be a market crash or not in the future. But what I can say is that the Indian economy is going through a major boom. And if you do not invest in stocks, you might miss one of the biggest stock market rally.

2. You will never be able to find the perfect moment: 

Today the market is high. And that’s why you are not investing. Tomorrow, when the stock prices will be falling and many of the companies will be making their all-time low, will you have the nerve to enter the market?

It’s really tough to buy the stock at the exact bottom and sell at the top. To be honest, those who are able to do it are often lucky. Moreover, it’s not repeatable. Even if you’re able to do it once, you definitely cannot repeat it again and again.

If you are waiting to enter the market when it’s at the bottom, then it’s really difficult. Similarly, if you are trying to exit from the market, thinking that the market is high, how can you be certain that it’s the top?

Overall, do not try to time the stocks, in spite try to stay for a long time in stocks. AS ALWAYS, TIME IN STOCKS IN BETTER THAN TIMING THE STOCKS.

What approach should the old-investors follow?

For those who have already invested in the stocks, do not move out of the market, just because the market is high or your stock is at the 52-week high.

If you are investing for long-term (8-10 years or more), then surely you will find few times when the market is at high. Are you always going to quit that time? Most of the greatest investors are known to hold the stocks for 10-15 years, and not to sell them in between even when their stocks hit new highs a couple of times in this period.

The world’s most renowned investor, Warren Buffet bought the stocks of Coca-cola in the late 1980s (around 1988-89) and is still holding that stock for over 27 years now.

The Big bull of India, Rakesh Jhunjhunwala bought the stocks of Titan Company in 2002-03 and is still holding the stock. Certainly many a time the market was at its high in the period of last 15-16 years. But being a long-term value investor, Rakesh Jhunjhunwala didn’t sell the stock, just because the market was high.

In short, do not exit from the stock just because the market is high. You might never be able to enter the stock again at the same discount price where you entered first.

Conclusion: 

The stock market indexes- NIFTY & SENSEX are high, isn’t a valid reason to not invest in the share market.

While investing in share market, look at the company, not the Index. If you are able to find a good stock at a reasonable price and believe that the company has huge future growth potential, then invest in it.

You cannot predict whether there’s gonna be a crash or a long bull market ahead.

The key to success in stocks in to minimise the risks, not to avoid it. If you invest in stocks intelligently, then you can minimise the risks, even in the crash, correction or bear market. However, if you avoid the market, then you won’t be able to get any benefits; even if there is a bull run in the market.

Quick Note: According to the World Bank’s Global Economic Prospects, India is likely to regain the position of the fastest growing economy in 2018. India’s growth rate is expected to accelerate to 7.3% in the year. Still not want to invest in the growing economy of the country? Read more here.

BONUS: 

What’s the golden rule for wealth creation for the new and old investors?

Invest for the long term. Find fundamentally strong stocks and hold it tight without getting influenced by the public sentiments. Do not wait for the ‘bestest’ time to enter the market. Many had failed to time the market and you will too.

You may call this a conservative approach. However, if the long-term investment has worked for most of the successful stock market investors and had created huge wealth for them, then it can definitely create decent wealth for us too.

THAT’S ALL! I hope this post is useful to the readers.

Let’s end this article with one of my favorite quotes on investing:

“THE BEST TIME TO INVEST WAS YESTERDAY. THE SECOND BEST IS TODAY. AND THE WORST IS TOMORROW.”

If you are new to stocks and confused where to start, here’s an amazing online course for the newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. I’m confident that the course will be useful to the new investors. Happy Investing.

Tags: Should you invest in stocks when the market is high, is now a good time to invest in the stock market 2017. invest now or wait for correction, should i invest in the stock market today

Hi, I am Kritesh, an NSE Certified Equity Fundamental Analyst. I’m 23-year old and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting

Is Indian stock market risky to invest

Is Indian stock market Risky to Invest?

Is Indian stock market risky to invest? Stock market is one of the best place to make money form your investments. There are number of examples of people with average job who ended up being millionaires by investing in stocks.

For example, if you had bought 100 stocks of Bajaj Finserv in Nov 2008 at a price of Rs 100, you initial investment of Rs 10,000 would have turned out to be over 5.4 lakhs in just 9 years. In addition, dividends would also have been credited to your account every year.

Bajaj finserv share price

But this would only had happened if you had hold the stock for a period of 9 years (not selling in between just to book profits).

You can make great fortunes form the market if you have three basic qualities- Discipline, patience and persistence.

Why people think stock market is Risky?

Every investment has some risk involved in it. Depending on the type of risk taken by the investor, the reward is achieved. There is a famous proverb prevailing since a long time in the investment world- ‘NO RISK, NO REWARD’.

Those who are able to get high rewards from the market are the ones who have adopted balanced approach to minimise risk and maximise the reward.

However, there are a number of people who do not invest in stocks just because they think that the Indian stock market is too risky. 

Also read: 7 Most Common Stock Investing Myths

Is Indian stock market Risky to Invest?

The legendary Investor Warren Buffett has said a famous quote about risks- ‘RISK COMES FROM NOT KNOWING WHAT YOU ARE DOING’.

People think stock market is risky because most of them do not understand the movements in the market. The day to day fluctuations in the market makes them uncomfortable.

Many people cannot relate the upward or downward movements of the share price with the company’s performance. Hence, they think it as an another form of gambling, where no one can surely predict the future outcomes, but just speculate the market.

Moreover, due to the couple of past market crashes in the Indian stock market, most Indians are afraid that the stock market is too risky to invest. They do not want to see their investment falling to grounds.

Nevertheless, stock market as a whole has historically been the best investment for long term.

If you need to make money in next two years, invest in something less volatile. But if you want to make fortune in 20 years, invest in stock market.

Although, I agree that there are few risks involved in the market, but these are the risks that are worth taking.

There is a famous movie dialogue from the film ‘ROCKET SINGH- THE SALESMAN OF THE YEAR’ which I would like to quote here:

‘Risk to Spiderman ko bhi lena padta hai’. / Even Spiderman has to take risks. /

Risk vs. Reward

There is always a risk involved in stock market if you invest in stocks with indiscipline and without doing proper research. However, the risks involved in the market can be minimised (if not totally diminished) by following proper discipline and principles while investing.

Further, if you are happy with a 4% simple interest retun on your savings, then you should not invest in the market. Your money is a lot safer in your savings account. It won’t go anywhere and there is no chance to lose that money from savings, unlike stock market . It will idly sit in your bank account and will give you linear returns.

However, if you are not happy with the 4% interest and think that this return will not help you to fight inflation (5-6% per year), then you have to invest your money. Although, there are risks involved, but it’s better to increase your wealth by investing than to degrade its face value by inflation.

Certainly, there are risks involved in stock market investment, but a 15% compounded annual return can help you a lot in fighting inflation than a linear return of 4% on savings.

Also read: How Much Return Can You Expect From Stock Market?

Lessons from the Past:

Whenever people talk about the risks in the market, the famous example they give is the 2008 market crash.

It was the time of economic recession in India. Market fell over 60% from January 2008 to March 2009.

In short, if you had invested Rs 1 lakh at the top of the market (before crisis) and then you had taken out your investment at the end of the crisis, then the net worth left with you would have been equal to Rs 40,000 only. Your invested amount would have diminished by 60%.

Here is a graph of Sensex.

From the past data of over 45 years, 2008 stock market crash was the worst. Please notice the sharp fall in the graph in year 2008-09. This was one of the biggest market crash in Indian stock market history.

Sensex Chart- Is Indian stock market risky to invest

Source: https://tradingeconomics.com/india/stock-market

In addition, here is the records of Sensex from year 2008 to present year-2017. Please note the Opening,  High, Low and closing points of Sensex at different months.

Sensex Records from 2002 to 2017

Source: Historical Indices- BSE (http://www.bseindia.com/indices/IndexArchiveData.aspx)

Now, let us discuss the Sensex points at different time during (and after) the 2008-09 market crash.

Sensex in Jan’08 = 21,206 (HIGH)

Sensex in Mar’09 = 8047 (LOW)

During this period of 14 month, Sensex fell over 13,000 (-60%) points.

However, if you had just remained invested for 2 and half years from the crash date, you would have recovered completely from the losses.

Sensex in Nov’10 = 21,108 (HIGH)

Sensex 2008-09 Crash

Further, if you had remained invest for 6 more years since the crash of 2008-09, you would have made good profits from the market despite the big crisis period of over 14 months.

Sensex in Jan’15 = 29,844 (HIGH)

Overall, from the historical data, we can say that even the worst market crisis in Indian stock market could have been recovered if you had stayed invested for long term. 

No single market, bull or bear, can last forever. Bear market will always be followed by bull market and vice versa.

The worst thing an investor do in such situations is to panic and leave the market; booking heavy losses. 

If you had left the market during the 2008-09 market crash by panic, then you would had to book a loss of 60% on your investment. This could have destroyed your net worth.

However, if you just had patience and had hold the stocks for long term, you could have made wonders.

If you want to learn stocks from scratch, I will personally recommend you to read this book: ONE UP ON THE WALL STREET by Peter Lynch- best selling book for stock market beginners.

Risks Analysis:

It’s true that many of the small caps companies were forced to shut down during the crash due of bankruptcy. However, all the fundamentally strong companies remained intact and recovered quickly after the crash.

There are hundreds of examples of the stocks whose price fell heavily during the stock market crash. However, 9 years later, their price is sky rocketing today compared to the stock price at that time.

Here are the stock prices of 4 common Indian companies that everyone might be aware of.

Had you invested in these companies, you would have created huge wealth. Inspite of the big market crash of 2008-09, its effect are not visible on the stock prices of these companies.

  • Tata Consulting Service

TCS Share price

  • Eicher Motors

Eicher motors share price

  • MRF

mrf share price

  • Hindustan Uniliver

HUL share price

Image Sources: Google

The list of such out-performing common stocks goes on and on. The long term investors have always created wealth for the market, despite the market crashes and corrections.

Also read: How To Invest Rs 10,000 In India for High Returns?

Sensex yearly records from 2000 to 2017.

Sensex Records from 2000 to 2017

Source: Historical Indices- BSE (http://www.bseindia.com/indices/IndexArchiveData.aspx)

From the above table, you can notice that for the long term investors, the rewards have always been greater than the risks.

Sensex has given a return of over 9 times (closing of 3,972 in 2000 to 31,892 in 2017) in a period of 17 years, which time period includes one of the biggest market crash in Indian history.

Moreover, this is the return form just the index of the market, which covers the average of the market.

If you had invested in few good companies from a pile of over 6,000 companies listed in the Indian stock exchanges, you could have easily beat the market.

Your returns would have been much better than the 9 times return of the index in the period of 17 years.

Overall, stock market is risky for the impatient investors. However for the long term investors, stock market has never been risky.

Stock market has always rewarded the long term investors.

What are the real risks involved in the market?

Although stock market is safe for a long term investor, however there are few risks involved in the market. Here are the real risks that every investors should be aware of. These are those risks that turns out to be a wealth destroyer for most of the investors:

1. Speculating the market:

Stock market becomes risky when people starts to speculate. Many a time, people buy stocks just because they get intuitions that the price of that stock is going to rise. Buying stocks on speculations is always a wealth destroyer.

2. Trading in Futures and Options:

Although many people had earned a lot of money by trading in Futures and option. However, the number of people losing money in F&O is relatively high. Never enter futures and options trading without proper knowledge.

3. Entering with no Proper Strategy:

Stock market becomes risky when you do not have any proper strategy while entering the market. A good strategy covers the time to entry, time to exit, total investment amount, portfolio allocation etc.

4. Following Recommendations:

Buying stocks on ‘TIPS’ or recommendations always invites risks for the investor in the market. Moreover, following your broker or friend’s recommendation blindly has always led the investors to regret in future.

5. Not following risk management systems:

A little risk is always involved in stock market. However, by following few risk management systems, you can minimise the risks and maximise the rewards. For example, using ‘STOP-LOSS’ while trading is a good risk management strategy.

6. Trading with emotions:

Trading with emotions is always risky in stock market. Never attach emotions in the market. Do not get dishearten or proud if your stocks are doing bad or amazing in the market. Trade with discipline, patience and persistence.

7. Lack of Patience:

If you do not have patience in the market, you cannot create wealth. Warren Buffett used to say that – ‘Stock market is a place to transfer money from impatient to patient people’. Stock market is risky for impatient people. Most of the time, its the impatient people who turn out to be the losing one, transferring their wealth to the patient people in the market.

8. Non-diversified portfolio:

If you have invested all your wealth in a single stock, then there is a big risk involved in your investment. Market works on emotions. Sometimes, even the best company can become the victim of unfavourable conditions like new government norms, irregular losses/damages etc. Like the old ones used to say- ‘Never put all your eggs in one basket’. Non diversification is risky in stock market.

9. No proper understandings:

If you are investing in a company that you do not understand, you are taking one of the biggest risk in the stock market. How can you decide weather the company is doing good or bad; Weather you should hold or sell the stock; if you do not understand the company? No proper understandings of the company can freeze your decisions and will lead your investments to a big danger.

why most People lose money in stock market

That’s all. I hope this post- ‘Is Indian stock market risky to invest?’ is useful to the readers. Moreover, I hope that it can inspire the people to start investing in the market by managing the risks and focusing on the rewards.

Please comment below what do you think about this topic. Is Indian stock market risky to invest?

Tags: Is indian stock market risky, is stock market risky currently, should I invest in indian stock market, risks in stock market, stock market risks, is Indian stock market risky to invest, should i invest in the stock market today, invest now or wait for correction, is now a good time to invest in the stock market 2017, is Indian stock market risky for short term.

Hi, I am Kritesh, an NSE Certified Equity Fundamental Analyst. I’m 23-year old and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting