They say that thinking about buying in the stock market now could be like trying to catch falling knives. It is a decision that needs more of your guts than your brains. Be that as it may, you have to wait for the sanity to return. If share prices are diving, there is a good reason for them to do so. They will sooner than later find the ‘bottom’ to bounce back. The challenge in investing is knowing about that ‘bottom’. Best fund managers in the world are still guessing. That is despite voluminous data and technology at their disposal.
There are investors like Warren Buffett who have started buying already. As markets began their slide, he has added to several of his top holdings, like Apple. He has also picked up a 10% stake in Paramount Global, a media conglomerate and owner of MTV. Buffett is known to use cash whenever markets fall. When others are ‘fearful’, he gets ‘greedy’. He did that in 2008 during the selloff following the global financial crisis and later in 2013 after the so-called ‘taper tantrums.
It is tough to predict times when share prices will bottom out or peak for you as an individual investor. It is hard to match the temperament of an institutional investor. The next best option is to look for sectors that could potentially benefit from the dramatic fall or pick up a basket of stocks with the help of technology.
A big reason for the dramatic sell-off in global markets is the surging inflation worldwide. It means interest rates would rise and stay higher over several quarters. When that happens, businesses that rely on debt as capital for growth and expansion tend to suffer. You have to steer clear of companies sitting on a large debt. You need to carve out businesses that are not dependent on bank funding but can use their cash flows to sell their products and services to new customers.
The other key factor is sector leadership. Companies across the board face a sharp rise in input costs. Companies that have a significantly large market can usually pass on such increases to customers. However, intense competition does not allow smaller players to use the same strategy. So, the mantra is to stick to top rung businesses or sector leaders during a sharp selloff. The S&P BSE Sensex and Nifty usually represent sector leaders across categories. You could be better off buying index funds that track the performance of the Sensex and the Nifty.
Historically, stock markets move in cycles. Sensex and Nifty have a track record that is very readily available for anybody to see. If you are new to investment, you may want to try exchange-traded funds that track these indices (Don’t you worry! We have recently launched our ETF corner on www.alphaniti.com)
For those already in the market, you may want to look for a basket of stocks that defy inflation and high-interest rates and continue to grow revenue and profits. Btw! our thematic “alphamatters” are right there on the platform, do check them out now!!