Make money faster from stock market! This is what you must do

Investors looking to build long-term portfolios that can weather the storm of volatility need to be aware of various opportunities in the market and capitalise upon them in a structured and disciplined manner.

Create an investment policy statement (IPS)

Our primary goal as an investor is to allocate our financial assets in such a way that they remain secure and provide us with returns that adequately cover our long-term goals and aspirations. For this, it is imperative that the IPS addresses and takes into account an individual’s return requirements and risk-taking ability. These requirements are dynamic and change in response to changes in an individual’s life.
Investing in upward trending market

In an upward trending market, stock prices usually move up at a faster clip and can often trade at valuations which are not justified by their fundamentals. However, an upward trending market also gives investors a great opportunity to generate returns and reap the benefits of investing in stocks that they might have purchased at a lower valuation. In such a scenario, there are usually three questions that investors ruminate over:

1. Should I increase my allocation to equities
2. What stock should I pick up in an increasing pricing and valuation scenario
3. The right time for profit booking
To answer this, we must review the IPS. If basis the IPS the portfolio allocation to equities has exceeded the proportion initially agreed upon then it might be time to book some profits.
On the other hand, if portfolio allocation to equities has still not reached the desired proportion then start increasing exposure to equities. However, this needs to be done in a careful and staggered manner by selecting companies that hold good long-term value.

Investing in downward trending market
It is widely believed that stock market corrections are always steeper than rallies. This means that downward trending markets give investors little time to judiciously react to the change in prices. This often leads to frenzied activity and investment errors. However, a falling market can present a great opportunity for investors to add quality companies to their portfolios at reasonable valuations. In the short term, investments made in falling markets might yield negative returns. Investors should be patient with their investments and understand that the true value of their investments will be realised over the long term.

Investing in sideways market
Navigating consolidating or non-trending markets can be tricky. How do you make an investment decision when you are unsure of the future direction of the market?

Once again the IPS comes to our rescue. If allocation to equities needs to increase, then an investor can look to invest in diversified funds which help him gain exposure to various sectors, thereby positioning him to take advantage of the next rally. On the other hand, if allocation to equities is at the desired level then an investor can explore other asset classes at the time.

While being cognisant of the market scenario is important, investors must keep in mind two things when making investment decisions:

Have a well-articulated IPS that is capable of meeting your goals while adhering to risk constraints

Do not let short-term market movements derail your long-term investment journey

Be smart about your investments and seek the right guidance from a trusted advisor.

By, Vinay Ahuja
(The writer issenior managing partner, IIFL, Investment Managers)

The article was published in DNA as 'Change your investment strategy in different market scenarios'