Do you consider the Relative Strength Index while deciding when to invest in a stock? Can the RSI be considered as a good indicator?
At higher levels I am investing in stocks that are still not overvalued and the size of my investments are really low or zero. I like how some value investors pretty much invest in cash during these times. Essentially, the percentage of portfolio in cash (or FD) grows during exuberant times and the percentage of portfolio in cash (or FD) stays the same or reduces no more than by 50% during down times.
Really hard part has been to sell. A small portion of the shares I have sold at say 1000 are now 2000 but I think itâs good to manufacture extra dividends and then move it to more under valued shares. On the other hand those that I have held on at 1000 are now hovering around 500. I guess it doesnât matter because you just want to be invested and not be forced to sell because you need the cash or because the market is psychologically forcing you to go in the same direction as the majority of the participants.
So bull market should, ideally for a value investor, be a psychologically harder time to load up on your investments and vice versa during bear market.
Also, think the above strategy might be more appropriate for a new investor or someone who doesnât have a decent size capital.
2 Likes
Rohan sorry, I donât know much of the trader terminology, so I donât use it especially since my portfolio turnover is very low.
I think for me what works is to keep it really simple especially for someone whose portfolio size is small. By simple, following is what I am sticking to for now:
I know during panic times if we stick to market leaders, low debt, high promoter holding, high ROE/ROIC companies, it is hard to miss a few multibagger opportunities.
During exuberance, invest in cos that are still out of favour or boring and havenât gone up as much as the stellar performers. If possible, sit still and donât do anything. Ok to trim your holdings and rebalance the portfolio.
Donât over concentrate when you start out. But donât go crazy to the other extreme as well. Sometimes, if I see good value in a company and it meets most of my checklist items, I donât mind investing even a small amount.
I like the idea of tracking shares. These are companies that are overvalued but otherwise great which I might buy in very small quantities and lower my cost average during a panic.
Keep a good percentage of the networth/portfolio in cash/FDs. Iâll never take cash level to below 10% and would be happy to keep it above 20%.
That said, I am relatively new to investing and long way to go before I become a value investor. I will be happy if I have a 11-15% CAGR, if inflation doesnât go crazy, for next 10-40 years. So, I keep reminding myself of the futility of goals like 20-25% CAGR or better CAGR than most of the best value investors. I know itâs highly unlikely to achieve that but that shouldnât keep me from taking advantage of the opportunities the markets throw at all of us now and then.
2 Likes