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 it’s 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 doesn’t 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 doesn’t have a decent size capital.
Rohan sorry, I don’t know much of the trader terminology, so I don’t 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 haven’t gone up as much as the stellar performers. If possible, sit still and don’t do anything. Ok to trim your holdings and rebalance the portfolio.
Don’t over concentrate when you start out. But don’t 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 don’t 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. I’ll 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 doesn’t 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 it’s highly unlikely to achieve that but that shouldn’t keep me from taking advantage of the opportunities the markets throw at all of us now and then.